In the midst of a climate and health emergency, a German energy firm is exploiting an obscure investment treaty to intimidate the Dutch government from pursuing its plan to phase out coal.

If successful, this will have a chilling effect on climate action, Roberta Arbinolo reports. 

The Dutch government’s coal exit plan is part of a broader strategy to cut greenhouse gas emissions in the Netherlands by 49% from 1990 levels by 2030. To comply, the German company Uniper will have to close its Maasvlakte 3 coal plant, close to Rotterdam, less than 15 years after opening it, or switch to operating it with a different fuel.

Uniper describes this as an “expropriation” and has threatened to take extra-judicial action against the Netherlands, seeking a reported €1 billion in compensation.

Emissions from coal burning are a major driver of climate breakdown. The International Energy Agency estimates that CO2 from coal has been responsible for about a third of the 1°C increase in global average annual surface temperatures above pre-industrial levels.

Coal emissions also take a heavy toll on our health, polluting the air we breathe and making us more vulnerable. According to Europe Beyond Coal, Uniper is the fifth most toxic coal company in Europe, with modelled health impacts of up to €1.5 billion, including 5,000 asthma symptom days in children, 288 premature deaths, and 80,000 lost working days.

Uniper’s threat

Uniper’s claim against the Dutch government would be based on the investor-state dispute settlement (ISDS) mechanism under the Energy Charter Treaty (ECT), a trade deal from the 1990s which protects the interests of investors in the energy sector.

First announced in autumn 2019 to try and influence the legislative process, the legal threat was reiterated during the corporation’s AGM last week, when chief executive Andreas Schierenbeck stated that the company reserves legal possibilities to secure “shareholders’ interests”.

According to campaigners, Uniper has long known the damaging impacts of its coal operations, and that national coal phaseout plans were imminent. Exiting coal by 2030 at the latest is essential to meeting the climate goals of the UN Paris Climate Agreement, 10 European countries are already coal free, and another 13 are planning to leave it behind within the next 10 years.

In addition, the profitability of the most polluting of fossil fuels is already shrinking, and the drop in global energy demand due to the coronavirus crisis may be accelerating coal’s demise.

However, this is not stopping Uniper from opening a new coal-fired power plant, the controversial Datteln 4, which will be inaugurated on 30 May 2020. 

Riccardo Nigro, Campaign Coordinator on coal combustion and mines at the EEB, told META: “Uniper is using the treaty to shift the losses from its stranded assets to taxpayers, and intimidate governments away from climate action, while opening yet another polluting plant. This is even more outrageous as we face a health and economic crisis unprecedented over the past century. We cannot afford to bailout their toxic business, people have already paid enough.”

The Uniper case also raises questions for the government of Finland, as Finnish state-owned energy company Fortum is the largest owner of the German corporation and could heavily influence its climate and environmental policy. According to CAN Europe, by acquiring a major stake in Uniper, Fortum has become one of Europe’s worst polluters.

“This is very uncomfortable for Finland,” said Europe Beyond Coal’s coal finance expert Kaarina Kolle. “There is a strong and unequivocal mandate that binds all Finnish state-owned companies to align themselves with the 1.5°C target, which entails a rapid coal phaseout by 2030, going beyond the current phaseout pledges. But the question is: how is that mandate put into practice?”

A dangerous precedent

If Uniper won damages, it would set a dangerous precedent for polluters claiming public bailouts to protect their economic interest. This is all the more serious in the aftermath of COVID-19, when governments worldwide will need need more than ever to support their public health systems, help vulnerable citizens and finance a just transition, without worrying that their budgets could be strained by an all-consuming wave of arbitrations.

But even if not pursued, the prospect of legal action could intimidate governments away from ambitious climate policy. This happened in France in 2017, when a far-reaching climate law that would end fossil fuel extraction on the national territory and align France with the Paris Agreement was watered down to the point that it undermined its original ambition, after an ISDS legal threat by oil company Vermilion.

Besides, campaigners warn ISDS under the Energy Charter Treaty is a dangerous instrument in the hands of corporations to attack government policies that might affect their profits, as they constitute a parallel, business-friendly judicial system which lacks transparency and accountability compared to open and public courts.

Anti-lobbying campaign group Corporate Europe Observatory found that by 2018 governments had paid out at least $51.2 billion under Energy Charter Treaty’s ISDS, with a further $35 billion of outstanding claims. The ECT secretariat reported up to 114 corporate claims, and as there is no obligation to disclose the existence of such cases, the true figure could be even higher.

Francesca Carlsson, Legal Officer at the European Environmental Bureau, told META: “ISDS are too often used to bully states and prevent them from regulating in the public interest. In the case of the Energy Charter Treaty, their chilling effect slows down necessary climate action. It’s time to end this corporate privilege.”

21 EU member states, including Germany and the Netherlands, agreed in January 2019 to stop applying ISDS and to settle disputes using EU law and the European Court of Justice.

“If Germany truly believes in their own declarations, they should start by negotiating with German companies so that they don’t take advantage of the ECT ISDS against another member state,” added Carlsson.

Campaigners also encourage Germany to reopen discussion to convince the six remaining member states – including Finland – to join the declaration and suspend ISDS during the German presidency of the EU presidency, which kicks off in July 2020.

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