Energy Charter Treaty will prevent implementation of Paris Climate Agreement
Civil society groups and trade unions have presented compelling evidence that implementing a just transition, including commitments in the Paris Climate Agreement, is incompatible with the provisions of the Energy Charter Treaty (ECT).
The ECT, a multilateral investment agreement governing the energy industry, was signed in the 1990s and applies to 51 countries stretching from Western Europe through Central Asia to Japan, plus the EU as a whole. The treaty includes the notorious Investor-State Dispute Settlement mechanism, which allows corporations to sue governments if they make public policy decisions which negatively affect the company’s expected future profits.
The problem this represents for action on climate change is already being demonstrated in the Netherlands, where German energy giants Uniper and RWE have already threatened to sue the government, possibly for billions of euros, following a decision to phase out coal in electricity production.
As Kees Kodde of Greenpeace Netherlands put it: “Good climate policy will create lots of stranded assets in the fossil fuel industry. If all these stranded assets have to be compensated with billions [of euros], then governments will withdraw from good climate policies.”
As negotiations to modernise the ECT began in December 2019, 278 organisations signed a letter calling for a radical rethink. They argue that the provisions of the ECT have repeatedly been used to undermine climate action, and that investor arbitration puts public budgets at huge risk, threatens all kinds of environmental protection and can be used to attack measures to make energy affordable and put it under public control. Moreover, it creates a risk for public authorities wanting to favour renewable energy.
The modernisation process is part of the attempt to get new countries from the Global South to sign up to the treaty, but the civil society groups see it as unlikely to produce the kind of changes needed to make the ECT climate-commitment compatible. Should this be the case, they are calling on all signatories to withdraw or jointly terminate the treaty.