As German energy giant RWE exploits an outdated legal instrument to resist necessary climate action, pressure mounts on the EU to put an end to the Energy Charter Treaty blackmail. Roberta Arbinolo reports.

This article was updated on 23 February 2021.

RWE is demanding 1.4 billion from the Netherlands to compensate the shut down of its coal-fired power station in Eemshaven, which is the biggest carbon emitter in the country. Last week, the corporation initiated a so-called Investor-State Dispute Settlement (ISDS) procedure under the controversial Energy Charter Treaty (ECT), a trade deal from the 1990s which protects the interests of investors in the energy sector.

This is not the first time the treaty is used by corporations to dissuade governments from phasing out fossil fuels. Only last spring, German company Uniper had also threatened to sue the Netherlands under the ECT and claim €1 billion in compensation for the closure of its Maasvlakte 3 coal plant.

Yet the Dutch coal phase-out itself was compelled by the Dutch Supreme Court, which mandated the government to speed up greenhouse emissions cuts and protect its citizens from climate breakdown, following a legal case brought by the Dutch NGO Urgenda and 900 Dutch citizens.

RWE had recently been in the news for demolishing villages in North-Rhine Westphalia, Germany, to make room for the expansion of the Garzweiler coal mine. The energy giant is after the tons of lignite – the cheapest and most toxic kind of coal – lying underneath the villages. However, this coal cannot be burnt if Germany is to respect its climate commitments.

Riccardo Nigro, Campaign Coordinator on Coal Combustion and Mines at the European Environmental Bureau, told META:

“Not only RWE is destroying people’s homes to dig out unneeded coal, they are also recklessly suing the Netherlands for shutting down coal power plants. This case is yet another example of how private companies are forcing taxpayers to foot the bill for the energy transition, and for the climate damage they create. How long will we let corporations’ blackmail hinder our governments’ climate action?”

From shield to hanging sword

Created in 1994 to shield foreign investors in the energy sector from arbitrary political decisions and encourage investments in post-communist countries, the Energy Charter Treaty has quickly turned into a dangerous instrument in the hands of corporations that seek to counter policies that might affect their profits.

Its Investor-State Dispute Settlement mechanism constitutes a parallel, business-friendly judicial system that lacks transparency and accountability, compared to open and public courts, and can constitute a major deterrent to climate action. Thomas Dauphin, trade campaigner at Friends of the Earth Europe (FoEE), defined the treaty as an ever-present sword of Damocles hanging threateningly over the heads” of policy makers and regulators, with an overall chilling effect on green policies.

FoEE calculates that companies have already used the treaty at least 128 times to challenge states – a conservative estimate, as there is no obligation for cases to be made public – and that, as a result, energy investors have already been awarded $52 billion dollars by investment tribunals.

Time to quit

As cutting emissions becomes more and more urgent, and the pressure from companies lawsuits mounts, the European Commission has been trying to renegotiate the agreement, and notably the definition of the ‘economic activity in the energy sector’ that it protects. Yet, modernisation is slowed down by the treaty’s requirement for the parties to take decisions by unanimity, and conservative members such as Japan have so far blocked any substantial change.

Even within the EU block, member states are divided on the approach. Some countries like Luxembourg and the Netherlands are in favour of adapting and updating the treaty, while others take a more confrontational approach and advocate for a coordinated withdrawal. Over the past few months, both Spain and France have expressed concerns about the stagnation of the modernisation process and have called for the EU to leave the treaty altogether, or to envision the withdrawal of individual member states if no decisive progress is made by the end of the year.

Earlier this week, the Commission has submitted the EU position to the Energy Charter Secretariat and Modernisation Group, ahead of the next negotiation round among contracting parties scheduled for the first week of March. However, campaigners warn that the EU proposal will not be enough to free governments from the ECT blackmail, and that the reform project might end up expanding, rather than reduce the risk of investor-state arbitration claims.

Cornelia Maarfield, Trade and Climate Project Manager at Climate Action Network (CAN) Europe, declared:

“This half-hearted proposal would continue to allow coal, gas and oil corporations to extract compensation from governments that pursue Paris-compatible energy policies. To make things worse, the Commission intends to expand the dangerous investment protection provisions of the treaty to hydrogen and biomass – neither of which is clean per se nor is their contribution to the clean energy transition proven. Why set a new trap for policy makers if you haven’t found the way out of the existing one?”

Nick Meynen, Senior Policy Officer for Environmental and Economic Justice at the European Environmental Bureau, told META:

“It’s time to stop pretending that this dinosaur Treaty can be ‘modernised’. The point of the old ECT treaty is to protect a fossil fuel industry, but that industry needs to be phased-out rapidly. Stop trying to teach new tricks to an old dog. Spain and France want to follow Italy through the exit door, but what we need is a joint EU-wide exit. It is either the European Green Deal and climate neutrality or the ECT, but you can’t try to have your cake and let the fossil fuel industry eat it.”

Petitioning for justice

Confronted with the negotiation impasse and the weakness of the EU proposal for reform, citizens and campaigners are taking action to counter the obstacles posed by the Energy Charter Treaty to necessary climate action.

A petition hosted on the website of the European Parliament calls on the inclusion of an amendment to “end protection of investments in fossil fuels in the context of the modernisation of the Energy Charter Treaty” in the EU climate law. Such an amendment had been included by the European Parliament in the law adopted end of last year, but was then rejected by the Council.

Petitioners call on member states to take their climate neutrality commitments seriously and act accordingly to end the protection of foreign investments in fossil fuels.

Another petition lead by the Climate Action Network (CAN) Europe demands that European governments, parliaments and EU institutions pull out of the Energy Charter Treaty and stop its expansion to other countries.

“The treaty allows coal, oil and gas corporations to obstruct the transition to a clean energy system. Disarm fossil fuel firms now, so they can no longer impede urgent climate action!” reads the text of the petition.

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