Energy Charter Treaty Makes Climate Action Nearly Illegal In 52 Countries

Five young people whose resolve was hardened by floods and wildfires recently took their governments to the European Court of Human Rights (ECHR). Their claim concerns each country’s membership of an obscure treaty they argue makes climate action impossible by protecting fossil fuel investors. The energy charter treaty has 52 signatory countries which are mostly EU states but include the UK and Japan. The claimants are suing 12 of them including France, Germany and the UK — all countries in which energy companies are using the treaty to sue governments over policies that interfere with fossil fuel extraction. For example, the German company RWE is suing the Netherlands for 1.4 billion euros because it plans to phase out coal. The claimants aim to force their countries to exit the treaty and are supported by the Global Legal Action Network, a campaign group with an ongoing case against 33 European countries they accuse of delaying action on climate change. The prospects for the current application going to a hearing at the ECHR look good. But how simple is it to prize countries from the influence of this treaty?

The energy charter treaty started as an EU agreement in 1991 which guaranteed legal safeguards for companies invested in energy projects such as offshore oil rigs. Under Article 10 (1) of the treaty, these investments must “enjoy the most constant protection and security.” If government policies change in order to curtail these projects, such as Italy’s 2019 decision to ban drilling for oil and gas within 12 miles of its coast, the government is obliged to compensate the relevant company for its lost future earnings. The legal mechanism which allows this is known as an investor-state dispute settlement. A letter to EU leaders signed by 76 climate scientists (PDF) argues this could keep coal power plants open or force governments into paying punishing fees for shutting them down, at a time when deep and rapid cuts to emissions are desperately needed.

Money spent compensating fossil fuel investors will deprive investment in renewable energy and other things vital to the green transition, such as public transport. While withdrawing from the energy charter treaty is possible for any country to do, losing the benefits of membership — such as fewer duties and taxes on imports of oil and gas — will make it a difficult decision. Furthermore, the obligations of countries that have been signatories to the treaty are not nullified upon exiting it, but instead linger for 20 years thereafter. Investors can still bring disputes against former members and, if successful, must be compensated by the state in question. Russia and Italy withdrew from the energy charter treaty in 2009 and 2016 respectively, and continue to face multiple claims.