On Friday, the European Commission proposed a coordinated withdrawal of the EU and its 27 Member States from the Energy Charter. This international treaty is considered too protective of investments in fossil fuels, and several countries, including France, have already announced their intention to leave it.
Coordinated withdrawal from the Energy Charter Treaty to ensure equal treatment of investors in the EU.
“This obsolete treaty is not aligned with our climate commitments (…) It’s time for Europe to withdraw from it, to focus on building an efficient energy system that promotes and protects investment in renewables,” stressed the vice-president of the European executive, Frans Timmermans.
The Commission proposes that the EU, together with all its Member States and the Euratom (European civil nuclear) organization “withdraw from the Treaty in a coordinated and orderly manner. In order to guarantee equal treatment for investors throughout the EU and beyond”. The EU-27 will have to vote on this proposal by qualified majority.
The Energy Charter Treaty (ECT) was signed in 1994. At the end of the Cold War, to offer guarantees to investors in Eastern Europe and the former Soviet Union. Bringing together the EU and some fifty other countries, it enables companies to claim compensation from a State before a private arbitration tribunal, where the State’s decisions and regulatory environment affect the profitability of their investments – even when pro-climate policies are involved.
Emblematic case: in 2022, Italy was ordered to pay compensation of around 200 million euros to the British oil company Rockhopper for having refused an offshore drilling permit. German energy company RWE, for its part, is claiming 1.4 billion euros from The Hague. To compensate for losses at a thermal power plant affected by Dutch anti-coal regulations.
Coordinated EU withdrawal to neutralize disputes and exclude fossil fuel investments.
Faced with a growing number of disputes, the Europeans first endeavored to modernize the text to prevent opportunistic claims. And gradually exclude investment in fossil fuels, but failed last autumn to agree on a compromise. After Italy in 2015, several EU countries decided to withdraw from the treaty at the end of 2022 (France, Spain, Netherlands, Germany, Luxembourg, Poland, etc.).
However, they are still covered by the ECT’s “survival clause”, which protects fossil fuel plants covered by the treaty for a further 20 years after a signatory country withdraws. Legal experts and NGOs believe that a coordinated withdrawal by the Europeans would partly neutralize this clause within the EU. Several countries, including Hungary, pleaded to remain members of a “modernized” ECT. But for the Commission, a coordinated withdrawal by the EU and the Member States “is the most legally and politically appropriate approach”.
