Editorial: Promising ruling against the Energy Charter Treaty

Europe’s top court has ruled that the Energy Charter Treaty (ECT) cannot be used in lawsuits between EU countries.

Prior to this ruling, the ECT has allowed companies to sue countries over decisions that affect their energy investment, which can be used to protect fossil fuel projects. The treaty is outdated and has not been updated since it was signed in 1994 by 54 signatories. Under the ECT, companies can attempt to claim millions of euros in compensation through a mechanism called an investor-state dispute settlement (ISDS). This was used by  German energy companies Uniper and RWE to sue the Dutch government over the country’s planned coal phase-out.

But in September Europe’s top court ruled that the treaty cannot be used in lawsuits between European Union countries because the process undermines the role of the union’s courts. According to the ruling, “the preservation of the autonomy and specific character of EU law precludes the Energy Charter Treaty from being able to impose the same obligations on the Member States among themselves.”  Thus, the court puts into question the legality of ongoing claims, like those against the Dutch Government.

The ECT has been under criticism for some time and in 2019, the European Commission received a mandate to revise the treaty. This stated that it must reinstate Europe’s “right to regulate” in areas like climate change as well as workers’ rights. The EU executive only clarified its stated ambition to phase out the protection of fossil fuels at the fourth negotiation round in March 2021. The Commission proposal included a ten-year sunset protection for existing fossil fuel investments along with an immediate exclusion of new investments made after the entry into force of the amended treaty. Any modification of the treaty needs unanimity and progress has been lacking. Negotiators conducted the eighth round of talks in early November.

There has been a growing impatience among climate groups and EU member states to conclude negotiations or walk away. More than 400 NGOs also published a joint statement¹ earlier this year calling on the EU to withdraw. However, leaving the treaty does not end the commitments as a sunset clause keep countries to their commitments for another twenty years. Italy for example, left in 2016 and faced a number of post-withdrawal arbitrations.

At the start of the year, EU foreign ministers highlighted the “urgent need for progress” in the ECT reform negotiations and some member states, including France, Greece, Poland and Spain, have stated that they are willing to follow Italy by withdrawing from the treaty.

The ruling in September highlights the misuse of the treaty and environmental organisations have applauded the ruling. ClientEarth lawyer Amandine Van Den Berghe stated “Given the scale of the climate crisis, it’s not only abhorrent that EU companies have used the Energy Charter Treaty to claim compensation, but it’s now confirmed that it’s also illegal”. Implementing the decision will be more complex though, she added. It will be up to EU countries to defend themselves using this decision, with countries like the Netherlands now having more firepower in contesting the claims.

It is still unclear whether claims made by companies in non-EU countries against member states are acceptable under EU law, according to Climate Action Network Europe. However, 81% of investments protected by the ECT are intra-EU investments, so preventing intra-EU lawsuits could dramatically slash the number of cases.²

The ECT’s protection of fossil fuel investments needs to end together with the fossil fuel dependency to accelerate the transition to a society with clean and affordable energy for all.

By Emilia Samuelsson

¹ https://caneurope.org/content/uploads/2021/07/CSO-Statement-.pdf

2 https://www.euractiv.com/section/energy/news/energy-charter-treaty-canno...