EU takes another step toward the exit out of ‘fossil dinosaur treaty’ to safeguard green aspirations

With climate change breathing down the world’s neck, the European Union (EU) is among those that have set the wheels in motion to pull out of the Energy Charter Treaty (ECT), as there is no end in sight for the protracted stalemate over revamping the multilateral treaty to make room for the pivot to low-carbon and clean energy by weaving renewables, hydrogen, and carbon capture, utilization, and storage (CCUS) into the treaty’s framework.

The negotiations between the members of the Energy Charter Treaty, a multilateral treaty signed in 1994 to facilitate international cooperation and provide a framework for investment protection, trade, and dispute resolution within the energy field, have been ongoing since 2020 to modernize the treaty to entail the latest international investment treaty practice and reflect new energy priorities in line with net zero aspirations.

Many, including the EU and the UK, believe that the ECT, which has historically provided protections for investors in fossil fuels, has become outdated and one of the most litigated investment treaties globally. Some progress in updating the treaty was made in 2022, however, several EU member states decided to leave the treaty to support the transition to cleaner energy sources and bolster energy security, leading to an impasse on modernization.

As efforts to align the ECT with green targets failed to bear fruit, the European Commission proposed a coordinated withdrawal by the EU and its member states, since it considers the treaty to be no longer compatible with climate goals under the European Green Deal and the Paris Agreement, predominantly due to concerns over continued fossil fuel investments.

The EU has now come another step closer to greenlighting the departure from the controversial energy treaty, as the recommendation from the Industry, Research, Energy, and International Trade committees was adopted with 560 votes to 43, with 27 abstentions.

Anna Cavazzini, Rapporteur for the Trade Committee (Greens/EFA, DE), highlighted: “Today’s vote is a major step in the right direction. The EU is finally withdrawing from the climate-hostile Energy Charter Treaty. In view of the climate crisis, the EU must become a climate-neutral continent as quickly as possible.

“Finally the fossil dinosaur treaty is no longer standing in the way of consistent climate protection, as we no longer have to fear corporate lawsuits demanding billions of euro in compensation brought before private arbitration tribunals.”

To proceed to the finish line, the European Parliament, which also voiced the need for the EU to exit the ECT in a resolution adopted in 2022, was required to give its blessing, so that, the European Council could make a move to adopt the decision by a qualified majority.

Marc Botenga, Rapporteur for the Industry, Research and Energy Committee (The Left, BE), emphasized: “The Energy Charter Treaty allows fossil fuel multinationals to sue states and the European Union if climate policies affect their profits. In the midst of a climate crisis, this is a contradiction, in addition to being very costly for taxpayers.

“Alongside civil society, a significant movement has been built to exit from this treaty and I am happy to see this is bearing fruit today. It is now necessary to speed up the rate of public investments in renewables.”

Twelve countries, including the UK, Germany, France, the Netherlands, and Ireland, have decided to withdraw from the treaty. The exit announcements came after a corporate tribunal ordered the Italian government to pay more than £210 million in 2022 to the UK’s Rockhopper as compensation for an offshore oil drilling ban.

This fueled the environmental organizations’ convictions that the ECT only protects fossil fuel companies’ interests and allows them to sue international governments over their climate plans.

The EU is making progress on its decarbonization journey. To this end, five European countries – Denmark, Norway, Belgium, the Netherlands, and Sweden – recently joined forces to bring Europe’s carbon capture and storage (CCS) infrastructure to life with arrangements to enable the transport and storage of carbon across borders.