Energy Charter Treaty: Protection rules for corporations before the end – economy


It’s going to be a journey into the cold: This Tuesday, the 53 governments that signed the controversial Energy Charter Treaty are meeting in Ulan Bator, the capital of Mongolia. Temperatures there are between minus 17 and minus four degrees Celsius; November is not exactly the best time to travel to the Asian country. The reward for the effort should actually be that the states decide on a comprehensive reform of the agreement. But that will not happen because EU governments are refusing to support it. This threatens the end of the contract, which secures investments by energy companies: much to the delight of climate protectors.

On Friday, the 27 EU ambassadors of the member states in Brussels voted on whether the European Union should approve the reform at the conference in Ulaanbaatar. But the necessary qualified majority, roughly a two-thirds threshold, did not materialize because the governments of Germany, France, Spain and the Netherlands abstained, which counts as a rejection. This is a big defeat for the EU Commission. The authority met with the other signatories to the Energy Charter Treaty in June agreed on the changes. That should have been sealed in Mongolia now. But the reforms for the benefit of the climate do not go far enough for critics. As a result, one European government after another is announcing its withdrawal from the agreement. The federal government did this two weeks ago, following the example of France, the Netherlands, Spain and Poland. Luxembourg and Slovenia joined last week.

The 1994 agreement is intended to offer energy companies better protection for their investments. If a government wants to expropriate a power plant or a coal mine or reduce their profits with harsh new rules, the companies can sue before an international tribunal. The signatories include all EU countries except Italy, as well as Japan, Great Britain and many Asian countries rich in raw materials. Most recently, the agreement was often used by corporations to sue for compensation when European governments pass climate protection or anti-nuclear laws.

The Swedish energy supplier Vattenfall demanded 4.7 billion euros from Germany because of the nuclear phase-out. In the end, Berlin agreed with the nuclear companies on compensation payments. When the Netherlands decided to shut down all coal-fired power plants by 2030, RWE and Uniper filed lawsuits worth 2.4 billion euros. However, Uniper withdrew this after the nationalization under pressure from Berlin.

Reforms have “failed with a bang,” says the MEP

No other investment protection agreement leads to more proceedings; most of the companies are based in EU countries and demand money from other EU governments. Decided a year ago however, the European Court of Justicethat the Energy Charter Treaty may not be used for lawsuits between individual EU states. That would greatly diminish the significance of the agreement.

At the same time, the EU Commission tried to agree on changes with the other contracting parties worldwide so that the agreement would no longer torpedo climate protection laws. The compromise found in June stipulates that the contract should not cover any new investments in fossil fuels – such as coal mines or power plants – from summer 2023 onwards. For existing power plants, mines, pipelines or oil and gas fields, the cover expires after ten years.

Climate protectors dislike this ten-year grace period. Instead, they are demanding that the EU states simply leave the treaty – exactly as Germany and others have now decided. However, the agreement stipulates that energy projects will be protected for a further 20 years after a country leaves. Corporations could therefore sue the federal government in arbitral tribunals for two decades after the termination. The Commission and other advocates of the reform therefore argue that it is better just to change the treaty than to abandon it, because that would give 10 more years of lawsuits instead of 20.

However, Green MEP Anna Cavazzini says that the lack of support among EU ambassadors means that the reform will “fail terribly: “This climate-damaging gag agreement can no longer be saved.” The Commission must now “quickly” prepare for the exit. Spanish MEP Inma Rodríguez-Piñero, a Social Democrat, agrees with the Greens: A coordinated exit is “the best option if the EU wants to stay true to its climate goals”.



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