The Energy Charter Treaty is a little-known investment protection agreement. In the early 1990s, all EU states, including Germany, signed the treaty to protect investments in former Soviet states. Today, there are 55 ECT signatories, mostly countries in Europe and Asia. But like research by Investigate Europe last year showed, the agreement has several problems.
The treaty is unilateral, only companies can sue states. Moreover, its wording is vague and investors can sue if they believe they are being treated “unfairly”. According to a study conducted by Investigate Europe, the treaty protects fossil infrastructure worth €344.6 billion in Europe alone. In recent years, investors have used the treaty to intimidate EU states and demand billions of euros in compensation. The French government, for example, preemptively weakened a climate law that was supposed to ban the extraction of fossil fuels. German energy company RWE recently sued the Netherlands for 1.4 billion euros because the country advanced its withdrawal from coal.
For five years, the European Commission has been working to reform the Treaty. Completed in June this year, the Commission hailed the modernization deal as a success, saying it had “fulfilled its mandate” and “brought the ECT into line with the Paris Agreement and [the EU’s] environmental objectives”. But many Member States see things differently.
“The European Commission’s mandate was to align the Energy Charter Treaty with the Paris climate agreement,” the Dutch energy minister said. Rob Jetten said in parliament in The Hague on Tuesday. Despite much progress in the negotiations, Jetten said the deal was “not sufficiently in line” with the Paris Agreement and he announced that the Netherlands would leave the agreement.
Policy reported last week that Spain would withdraw from the Energy Charter Treaty. In Poland, the government introduced a invoice in August to “terminate the Energy Charter Treaty”. One of the reasons given for his decision was that an exit from the treaty “has the potential to significantly reduce the financial burden on the state”. In early October, 418 of the 460 members of the Polish parliament voted in favor of the bill. The country’s Senate must now pass the bill.
Besides Poland, Spain, the Netherlands and now potentially Germany, other member states could leave the Energy Charter Treaty in the near future. In Brussels, EU Member States coordinate their approach within the Council’s energy working group. According to the notes of a diplomat present, a French representative expressed in early October that France “does not consider the results of modernization sufficient”. This concerned above all “the adaptation to the Paris Agreement”. In the worst case, existing fossil fuel investments would continue to be protected until 2040.
But even if several Member States now withdraw from the treaty, they will not get rid of the Energy Charter Treaty so easily. The authors of the treaty provided for this eventuality. In Section 47, they stipulated that in the event of a State leaving, the “provisions of this Treaty shall continue to apply for a period of 20 years”. For example, British oil company Rockhopper sued Italy for banning oil drilling in the wake of the climate crisis. Italy was the first EU country to leave the treaty in 2016. Nevertheless, the arbitrators decided in August this year that Italy must compensate Rockhopper with 190 million plus interest. The company had invested only 25 million euros in its drilling.
At the beginning of November, EU member states will again discuss the results of the modernization in the Council’s energy working group. Contracting parties are then due to vote on the modernization at the annual Energy Charter Conference on November 22. For this to pass, all ECT signatories must agree. Then, the new text of the treaty must be transposed into national law. In the EU, member states must also approve the treaty in the Council and Parliament. Then critical member states could further delay or even block the modernized treaty. Indeed, the parliaments of the Member States must also approve a reform.
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