A little-known but highly controversial international trade and investment agreement that dates back to Cold War times is being called into question by a growing number of key European countries, nearly 30 years after it was signed. Over the span of just a few weeks, Poland, Spain, The Netherlands, France, Slovenia, Luxembourg, and Germany have announced that they intend to leave the Energy Charter Treaty (ECT).
Designed in the 1990s, the ECT was originally intended to protect Western investments in the energy sector of post-Soviet states, as many of these were considered risky for potential investors. The treaty has grown over time and now has 53 signatories, including the European Union and a number of EU Member States. Notably, it set up a private arbitration system through which investors or firms can sue countries and claim compensation over policy changes that could impact their profits. This means that fossil fuel investors or companies can effectively sue states that undertake measures to fight climate change – creating a regulatory “chill effect”. The ECT also has a notoriously long sunset clause, meaning that even after a country withdraws from the treaty, it remains subject to litigation for a period of 20 years.
According to a recent study in Science, the costs of possible legal claims from oil and gas investors could tally up to $340 billion if countries decide to end fossil fuel projects under development to meet their net-zero objective by 2050. Indeed, just last year, the Netherlands was hit by two separate lawsuits from German energy firms claiming compensation for their coal phaseout.
By remaining a signatory of this treaty, the EU and Member States are thus supporting a mechanism by which fossil fuel companies can attack the very same energy policies that it and its Member States have been building to achieve the net-zero transition.
So far, the results of the campaign are highly encouraging, with several governments announcing they will withdraw from the ECT and others seriously considering it. The EU, however, continues to argue that the reformed ECT offers governments the right to regulate even as vast protection mechanism for fossil fuel investors remains. Going forward, the ECF and its partners will continue pushing for a coordinated withdrawal – which would neutralise the sunset clause and free countries from the ECT once and for all.