Five young people whose resolve was hardened by floods and wildfires recently took their governments to the European Court of Human Rights (ECtHR). Their claim concerns each country’s membership of an obscure treaty that they believe makes climate action impossible by protecting fossil fuel investors.
The Energy Charter Treaty has 52 signatory countries, mainly EU countries, but also the UK and Japan. The plaintiffs are suing 12 of them, including France, Germany and the UK – all countries where energy companies use the treaty to sue governments over policies that disrupt fossil fuel extraction. For example, the German company RWE is suing the Netherlands for €1.4 billion ($1.42 billion) because it plans to phase out coal.
The plaintiffs want to force their countries to leave the treaty and are supported by the Global Legal Action Network, a campaign group with an ongoing case against 33 European countries they accuse of delaying action on climate change. The prospects for the current application to go to a hearing at the ECtHR look good. But how easy is it to deprive countries of the influence of this treaty?
The Energy Charter Treaty began as an EU agreement in 1991 that guaranteed legal safeguards for companies investing in energy projects such as offshore oil platforms. According to Article 10(1) of the Convention, these investments must “enjoy the most constant protection and security”. If government policies change to curtail these projects, such as Italy’s 2019 decision to ban drilling for oil and gas within 12 miles of its coast, the government will be obliged to compensate the company involved for its lost future revenue.
The legal mechanism that makes this possible is known as investor-state dispute settlement. A letter to EU leaders, signed by 76 climate scientists, says this could keep coal-fired power plants open or force governments to pay fines for closing them, at a time when deep and rapid emissions cuts are desperately needed.
Money spent on compensating fossil fuel investors will deprive investment in renewable energy and other things essential to the green transition, such as public transportation. While any country can withdraw from the Energy Charter Treaty, losing the benefits of membership — such as reduced duties and taxes on oil and gas imports — will be a tough decision.
In addition, the obligations of signatories to the treaty are not extinguished upon exit from the treaty, but instead 20 years thereafter. Investors can still bring disputes against former members and, if successful, must be reimbursed by the relevant state. Russia and Italy withdrew from the Energy Charter Treaty in 2009 and 2016 respectively and are still facing multiple claims.
Leaving the treaty
Meanwhile, the European Commission stands ready to extend the Energy Charter Treaty’s influence to countries in Africa and Latin America, potentially embroiling those states in the same investor-state dispute settlements that have hindered climate action in Europe.
The political declaration for a new international energy charter, based on the principles of the original European treaty, was signed by 87 countries in 2015. Negotiations continue, but the signatories’ 25-point list of priorities contains only one reference to “sustainable development”.
An update on the negotiations stated that existing fossil fuel investments must be protected until 2033, meaning governments will be liable for compensation if they close a coal-fired power plant early. The UK and the EU reached a deal to exempt new fossil fuel projects from protection from mid-August 2023.
Drastic action is urgently needed to achieve the goals of the Paris Agreement and reduce greenhouse gas emissions in line with warming to 1.5°C at best and 2°C at worst. Countries will have to regulate and shut down emission sources, but at the same time, investors in fossil fuels, including oil and corporations and energy companies, are asking for more time and money to adapt to the transition.
RWE’s claim against the Dutch government in February 2021 argued that the latter had given the company insufficient time to switch from coal to biomass. But this is something the Dutch government cannot afford: it acted unlawfully in 2019 by its own Supreme Court by waiting too long to implement emission reductions.
One way to tackle this problem is for the parties that have contracted the Energy Charter Treaty to pull out of it en masse, escaping the sunset clause that holds them accountable two decades after their departure. These countries could also conclude a separate agreement to exclude disputes between investors and states against each other.
Continued public pressure — and a favorable ECHR ruling for the five plaintiffs — could encourage enough governments to act decisively, fatally weakening the treaty and its hold on international climate action.
Chamu Kuppuswamy is Senior Lecturer, School of Law, University of Hertfordshire
This article is republished from The Conversation under a Creative Commons license. Read the original article.
