The Energy Charter Treaty (ECT) is set to become a major obstacle for the transition to clean energy. It protects foreign investments in energy supply and is being used by energy companies to extract high compensations from governments that regulate the use or phase-out of fossil fuels. This open letter, which calls on governments to withdraw from the ECT, was initiated by scientists and is intended to be published in late autumn. This sign-on page is hosted by CAN Europe to facilitate the process. However, the letter and the list of signatories will be published on a separate website solely dedicated to the ECT statement.
Read and sign the open letter now:
Frequently Asked Questions
What is the Energy Charter Treaty?
The Energy Charter Treaty (ECT) is an international agreement signed in 1994. There are currently 53 contracting parties, including the EU, nearly all European countries, Turkey, Central Asia and Japan. It grants foreign investors in the energy sector extensive protection that goes far beyond the property protection that any company has under national law. It also gives foreign investors access to a private arbitration mechanism known as Investor-State-Dispute-Settlement (ISDS). Rather than having to use national courts – like everybody else – investors can use these private arbitration panels that consist only of three investment lawyers, to claim millions, sometimes billions of Euros in compensation.
Why is the Energy Charter Treaty problematic for the climate?
The ECT protects all investments in energy supply, from extraction to consumption, including mines, oil and gas fields, pipelines, other energy infrastructure, refineries and power stations. Energy companies have used it to challenge a range of state measures that harmed their profits. Compensation claims were for instance made against environmental rules, measures to alleviate fuel poverty, cuts in subsidies and changes in taxes. Recently, we have also seen a number of cases where the ECT is being used against governments that are limiting the use of fossil fuels. The letter names a few examples.
More cases are expected to arise once countries get serious about putting their climate commitments into action. Coal mines and power plants will have to be shut down, oil and gas operations ceased and even new gas infrastructure being built now will have to be decommissioned well before their expected lifespan. In many cases, investors will be able to use the ECT to claim compensation. A new report from the International Institute for Environment and Development (IIED) for the first time quantified the effects the ECT could have on the phase-out of coal and found that it protects alone 51 coal-fired power stations.
The energy system needs to be altered comprehensively and swiftly to achieve climate neutrality. This will not succeed if the ECT continues to protect fossil fuel investments, making the energy transition prohibitively expensive and slowing down necessary decisions. Even the threat of a case can be enough to persuade a government to water down or halt proposed regulations that would otherwise support the energy transition. The ECT is therefore a powerful tool in the hands of fossil fuel firms.
For further reading on the dangers of the ECT and ISDS in other investment agreements, please see:
Tienhaara, Kyla (2018). Regulatory Chill in a Warming World: The Threat to Climate Policy Posed by Investor-State Dispute Settlement. Transnational Environmental Law, 7:2 (2018), pp. 229–250.
Kyra Bosa, Joyeeta Gupta (2019). Stranded assets and stranded resources: Implications for climate change mitigation and global sustainable development. Energy Research & Social Science, Volume 56, October 2019, p. 8.
OpenExp (2019). The Energy Charter Treaty (ECT). Assessing its geopolitical, climate and financial impacts. September 2019.
What can be done to stop the ECT from obstructing climate action?
In order to eliminate its grave risks for the climate, the ECT would have to undergo significant changes. Fossil fuels would have to be excluded from protection, and the controversial ISDS mechanism would need to be removed. This will never happen because all changes to the treaty have to be agreed unanimously by the 53 signatories. Some of these countries have already made it clear that they do not want to change anything about the treaty. This means that the ongoing ‘reform’ process will not deliver the results needed to remove the ECT’s threat to the clean energy transition.
The longer the ECT stays in force, the more fossil fuel investments will be protected. Instead of wasting valuable time trying to reform a treaty that cannot be reformed, we call on as many ECT members as possible – but at the very least the EU and EU Member States – to withdraw from the Energy Charter Treaty.
However, leaving alone does not make the ECT harmless, because upon withdrawal, a “sunset clause” is triggered that allows investors to make arbitration claims for another 20 years – at least for investments that have been made up until the point of withdrawal. This is deeply problematic. We therefore call on countries to withdraw jointly, and to conclude an additional agreement amongst themselves, in which they revoke their consent to ISDS claims from investors that are based in another country that has withdrawn.
Why is this open letter important?
We need to convince European countries that there is no time for inaction, and that they must withdraw from the ECT now in order to clear the path for a swift clean energy transition. There is some hope that this could really happen. In September 2020, a cross-party coalition of more than 140 MEPs and MPs demanded that the EU should decide by the end of this year whether to stick with the ECT reform process or consider withdrawal instead. We also know that France, Spain and Luxembourg are in favour of a joint withdrawal, if the ECT reform doesn’t deliver. This means pressure is already building on the inside and we need to strengthen these voices by building public pressure from the outside.
This is where the open letter comes in. It explains in short why the ECT is a problem for the clean energy transition and it calls on European politicians to remove this obstacle. It will be published on a dedicated website (yet to be set up), ahead of a conference of ECT members in December, which is intended to take stock of the reform process. The aim is to ensure press coverage in as many countries as possible. The letter will also be sent to all European Energy and Trade Ministers. We want this to become the moment for European countries to decide that the time has come to withdraw from the ECT.
Who is behind this initiative?
This letter is initiated by two scientists, Prof Julia Steinberger and Dr Yamina Saheb, both lead authors of the upcoming IPCC report. Climate Action Network (CAN) Europe is facilitating the sign-on process by providing a secure platform to gather signatures.
