Yves here. An ugly trade treaty that included corporate-profit guaranteeing “investor-state dispute settlement” mechanisms is again getting the bad press it deserves. We mentioned the 1994 Energy Charter Treaty in our 2013-2015 opposition to the TransPacific Partnership and its Atlantic sister, the TransAtlantic Trade and Investment Partnership because it had become notorious in Europe for undermining clean energy initiatives. From a November 2013 post, quoting Public Citizen: Vattenfal, a Swedish company, is a serial trade pact litigant against Germany. In 2011, Der Spiegel reported on how it was suing for expected €1 billion plus losses due to Germany’s program to phase out nuclear power: According to Handelsblatt, Vattenfall has an advantage in seeking compensation because the company
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Yves here. An ugly trade treaty that included corporate-profit guaranteeing “investor-state dispute settlement” mechanisms is again getting the bad press it deserves. We mentioned the 1994 Energy Charter Treaty in our 2013-2015 opposition to the TransPacific Partnership and its Atlantic sister, the TransAtlantic Trade and Investment Partnership because it had become notorious in Europe for undermining clean energy initiatives. From a November 2013 post, quoting Public Citizen:
Vattenfal, a Swedish company, is a serial trade pact litigant against Germany. In 2011, Der Spiegel reported on how it was suing for expected €1 billion plus losses due to Germany’s program to phase out nuclear power:
According to Handelsblatt, Vattenfall has an advantage in seeking compensation because the company has its headquarters abroad. As a Swedish company, Vattenfall can invoke investment rules under the Energy Charter Treaty (ECT), which protect foreign investors in signatory nations from interference in property rights. That includes, according to the treaty’s text, a “fair and equitable treatment” of investors.
The Swedish company has already filed suit once against the German government at the ICSID. In 2009, Vattenfall sued the federal government over stricter environmental regulations on its coal-fired power plant in Hamburg-Moorburg, seeking €1.4 billion plus interest in damages. The parties settled out of court in August 2010.
These treaty terms are designed to erode national sovereignity and establish supra-national mechanisms to make corporate profits senior to national laws. I’m not making that up. Again from that 2013 post:
Word has apparently gotten out even to Congressmen who can normally be lulled to sleep with the invocation of the magic phrase “free trade” that the pending Trans Pacific Partnership is toxic. This proposed deal among 13 Pacific Rim countries (essentially, an “everybody but China” pact), is only peripherally about trade, since trade is already substantially liberalized. Its main aim is to strengthen the rights of intellectual property holders and investors, undermining US sovereignity, allowing drug companies to raise drug prices, interfering with basic operation of the Internet, and gutting labor, banking, and environmental regulations.
Or as Public Citizen put it:
It’s not really about “trade”, but a system of enforceable global governance that is not designed for modification by those who will live the results.
The only good news about the Energy Charter Treaty, compared to its later versions of investor-state dispute settlement provisions, is that signatories can withdraw. And that might actually happen with the Energy Charter Treaty.
By Fabian Flues, an adviser on trade and investment policy at Berlin-based PowerShift, Cecilia Olivet, project coordinator with the Economic Justice Programme at the Transnational Institute, and Pia Eberhardt, a researcher and campaigner with the Brussels-based campaign group Corporate Europe Observatory. Originally published at openDemocracy
On 4 February the German energy giant RWE announced it wassuing the government of the Netherlands. The crime? Proposing to phase out coal from the country’s electricity mix. The company, which is Europe’s biggest emitter of carbon, is demanding €1.4bn in ‘compensation’ from the country for loss of potential earnings, because the Dutch government has banned the burning of coal for electricity from 2030.
If this sounds unreasonable, then you might be surprised to learn that this kind of legal action is perfectly normal – and likely to become far more commonplace in the coming years.
RWE is suing under the Energy Charter Treaty (ECT), a little-known international agreement signed without much public debate in 1994. The treaty binds more than 50 countries, and allows foreign investors in the energy sector to sue governments for decisions that might negatively impact their profits – including climate policies. Governments can be forced to pay huge sums in compensation if they lose an ECT case.
