UK Exits Fossil Fuel-Focused Energy Charter Treaty

UK Exits Fossil Fuel-Focused Energy Charter Treaty

UK Exits Fossil Fuel-Focused Energy Charter Treaty

The EU countries have become the focus of billion-dollar lawsuits from fossil fuel companies due to the Energy Charter Treaty. Recently, the UK has been the most recent addition to a rising trend of defections.

The UK, along with nine other EU member states, has chosen to withdraw from the Energy Charter Treaty (ECT), a controversial investment agreement that major polluters have used to initiate legal action against governments, particularly for phasing out fossil fuels.

In a move echoing Germany, Spain, France, Denmark, the Netherlands, and several other nations, the UK announced on Thursday its decision to withdraw from the ECT. The ECT’s failure to meet emission reduction targets crucial for achieving “net zero” status prompted this decision.

A government statement emphasized that this decision will aid the UK in transitioning to net zero emissions and enhancing its energy security. The statement also highlighted the unsuccessful attempts to update the treaty to reflect the shift towards clean energy.

Graham Stuart, the UK Minister of State for Energy Security and Net Zero, expressed concerns about the outdated nature of the Energy Charter Treaty and the lack of progress in reforming it. He mentioned that discussions for sensible renewal have reached an impasse.

In February 2023, the European Commission declared its intention to coordinate the withdrawal of the entire EU bloc from the pact, which was initially ratified in 1994 to safeguard energy investments in post-Soviet states.

EU member states face the brunt of 90% of disputes related to the Energy Charter Treaty (ECT). This legal predicament has severely hindered the progress of climate policies to the extent that achieving carbon neutrality targets seems highly unlikely for the EU, according to Yamina Saheb, an expert in climate matters and previously associated with ECT.

To illustrate, when the Netherlands implemented a plan to phase out coal-fired power plants by 2030 in an effort to curb carbon emissions, German energy giants Uniper and RWE took legal action against the Dutch government under the provisions of the treaty.

In the closed-door arbitration court where ECT disputes are resolved, the Dutch government faced a demand for €1.4 billion ($1.55 billion) in compensation from RWE. This demand came despite RWE later agreeing to its own coal phase-out by 2030 in exchange for mining lignite in Lützerath, western Germany.

Although the case is still ongoing, Uniper withdrew its claim as part of a bailout agreement with the German government.

Read Also: Do plastic bans make a difference?

Modernization of Treaty Efforts: A Failed Endeavor

UK Exits Fossil Fuel-Focused Energy Charter Treaty

The recent abandonment of the treaty marks a significant shift from June 2022, when the European Commission agreed to a series of updates aimed at aligning the Energy Charter Treaty with climate objectives. However, France, Spain, Germany, and the Netherlands deemed these modernization efforts insufficient due to a reform clause that safeguarded existing fossil fuel investments for the next decade. Consequently, these countries announced their intention to withdraw from the treaty and successfully blocked a scheduled vote on the reform measures in the European Council in November 2022.

Dutch climate and energy minister Rob Jetten expressed his dissatisfaction with the ECT’s alignment with the Paris Agreement, stating, “Despite the inclusion of various modernizations in the negotiation outcome, we believe that the ECT has not adequately met the requirements of the Paris Agreement.” This statement came as the Netherlands confirmed its exit from the ECT in October 2022.

In the following month, the European Parliament passed a resolution advocating for a coordinated withdrawal of the EU from the treaty, aligning with the aspirations of campaigners who had long advocated for such a move. The resolution received overwhelming support with a significant majority of 100 votes, prompting the European Commission to follow suit in February 2023.

Although the Energy Charter Treaty secretariat aimed to proceed with another modernization vote in April 2023, the Commission has not scheduled a meeting and is instead negotiating a coordinated withdrawal. Paul de Clerck, a campaigner for Friends of the Earth Europe based in Brussels, highlighted that some EU countries, including Cyprus, Malta, Finland, and several Eastern European nations, still support treaty reform. De Clerck explained that their support partly arises from being caught off guard by the Commission’s sudden change in direction.

Read Also: How does a circular economy benefit the planet?

Is the Energy Charter Treaty stifling climate ambition?

The ECT’s impact on climate ambition is further enhanced by a clause that allows states to be sued for 20 years after they withdraw from the treaty.

In 2017, UK oil company Rockhopper took advantage of this loophole and sued the Italian government, which had become the first state to exit the ECT, for banning oil drilling on the Adriatic coast. The bulk of the €225 million ($224.4 million) lawsuit, which saw success in August 2022, hinged on anticipated future profits, adding to the contentious nature of the Energy Charter Treaty (ECT).

Despite this, de Clerck argued that more EU countries, including Austria, Ireland, and Portugal, are close to announcing their withdrawal following Denmark’s exit in 2023. With the UK also leaving, this “second wave” of exits could trigger a domino effect, according to him.

According to Portuguese trade NGO Plataforma TROCA, most political parties in Portugal now see withdrawal from the ECT as “inevitable” as of April 8, 2023. This is significant because Portugal is the country that manages the pact as the ECT depository, as noted by Lukas Schaugg, a law analyst with the International Institute for Sustainable Development (IISD), a Canadian think tank IISD at the forefront.

“After Denmark’s withdrawal in April 2023, the announcement from Denmark is yet another indication of the increasing momentum for a coordinated withdrawal from the ECT,” he said.

The UK’s withdrawal 10 months later confirms this momentum and also weakens the foundation of the Energy Charter Treaty.

“The UK is a major global center for outward fossil fuel investment, and investor-state arbitrations often take place there,” Schaugg explained. “Departing from the treaty means that future outward fossil fuel investments made through London will no longer have protection under the Energy Charter Treaty.”

Read Also: What are zombie fires and how dangerous are they?

Waiting Game Nearing its End

The conclusion of the waiting game may be near, but how can states prevent claims under the ECT’s 20-year sunset clause even if a coordinated withdrawal is on the horizon?

Schaugg proposes that EU states could establish an “inter se agreement” post a mass exit, essentially a new pact among themselves, to effectively nullify the sunset clause.

Arbitration courts, shrouded in secrecy and influenced by a highly contentious “Anglo-American legal system,” have historically considered themselves beyond the reach of EU law, as Schaugg points out.

Nonetheless, an inter se agreement would uphold, for instance, the 2021 European Court of Justice ruling that EU energy firms cannot utilize the ECT to litigate against other EU nations.

“The longer EU states remain in the treaty, the greater the risk of new claims being lodged each day,” Schaugg warned. In March 2023, a British investor initiated legal action against Slovenia under the Energy Charter Treaty (ECT) and a bilateral treaty with the UK, seeking over €100 million in damages. The dispute stemmed from an environmental evaluation impacting the investor’s fracking venture.

However, with the UK joining a string of defections, Schaugg remarked that the “waiting game may soon be over.”

Leave a Reply

Your email address will not be published. Required fields are marked *