It’s time for the UK and others to exit the Energy Charter Treaty
Pressure builds on governments about controversial investment agreement blocking climate action and progress
More and more people from numerous countries are calling on their respective governments to withdraw from the increasingly notorious Energy Charter Treaty (ECT), scheduled for an apparently make-or-break meeting tomorrow on 24 June. Always an obvious-yet-comparatively-obscure affront on democracy, national sovereignty and the rule of law since it was signed in 1994 and entered into legal force four years later, the ECT has been increasingly in the public eye in recent years mainly because of the threat it poses to the global transition from fossil fuels and meeting the targets of the 2015 Paris Agreement. “Climate-sabotaging”, “climate-destructive”, “the biggest threat” to Paris, and “the world’s most dangerous investment agreement” are just some of the names it has had thrown at it.
The main reason is its so-called “investor-state dispute settlement” (ISDS) mechanism explicitly permitting or arguably even encouraging foreign investors to claim huge sums of money from governments if changes to laws and policies negatively impact their financial interests. In other words, an overtly pro-corporate open door to sue, during which only the investors’ interests are considered. Worse, these “disputes” - a somewhat lame word that fails to convey the significance and magnitude of what is often at stake - are settled privately, with the disgruntled investor not even required to reveal it is making a claim to the ECT’s Secretariat in Brussels. Hence terms like “corporate courts”, “offshore tribunals”, “secretive investor court system” and “parallel justice system” being used to describe ISDS. Why not just use national courts like the rest of us?
In April the UN’s Intergovernmental Panel on Climate Change’s “Working Group III” published a report that specifically highlighted the ECT - which only focuses on energy, as its name suggests - as one of a “large number of bilateral and multilateral agreements” including ISDS that could inhibit progressive climate action. “Numerous scholars have pointed to ISDS being able to be used by fossil-fuel companies to block national legislation aimed at phasing out the use of their assets,” the report stated.
Last month, researchers from Boston University in the US and Queens University in Canada published an article in Science arguing that governments could be liable for up to $US340 billion in ISDS claims over upstream oil and gas projects alone, with the UK listed as one of the seven most vulnerable countries, and the ECT singled out for special mention again as “the greatest contributor to these potential ISDS claims.” That article was almost entirely ignored by UK mainstream media. This week, those researchers released a follow-up policy brief focusing exclusively on the ECT which highlighted how companies like Norway’s Equinor and Italy’s Eni benefit from the treaty’s protection even though neither country is among the 50+ signatories to it, and concluded that actually they had previously underestimated the “true extent of [the treaty’s] protection of 1.5°C-incompatible oil and gas assets.”
“Although only a small number of ISDS cases to date concern climate actions, this will likely change if governments begin to adopt more stringent policies, particularly if those policies directly affect fossil fuel investors,” the Science article runs. “States can argue that investors should have anticipated that they would be affected by climate policies, given long-standing scientific consensus that fossil fuels are the primary source of greenhouse gas emissions and international agreements on climate change mitigation dating back 30 years.”
“The high end of our liability estimate ($340 billion) is more than the total level of public climate finance globally in 2020 ($321 billion),” the article continues. “Potential litigation risks are even greater if coal mining and midstream fossil fuel infrastructure are considered. We cannot afford to divert such a substantial amount of public finance from essential mitigation and adaptation efforts to compensate investors in fossil fuels.”
The authors argue that the ECT “should be prioritized for termination.” One, Kyla Tienhaara, at Canada’s Queens University as well as a non-resident fellow at Boston University, calls it “a huge obstacle to climate action.”
“It stood out in the research we reported in Science as the treaty protecting more 1.5C-incompatible oil and gas assets than any other, but our investigations into the corporate structure of Eni and Equinor demonstrates that the treaty is even more significant than we thought,” Tienhaara tells me. “If all investors follow the advice of law firms and structure their assets to take advantage of the ECT, this could create more than $100 billion in liability for member states that phase-out oil and gas production.”
The number of ISDS cases under the ECT is unknown, although it is apparently at least 150 and almost certainly far higher than that. Some have received considerable publicity - the UK’s Rockhopper v Italy, Germany’s RWE and Uniper v The Netherlands - but others remain secret or not-so-well-known, like that of another UK company, Ascent Resources, which has filed disputes with Slovenia. That country’s supposed misstep? Initially, to require the company to conduct an Environmental Impact Assessment before producing gas at one particular field using “low-volume hydraulic stimulation”, i.e. fracking, and then in April this year to ban fracking altogether.
How unreasonable!
“As Slovenia is aware, Ascent had always expected to be able to continue the historic practice of conducting low volume hydraulic stimulation of the wells in order to enable gas production from the Petišovci Gas Field, and took the decision to invest in Slovenia based on this reasonable expectation,” Ascent’s lawyers, Enyo Law, wrote to Slovenia’s senior state attorney last month. “This ban effectively prevents Ascent from doing so, thus fully depriving Ascent of the value of its investment in Slovenia.”
In the UK, pressure on the government seems to be beginning to mount. Last year more than 400 environmental organisations, charities and trade union federations called on the UK to withdraw from the ECT, and various Members of Parliament (MP) asked the government written questions about it. Last month demonstrations were held in numerous locations across the country, and more than 50,000 people have now signed a petition to Prime Minister Boris Johnson and the International Trade Secretary about it. Last Thursday, Ruth Cadbury, a Labour MP and Shadow Minister for International Trade, remarked in a House of Commons debate how the ECT “lets fossil fuel companies sue Governments who are trying to decarbonise” and asked if the UK will “support efforts to remove in full these protections for fossil fuel companies in the Energy Charter Treaty.” The following day, the Minister for Business, Energy and Clean Growth, Greg Hands, replied to a written question from MP Kenny MacAskill about “the potential merits of the UK engaging in a coordinated withdrawal from the Energy Charter Treaty alongside other European nations.”
