Bloomberg | 29 October 2021
Big Coal tapping obscure treaty could chill green revolution
By Hugo Miller and Diederik Baazil
The 20-foot-tall dinosaur stalking The Hague is an inflatable mash-up of cars, oil tankers and smokestacks. Its quarry: an obscure pact set up in the wake of the Cold War that activists say is being exploited by coal giants to stall Europe’s transition to clean energy.
The Energy Charter Treaty was designed in the early 1990s to encourage the West’s oil-and-gas industry to invest in former Soviet states, promising an independent arbitration tribunal if deals went awry. It evolved to cover the renewables business and expanded to 55 members, including the European Union, Russia, the U.K. and Turkmenistan.
The agreement sprang to prominence this year when German energy giants RWE AG and Uniper SE used it to sue the Dutch government, seeking an estimated $2.7 billion in damages after being ordered to shut their coal plants. Dinosaur-wielding activists say Big Energy is twisting the treaty to circumvent net-zero mandates and intimidate nations trying to go green, so they want the Netherlands, EU and U.K. to withdraw.
“The real risk is that an adverse ruling will have a chilling effect on regulatory measures and may make the Dutch government think twice when enacting climate change policy,” said Zaneta Sedilekova, an environmental lawyer at Clyde & Co. in London.
The cases proceed as the U.K. prepares to host the COP26 United Nations climate summit this month in Glasgow, Scotland. The crux of that meeting is whether nations can agree to accelerate decarbonization and keep the planet’s warming below 1.5 degrees Celsius relative to pre-industrial times.
The Netherlands moved in 2019 to shut down coal-fired power plants after a court ordered the tightening of greenhouse-gas emission rules.
RWE sued in February after being told to wind down its Eemshaven station by 2030 –- just 15 years after opening. Germany’s biggest utility argues the Dutch government invited the industry to build coal-fired plants, and the company deserves 1.4 billion euros ($1.6 billion) in compensation for shuttering theirs so early.
Uniper, also based in Germany, sued in April, using a similar argument concerning the plant it opened in 2016 in Maasvlakte. A company spokesman declined to comment while arbitration was ongoing.
Both producers say their filings are just about recouping investments and that they endorse Dutch climate goals.
Yet campaigners such as London-based ClientEarth say it’s cases like these, a long way from the oil-rich Caucasus, that risk letting Big Energy undermine continental efforts to fight climate change.
“Continued membership to the charter will continue to allow companies to hamstring member states on climate action,” Anaïs Berthier, head of EU Affairs for ClientEarth, wrote to the European Commission Oct. 4.
A commission spokeswoman on energy issues declined to comment. The ECT has a 20-year sunset clause, so leaving now means a country still faces claims until 2041. The Energy Charter came into force in 1991, with the treaty signed three years later.
The Dutch and U.K. governments each said they support ongoing negotiations to modernize the treaty.
Hanging over the talks is a September ruling by the EU’s top court that energy producers from member states cannot fall back on the treaty to resolve disputes with EU governments.
The immediate effect on the pact is unclear.
But the ECT’s secretary-general said both the treaty’s mandate and track record are misunderstood, and activists have an overly simplistic view of an organization undertaking ambitious reforms.
“The ECT is a balancing act between the legitimate rights of government to govern and regulate, and the legitimate rights of investors to expect their investments will be protected,” Urban Rusnak said from Brussels, where the secretariat is based.
Rusnak also said he’s leading efforts to reform the ECT.
Historically, most cases were filed by renewable-energy producers, outnumbering those by fossil-fuel companies every year since 2000. Many concerned reductions in government subsidies.
Weakening the ECT, therefore, also risks hurting renewables just as states rely on them to help meet ambitious net-zero targets, Rusnak said.
The energy crunch in Europe proves the need for a business-friendly environment to keep gas production sufficient until most energy is renewable, he said.
“The 21st century will be the century of solar and wind, but we are still in 2021, not 2081,” Rusnak said. “The ECT provides a safety net for all kinds of investment.”
Still, the treaty needs to evolve to stay relevant, said Csaba Rusznak, a Washington-based arbitrator who’s argued cases before the tribunal. For example, disputes currently take years to resolve.
“The ECT has a place in the energy transition but, in its current form, it is not well-suited for this role,” said Rusznak, no relation to the secretary-general. “It is like driving down the highway with one foot on the brake and one on the accelerator.”