The little-known Energy Charter Treaty protects oil and gas firms from regulation that harms their interests. The Dutch government has pulled out, and now the rest of Europe may follow.
AMSTERDAM — For many, the big climate story of the week was the two young activists who tossed tomato soup on a Van Gogh painting in London. But the real story with lasting impact was unfolding in the Netherlands, which announced on Tuesday that it intends to withdraw from the “Energy Charter Treaty” (ECT).
Environment policy experts say the Dutch exit — with Spain and Poland poised to leave — could set in motion the complete collapse of this little-known pact.
Climate activists were jubilant. Dutch politician Christine Teunissen of the Party of the Animals described it as a “huge win”. Just last week, Greta Thunberg announced that five young victims of the climate crisis were taking action against the ECT at Europe’s top human rights court.
But outside climate circles, few had even heard of a treaty that brought risks of leaving governments open to billion-dollar lawsuits by fossil fuel companies.
Here's what you need to know:
What is the Energy Charter Treaty?
Signed in 1994, the treaty currently has 53 signatories, including all EU member states, and encourages cross-border cooperation in energy investment, principally in fossil fuels.
It was initially intended to bring the East and West closer in the field of energy after the end of the Cold War.
The ECT primarily protects energy investments, which has turned out to be extremely problematic in a climate crisis. It can hold governments liable for policies that can harm the interests of those who've invested in energy projects. Often those who turn to it are linked with the oil industry, which is facing new limits and regulations.
Increasingly, experts say the treaty is fundamentally incompatible with the targets of the Paris Agreement, which is aiming to keep temperature increases to below 2 degrees Celsius.
Why are countries withdrawing from the ECT?
The main problem is the treaty's provision for an investor-state dispute settlement (ISDS) mechanism. This allows investors the option of pursuing monetary compensation when a government measure negatively impacts their investments. And many companies have taken advantage of that mechanism to bring expensive lawsuits against governments.
The German company RWE is claiming more than one billion euros in damages in the Netherlands because of the early closure of coal-fired power stations.
Even more controversial, the treaty allows countries to sue for the loss of future profit. In August, Italy was ordered to pay Rockhopper, an oil and gas exploration company, in excess of €250 million plus interest. The Italian government had taken the decision to ban new oil and gas projects within 12 nautical miles of the coast. Rockhopper’s initial investment had only been €29.2 million.
Ascent Resources has started arbitration against Slovenia for half a billion euro because the country’s measures against fracking harmed the company’s investment.Depending on oil price, the risk to governments of ECT member states could be as high as $111.5 billion
Updating the treaty makes little sense
It is unlikely that the treaty can be updated to be relevant for this moment of energy transition and environmental awareness.
After years of negotiations, the sticking point is its incompatibility with the Paris Agreement. In announcing his decision, Dutch Energy Minister Rob Jetten said: “Despite many of the modernizations that are now in the negotiation outcome, we do not see how the ECT has been sufficiently aligned with the Paris Agreement."
Italy withdrew in 2016. Poland and Spain are already in the process of doing the same. The Dutch decision will put further pressure on the rest of the EU member states, and Jetten has said he will encourage the entire European Union to withdraw.
Why is it hard for countries to leave the ECT?
The big question now is how many EU countries will follow the Dutch. A planned EU consultation on the treaty for next week has been canceled.
But it’s not as simple as just leaving. Countries are bound by a 20-year survival clause on exiting. However, Christina Eckes, a law professor at the University of Amsterdam, points out that: “If all of Europe does the same, European companies will no longer be able to submit claims to other European countries on the basis of the ECT. Exiting countries could also agree to uphold the survival clause.”
The head of the ECT, its secretary-general Guy Lentz, has also apparently been feeling the pressure. He had a very public meltdown on Twitter when responding to criticism by a researcher at Columbia University.
In n very undiplomatic language, Lentz tweeted: "Who is paying those clowns for this kind of shit? Hey man, wake up, wonderland is for kids."
Mr. Lentz has since deleted his account.
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