Spain moves to exit the ECT

17 February 2023 Rectification

The quotation marks around “a serious obstacle to climate change mitigation” have been removed from the text below, as this was not a direct quote from the IPCC report. This was a mistake in the editorial process on our part.

However, the IPCC report does state that “…international investment agreements may lead to ‘regulatory chill’, which may lead to countries refraining from or delaying the adoption of mitigation policies, such as phasing out fossil fuels.” (chapter 14); “A large number of bilateral and multilateral agreements, including the 1994 Energy Charter Treaty, include provisions for using a system of investor-state dispute settlement (ISDS) designed to protect the interests of investors in energy projects from national policies that could lead their assets to be stranded. Numerous scholars have pointed to ISDS being able to be used by fossil-fuel companies to block national legislation aimed at phasing out the use of their assets” (chapter 14) and “…transactions in the energy sector show a high level of investor protection also against much needed climate action which is also well illustrated by share of claims settled in favour of foreign investors under the Energy Charter Treaty and investor-state dispute settlement” (chapter 15)

In brief

• Yesterday the Minister for Ecological Transition, Teresa Ribera, informed Politico that Spain has initiated the process of exiting the Energy Charter Treaty (ECT).
• The announcement was made six weeks before the Energy Charter Conference in Mongolia, in which the modernized agreement is to be ratified after more than four years of stagnant negotiations.
• While their position is still unclear, other countries like France and Germany might follow Spain, Poland has also announced their intention to withdraw from the Treaty.
• Civil society organizations across the world celebrate this important step, as exiting the ECT is key to abandoning fossil fuels and accelerating a just energy transition amid the climate and energy crisis.
   

Putting the climate before profits

Yesterday, 12 October 2022,  the second vice-president of the Spanish Government for Ecological Transition, Teresa Ribera, told Politico the Government’s decision to abandon the Energy Charter Treaty (ECT), a highly controversial agreement to which Spain is a party along with 52 other countries in Europe and Asia.

The news – which according to official sources is backed by the Minister of Industry, Trade and Tourism, María Reyes Maroto, and the Minister of Foreign Affairs, European Union and Cooperation, José Manuel Albares- has been announced six weeks before the annual conference of the Energy Charter Secretariat in Mongolia, the modernization of the Treaty is to be ratified.

The ECT, recently described by the Intergovernmental Panel on Climate Change (IPCC) as a serious obstacle to climate change mitigation, protects foreign investments in the energy sector -especially in fossil fuels- and allows companies to sue countries before a private court system (known as the ISDS) if they consider that they have passed rules that affect their profits. Given its incompatibility with the Paris Agreement and other policies pursuing climate action, contracting parties have agreed to a process of modernization that lasted four years. On June 24th, a preliminary agreement was reached. Civil society groups and academics have warned that the compromise still falls short of what is needed to help the transition towards a greener and fairer society.

A failed modernisation process

Now, Teresa Ribera herself – who had already shown her skepticism on several occasions – has acknowledged that the modernization has not led to “any improvement” in reducing the protection of fossil investments. After receiving the conclusions of a legal assessment they had requested from the European Commission about the consequences of withdrawal, the Spanish government has decided to leave the ECT. Behind closed doors, the debate between EU member states has been heating up about whether to adopt or refuse the reform. But as several analysis have shown, the reform is incompatible with the Paris goals, since it guarantees at least 10 more years of protection of existing investments in fossil fuels, while some new investments in gas pipelines and gas-fired power plants would be protected until 2030 or 2040. In addition, it extends the scope of the treaty to other controversial energy technologies [1] such as hydrogen or biomass.

Lucía Bárcena, researcher at the Transnational Institute said:

“The ECT has become a legal nightmare for Spain, where arbitration claims have already cost more than a billion euros of tax-payer money to award investments and pay lawyers and arbitrators. These claims only divert significant public resources away from environmentally and socially important areas. Spain should have followed Italy’s example a long time ago.”

Marta García Pallarés, campaigner at Ecologistas en Acción and member of the Spanish Campaign Against Trade and Investment Treaties, continued:

“We are at an extremely critical moment and we need ambitious measures, the exit from the ECT is one of them and we celebrate it.

It is now crucial that more countries follow the path initiated by Spain; it is simply shameful that EU countries go to COP 27 in Egypt promising to reduce emissions, while continuing in a treaty that only in Europe protects fossil infrastructure worth more than 340 billion Euros.”

Poland, Spain, who’s next?

The Spanish decision comes after the Polish Parliament voted in favor of exiting the ECT on October 6th. In the EU, the only country who is not a member of the ECT is Italy, who decided for unilateral withdrawal already in 2016. Now, other undecided countries regarding the modernization outcomes, such as France, Germany, Netherlands or Belgium might follow Spain. A vote in the EU Council to formally adopt the modernized ECT is expected in the upcoming weeks. While the Commission is pushing for the adoption of the reform, with additional countries opting for exiting, a blocking minority is becoming a more likely foresight. The EU Parliament already took a skeptical position towards this treaty in June.

Paul de Clerck, trade campaigner at Friends of the Earth Europe said:

“Spain and Poland have already decided to leave the ECT. Belgium announced it will not approve the reformed Treaty. We call on other countries that have been critical about the reform, such as France, Germany, Slovenia, the Netherlands, to reject the reform and step out of the ECT.”

Civil society has long been denouncing the damages caused by the ECT and its threats for the climate and a just society. “While exiting the ECT is not automatically leading to a just energy transition, it is definitely a necessary step that will clear up the way to implement ambitious regulations and abandon the fossil economy”, said Clàudia Custodio, campaigner at Ecologistas en Acción.

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