EU Sparks Controversy on Energy Charter Treaty Drop

ESG Investor

European Union will withdraw from ‘anti-green’ treaty on environmental grounds, but sources warn of impact on renewable investments.

The European Parliament’s vote last week to withdraw from the controversial Energy Charter Treaty has been interpreted as a near-certain ‘death blow’ to a decades-old agreement that is widely perceived as outdated and anti-green.

But the decision, which lawmakers say is necessary to protect the European Union’s climate policies against litigation from fossil fuel companies, may not be as positive for the energy transition as some believe.

James Rogers, an international arbitration lawyer and partner at law firm Jenner & Block, said the EU’s withdrawal – which he said left the treaty “dead” – could inadvertently harm the bloc’s green energy ambitions by reducing investor protections against policy changes.

Set up in 1994 in the aftermath of the fall of the Soviet Union, in part to open up gas imports from Russia and eastern Europe, the ECT provides energy investors with legal protection against the policy whims of national governments. Governments that expropriate assets or arbitrarily change rules may be taken to arbitration under the treaty. More than 50 countries across Europe and Asia have signed up to the treaty since, with Japan its easternmost member.

But as climate change became a key policy concern in Europe in subsequent years, the ECT progressively turned into a weapon for fossil fuel companies to fight against green policies that harmed their interests. It was under the ECT that German utilities RWE and Uniper, for example, sued the Dutch government for €2.4 billion over its plan to phase out coal-fired power back in 2021.

Critics say the threat of a legal challenge under the ECT alone has a “chilling effect” on green policy – which is real but difficult to quantify.

Some of its members pushed to modernise the framework. But these efforts largely failed, and a growing number of European signatories have already left or plan to leave the treaty, including the UK, France, Germany, Spain and Poland. The EU’s departure now turbo-charges that trend.

“Finally, the fossil dinosaur treaty is no longer standing in the way of consistent climate protection, as we no longer have to fear corporate lawsuits demanding billions of euro in compensation brought before private arbitration tribunals,” Anna Cavazzini, Member of the European Parliament and Rapporteur for the Trade Committee, said following the vote last week.

Not anti-green

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