28th May 2023

Why are EU countries leaving the Energy Charter Treaty?

  • Negotiations to modernise the Energy Charter Treaty started early in 2020, in a bid to make it compatible with the 2015 Paris Agreement (Photo: Nikon Ranger)
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The Netherlands has been the last EU country to announce that it would quit the controversial Energy Charter Treaty (ECT) over climate concerns — after Poland and Spain.

The announcement comes after attempts to modernise the treaty, in a bid to make it compatible with the 2015 Paris Agreement.

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But some EU capitals are not convinced by the final text, which they still see as obsolete.

This little-known international agreement, which deals with cross-border investments in the energy industry, was signed by 50 countries back in the 1990s, including all EU member states.

Initially, it was set up to protect investments in post-Soviet countries. But concern has been mounting in recent years because EU countries are facing legal challenges over their climate policies.

The Netherlands, for example, has been sued by the German companies RWE and Uniper over its coal phase-out law. The case is still ongoing.

Now, all EU states are signatories of the treaty except for Italy which withdrew in 2016. But Italy is still involved in an arbitration case over banning oil and gas project exploration in the Adriatic Sea since the treaty protects investments for decades despite countries' withdrawal.

After the last modernisation negotiation round in June, all signatories are now expected to ratify the text on 22 November. EU countries and MEPs will also have to ratify it as well.

Whether a qualified majority will be reached in the EU Council is still unclear, since Poland and Spain are expected to vote against it — while others such as Italy or France are expected to abstain.

In June, MEPs called on the European Commission and national capitals to ditch the controversial trade deal arguing that its modernisation was not good enough to protect the climate.

Now Poland, Spain and The Netherlands are the ones leading the way.

EU's joint withdrawal?

The Netherlands announced on Tuesday (18 October) that it will withdraw from the treaty.

"The mandate for the European Commission was to bring the ECT in line with the Paris climate agreement. 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 energy minister Rob Jetten.

The minister said that the Dutch government would first await the full modernization of the text and then launch the withdrawal procedure.

But the Netherlands, together with Spain and Poland, has argued in favour of a joint withdrawal.

The majority of ECT disputes are internal EU rows, where, for example, claims against an EU country are brought by an investor from another EU member state. Spain has the biggest number of lawsuits related to ECT, followed by Italy and the Czech Republic.

The commission has warned that existing investments still would remain protected for 20 years — even if there is a coordinated EU withdrawal.

But the EU top court recently ruled that companies cannot use this treaty for intra-EU disputes to sue EU member states.

And some experts have previously argued that no legal or politically viable solution would make the treaty compatible with the 2015 Paris Agreement.

Spain, which has been one of the most vocal opponents of this treaty, also confirmed this month that it is leaving the treaty, according to several media reports.

Poland, for its part, has drafted legislation on the "termination of the Energy Charter Treaty". But the bill still has to be adopted by the upper house.

Nevertheless, none of the three countries has formally informed the commission of their intention to withdraw from the ECT. And the commission is also not aware that Poland, Spain or Netherlands have notified the ECT authorities — what is legally required.

All EU countries endorsed the outcome of the negotiations on the ECT modernisation in June.

'Painstakingly slow'

Under the new ECT, EU countries would be allowed to unilaterally exclude "new" fossil fuel investment as of August 2023 and "existing" fossil fuel investment 10 years after the entry into force of the new text "or at the latest 2040".

"But history shows that this process can be painstakingly slow," said Amandine Van den Berghe, a lawyer from the environmental group ClientEarth.

The last ratification of ECT trade amendments took twelve years to complete. Likewise, investment protection under the CETA agreement with Canada is still not ratified by all EU member states, although negotiations concluded six years ago.

"ECT is as controversial as the CETA agreement," said Van den Berghe.

Overall, investments in fossil fuel infrastructure protected by the ECT amount to some €344.6bn, according to an investigation by Investigate Europe.


The controversy behind the Energy Charter Treaty reforms

Experts from several organisations say that reform of the Energy Charter Treaty, proposed by the EU Commission, will make it difficult to meet the targets agreed in the Paris Agreement - making it an obstacle to the clean-energy transition.


A contrarian view: leaving Energy Charter Treaty is bad

The controversial Energy Charter Treaty does not only protect investment in fossil fuels, it equally protects investment in renewables. This is a major reason why the Spanish government is on the forefront of urging the EU to abandon the treaty.

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