“The Government considers that it is important to remain a Party to the Energy Charter Treaty and support its modernisation,” Hands replied, “as the Government believes that a renegotiated Energy Charter Treaty will remain valuable in supporting clean energy investment in the future.”
As Hands’s response implies, the ECT has been subject to an attempted reform process over the last few years, but reportedly very little progress has been made. The UK has been accused of blocking reform and trying to woo EU-based companies in case the EU withdraws from the treaty, while various countries - Germany, The Netherlands, Poland and Spain - allegedly want to leave too.
“Spain also made it clear that it would consider an exit scenario, as it did not see how the Energy Charter Treaty could be adapted to the Paris Agreement,” states an allegedly leaked diplomatic cable reported by Euractiv last month.
Jean Blaylock, from the UK-based NGO Global Justice Now (GJN) which has taken a lead in campaigning for withdrawal, calls the ECT “the climate threat you’ve never heard of.”
“There have been 14 rounds of negotiations to try and develop proposals to “modernise” the ECT and make it compatible with climate goals, and this conference [on 24 June] is the decision point on whether the member countries consider they have succeeded or not,” Blaylock tells me. “We consider this process has clearly failed. The International Energy Agency’s pathway - a fairly cautious, conservative one - requires projects in the pipeline to be cancelled right now. We’re therefore calling for the UK to exit the ECT to safeguard climate goals, rather than recommitting to a dangerous deal in full knowledge of the damage it’s likely to do.”
Blaylock says GJN is also urging other countries to withdraw too.
“Our call is for as many countries as possible to leave as part of a planned and coordinated withdrawal, agreeing not to apply the leaving sunset clause between each other, which would take much of the sting out of the tail,” she says. “If the UK doesn’t step up and get involved, it could be left behind in an obsolete and high risk treaty while others move on.”
On mainland Europe pressure is building too. Over one million people have now signed a petition organised by a multitude of NGOs that urges European governments, parliaments and EU institutions to withdraw from the ECT as well as stop its expansion, which is pending, with numerous other countries at different stages towards acceding. In addition, this week it was announced that five people aged between 17 and 31 have launched legal action over the ECT at the European Court of Human Rights (ECHR) against 12 ECHR member states, and more than 70 climate scientists wrote to France’s President Macron, heads of states and governments, and the presidents of the European Council and European Commission calling on “the French Presidency to work on the withdrawal of EU countries” from the ECT.
Cornelia Maarfield, from the NGO Climate Action Network (CAN) Europe, says pressure is mounting on the EU “from all sides” and that it is “high time the Commission listens.” In addition to the recent findings by researchers, the 70+ climate scientists’ letter, the new legal challenge and so many people signing the petition, there is also “massive disagreement with the ECT in the European Parliament”, she says, with some member states like Germany, France, Spain and Poland “considering withdrawal as the best way forward.”
“We can’t ignore this is all taking place in the context of the war on Ukraine and while the EU is trying to accelerate the transition to renewables and stop fossil fuel dependency, which makes the ECT even more absurd,” Maarfield tells me. “The Commission must stop sending negotiators to sit behind closed doors discussing the latest greenwash proposal and start the serious business of planning how to exit this dinosaur of a treaty!”
According to Yamina Saheb, a signatory to the letter to Macron et al and a former ECT Secretariat employee, the French government wrote to the EU Commission in 2020 about working towards a collective withdrawal, but as far as she was aware the Commission didn’t respond. Saheb authored a 2020 report for French think-tank OpenExp which called the ECT’s reform process a “global tragedy” and estimated that by 2050 the claims under the ECT could amount to $US1.3 trillion, a now often-quoted figure that she tells me is a “minimum” because it was “based on an incomplete data set.” From the meeting tomorrow she believes there are two potential outcomes: either that a so-called “flexibility mechanism” protecting existing investments in fossil fuels and gas power plants until 2030 and 2040 respectively is agreed on, or that people like the climate scientists are heard and a decision is taken to withdraw collectively.
“The first would be a disaster,” she says. “I’m hoping for the second one.”
When asked if the UK might rethink its position, the Department for Business, Energy and Industrial Strategy (BEIS) says it is backing the “process of modernising the ECT to ensure it aligns with our objective to advance the global energy transition.”
“The modernised Treaty must have a stronger climate focus, including clarifying that states can regulate to reach emissions reductions targets, and align with the take up of green technologies such as Carbon Capture, Utilisation and Storage and low-carbon hydrogen production,” a BEIS spokesperson tells me.
This suggests the BEIS is living in some kind of fantasyland, not only because aligning the ECT with climate targets is precisely what the failed reform process has been about but because the reform currently envisaged protects fossil fuel investments until the mid 2030s at least and therefore simply can’t “advance the global energy transition.” In addition, according to CAN Europe’s Maarfield, the UK has been pushing for the ECT to protect other technologies and energy materials, which would make it even “more poisonous from a climate perspective.”
“Even the ECT in its reformed form would severely hinder countries to achieve their carbon emissions reduction targets,” she says. “Claiming anything else is greenwashing.”
As GJN’s Blaylock points out, while the reform process has been meandering on and stumbling, Planet Earth and the rest of us have been running out of time.
“Meanwhile fossil fuel companies have been bringing cases and the climate crisis has got worse,” she says. “How much longer does the UK want to keep dithering and delaying on the off chance that the talks will suddenly change direction? The countries set themselves the deadline of this week, the talks have failed, it is time to leave and write the ECT off.”