The Energy Charter Treaty, a case study of ‘business as usual’ in the energy sector

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV Media network.

The Energy Charter Treaty brings into high relief the growing legal, economic, and ethical battle over energy resources, writes Timothy Knickerbocker . [M1kha / Flickr]

A closer look at the Energy Charter Treaty provides a case study of who really holds power in our increasingly interconnected world, writes Timothy Knickerbocker.

Timothy Knickerbocker holds a Ph.D. in cultural anthropology from UC San Diego. He was an associate professor at Central College, Iowa before moving to Paris in 2010 where he has taught economics, religion, and sustainable development at St. John’s University, the Catholic Institute and Hollins University.

On 7 June, EURACTIV ran a news article which gives a glimpse into the failings of the Energy Charter treaty. This is more than an internal squabble in another international bureaucratic organisation. It provides a good opportunity to take a closer look at the ECT in relation to global energy concerns, for three important reasons:

  • It shows how international commitment to sustainable development can be sidelined and how current beneficiaries of oil and gas extraction activities in host countries have a vested interest in maximising profits from fossil-fuel based economic engines.
  • It reminds how individual and corporate interests, represented (or initiated) by specialised law firms, have used the treaty’s provisions to make huge profits on the back of signatory states of the treaty.
  • It brings into high relief the growing legal, economic, and ethical battles over energy resources between states (e.g. Spain and Italy), corporations (e.g. Gazprom), multilateral organisations (e.g. the EU), and society at large.

Leaked report reveals ‘misfunctioning’ of Energy Charter Treaty amid EU reform calls

A confidential internal report, obtained by EURACTIV, lists the multiple failings of the Energy Charter secretariat, at a time when the treaty is undergoing a major revision process and is being used by Russia’s Nord Stream 2 pipeline in a first-time legal proceeding against the EU.

At its core, the ECT was designed to encourage economic cooperation between the former Soviet Union, Central and Eastern Europe and the EU. This purpose has been eclipsed by quite different geopolitical realities, and energy company operations, that have since emerged. Two important structural changes occurred as a result.

First, in 2015, the ECT Secretary General, Dr Urban Rusnák, launched the International Energy Charter (IEC). The IEC is a political declaration, which aims to expand the scope of the ECT to global energy systems. This internationalisation of the ECT does not reflect all of the international community’s will when it comes to energy. There have been efforts and rhetoric to pay attention to the UN Sustainable Development Goals and the Paris Climate Agreement.

The second structural change is that the European Commission kick-started negotiations to “modernise” the ECT on 14 May. The EU’s executive arm recommended that the ECT provides stronger provisions for sustainable development, including climate change and the energy transition that are in line with EU agreements and positions.

This is clearly a bark with no bite given that the current operations of the ECT seem to work against aligning with the UN SDGs and the Paris Climate Agreement. The ECT does have provisions for renewables (indirectly through electricity). Yet, as Sarah Keay-Bright and Steivan Defilla argue, it is far from turning a green leaf. Demand side investments are not protected by the ECT nor are thermal renewable energy investments.

Furthermore, the ECT is a threat to the newly adopted European Clean Energy Package which aims at putting European citizens at the heart of the Energy Union. The implementation of the progressive concepts of prosumers and citizen energy communities introduced by the renewables and internal market directives will be challenged by the ECT provisions as the treaty protects foreign investments over national ones.

Secondly, there is a litigation gold rush at the ECT, which has resulted in states paying over US $51 billion in tax payer dollars to investors. This is outlined in the Energy Charter’s Dirty Secrets report by the Corporate Europe Observatory (CEO) and The Transnational Institute (TNI), which says: “No other international trade or investment agreement in the world has triggered more investor-state lawsuits than the Energy Charter Treaty. And the number of claims has exploded in recent years. While just 19 cases were registered during the first 10 years of the agreement (1998-2008), 75 investor lawsuits were filed in the last five years alone (2013-2017).”

Five countries (the Netherlands, Germany, the UK, Luxemburg, and Cyprus) make up 60% of investors, with speculative financial investors spearheading the surge in legal cases filed with the ECT. This is only a snapshot. The point is that the ECT functioning is awry with its purposes, and with the mission of the European Commission and the European Union.

Thirdly, a closer look at the ECT provides a case study of who really holds power in our increasingly interconnected world. States and multilateral entities are increasingly concerned about, and sometimes impotent, in guaranteeing the rights they claim to provide to all of their citizens. The SDGs were initially presented as an ethical victory for the people over how resources are used—including energy. Yet, when public coffers are emptied to add to outside corporations and legal firms’ accounts, we are quite far from the United Nation’s SDG 17, which seeks to “strengthen the means of implementation of the SDGs.” The legal and economic aspects are ongoing battles in which the ECT is intimately involved.

Nobody denies that there is a need to have structures in place that protect investors. Nor does anyone seriously believe that fossil fuel based energy will not play an important role in the future.

At the same time, there is growing international attention, organisations, and resources that are calling for a radical shift to renewable energies, energy efficiency, and respecting planetary boundaries. Yet, the ETC is not responding to that call in kind.

One could wonder why the Energy Charter’s assistant secretary general, Masami Nakata, makes the claim that, “This misfunctioning is principally attributable to a failed organisational restructuring.”  It might be that the Secretary General, Dr. Urban Rusnák, has done his job exactly as he was expected to do by those in charge of overseeing the ECT (both formally and informally).

Regardless, any outsider can see that the European Commission, and by extension the 28 EU national governments, lack credibility if they do not go beyond their current “modernisation” rhetoric in reforming the ECT.

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