The use of secret corporate panels to protect multi-billion-pound fossil fuel investments within Europe could come to an end after a move by the European Commission.
Windfall payouts such as a recent £210m award to the British oil firm Rockhopper would no longer be possible between EU states under a new proposal to reform the energy charter treaty (ECT).
The 52-nation ECT began as a bid to defend the revenues of European energy firms that invested in former Soviet economies after the iron curtain fell. It allows them to sue states in a secret court system when they believe their profit expectations have been hurt by policy decisions. But this could leave states open to action for shuttering oil, coal or gas projects in order to meet the EU’s net zero emissions goal for 2050.
More than two-thirds of EU energy investments protected by the treaty are thought to come from investors also based within the bloc, and overall disbursements under the ECT could reach as high as $1.3tn by 2050, by some estimates.
Cornelia Maarfield, the senior trade and climate policy officer for Climate Action Network Europe, said: “This proposal would dramatically reduce the risk of fossil fuel firms attacking climate policies – at least within the EU. But it would be even better to open the possibility for non-EU countries to join this agreement in combination with a coordinated withdrawal. Why not give other countries the option to free themselves from the claws of this monster of a treaty?”
The commission proposal notes a danger that differences between EU law and the energy treaty “would de facto turn into a legal conflict because arbitration awards violating EU law would circulate in the legal orders of third [non-EU] countries”.
“The risk of legal conflict is such as to render an international agreement incompatible with EU law,” it adds. EU states should thus “confirm that the ECT does not apply, and has never applied to intra-EU relations”.
A sunset clause maintaining investment protections for 20 years after the treaty’s termination is also inapplicable to intra-EU cases, the document states.
Brussels’ move forms part of an ongoing bid to “modernise” the ECT, in the face of growing calls for a wholesale exit from the treaty. On Thursday, the lower chamber of the Polish parliament voted decisively to withdraw from the ECT by 418 votes to 11.
Adam Guibourgé-Czetwertyński, Poland’s vice-minister for climate and environment, told the Guardian: “We’ve just come to a stage where we think nothing is going to come out of this modernisation process. There is no sign that our partners would be willing to take more steps. Italy left [the ECT] five years ago and maybe we should have left already too. At some point, you need to realise that the chance of getting the [treaty] into the shape we want it to be is not going to happen.”
Poland has a reputation as a climate laggard but it supports the EU’s net zero emissions target for 2050, which require it to quickly wind down its extensive coal and gas industries.
Investor lawsuits were difficult to predict “but it’s clear to us that there’s a risk we could one day have a bad surprise”, Guibourgé-Czetwertyński said. “It is certainly not a risk that is worth taking from our perspective.”
The Polish senate now has 30 days to react to the lower chamber’s vote on the ECT. If it does not, Poland’s decision to leave the treaty will be considered as “approved”, he added.
At the same time, if the commission’s proposal is to succeed, EU ministers need to greenlight it before 22 November, when an ECT conference must also unanimously accept it.
Guibourgé-Czetwertyński said that it was an “illusion” to expect a mutually satisfactory agreement.
The European Commission did not immediately respond to a request for comment.
Critics argue that the new gambit from Brussels would still allow “letterbox shopping”, in which investors simply move from one jurisdiction to another, where they rebadge and continue as before.
Yamina Saheb, a former ECT official turned treaty critic, who is now the lead author of a UN Intergovernmental Panel on Climate Change (IPCC) report, accused the commission of “hiding the obvious failure of its ECT modernisation” proposals.
These were “unlikely to prevent new investor-state dispute settlement claims from EU investors against EU countries”, she said, noting: “The UK and Switzerland are likely to become very attractive to those investors.”
