Civil society activists and scientific experts denounce the unsustainable practice of investment disputes under the Energy Charter Treaty.
A new report claims that the Energy Charter Treaty (ECT) contradicts the goals of the European Green Deal and the Paris Agreement. Both the European Commission and several NGOs argue that the ECT is outdated and exclusively empowers big energy corporations.
The Treaty does not provide ways to deal with aspects that are in breach of UNFCCC climate commitments. Concern has significantly grown since last summer when the European Council authorised the Commission to negotiate the modernisation of the Treaty on behalf of EU Member States.
Originally, the ECT was meant to integrate the energy markets of the former Warsaw Pact into Western European markets. It is now accused of serving the interests of energy multinationals, which employ treaty articles to sue states and discourage them from undertaking a green transition.
Experts had raised their voices already in September when German firm Uniper threatened the Netherlands, asking for financial compensation for an existing deal under ECT rules. The threat was made after the Dutch Parliament passed a ban on coal for electricity production.
In a January report, the independent think tank OpenEXP pointed out that dispute settlements could reach a cost of €1.3 trillion by 2050, 42% of which would be paid by EU taxpayers. As of today, 130 arbitration cases have been filed, 75 of which between 2013 and 2017 alone. This makes the ECT one of the most employed legal tools to file an investment lawsuit.
Since there is no obligation to make cases publicly known, Friends of the Earth argues that the actual number might be higher. There are further accusations about a lack of transparency, particularly as an internal document leak points to bad management and the selection of unskilled staff under the leadership of Slovak diplomat Urban Rusnák.
Corporations rely on the so-called “national treatment standard” to request damages, on the assumption that environmentally-friendly measures are discriminatory to firms. While ECT provisions defend states’ right to pursue the public interest when breaking a deal, legal advisors fear that corporations will still attempt to bypass it on the basis of unfair treatment.
A “survival clause” complicates the picture for states which withdraw from the Treaty, as Italy did in 2016. They can be subject to investment arbitration up to 20 years later unless an agreement is found with investors.
The OpenExp report argues that if the EU and its Member States collectively withdraw from the ECT, they could cancel the clause together and incur lower costs for potential disputes in the EU. This would be possible as a high share of the EU’s foreign direct investment comes from investors inside the Union.
Dr. Yamina Saheb, an independent policy officer and lead author for the IPCC, defends the strategy: “By empowering bureaucrats who lack understanding of the ECT to negotiate, our policymakers are putting at high risk the EU Green Deal and its just energy transition objective”.
The ECT also does not distinguish between renewable and fossil fuel investment. The Treaty states that members are “desirous of sustainable energy development”. However, no party in the modernisation process has so far suggested to phase out fossil fuels. Because of that, stranded fossil fuels assets that are left without value could be worth €2.15 trillion by 2050.
The modernisation process began in 2009, but its topics were decided in one year only. Policy options proposed in 2019 will now have to be negotiated by the end of 2020. Dr. Saheb criticises the plan: “Almost 10 years were used for diplomatic and procedural issues, against the only year planned for the negotiations of policy options. Importantly, the policy options are not based on sound analysis such as an impact assessment”.
As some African and Asian countries begin their path to access the ECT, she also worries that developing countries will be subject to corporate lawsuits but have no means to defend themselves. As the ECT Conference must approve of amendments by a unanimous majority of 53 plus the European Union, environmental action may be significantly delayed and increase the chance of financial problems showing up in the future.