The Countries Leaving the Controversial Energy Charter Treaty

Mary Jane Amato tracks the history of the 1998 Energy Charter Treaty and many European countries' decision to withdrawal

Photo by Julius Drost

In 2020 the European Commission declared its intention to withdraw from the infamous Energy Charter Treaty. This treaty was designed almost 30 years ago with the clear intention to protect companies investing in the energy sector by allowing them to sue governments on policies that could potentially put their investments at risk.

A few years before, in 2017, and in the years to follow, modernization attempts were made to bring the treaty in line with the 2015 Paris Agreement. These attempts were supposed to be voted upon in November 2022, after an agreement in principle was reached in June of the same year. However, this did not happen, and a new date has been set in April 2023 for this vote to take place, but it seems the consensus of most of the EU and EURATOM countries who co-signed the treaty is to completely withdraw.

A brief history of the treaty

The Energy Charter Treaty was co-signed by 54 European states (53 since Italy left in 2016) in 1994, coming into effect in 1998. This treaty, which initially was meant to facilitate the creation of advantageous cooperation in the post-cold war energy market, is a global accord that creates a multilateral framework for international collaboration, particularly in the fossil fuel sector.

The agreement covers all facets of commercial energy activity, while also outlining processes for resolving disputes between states and other states, and also between states and foreign investors. Within the agreement is also established an extremely long sunset clause, which subjects the states to a litigation period of 20 years after withdrawal.

In other words, the Energy Charter Treaty is a pact that protects fossil fuel investors from being sued by the countries they have invested in. Investor State Dispute Settlement (ISDS) is provided to these companies; this means that if governments decide to move in a way that could jeopardise their profit, said companies can sue them in corporate courts that will, by rule of thumb, protect them.

In a time where climate action has become prevalent, such a set-up is a serious threat to any progress in this direction.

'[The ECT] no longer serves the interest of the European Union, especially with regard to the objective to become climate neutral by 2050' - European Parliament Resolution, 24 November 2022

Italy and Slovenia: Sued for millions for protecting their land

The power of the ISDS can be attested in the analysis of two separate cases where two countries, Italy and Slovenia, have acted against two major fossil fuel tycoons.

In the first case, the Slovenian government was sued for €120 million, in 2020 by the UK energy company Ascent Resources for demanding an environmental impact study of a planned fracking project. There was a real concern about how the fracking would affect the water sources in the area, and the government wanted a more thorough investigation before allowing the company to proceed. This led the country to back down and pass a new law which allowed limited fracking on the land.

In Italy's scenario, a ban on oil and gas development within 12 miles of the Italian coastline was successfully reintroduced by the Italian Parliament in 2015. This triggered a claim for compensation in 2017 by the UK company Rockhopper Exploration Plc, claiming that the Energy Charter Treaty's rules on investor protection had been broken. The corporation sued the Italian government and won the arbitration, obtaining £190 million even though Italy had previously exited the ECT in 2016.

This controversial decision was possible due to the sunset clause which protected not only the investments Rockhopper had made in Italy, but also the loss of its future profits.

More countries are following Italy's example

At this point in time, the European Parliament, with the support of a majority of EU countries, have expressed their will to leave the ECT. After an inconclusive period where the possibility of modernising the treaty was proposed to make it more in line with the Paris agreement, the general consensus is that all countries should exit the ECT.

Spain, the Netherlands, Poland, France, Slovenia, Germany, and Luxembourg all declared their intention to exit the Energy Charter Treaty by 2022. On November 24 2022 the European Parliament adopted a resolution urging the European Commission to launch a coordinated withdrawal, since it no longer serves its necessities and is highly incompatible with its policies, especially in light of the EU's goal to achieve carbon neutrality by 2050.

Despite this, Guy Lentz, head of the ECT secretariat, has written a letter to Roberta Metsola, the president of the European Parliament, warning that abandoning the treaty without modernising it would give fossil fuel industries more power.

Did you know? Rockhopper Exploration Plc made £190 million from suing Italy, 6x money than it had invested. - Climate Change Litigation Database

Concluding comments

What happened to Italy exemplifies the type of risk that this outdated treaty poses to any country trying their best to fight climate change. Rockhopper made six times more money than it had ever invested in the project thanks to the ECT sunset clause, and it is highly likely that it will utilise that money to support further oil exploration. A resolution needs to be found as soon as possible and the voting on the modernisation of the treaty that will take place next April will be defining the next steps in this complex and pernicious matter.

Similar articles: European Union Fails to Take Climate Emergency Seriously

Researched by Alexandra Kenney / Edited by Jenny Donath / Online Editor: Harry Hetherington

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