Wednesday

21st Feb 2024

EU opts to protect gas in energy treaty reform

  • The Netherlands was recently sued for €1.4bn, under the treaty, by German multinational RWE (Photo: Kjetil Alsvik/Statoil)

The European Commission has submitted its proposals to reform the controversial Energy Charter Treaty (ECT) just in time for the fourth round of negotiations - although some member states remain sceptical about the entire modernisation process.

The ECT is an international agreement that grants cross-border cooperation in the energy sector, signed in 1994 by nearly 50 countries, including all EU member states.

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However, large fossil-fuel energy companies have also used the treaty to legally lock-in their investment for decades, challenging national government decisions to gradually phase out fossil fuel-based energy.

The Netherlands, for example, was recently sued for €1.4bn under the treaty by German multinational RWE, who argued that the decision by the Dutch government to ban the burning of coal for electricity by 2030 could cost the company €2bn.

Today all member states are contracting parties except for Italy, which withdrew in 2016 - hoping to avoid further arbitration related to the implementation of renewable energy.

The treaty's 55 signatories will meet in early March to discuss the reform of the ECT.

In its proposal, submitted on Monday (15 February), the EU is pushing for a 10-year phase-out of the protection for fossil fuels investments, such as coal and oil.

However, investment in gas infrastructure would be protected until end the end of 2030, if they emit less than 380g of CO2 per kWh of electricity, and possibly until 2040 if they are coal-to-gas conversions - sparking outrage among environmentalists.

Cornelia Maarfield from NGO Climate Action Network has warned that, under this proposal, the ECT will remain "an obstacle" to sustainable energy policies.

"Fossil-fuel investors will continue to be able to obstruct climate policies, and governments will have to choose to either pay huge amounts in compensation to these firms or water down legislation," she said.

Corporate Europe Observatory researcher Pia Eberhart pointed out that those EU governments which want to keep gas in the ground could be held liable for billions.

"The EU proposal is not so far from denying there is a climate crisis," she said.

Additionally, the commission wants to expand investment protection to other technologies, such as biomass and hydrogen, but according to Eberhart, this may lead to more lawsuits.

Meanwhile, some member states, such as France and Spain, have called on the commission to consider withdrawing from the agreement should its modernisation fail.

In a letter sent to the commission last week, Spanish energy minister Teresa Ribera said that "it seems not to be possible to reach a deal consistent with Paris goals" because many contracting parties do not share "European ambitions" in the field of the energy transition.

Yet, effective reform of the ECT is highly unlikely partly because any changes to the treaty would require a unanimous decision by the Energy Charter Conference - including energy-exporting countries like Kazakhstan, Turkmenistan, and Uzbekistan.

An internal commission report from 2017 already considered it "not realistic" that the ECT will be amended.

The cost of withdrawing

Last December, the commission confirmed for the first time that Brussels could withdraw from the ECT "if core EU objectives, including the alignment with the Paris Agreement, are not attained within a reasonable timeframe".

However, the treaty stipulates that 'old' investments will remain protected for 20 years even if there is a unilateral withdrawal of the EU and its member states.

Luxembourg energy minister Claude Turmes said earlier this month that the proposal of the commission is "weak," but that an EU withdrawal from the ECT would be "a major diplomatic failure" that would allow fossil-fuel investments protection in the remaining 27 non-EU contracting parties.

The majority of ECT disputes, 67 percent (a figure which has rapidly increased in recent years), have taken place between EU member states.

Spain is the country with the biggest number of lawsuits related to ECT, followed by Italy and the Czech Republic.

Analysis

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.

EU Commission could pull out of controversial energy treaty

Brussels is now considering withdrawal from the controversial Energy Charter Treaty, if negotiations to modernise it fail. A leaked European Commission proposal, dated October, revealed that loopholes remain regarding the protection of fossil-fuel investment.

MEPs urge EU to be ready to dump disputed energy treaty

Cross-party MEPs called on the European Commission to prepare to withdraw from the controversial Energy Charter Treaty (ECT) if negotiations for its modernisation fail. At the heart of the row is fossil fuel companies ability to sue governments for compensation.

Green NGOs demand EU dumps controversial energy treaty

Following the first round of negotiations for the Energy Charter Treaty reform, green groups renew their call to the EU and member states to jointly withdraw from the agreement - claiming it is cannot be aligned with the Green Deal.

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