Energy Charter Treaty strikes again
The RWE case against the implementation of the Dutch climate target provides additional evidence that EU climate law needs provisions to end protection of foreign investment in fossil fuels.
The Dutch Government’s strange relationship with the Energy Charter Treaty (ECT) is coming back to bite the Netherlands.
The German utility RWE evoked the Energy Charter Treaty in its lawsuit against the Netherlands for the implementation of the phase-out of coal power plants.
The Dutch Government’s decision to close coal power plants comes as more and more Dutch citizens demand to deliver on greenhouse gas emissions reduction (notably, since the legal case brought by the Dutch NGO Urgenda and 900 Dutch citizens).
The Netherlands case is important in analysing the outcomes of ECT operations for at least two reasons.
First, Holland hosts the highest number of EU investors’ headquarters who have evoked the ECT in their lawsuits against other EU member states (Spain and Italy have been the main victims).
Second, in 1991 the Dutch Prime Minister, Ruud Lubbers, launched what is now known as the Energy Charter Treaty; and, in 2015 Dutch officials launched the political declaration known as the International Energy Charter (in a failed attempt to “modernise” the ECT).
In other words, the case brings into high relief that EU member states must choose between i) empowering their national justice systems to protect their citizens against individuals and or institutions that support the fossil fuel industry, making climate change targets elusive; or, ii) allowing the ECT’s action arm, the Investor State Dispute Settlement (ISDS), to continue to force governments to pay billions in settlements.
The ECT is a multilateral agreement that protects foreign investment in energy supply. Period. That means it does not assess the short and long term real environmental impacts. 53 countries are party to this treaty, including the EU and its member states. Italy is the only EU country to have withdrawn (2015).
As of today, the ECT was evoked in 136 ISDS claims, out of which more than half are fossil-fuels related.
The modernisation of the ECT was launched in 2018. Unfortunately, EU negotiators failed in including the reform of ISDS in the list of items to consider for modernisation. Moreover, the Council negotiation directives for the modernisation of the ECT lack political leadership regarding the alignment of the ECT with the EU climate ambition.
Three failed negotiation rounds have taken place during the German Presidency. However, Germany remained silent on the ECT despite having to pay heavy fines and settlements because of this treaty. Instead, the German government proposed a compensation of more than €4 billion for the phase-out of coal to LEAG and RWE if they give up on the use of the ECT to ask for compensations.
Previously, Vattenfall, the “green” Swedish utility used the ECT to ask for a compensation of more than €6 billion for the impact of the phase-out of nuclear energy and a polluting coal power plant on its expected profits.
From a climate change perspective, the main item to negotiate relates to the energy sources protected under the ECT, which is known as definition of economic activities.
Surprisingly, despite being vocal about the EU climate leadership, a Commission leaked document, back in October 2020, includes a proposal to keep protecting new investment in all fossil fuels until 2030 and in gas power plants until 2040. This proposal is now being discussed at the Council’s Energy Working party.
The deadline for the Commission to submit to the ECT Secretariat the EU position on the energy sources to keep and those to exclude from the ECT is February 15th. However, according to well-informed sources, there is no agreement between Member States as some of them support the Commission’s proposal to keep protection of gas investment until 2040.
Estimates show that the continuation of the protection of fossil fuels under the ECT regime would potentially end up with stranded fossil fuels assets of €2.15 trillion and would increase the cost of ISDS to €1.3 trillion by 2050.
The European Parliament included in the adopted climate law amendment 143 which states that “the Union shall end protection of investments in fossil fuels in the context of the modernisation of the Energy Charter Treaty”. However, the Council rejected this amendment with the argument that the ECT is out of the scope of the climate law.
A petition to support this amendment was submitted to the European Parliament Committee of Petitions. The committee considered the petition admissible and asked the Commission for investigation. The petition is now open for supporters.
As of today, France is the sole EU member state with a clear position regarding the ECT. In a letter sent to the European Commission, France acknowledged the failure of the modernisation and asked the EU executive to start working on a coordinated withdrawal from the ECT.
The French letter is a welcome and refreshing initiative. France could go one step further and use its soft power to build a coalition of the willing. The aim is to ensure the Portuguese Presidency will not be another missed opportunity to protect EU citizens from polluters.
Who knows, it might well be that the RWE case against the Netherlands is the opportunity needed for France to team-up with the liberal Dutch to keep Amendment 143 in the EU climate law during the trialogue negotiations.
This op-ed was published for the first time, on February 12th, 2021 on Euractiv