Critical concerns: UK exits pro-fossil fuel Energy Charter Treaty

LONDON: The UK has joined nine EU member states in exiting the Energy Charter Treaty (ECT), a controversial investment pact weaponised by big emitters to sue governments — most recently for phasing out fossil fuels. Following the lead of Germany, Spain, France, Denmark, the Netherlands and others, the UK announced on Thursday that it is leaving the ECT due to its failure to align with “net zero” emission targets. “The decision will support the UK’s transition to net zero and strengthen its energy security,” read a government statement, adding that efforts to modernise the treaty in line with the clean energy transition have failed. “The Energy Charter Treaty is outdated and in urgent need of reform but talks have stalled and sensible renewal looks increasingly unlikely,” said UK Minister of State for Energy Security and Net Zero, Graham Stuart.

The European Commission stated in February, 2023, its intention to coordinate a withdrawal of the entire bloc from the pact ratified in 1994 to protect energy investments in post-Soviet states.

EU countries are the target of 90% of ECT disputes. This litigation threat has hamstrung climate policy to the point where the EU can “wave bye-bye to carbon neutrality targets,” according to Yamina Saheb, a climate expert and former ECT employee. When the Netherlands, for example, legislated a 2030 coal-fired power phase-out in an effort to reduce carbon emissions, German energy giants Uniper and RWE sued the government under the treaty. In the closed-door arbitration court where ECT disputes are settled, RWE demanded 1.4 billion euros ($1.55 bn) compensation from the Dutch government — despite RWE subsequently agreeing to its own 2030 coal phase-out in exchange for the right to mine lignite under Lutzerath in western Germany.

That case is ongoing, though Uniper withdrew its claim as part of a bailout agreement with the German government. The recent defections from the treaty are a sudden about face from June 2022, when the European Commission agreed on a series of modernisation measures to better align the ECT with climate goals.

But with one reform clause protecting existing fossil fuel investments for the next 10 years, France, Spain, Germany and the Netherlands decided modernisation didn’t go far enough. Announcing their intention to leave the treaty, they were also able to block a scheduled November 2022 vote on the reform measures in the European Council.

“Despite many of the modernisations that are now in the negotiation outcome, we do not see how the ECT has been sufficiently aligned with the Paris Agreement,” said Dutch climate and energy minister Rob Jetten when confirming the Netherlands’ ECT exit in October 2022.

The next month, the European Parliament passed a resolution calling for a coordinated EU withdrawal from the treaty — aligning with the aims of campaigners who have lobbied for years for an exodus. The resolution passed with a significant 100 vote majority and inspired the European Commission to follow suit in February, 2023. While the ECT secretariat wanted to push on with another modernisation vote in April 2023, the Commission has not scheduled a meeting and is instead negotiating a coordinated withdrawal, noted Paul de Clerck, a Brussels-based campaigner for Friends of the Earth Europe. Some EU countries like Cyprus, Malta, Finland and several Eastern European countries still support treaty reform, in part because they were “taken by surprise” by the Commission’s sudden U-turn, de Clerck explained.