Client Earth – Abandon Energy Charter Treaty or miss climate goals, lawyers warn Commission

“The treaty is basically a trump card that climate-wrecking businesses can play every time a government lays down positive climate policy,” said Amandine Van Den Berghe.

Client Earth is a team of over 200 people across eight offices, dedicated to protecting life on Earth. We work in over 50 countries, ingeniously using the law to create systemic change

Cross-posted from the website of Client Earth

Following a seminal ruling by the EU’s top court, ClientEarth lawyers have today warned the European Commission in a letter that the EU and its Member States must exit the climate-sabotaging Energy Charter Treaty (ECT) or miss its climate goals.

The ECT is an outdated investment treaty which contains a controversial “investor-state dispute settlement” mechanism – a tool which allows companies to bypass national courts and sue states for billions in compensation in secretive tribunals, notably when environmental or climate action affects their economic interests.

A ruling by EU Court of Justice on 2 September 2021 confirmed that using the Treaty’s mechanism for intra-EU investment disputes is not compatible with EU law. But lawyers say this judgment may not stop EU investors and companies from pursuing billions in ‘compensation’ before arbitral tribunals for legitimate regulatory changes, like coal phase-outs, that are urgently needed to meet EU climate targets.

In the letter, ClientEarth lawyers explain why the only solution is for the EU to withdraw from the ECT. The letter is supported by a group of civil society organisations and think thanks: Climate Action Network Europe, Friends of the Earth Europe, International Institute for Sustainable Development, PowerShift, SOMO, Transnational Institute and Veblen Institute.

ClientEarth trade lawyer Amandine Van Den Berghe said:

“The EU has a crucial and leading role to play in addressing the climate emergency, but its continued membership of the Energy Charter Treaty is an act of stunning self-sabotage.

“The Treaty is basically a trump card that climate-wrecking businesses can play every time a government lays down positive climate policy. This risks creating a chilling effect where governments feel hamstrung and won’t dare introduce the changes we need to see, for fear of legal action.

“Though we now have a ruling that outlaws investment arbitration in the EU, it is highly feared that the shadowy tribunals overseeing these disputes will not comply. Letting investors and arbitrators ignore the Court’s recent clarification would undermine the rule of law in the EU and sets a horrendous example.”

Polluting corporates are actively using the investor-state dispute mechanism to seek compensations for their stranded assets. This year, German coal giants RWE and Uniper both brought cases against the Netherlands for its decision to phase out coal by 2035, claiming combined damages of around 2.4 billion Euros.

Paul de Clerck, economic justice coordinator at Friends of the Earth Europe said:

“The climate crisis cannot afford billion-euro corporate compensation claims every time our governments take a climate action decision. It’s good news that the European Court of Justice recognises that such investment protection within the EU based on the Energy Charter Treaty is not in line with EU law.

“This underlines once again that the EU and its member states must leave the climate killer Energy Charter Treaty, which mainly serves to protect fossil fuel interests.”

The Commission has attempted to modernise the ECT and bring it in line with climate objectives – but efforts have been hopeless. Now, member states like France, Spain, Poland and Greece are all considering leaving the treaty.

The letter calls on the Commission to start preparing for a coordinated EU withdrawal, together with Member States. This should include abolishing the “sunset clause” – which allows disputes related to existing investments to be brought up to 20 years after a party has left the treaty.

“The ECT is a huge obstacle to the EU’s energy transition,” said Van Den Berghe. “This month’s court decision should be the final straw.

“EU states have committed to the goals of the Paris Agreement, which requires an immediate shift away from fossil fuels. But without leaving the Treaty, they will remain weighed down by a tremendous anchor.”

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