On Tuesday, Investigate Europe revealed that the EU, the UK and Switzerland could be forced to pay more than €345bn in ECT lawsuits over climate action in the coming years. This amount, which is more than twice the EU’s annual budget, represents the total value of the fossil fuel infrastructure that is protected by the ECT, and was calculated using data gathered by Global Energy Monitor and Change of Oil International.
With ECT-covered assets worth €141bn (or more than €2,000 per citizen), the UK – which in 2019 became the first major economy to pass a net zero emissions law – is the country most vulnerable to future claims.
In 2019 the European Commission called the ECT “outdated” and “no longer sustainable”, and more than 450 climate leaders and scientists and 300 lawmakers from across Europe have called on governments to withdraw from the treaty.
But in response, powerful interests have mobilised to not just defend the treaty, but to expand it to new signatory states. These interests include the fossil fuels lobby keen to keep its outsized legal privileges; lawyers who make millions arguing ECT cases; and the Brussels-based ECT Secretariat, which has close ties to both industries and whose survival depends on the treaty’s continuation.
A Bodyguard for Polluters
Supporters of the ECT make a number of controversial claims to prevent countries from leaving the treaty and persuade new countries to join. But their myths and misinformation are easily debunked.
For example, ECT supporters say the treaty attracts foreign investment, including into clean energy. However, there is no clear evidence that ECT-style agreements do this: a recent meta-analysis of 74 studies found that investment agreements’ effect on increasing foreign investment “is so small as to be considered zero”.
And while ECT supporters claim the treaty protects renewable investments, in reality it predominantly protects and prolongs the fossil-fuel dominated status quo. In recent years only 20% of investments protected by the ECT covered clean energy, compared to 56% for coal, oil and gas.
By protecting the status quo, the ECT acts as a bodyguard for polluters. As the RWE example shows, when a government decides to phase out coal or cease oil and gas operations, fossil fuel companies can demand steep compensation via the ECT. So with no public benefits and clear risks for climate action, why are countries hesitant to leave the treaty? Two more myths are preventing them from taking action.
Firstly, ECT proponents claim that an ongoing process to ‘modernise’ the treaty will fix its flaws. But modernisation has proceeded at a snail’s pace since 2017, and is unlikely to succeed given resistance from powerful ECT members like Japan, whose companies have used the ECT to take legal action against other governments. Leakedreports show that the talks are stalled due to the requirement to take decisions unanimously.
No signatory state has proposed removing its dangerous corporate courts, which take the form of arbitration tribunals run by three private lawyers. No state has proposed a clear exemption for climate action. No ECT member wants to exclude protection of fossil fuels from the modernised treaty any time soon.
In short: the negotiations around ECT ‘modernisation’ will not bring the treaty in line with global climate commitments.
Secondly, ECT supporters claim that leaving the treaty offers no protection against costly lawsuits. The ECT’s sunset clause – which allows investors to sue a country for 20 years after its withdrawal from the treaty – makes a unilateral ECT exit useless, it is claimed.
In practice, however, withdrawing from the ECT significantly reduces countries’ risk of being sued and avoids carbon lock-in from new fossil fuel projects. The ECT’s sunset clause only applies to investments made before withdrawal, while those made after are no longer protected.
At a time when the majority of new energy investment is still in fossil fuels, not renewables, this is important. The sooner countries leave, the fewer new dirty investments will fall under the ECT and be ‘locked-in’ by its legal status.
Italy took the necessary step of withdrawing from the ECT in 2016. Going forward, if multiple countries decide to withdraw together – say, the EU bloc, supported by allies such as the UK or Switzerland – they can further weaken the sunset clause. Countries that withdraw could adopt an agreement that excludes claims within their group, before jointly leaving the ECT at the same time. That would make it difficult for investors from those countries to sue others from the group.
This week a European-wide petition has been launched so that citizens can call on their governments to end the ECT madness.
Leaving the outdated, climate-killing ECT is a no-brainer. It is not just good governance, but the logical step for all who take global warming seriously.