The energy charter treaty (ECT) is an international agreement that allows energy corporations to sue governments over policies that could hurt their profits. Signed in 1994, the treaty was intended to protect western companies investing in the oil- and gas-rich countries of the former Soviet Union. Only foreign investors, rather than domestic ones, can use the system, prompting longstanding complaints of privileged access. Campaigners now fear it could stymie the green transition.
Coal and oil investors are already suing governments for several billions in compensation for lost profits over energy policy changes. For example, the German energy company RWE is sueing the Netherlands for €1.4bn (£1.2bn) over its plans to phase out coal. Another German utility, Uniper, is reported to be seeking between €850m and €1bn for the early closure of its Maasvlakte coal-fired power plant near Rotterdam. While Rockhopper Exploration, based in the UK, is sueing the Italian government after it banned new drilling near the coast.
“It’s a real threat. It’s the biggest threat I am aware of,” said Yamina Saheb, a former employee of the ECT secretariat. She has estimated that foreign investors could sue governments for €1.3tn until 2050 in compensation for early closure of coal, oil and gas plants – a sum that exceeds what the EU hopes to spend on its green deal in the next decade. As compensation to companies is paid by public funds, governments would have less money to pay for new technology to make buildings, transport and industry greener. Saheb argued these payments could endanger the green transition.
Analysis of the treaty showed a 269% increase in cases in 2011-20 compared with the previous decade. “We are going to see in future many more cases,” said Lucía Bárcena, of the Amsterdam-based Transnational Institute, who compiled the data. Since 2013, two-thirds of the cases have been brought against western European governments.
“The energy charter treaty … has no cohesion at all with EU climate policies,” Bárcena said. “Trade and investment agreements are binding on states, which means if they break the contract then they have to pay huge amounts of money, while there is no other mechanism that binds countries to the goals that they are setting at Cop26."
Cornelia Maarfield, a senior trade and investment policy coordinator at the Climate Action Network Europe, explained, “Our main concern is that once governments start taking decisions to phase out coal, gas and oil, they will run into difficulties with the investment protection chapter of this agreement.”
Investors are known to have filed 142 cases against governments since the ECT came into force in 1998. But these are only the known cases. Even the ECT’s Brussels-based secretariat acknowledges it does not have a complete picture, because investors are not obliged to reveal legal action under the ECT.
Saheb argues the treaty is beyond reform because central Asian member states will veto any weakening of protection for fossil fuels. “The EU countries should withdraw altogether as one,” she said. “If we withdraw altogether we could agree to cancel this clause and then we could move on with our energy transition.”