For decades, companies have been deploying the Energy Charter Treaty (ECT) to sue 55 Member States in investor state dispute settlement proceedings for amounts running into billions if these, due to (environmental) laws, risked reducing their chances of making profit. The Energy Charter Treaty in particular precludes the fight against the climate crisis and the necessary conversion to CO2 neutral energy, like the phase-out of oil and coal.
The first lawsuit of the Swedish Energy firm Vattenfall against Germany in 2006 already showed that the ECT not only makes phasing out of fossil fuels significantly more difficult but it may even be able to prevent it. Then, the environmental ministry had imposed clear environmental requirements on Vattenfall for the construction of a new coal-fired power plant. Thereupon Vattenfall initiated investor dispute settlement proceedings with a litigious value of 1.4 billion euro and achieved that the requirements were significantly weakened and that scheduled laws affecting the energy sector were dropped. This is only one of a hundred cases, which makes it clear how problematic the Energy Charter Treaty is. Therefore, civil society organisations such as Attac and Greenpeace, as well as labour representations, among other AK EUROPA, the Austrian Trade Union Federation (ÖGB), and many others have - on the initiative of Corporate Europe Observatory - written a letter to the European policy makers.
The core problems of the Energy Charter Treaty
The Vattenfall case elucidates the first problem of the ECT: investments and infrastructure of fossil fuels are protected and the dispute settlement mechanism is actively used to prevent necessary climate protection measures. Due to the real danger of expensive claims for damages, necessary legislative changes are often not even addressed (so-called “regulatory chill”) and thus CO2 neutrality is not achieved. Countries do not want to take the risk that taxpayers' money is spent on these proceedings, which would be a huge burden for the public purse. This does not only make any kind of climate policy difficult or factually impossible, it also prevents many other State investments in public infrastructure. Another danger results from advancing privatisation in the energy sector: measures by States, whose aim it is to convert huge profit margins by private energy producers and suppliers into price reductions for consumers, are threatened with lawsuits within the scope of the ECT.
The alleged benefit for investors, namely to support their investments to reduce energy poverty and investments in renewable energies, has so far been nothing more than a diversionary tactic. Fundamentally, the ECT investor state dispute settlement proceedings systems or those of international trade agreements are contrary to the rule of law and undermine national legal systems. A parallel legal system is being created, which is highly intransparent, expensive and full of conflicts of interest.
Demands of civil society and Trade unions
Some contracting parties of the ECT are currently aiming for a modernisation process. However, the EU’s negotiating mandate neither provides for an end of investment protection for fossil fuels, nor for an end of investment dispute settlements or similar types of dispute settlement between investors and States within the scope of the ECT. That is why AK EUROPA, together with 278 other organisations, demands as a condition for taking up negotiations on modernising the ECT, that provisions for the protection of fossil fuels are abolished. Apart from that, the investor state dispute settlement system has to be cancelled in its entirety.
Should the modernisation process fail, the ECT has to retreat or jointly dismissed according to labour representations and civil society. At the same time it has to be ensured that the process of the geographic expansion of the ECT to new States will be stopped. Hence, no other States may join the Treaty as long as ECT continues to exist in its current form. It remains to be seen whether Member States and European institutions at last recognise the risks and implement these important demands.