The EU is facing calls to quit an international energy treaty that gives multinationals the power to sue governments, with critics calling the agreement a serious legal roadblock to Europe’s ambitious climate targets.
The Netherlands is the latest EU member state to face litigation under the Energy Charter Treaty (ECT) after German energy group RWE last week said it was suing the Dutch government for €1.4bn in damages over the country’s decision to phase out coal by 2030.
The ECT is an international agreement dating from the mid-1990s that established a framework for cross-border co-operation in the energy industry. It includes a controversial mechanism investor-state dispute arbitration that allows international investors to take legal action against signatories.
The charter has more than 50 member countries, including the EU bloc. Italy, which withdrew from the agreement in 2016, is the only member to have done so.
The charter has faced growing criticism since the EU last year promised to make Europe the world’s first climate-neutral continent by 2050, requiring decarbonisation and a shift away from fossil fuels among its 27 member states.
France is leading calls for the EU to consider quitting the treaty altogether after attempts to modernise the deal to align it with Europe’s climate goals stumbled. EU governments and the European Commission are negotiating an update to the ECT’s terms but the talks have been bogged down amid difficulties finding common agreement among the charter’s members.
Four French ministers have written to Brussels calling for the option to quit should talks deliver no “decisive progress in 2021”.
“It is clear that the process of modernisation of the ECT is not on track,” said the letter. “Not all the contracting parties seem to share European ambitions in the fight against climate change, sustainable development and the promotion of responsible business conduct.”
“If the modernisation of the treaty fails, we’ll have to seriously consider a co-ordinated withdrawal,” said Pascal Canfin, an MEP from France’s La République en Marche party and head of the European Parliament’s environment committee.
“It is hardly understandable that the EU countries remain under the threat of being sued for not protecting investment in fossil fuels.”
Spain is among the countries affected, facing dozens of litigation cases by companies under the ECT in the past decade after carrying out wide-ranging energy reforms. Madrid has backed calls for the EU to quit the charter. Germany is also being sued over its decision to end nuclear power generation, with Swedish utility Vattenfall demanding compensation over the phaseout. Hungary, Poland, the Czech Republic and Latvia have also faced legal action under the treaty.
Brussels has said it remains committed to updating the charter, pointing out that a sunset clause in the treaty means that departing signatories are subject to the agreement and potential litigation from investors for 20 years after they leave.
“This could result in new investor-to-state disputes under the unreformed rules, including in existing investments in fossil fuels,” Valdis Dombrovskis, EU trade commissioner, told MEPs in November. He added that should the EU fail to get an update that aligned with Europe’s climate targets “within a reasonable timeframe, the commission may consider proposing other options, including withdrawal from the ECT”.
In response to RWE’s litigation, the Netherlands has said that a domestic law ordering the end of coal-fired power plants by January 1 2030 is not in breach of the treaty. RWE owns a coal-fired electricity plant in the port town of Eemshaven.
The RWE case also raises legal questions for the EU, after a number of member states said they believed the ECT could not be used to allow European companies to sue European governments. The European Court of Justice has been asked to deliver its judgment on the issue.
Sandrine Dixson-Declève, co-president of the Club of Rome, an NGO, said the ECT was “completely outdated”. She urged all governments — including Germany and the Netherlands — to make clear that the treaty “is not an acceptable pathway for companies to challenge climate policy and the energy transition that is under way”.