German coal exit costs driven up to 12 times higher by threat of legal action – report

German coal exit costs driven up to 12 times higher by threat of legal action – report

Date: 22 April 2022
Campaigns: Climate, Trade

Campaigners call for end to secret tribunal powers under Energy Charter Treaty as UK joins talks over its future

Fossil fuel energy companies affected by Germany’s coal phase out are receiving up to 12 times as much compensation as would normally be expected because of the threat of legal claims under the controversial Energy Charter Treaty, according to research published today.

It comes as UK government officials participate in Brussels talks over the future of the Energy Charter Treaty (ECT), an obscure investment deal signed by countries including the UK which allows fossil fuel companies to sue governments in secret tribunals for the consequences of public policy decisions.

The report, Coal ransom: How the Energy Charter Treaty drove up the costs of the German coal phase-out, finds that fossil fuel companies RWE and LEAG were able to get this shockingly increased price tag because of the risk that the companies would sue the German government for billions under investor-state dispute settlement provisions in the ECT.

The companies eventually gave a legal commitment that they would not use the ECT, and the German ministry for economic affairs has admitted that securing this waiver drove up the amount of the compensation offered to the coal companies.

The increased cost of the German coal exit experience has implications for countries around the world who are seeking to implement their own climate commitments and phase out fossil fuels including coal, oil and gas. The climate transition in many countries could be made drastically more expensive as the result of the threat of the Energy Charter Treaty and similar deals.

In some countries this barrier could cause climate action to be delayed or abandoned – a risk of ‘regulatory chill’ as a result of the ECT which the most recent UN Intergovernmental Panel on Climate Change report has highlighted.(IPCC AR6 WG III, Ch. 14, p72 & 82)

The UK has almost completed a coal phase out but has not yet phased out oil and gas.

The Energy Charter Treaty includes investor-state dispute settlement (ISDS), a shadowy system of secret tribunals that operates outside of a country’s domestic legal system as it is written into trade and investment deals.

Negotiations on the future of the Energy Charter Treaty are taking place this week, and campaigners are calling on governments to exit the treaty.

Fabian Flues, trade campaigner at Powershift in Germany and author of the report said:

“Taxpayers in Germany are now paying billions to coal companies for their stranded assets. The coal companies were able to extract such sums because they could threaten legal action under the shadowy Energy Charter Treaty. It’s heads I win, tails you lose for the fossil fuel industry: Either they wrest large “voluntary” payments for the fossil fuel phase-out from the public or they can sue for it in secretive offshore tribunals. Governments that are serious about climate action and public finances have to withdraw from the Energy Charter Treaty.”

Jean Blaylock, trade campaigner at Global Justice Now in the UK said:

“Germany’s coal ransom should be a wake-up call for governments around the world on the threat of corporate courts to climate action. We must urgently dismantle this shadow legal system which has become a major obstacle to ending fossil fuels. If one of the world’s wealthiest governments can be extorted in this way, it is easy to see the chilling effect it will have on other nations.“

The fossil fuel industry should not be getting bumper payouts for the fact their products are trashing the planet. Every government must exit the Energy Charter Treaty immediately, refuse to sign any trade treaty containing these corporate courts, and begin unwinding existing treaties that contain them.”

Background

The report, Coal ransom: how the Energy Charter Treaty drove up the costs of the German coal phase-out, outlines the impact of the Energy Charter Treaty on negotiations around the phase out of lignite coal in Germany.

A contract was negotiated between the German federal government and the largest coal companies, RWE and LEAG. In the contract, the companies agreed to waive their right to sue under the Energy Charter Treaty. The contract awarded a total of €4.35 billion to the companies. Numerous experts consider this sum to be far too high, and independent think tanks assess that the appropriate compensation level should have been €343 million.

The risk of being sued under the Energy Charter Treaty is very real. The Dutch government is currently being sued over its coal phase out by two fossil fuel companies, RWE again and Uniper, who are using the Energy Charter Treaty and demanding over a billion US$ each.

The German government itself was sued under the Energy Charter Treaty over its nuclear phase out.

The latest IPCC report from UN climate experts (IPCC AR6 WG III) warns of “regulatory chill” from investor-state dispute settlement (Ch. 14, p72) and highlights how fossil fuel corporations are using these secret tribunals to “block” the phase out of fossil fuels, mentioning the Energy Charter Treaty in particular (Ch. 14, p81).

Recently two countries have publicly admitted that this chilling effect has already had an impact on their climate policies. Ministers from Denmark and New Zealand said they had done less at COP26 and chosen weaker climate targets because they are afraid of being sued under the Energy Charter Treaty or similar deals.

The report is published by PowerShift and co-published by Attac Germany, ClientEarth, Europe Beyond Coal, Forum Environment and Development, Global Justice Now, Munich Environmental Institute, Urgewald and War on Want.


Photo: jplenio/pixabay

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