What is the Energy Charter Treaty and why do we need to exit?

What is the Energy Charter Treaty and why do we need to exit?

By: Jean Blaylock
Date: 24 June 2022
Campaigns: Climate, Trade

The Energy Charter Treaty (ECT) is a climate-wrecking corporate court agreement that fossil fuel companies are already using to sue governments for billions over climate action. It’s a deal between 50 countries, specifically for energy investments, and it is being used by:

  • Uniper and RWE to sue the Netherlands over phasing out coal power
  • Rockhopper to sue Italy over a ban on offshore oil drilling close to the coast
  • Ascent Resources to sue Slovenia over fracking

The ECT is a threat to climate action. To safeguard climate goals, countries need to exit the treaty and the time to do so is now. Attempts to modernise the treaty are a failure and would lock in a £9.4bn risk to the UK’s climate policies.

Corporate courts

Corporate courts are formally known as investor-state dispute settlement or ISDS. They are written into trade and investment deals and they allow transnational corporations to sue governments outside of the national legal system for millions if not billions.

UN climate scientists warned in a recent IPCC report of the risk of “ISDS being able to be used by fossil-fuel companies to block national legislation aimed at phasing out the use of their assets”, highlighting the ECT (p14-81). In fact, we already know this is happening. Denmark set climate targets twenty years later than the science tells them, and Germany paid up to twelve times the compensation it would usually do in its own coal phase out in exchange for fossil fuel corporations promising not to use the ECT.

Energy Charter Treaty modernisation proposals

The member countries of the ECT have known for a while that it needs to be ‘modernised’. A process to do so started in 2017, and over the last two years there have been fifteen rounds of negotiations which have finally resulted in proposals for an ‘agreement in principle’. Yet after all this time and talking, deal on the table is weak and a failure:

  • existing fossil fuel projects will remain protected for at least ten years – more if the changes take a while to enter into force
  • some gas projects will be continue to be protected until 2040

Even these weak proposals are on a take it or leave it basis – if a country doesn’t want to sign up to them, they don’t have to.

New investments will not be protected after next summer (23 August 2023 to be precise) – but clearly new fossil fuel investments should not be being made at this point!

All of the existing cases can still continue.

Why is the modernisation not enough?

To avoid devastating climate breakdown we need to keep fossil fuels in the ground. That means cancelling oil, gas and coal projects in the pipeline right now and phasing out existing fossil fuels. But by giving fossil fuel companies the power to sue when projects are cancelled for at least another ten years, the ECT is a real and dangerous threat to the ability of the UK and other countries to take steps towards a clean energy transition.

Either governments will live up to their climate obligations and cancel the projects – in which case the fossil fuel companies can sue at cost of billions for taxpayers in the midst of a cost of living crisis. The risk to the UK from the ECT is estimated to be at least £9.4 billion and the risk to all countries could be $111.5 billion. Or the governments delay and wait ten years before cancelling – which is the chilling effect the IPCC warned about and is not something the world can afford.

The fact that not all countries will sign up to the fossil fuel carve out also means that big polluters based in the UK can continue to sue those other governments over climate policy to their heart’s content. This at a time when the ECT is trying to inveigle many developing countries to join it – countries that would be extremely vulnerable to the threat of legal claims in the billions.

More broadly of course, the proposals would not change the fundamentally unjust nature of corporate courts.

Renewable investments

Supporters of the proposals argue that the ECT can be used to promote a green agenda and support renewables. But while the energy transition needs support, corporate courts are not the way to provide it.

Spain has experience of being sued over solar energy measures. But 89% of those suing were not renewable energy companies but speculators – financial corporations and investment funds that have little or nothing to do with sustainable energy. The ECT created a discriminatory system where foreign investors and letterbox registrations could sue, but domestic SMEs and energy cooperatives couldn’t. The outcome has been a huge diversion of public resources rather than anything that actually helps support the energy transition.

Meaningful support for a transition to renewable would involve targeted policies, incentive schemes, changes to planning law and public investment. All of which are the kinds of things that are liable to challenge through the ECT!

The modernisation proposals also extends the scope of the ECT to include some unproven and doubtful technologies. So support is being given to false solutions, and the number of corporations that could potentially sue is being multiplied.

Exiting the Energy Charter Treaty

Countries have up until the annual meeting of the ECT in November to decide if they want to accept the modernisation proposals. But the deal is a failure – it does not make the ECT compatible with the Paris Agreement.

In the end the whole attempt to modernise the treaty has simply been five years of dither and delay with a fudged outcome. And in the meantime the fossil fuel companies have been suing, and the climate crisis has got worse.

There is a growing consensus of the need for exit. Leaks show that German, Spain, the Netherlands and Poland have been saying in private that they want to explore a ‘co-ordinated withdrawal’ from the Treaty and others, including France, have expressed similar concerns. Most recently Spain publicly called for quitting the treaty, while the Dutch parliament has passed a motion calling on the Netherlands to also do the same.

The idea is for countries to leave together, making an agreement between themselves not to apply the 20 year ‘sunset clause’ between each other, which would remove much of the sting in the tail.

Countries face a choice: to recommit to this dangerous deal in full awareness of the damage it can do, or to exit the treaty now. Exiting is the only responsible choice.

Take action

Fifty thousand people in the UK, and over a million across Europe have joined the campaign. Get involved:

  • Sign the petition to stop corporate courts blocking climate action and to call for an exit from the Energy Charter Treaty.
  • Write to your MP and ask them to pressure on the UK government to withdraw from the treaty.
  • Make a donation to support our campaign.

Photo: Protest outside Uniper’s Enfield Power Plant in June. Credit: Léo Bodelle