Investigate Europe | 25 July 2022
ECT: “ecocide” treaty puts Member States and EU Commission at odds
By Maxence Peigné
European governments are still considering withdrawal from the Energy Charter Treaty (ECT), despite the EU Commission’s efforts to modernise the controversial pact, documents leaked to Investigate Europe reveal.
Several member states are dissatisfied with the result of two years of difficult negotiations supposed to bring the Energy Charter Treaty in line with the Paris Agreement and its aim to keep global warming “well below” 2°C.
The gap is now widening between some EU governments, who fear the ECT will hamper their transition away from fossil fuels, and the Commission, who believes it can co-exist with its green policies.
Described as a threat to climate action by civil society and UN experts, the little-known treaty allows foreign investors in the energy sector to sue states over environmental reforms. Notorious cases include German giants RWE and Uniper asking the Netherlands for more than €2 billion in compensation for the country’s decision to phase out coal.
Most of the 55 ECT signatories are in Europe and Asia. They include the EU and its members (except Italy). When it was signed in 1994, the treaty sought to protect western investments in the energy-rich regions of the former Soviet Union. But, as IE previously revealed, the ECT now protects €344.6 billion of fossil assets in Europe, while three-quarters of its 150 recorded disputes involve European firms going after EU states.
Faced with the potential of multi-billion euro lawsuits from big emitters and in light of its vow to be carbon neutral by 2050, the EU triggered a modernisation process of the treaty in 2018. On behalf of the bloc, the Commission spearheaded negotiations which officially ended on June 24, with an agreement in principle.
One of its key amendments will allow a carve-out of fossil fuel protection within nine months of ratification for new investments and over a 10-year phase-out for existing infrastructures. It would mean that a French company operating an oil rig in the North Sea could sue the UK for another decade if the British government decided to shut it down in light of its net-zero targets. But the same firm could no longer rely on the ECT to cover any potential new fields it develops.
The Commission has hailed the agreement as a success, claiming that it “fulfilled [its] mandate” and “aligned the ECT with the Paris Agreement and [the EU’s] environmental objectives.”
Yet, behind closed doors, not all member states share Brussels’ enthusiasm.
Diplomatic minutes leaked to IE from a July 12 Council of the EU meeting reveal that some governments are contemplating a joint withdrawal from the ECT, regardless of the revised deal. Others are still drafting their final position but are already voicing serious reservations about the modernised text.
“Withdrawal remains on the table”
At the Council meeting, Spain said it regarded leaving the ECT as the best option available, echoing the words of the country’s deputy Prime Minister, Teresa Ribera, who said prior to the June 24 summit that she favoured a withdrawal.
Germany, France and Poland are yet to share their positions and said they could still back an exit from the treaty. They doubted that European ambitions have been achieved with regards to the Paris Agreement and sustainable development. Some officials demanded that a withdrawal impact assessment be carried out, but the Commission said it was unnecessary.
IE also accessed minutes of three Council meetings in the weeks before the June 24 summit. They show that several governments repeatedly warned that modernisation has failed to align the ECT with the EU’s climate pledges.
Diplomats close to the negotiations told IE that, even though they spent two years crafting it, they’re not sure if the compromise is worth signing.
“We still need to evaluate whether it meets the purpose of the Paris Agreement,” said one French official who asked not to be named. “All the options, including a withdrawal, remain on the table if we’re not happy with the outcome.”
Others have already made up their mind. In the days before the agreement in principle was announced, both the EU and the Dutch parliaments voted in favour of scrapping the ECT.
Quitting the treaty has one caveat, though. The text includes a “sunset” clause safeguarding existing investments for 20 years after withdrawal. Italy left in 2016 but is still entangled in a suit with British oil and gas company Rockhopper over a offshore drilling ban in the Adriatic Sea.
Some critics and lawyers argue that EU members could ditch the ECT en masse and cancel this provision between themselves, as most disputes arise within the union. But the Commission has time and again insisted this isn’t a silver bullet.
Therefore, the challenge, according to one member state’s energy attaché, is more about “choosing the lesser of two evils,” than it is upholding the Paris Agreement. “We can either cease to protect new investments and phase out existing ones over 10 years with the modernised treaty, or we can expose ourselves to 20 years of sunset clause with an exit,” the delegate said.
“The reform is an utter failure”
Activists, who often call the ECT an “ecocide treaty”, would rather choose neither.
On June 21, 76 scientists sent an open letter to European leaders insisting that even a modernised ECT could “jeopardise the EU climate neutrality target and the EU green deal.” The same day, a group of young people brought a case to the European Court of Human Rights to argue that their governments’ membership of the treaty is a threat to their future.
“The reform is an utter failure,” Cornelia Marfield of Climate Action Network Europe (CAN) told IE. “It still enables fossil fuel companies to launch uncapped compensation claims against states that phase out coal, gas and oil.”
What’s more, the 10-year carve-out would work on a voluntary basis, meaning it could easily be ignored by those who opposed it during talks, namely Japan and other Asian countries.
“There is no such thing as a perfect negotiated agreement,” conceded one European negotiator. “We want to achieve the goals of the Paris Agreement but we need to find a formula that keeps a certain amount of safety for countries that need more time.” The representative added that there will be bumps in the road ahead as the ratification process could be a lengthy affair.
First, contracting parties will confirm their positions over the summer, ahead of the ECT annual conference in November, when the modernised text will either be rejected or unanimously accepted. Then, governments will have to turn it into law as per each country’s domestic procedure. At the EU level, the text must be approved by member states in the Council and by the European parliament.
Since the ECT is a “mixed agreement” (involving competencies of both the EU and its members), it would also need adopting by EU countries on a national basis and could be blocked or delayed by its detractors in Spain, France, Poland or elsewhere.
“The last change to the ECT took no less than 12 years to come into effect,” Marfield said. “If you consider that the CETA [an EU-Canada trade agreement] is still stuck in ratification eight years after negotiations ended, you get a flavour of how long the reformed ECT could take.”
The European negotiator said that provisions in the modernised treaty, if accepted in November, may allow for some parts to be implemented before it’s fully ratified. But EU governments could nip it in the bud before it reaches that stage.