EU pushes for fossil fuel phase-out in ‘last chance’ energy charter treaty talks

The proposals would end the protection for new coal and oil projects, but will require unanimous support from all 53 signatories [RONALD WITTEK / EPA-EFE]

The European Union’s executive will push for a 10-year phase-out of fossil fuel protection under the energy charter treaty (ECT), following calls from some EU countries to quit the accord unless it can be aligned with Europe’s climate goals.

The European Commission submitted its updated proposal for reforming the treaty on Monday (15 February), ahead of negotiations between the 53 signatories in March.

It follows calls from France, Luxembourg, Spain and environmental groups who warned that the treaty undermines the EU’s climate goals by allowing foreign investors to sue over policies affecting investments into fossil fuels.

Reacting to the Commission’s proposal on Twitter, Luxembourg’s energy minister said the proposals are “ambitious” and “in line with the Paris Agreement” on climate change.

“March is our last chance for a deal,” he said.

Earlier this month, German coal giant RWE used the treaty to seek compensation from the Dutch government over its plans to phase out coal-fuelled power by 2030.

Taxpayers could pay up to €1.3 trillion in arbitrations like this, with just under half of that being shouldered by EU citizens, according to a recent study by the think tank, OpenExp.

Germany's RWE uses Energy Charter Treaty to challenge Dutch coal phase-out

German energy giant RWE has used the Energy Charter Treaty to claim compensation from the Netherlands over its planned phase-out of coal from the country’s electricity mix by 2030.

To tackle this, the Commission proposal suggests immediately ending protections for new coal and oil investments as well as power produced from fossil fuels.

“The EU emphasises the urgent need for progress in the negotiations for the modernisation of the Energy Charter Treaty, with a view to driving an inclusive global energy transition in alignment with Paris Agreement objectives,” according to the proposal.

New investments in natural gas-fuelled power infrastructure would remain protected until 2030, provided it emits less than 380g of CO2 per kWh and enables the use of low-carbon gases. This is stricter than the 550gCO2/kWh in the EU’s initial proposal, but remains higher than the limit of 100gCO2/Kwh in the EU’s green finance taxonomy.

If such plants can replace coal, they would be protected for a further 10 years after the treaty amendment takes effect or until 2040. This timeline would also apply to protections for existing investments in fossil fuels.

Similar protection is available for gas pipelines able to transport renewable and low-carbon gas, including hydrogen. The treaty would also protect hydrogen produced using fossil fuels, if carbon capture technology is used to curb emissions – so-called “blue” hydrogen.

However, environmental groups are unconvinced by the Commission’s proposed reform of the controversial accord.

“This half-hearted proposal would continue to allow coal, gas and oil corporations to extract compensation from governments that pursue Paris-compatible energy policies,” said Cornelia Maarfield, trade and climate project manager at Climate Action Network Europe.

“To make things worse, the Commission intends to expand the dangerous investment protection provisions of the treaty to hydrogen and biomass – neither of which is clean per se nor is their contribution to the clean energy transition proven. Why set a new trap for policy makers if you haven’t found the way out of the existing one?” she added.

EU member states divided

The treaty has faced mounting criticism, including from European governments, which are divided over the reform. Spain, France and Luxembourg are pushing for tougher measures, while Eastern European states are resisting change.

“We support the Commission’s current proposal” but “we are not supportive of any stricter criteria on deadlines or thresholds” that would undermine investments in gas infrastructure, a Slovak official told news site Politico.

Meanwhile, Austria said on Tuesday (16 February) that it supported a 10-year phase-out of fossil fuel protections as long as any new protections for hydrogen focus on renewable hydrogen.

France and Spain have been pushing for the EU to leave the treaty, with four French ministers writing to the European Commission in December, calling for the EU to withdraw.

“In the absence of decisive progress on the reform of the Energy Charter Treaty in 2021, all consequences should be drawn,” said the letter seen by EURACTIV.

France puts EU withdrawal from Energy Charter Treaty on the table

The European Union and its member states should draw the consequences of the current stalemate in multilateral talks aimed at reforming the Energy Charter Treaty and consider a coordinated withdrawal, Paris has said in a letter seen by EURACTIV.

The Spanish minister for ecological transition called for aligning the treaty to the Paris Agreement, saying the EU should otherwise consider withdrawing.

The 53 signatories will need to agree unanimously on the reform, meaning the EU will need votes from Japan and Kazakhstan, which blocked the Commission’s previous proposals.

“The only option going forward, if we would like to have a Paris-compliant treaty, is the EU withdrawal [from the Energy Charter Treaty],” said Yamina Saheb, senior climate policy analyst at think tank OpenExp.

However, simply walking away from the treaty does not give a free pass out of commitments as a sunset clause means countries keep their commitments for another twenty years. This is the case in Italy, which left in 2016, but faced a number of post-withdrawal arbitrations.

[Edited by Frédéric Simon]

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