Energy Charter Treaty modernisation adopted, still undermines climate action

Today, the Energy Charter Conference finally adopted its proposal for modernising the climate-wrecking Energy Charter Treaty (ECT).

Negotiations to reform the ECT aimed to align it with the climate goals of the Paris Agreement and the European Green Deal. However, even after modernisation, the ECT continues to undermine European and global climate policies. It still allows European companies to sue non-EU governments over efforts to curb fossil fuel development, while expanding protections to investments in controversial techniques that risk further lock-in to fossil fuels instead of accelerating the transition to renewables, such as fossil carbon capture and storage (CCS) and fossil hydrogen.

Additionally, the ECT secretariat pushes to expand the treaty’s reach to countries in the Global South, restricting these countries’ ability to implement laws and measures to tackle the climate crisis.

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

‘This treaty belongs to the past. The modernisation does nothing to address the real issue: it locks countries into fossil fuel dependence at a time when we urgently need to be phasing them out. Allowing corporations to block climate action through massive claims is indefensible in the face of the climate crisis.

The EU and UK’s departure sends a clear signal, but we need all member states to follow and ensure that no legal loopholes, like the sunset clause, can be exploited to delay the transition to clean energy.’

In the last couple of years, the EU and eleven countries, including Germany, France, the United Kingdom, and Spain [1], decided to exit the Energy Charter Treaty. They  argued that the treaty conflicts with the EU’s climate and energy transition goals and that its outdated investor-state dispute settlement (ISDS) mechanism is incompatible with EU law. However, some EU member states have chosen to remain in the treaty.

Following the EU and UK’s withdrawal, it is crucial to establish inter-se agreements to neutralise the ECT’s sunset clause, which allows companies to sue governments for up to 20 years after they leave. An inter-se agreement would ensure that ISDS claims are no longer valid for disputes within the EU or between EU member states and the UK.

Audrey Changoe, Trade and Investment Policy Coordinator at CAN Europe, commented:

‘The ‘modernised’ ECT is even more dangerous because it extends investor protection to false climate solution technologies promoted by the fossil fuel industry. This extension significantly increases the risk of ECT claims against states.

Global South countries face an even higher risk as they already receive the overwhelming majority of investor claims and have far fewer public funds to defend themselves. In that regard it is concerning that there are ongoing expansion efforts towards Global South countries to join this dangerous treaty.

Eunjung Lee, Senior Policy Advisor at E3G, continued:

‘The Energy Charter Treaty was designed to protect the fossil fuel industry – and we are still witnessing new legal cases brought by them against countries today. Our research found that the ECT is the most dangerous of all investment treaties to the energy transition. The mass exit by the EU and eleven countries demonstrates that even the reformed text is not compatible with achieving climate goals. The remaining countries need to get out of the false belief that this treaty might bring some benefits and follow suit.’

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