If efforts to reform the Energy Charter Treaty do not bear fruit, Europe must urgently consider exiting the agreement, write Pascal Canfin and Anna Cavazzini.
Pascal Canfin is the chair of the Committee on the Environment, Public Health and Food safety in the European Parliament. Anna Cavazzini is the chair of the Committee on the Internal Market and Consumer Protection in the European Parliament.
German energy giant RWE became a talking point as the news came out that it is suing the Netherlands via an arbitration court. Why? Because the country is about to phase out coal. As part of the Dutch government’s plans to green its economy, one of RWE’s coal-fired power plants will have to stop its activities by 2030.
The company is taking the Netherlands to a private arbitration tribunal seeking billions of dollars in compensation.
How is it possible that in 2021 a fossil fuel company can so easily initiate a claim against a government’s sovereign decision to phase out fossil fuel?
The answer is in the little-known Energy Charter Treaty, a plurilateral investment agreement that protects energy investments and allows investors to sue governments in front of private tribunals when they modify their climate or energy legislation.
In some ways, this Treaty echoes the infamous, but now fortunately dead, free trade agreement between the EU and the US, more known as the TTIP, whose provisions would have allowed for direct attacks on our ability to legislate.
To this day, there are thousands of other treaties concluded by states that include such investor-state dispute settlement provisions.
The Energy Charter Treaty has however come back under the spotlight last year, when the 50+ member states of the Treaty started negotiations to modernise it, and in particular the EU which wants to draw a line between what can be protected and what should not (which means investment in fossil fuel for us).
Yet after three rounds of negotiations, there is little progress to show for. Protection of all fossil fuel investments should be removed from the treaty if the EU is serious about its climate goals. If this cannot be achieved, we must urgently consider exiting the agreement – as already called for by over 280 policy-makers from across Europe, ourselves included.
Even some Member States are ready to go down this line: recently, both French and Spanish ministers called for the consideration of a coordinated withdrawal of the EU and Member States, with France going so far as stating that all consequences be drawn if there is no decisive progress on the reform in 2021.
An ambitious reform is unlikely, as any changes to the existing text require a unanimous decision among the signatories. At the same time, exiting is not an easy path either insofar as it means existing investments made by parties to the treaty would still be covered by its provisions for 20 years.
EU member states could, however, agree that this would not apply to cases among themselves, which would already prohibit the majority of potential disputes.
We call on EU negotiators to present different exit scenario pathways from this treaty. The modernisation attempt might just delay the inevitable: that the EU as a whole should exit in order to be coherent with its climate goals.
This debate should also be looked into through a broader lens. The main carbon emitters in the world are designing their new climate commitments – China wants to become carbon neutral by 2060 and set up a carbon market and the US joined back the Paris Agreement aiming at carbon neutrality by 2050 – while the EU is deploying its Green Deal: more than 50 legislative texts are expected between now and 2022.
The ECT, therefore, blurs our legal framework whose aim is to unlock the private investments needed to respect the Paris Agreement. RWE may just be the first such case in Europe of a coal company going against a country’s coal phase-out, but other claims can be expected once our governments start acting decisively towards the energy transition. This cannot be accepted.