The Energy Charter Treaty: a dangerous agreement that can’t be reformed

Climate action

The third round of negotiations to ‘modernise’ the obscure Energy Charter Treaty (ECT) is coming to a close. From 3 to 6 November, the 56 contracting parties of the treaty tried to find ways to make the agreement from the 1990s fit for the challenges of the 21st century – foremost the climate crisis. But there is no hope that the ECT will be brought in line with the Paris Agreement and the EU’s climate commitments.

The Energy Charter Treaty (ECT) is an international agreement that protects investments in the energy sector. Energy companies can use it to sue governments for their actions to phase-out fossil fuels. The agreement could therefore impede climate action.

The ECT is currently undergoing a “modernisation” process and the EU has stated that bringing it in line with the EU climate targets is at the heart of this reform. The European Parliament is pushing for ambitious changes and voted in October to end the protection of investments in fossil fuels as part of the modernisation of the ECT.

It seems highly unlikely, however, that such a reform will be successful, as any modification of the treaty requires unanimity by all 56 members of the ECT. Some, including Japan, have already expressed their unwillingness to reform the treaty. In a recent debate on the ECT in the European Parliament, even EU Energy Commissioner Kadri Simson had to admit that the necessary fundamental reform would be difficult to achieve.

Any last hope for a successful reform was quenched when the Commission’s proposal concerning the types of energy investments it wants to see protected under the ECT in the future was leaked in late October.

Under the proposal the ECT would continue to protect existing investments into fossil fuels for another ten years. Similarly, certain investments into gas would continue to enjoy the protection of the treaty until the end of 2030. For coal-to-gas conversions or certain types of gas pipelines, the Commission plan even proposes continued protection until 2040.

Moreover, the Commission wants to expand the protection of the treaty to cover new controversial technologies, such as biomass and hydrogen. This is problematic as it would significantly increase the risk of compensation claims if governments want to change the rules for these technologies in the future. Also, neither biomass nor hydrogen is clean per se. The vast majority of hydrogen is currently produced from fossil gas and coal.

In sum, the Commission’s proposal significantly lacks the ambition that is needed to bring the ECT in line with EU climate commitments and might even expand the scope of this dangerous treaty. The proposal will now be discussed with EU Member States, who are expected to agree on an EU position that could be discussed the earliest at the next ECT negotiation round in February or March 2021.

If the EU does not even try to fully phase out investment protection for fossil fuels, there is no hope that the reform will ever succeed. It is therefore crucial that the EU listens to the demands expressed by more than 240 EU and national lawmakers and starts planning for a withdrawal from the ECT now.

For further information on how the Energy Charter Treaty impedes the transition to clean energy, please see our CAN Europe policy briefing.


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