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EU Moves to Exit Fossil-Friendly Energy Charter Treaty

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The European Parliament has adopted a resolution calling for a coordinated EU exit from the Energy Charter Treaty (ECT), which critics say conflicts with the bloc’s energy transition commitments.

The move is yet another example of Europe’s continued push away from fossil fuel interests despite an ongoing energy crisis that many thought would bring a renewed social acceptance of oil and gas.

The ECT treaty, forged in the 1990s, protects foreign investors from any state policy that could harm their expected revenues. It was originally designed to protect Western energy firms working in former Soviet countries.

Negotiations to reform the ECT to align it with the goals of the Paris climate agreement ended this summer having failed to remove protections for all fossil fuel investments.

Several high-profile legal cases based on the existing charter have allowed companies that have made substantial investments in the energy sector to sue governments from losses arising from policies designed to cut emissions.

The resolution urges all member states to ratify the agreement that would neutralize the sunset clause, which binds contracting parties to the treaty for 20 years after they leave.

Climate-Wrecking  

“The European Parliament resolution has to be the final nail in the coffin for the Energy Charter Treaty in the EU,” ClientEarth lawyer Amandine Van Den Berghe said. “The EU and its member states cannot remain part of a treaty that fundamentally conflicts with EU law.”

Spain recently formally announced its intention to withdraw from the ECT following earlier announcements from the Netherlands, Poland, France, Belgium, Slovenia and Germany. Italy withdrew in 2016.

“The European Commission must heed this clear signal and that of the eight member states that don’t want to be part of this climate-wrecking agreement any longer,” Van Den Berghe said. “The sooner the commission realizes its hands are tied, the sooner European governments will be able to accelerate their climate plans without fear of retribution through the ECT.”

High-Profile Legal Cases

Earlier this year, UK-based Rockhopper Energy received €190 million ($197 million) plus interest in compensation from Italy under the ECT to make up for lost profits from its Ombrina Mare offshore project. The field could not be developed following Italy’s 2010 decision to ban offshore drilling.

The Netherlands has faced two lawsuits under the treaty brought by German firms RWE and Uniper over lost profits due to the government’s decision to phase out coal-fired power generation by 2030.

In July, Uniper was forced to drop its suit against the Dutch government as part of the terms of its financial rescue package by the German government.

RWE, which has sued the Netherlands for €1.4 billion, is still thought to be pursuing its case against the Netherlands.

Continuing the Fossil Fight

Conventional wisdom had been European countries might soften their stance on fossil fuels as spiraling prices for natural gas and liquid fuels stoked inflation across the continent.

But if anything the opposite has proven true, at least at the level of most policymakers.

In recent negotiations at the COP27 conference in Egypt, European leaders said they were prepared to walk away from a key agreement to increase climate adaptation funding to the developing world in order to gain stronger language for the phaseout of all fossil fuels — not just coal.

Ultimately, they compromised to target “unabated” fossil fuels but politicians were clear that they were unhappy that producer nations blocked stronger action.

German Foreign Minister Annalena Baerbock, a member of the Green Party, said it was "more than frustrating to see overdue steps on mitigation and the phaseout of fossil energies being stonewalled by a number of large emitters and oil producers."

Topics:
Policy and Regulation, Low-Carbon Policy
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