Can Europe Make It?

What we know about the EU's mysterious Energy Charter Treaty

If the EU is truly committed to its Green New Deal and a clean energy transition, it must withdraw from the ECT.

Hannah Robinson
21 Oct 2020 - 11:46am
EU Green Week 2020 website.
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Screenshot.

It is EU Green Week this week, and the EU reiterates its ambition to be the first carbon neutral continent. But whilst the EU shows off its climate credentials, a dubious international treaty risks undermining their Green New Deal.

Shrouded in secrecy, the Energy Charter Treaty (ECT) was established in 1994 with limited public debate. Initially designed to protect western energy companies investing in former Soviet states from political risk, it now has 53 signatories, including almost all European countries.

The ECT essentially acts as a bodyguard for the fossil fuel industry. Despite current commitments from different governments to phase out fossil fuels, the treaty allows energy corporations to sue the state for policies that might negatively impact their profits. This includes suing governments for investing in renewable forms of energy. So far, 128 cases have been invoked using the ECT. As there is no requirement to make the cases public, the actual number is likely to be far higher.

Tribunals consist of three private lawyers, bypassing national or independent courts. The process of which is deeply flawed. 25 arbitrators have decided 44% of the ECT cases, with five elite law firms involved in nearly 50%. There is also no mechanism to appeal the verdict.

For governments eager to transform the economy to be more sustainable, the ECT is an obstacle. Had the UK Labour Party won the 2019 election, plans to nationalise large parts of the energy industry owned by foreign countries would have risked legal battles in European tribunals. And for governments more fearful or unwilling to commit to bold changes, this treaty is even more toxic. The Dutch Parliament is currently dithering on a law to phase out coal by 2030, but consequences of the ECT are jeopardising any commitments being made. This includes pressure from a German owned coal-fired power plant, which has threatened the government with an expensive lawsuit.

Letterbox companies

Not only is the ECT used to challenge climate action, but it is used to attack measures which make energy affordable and under public, democratic ownership. The state can be sued under the treaty if it wishes to take measures to alleviate fuel poverty, cut subsidies, or change taxes, for instance. Several energy companies are pursuing Bulgaria after the government reduced soaring electricity costs for its population. Hungary has also been sued under the ECT for taking steps to curb the profits of energy companies.

The ECT is used as a tool by letterbox companies to file claims, which mainly exist on paper and are often used to evade tax and launder money. One stark example is of a Canadian company – Khan Resources – that sued Mongolia via a letterbox in The Netherlands. Investors from across the globe can sue governments, including their own. Governments have set it up but can do little to take back control from the super-rich and multinational corporations, who are using the ECT as a tool to line their pockets.

The number of ECT investor lawsuits has increased significantly in recent years, and the expansion process continues. Many countries in Africa and the Middle East, Asia, and Latin America are now in the process of joining the ECT. The ECT Secretariat and arbitration industry shamelessly promote the Treaty, as they are eager to access rich energy resources in the global South and expand profit opportunities. Yet the charter will only obstruct climate solutions in these countries, guarantee failed energy privatizations and undermine affordable energy prices.

Pandemic prospects

So far governments have been forced to pay $51.2 billion from taxpayers’ money – money that could be spent on healthcare, a just transition, and supporting workers through the pandemic. This equals the annual investment required to provide access to energy for all those in the world who lack it, and far more than the estimated annual amount of money needed for the entire continent of Africa to adapt to climate change.

As countries look towards a green recovery from the economic consequences of the pandemic, many governments are only just starting to implement their climate commitments. Discussions to modernise the Treaty face little hope of addressing the fundamental problems, as they do not cover ending the protection of investments in fossil fuels, the elimination of the ISDS mechanism or the inclusion of binding mechanisms or climate action. Even if the political will existed, changing the Treaty requires unanimity among members, including several whom rely heavily on fossil fuels for national revenue.

Under the spotlight

But governments need not be bound to the treaty, binding their citizens with it to climate catastrophe. Across the world, the ECT is starting to be put under the spotlight. A group of 278 NGOs urged the EU and member states to terminate this international treaty. In July this year, more than a dozen MEPs stated that if the ‘treaty cannot be reformed, then it must be scrapped’, and a cross-party coalition from across the EU issued a statement asking for a fundamental rewrite of the Treaty, signed by almost 150 lawmakers from across the EU and national parliaments.

Italy forged an alternative path by withdrawing from it in 2016. Other countries ought to follow suit. CAN Europe argues that countries must also collaborate and explore legal and political solutions to disarm the ECT and its sunset clause, which enables claims to be made for another 20 years after leaving. 20 years is too long in a time where many irreversible tipping points for the climate are being reached.

The year looks set to end with the European Climate Law, with it enshrining the goal to reach net zero emissions in 2050 into law. Pressure will then be on the 27 member countries to bring this to life, preceding further lawsuits under the ECT. Coal dependent economies like Poland, the Czech Republic and Bulgaria will face a particularly costly future. If the EU is truly committed to its Green New Deal and a clean energy transition, it must withdraw from the ECT.

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