EU COMMISSION TURNS A DEAF EAR TO MULTIPLE CALLS TO EXIT THE ENERGY CHARTER TREATY

EU Commission turns a deaf ear to multiple calls to exit the Energy Charter Treaty

• The European Commission supports greenwashing reform of this unsustainable Treaty despite the European Parliament and countries such as Spain, The Netherlands, Belgium and Germany pushing to withdraw from it.
• CAN Europe and climate organisations alert that the ECT reform fails to align the agreement with the Paris Agreement and the European Green Deal.
• Fossil fuel companies’ assets will enjoy broad investment protection at least until 2033, possibly longer.
  By expanding the scope of coverage to a long list of new technologies, the risk of ISDS cases against policies to facilitate the transition to 100% renewables increases.

Brussels, 24 June 2022 – The EU Commission along with other contracting parties of the controversial Energy Charter Treaty (ECT) today announced an ‘agreement in principle’ on its reform outcomes, which confirms the greenwashing fears of climate organisations, which say the Treaty poses a serious threat to limiting temperature rise to 1.5 by 2030.

The ECT is a dangerous treaty that protects investments in the energy sector and allows fossil fuel investors to claim uncapped amounts in compensation from states that implement policies that limit their use. The reform agreed today after 15 negotiation rounds fails to align with the Paris Agreement goals and the European Green Deal, something climate organisations have been alerting about for the past 3 years, suggesting an organised withdrawal from the Treaty instead as the only sensible solution.

In the reform, investment protection for fossil fuel assets is kept until at least 2033 and possibly longer, wasting precious time that we don’t have in the current climate emergency. Furthermore, the questionable Investor-State Dispute Settlement (ISDS) mechanism and the sunset clause thanks to which investments could be protected even 20 years after an ECT withdrawal, remains untouched.

After today’s preliminary agreement, EU Member States and the European Parliament will still have to scrutinise the deal. A legal text is expected to be published on August 22. A Council decision is needed for the EU to adopt the reform at the next Energy Charter Conference in November. With dissatisfaction from several EU Member States, this is far from certain to succeed. If today’s deal is deemed unsuccessful, the EU and individual Member States could still decide to withdraw from the agreement, like Italy did in 2015.

ENDS

NOTES TO THE EDITOR:

1. Main elements of the ‘agreement in principle’:

Key for the agreement’s climate-compatibility is the “Definition of Economic Activities”, which defines the energy materials and investments that are covered by investment protection. What does it say there?

• Pillar 1: The reformed ECT makes the agreement actually more dangerous, rather than mitigating its risks. That is because a long list of energy materials and technologies that are currently not protected under the ECT, will be covered in future, including ‘Carbon Capture Usage and Storage’, hydrogen, ammonia, biomass, biogas and synthetic fuels. CAN Europe explained in this recent briefing, why this expansion to new technologies is highly risky from a climate perspective and at the same time unnecessary to generate investments in clean energy.
• Pillar 2: ‘Flexibility’ was introduced because the original EU proposal to carve-out investment protection for certain fossil investments was rejected by other contracting parties. Only the EU and UK have now opted to very gradually end investment protection for fossil investments, however, it is too little, too late.
  • New fossil investments: No protection if investment happens after 15 Aug 2023. But: Broad exceptions for new gas investments that will continue to enjoy full protection until 2030 or even 2040. This also includes gas investments that are deemed ‘significantly harmful’ under the EU taxonomy.
  • Existing fossil investments: Will be protected at least until 2033, possibly later. The agreement in principle reads investment protection would cease: “10 years from the entry into force of the relevant provisions”. It was hotly debated between the EU and Japan until the end when this “entry into force” would happen – either in early 2023 or when the rest of the reformed ECT enters into force (that would happen once ¾ of contracting parties have ratified the deal – which took 12 years for the last amendment!). It appears that there is no agreement yet on this point.
    Irrespective of whether investment protection for existing coal, gas and oil assets would cease in 2033 or much later: It doesn’t help! The coming decade is decisive for countries to take climate action. Under the reformed ECT, countries will continue to be sued in private arbitration when they legislate their fossil fuel phase-outs in a Paris-compatible timeframe. The reform therefore fails to align the ECT with the Paris Agreement. More details in our briefing.

• Pillar 3: There will be a review every 5 years. This means at the earliest in 2027 could the EU try to shorten investment protection for fossil assets. However, they would still need unanimous approval from all contracting parties. Cynical: “This will give Contracting Parties the possibility to react to technological as well as political developments.” Have they heard of climate change?

Why would withdrawal be the better solution?

The commission claims that adopting this reform is better than withdrawing because of the so-called ‘sunset clause’. This clause stipulates that a state can still be sued for 20 years after it withdraws. However, the Commission fails to mention that there is a way to neutralise this clause. Countries can withdraw jointly and conclude an additional agreement, in which they exclude ISDS cases amongst one another.

In particular, if implemented in a large group of countries, this solution means that existing fossil investments would cease to be protected immediately, rather than continue to enjoy this protection for 10 or more years. From an EU law perspective, it would make sense that all EU Member States and all EU accession countries withdrew jointly, so that intra-EU claims – which have been declared illegal by the Court of Justice of the EU – can be excluded. However, this solution would also be open to other ECT contracting parties such as the UK or Switzerland. In any case, a mass walkout from the ECT is likely to trigger a discussion about terminating the agreement altogether. A termination would mean that all Contracting Parties agree to end the ECT, which would make the agreement void, immediately ending investment protection.

2.Last week’s timeline

• 20 June:
  • Belgium edges closer to a withdrawal: The party of Energy Minister Tinne VdS called on the Belgian government to support a coordinated ECT exit.
• 21 June:
  • Spain calls for a withdrawal from the ECT: Vice Prime Minister Teresa Ribera issued a statement calling for a coordinated exit from the agreement.
  • Young climate activists sue key ECT Member States in the European Court of Human Rights with the argument that the Treaty protects fossil fuels & blocks climate action.
• 22 June:
  • The Dutch parliament passed a motion that the government needs to endorse a coordinated withdrawal from the ECT.
• 23 June
  • Activists from Extinction Rebellion delayed ECT reform talks from going ahead by blocking the buildings where negotiations were meant to take place and glueing themselves to furniture inside the negotiation building. Pictures from the action can be found here.
  • Germany set unachievable objectives for ECT reform which amount to a quasi call for withdrawal.

3.Background materials

• Decision of the Energy Charter Conference 2022
• All states or Regional Economic Integration Organisations who have signed or acceded to the Energy Charter Treaty.
• CAN Europe policy briefing June 2022: Toxic Elements of the Energy Charter Treaty Reform. Why the EU must withdraw to avoid a greater disaster for the climate.

CONTACT:

Nina Tramullas, nina.tramullas@caneurope.org