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CWA # 846, 26 November 2022
NIAS Europe Studies
Energy Charter Treaty: Three reasons for EU member states exit

  Sai Pranav

France, Poland, the Netherlands, Spain and Italy has exited from the Energy Charter Treaty that restricted the countries from attaining green transition completely.

On 21 October, France’s President Emmanuel Macron announced the withdrawal of France from the Energy Charter Treaty (ECT) since the charter did not align with the Paris agreement and its climate goal. Previously Russia withdrew in 2009, and Italy in 2016. Spain, Poland and Netherlands have submitted a proposal to withdraw from the treaty. Germany and Belgium are next in line to withdraw from the treaty following France’s exit. Out of the 53 signatories, only European states are trying to pull out of the ECT, while the African and Central Asian countries and Japan are yet to indicate their stance.

What is Energy Charter Treaty?
The ECT is a treaty signed in 1994 in Lisbon introduced the capitalist market model in the former Soviet Union countries. It came into effect in 1998 aimed to strengthen the cross-border cooperation between the international countries on energy. The primary objective was to exploit the fossil fuel-rich former Soviet countries. The treaty permits energy investors to sue a country’s government if it introduces policies that might affect their future revenue. Any policies against fossil fuels are taken to court by the investors fearing loss of their investment. Fossil fuel investors levy pressure on the national governments to continue with the usage of non-renewable sources, thus slowing down the transition to green energy for these countries. The EU countries pointing are attempting to withdraw from the treaty. However, the UK and Switzerland are keen on staying in the treaty. They have not responded to the exit of the EU countries.

Three reasons
First, incompatibility with the European Green Deal. The European States have a goal of being climate-neutral by 2050. However, the treaty does not allow the countries to transit into green energy and renewable resources. Fossil fuel investors have been placing lawsuits against countries which recognize policies that look to reduce carbon emissions from fossil fuels. The investors blame the government policies for their future losses. The litigations hinder the EU states from trying to reduce their carbon-emission levels. The usage of fossil fuels will only increase the level of greenhouse gases emission into the atmosphere, thereby causing more climate change issues. The companies have caused the renewable energy transition in Europe to slow down and are responsible for the increasing carbon footprints in Europe. The treaty risks climate goals and offers more protection to the fossil fuel industry. 

Second, fear over lawsuits and the sunset clause. Fossil fuel firms have subjected the countries that have implemented policies that affect their future income to litigation in which they are to pay huge compensations. Thereby creating a concern amongst the countries over their net-zero goals to become subject to multimillion lawsuits. In 2021, a German energy company RWE filed a lawsuit against the Netherlands government for EUR 1.4 billion in damages due to the Dutch passing a law to phase-out coal. The treaty has a sunset clause which makes a country vulnerable to lawsuits for 20 years even if they had exited from the treaty. The EU proposed a modernization law which made the countries vulnerable to lawsuits for ten years if they had received it during their stay at the treaty and one year if they received it after they had withdrawn. An example of the sunset clause is the UK oil firm Rockhopper Exploration receiving EUR 210 million in compensation from Italy’s government for banning offshore drilling. Rockhopper had said it planned to invest EUR 33 million in an oilfield project. Italy had to pay compensation six years after its exit from the treaty.

Third, the EU greenhouse gas emission rate and climate change. The restriction caused by fossil fuel investors allows the EU countries and those part of the treaty to use non-renewable resources, ultimately leading to higher carbon emission rates and global warming along with climate change. According to the European Commission’s JRC Science for Policy 2022 report, the EU member states had their total fossil CO2 emission increase by 6.5 per cent in 2021 compared to 2020. Countries trying to exit from the treaty or have already withdrawn have a high CO2 emission rate in 2021. The figures in 2021 suggest that Germany has the largest CO2 emission, with 24 per cent in the EU, followed by Poland at 11.6 per cent, Italy at 11.5 per cent, France at 10.9 per cent and Spain at 8.4 per cent. The figures show that the fossil fuel usage by the governments that are being pressured by the investors due to the treaty has also contributed to the emission rate of the countries. Carbon emission has also contributed to climate change. The impact of climate change was visible in 2022 across Europe. Europe faced one of the worst droughts, heatwaves, wildfires and flash floods across the continent, especially the southern and western parts. Spain, France, and Germany suffered severe droughts, heatwaves and wildfires. Poland also suffered drought and heat waves. Europe saw the highest temperature recorded and monster wildfires. These has raised concerns amongst the scientific community to have caused due to increased use of fossil fuels and drastic impact on climate change. With the treaty has indirectly and directly being responsible for climate change impact in Europe, resulting in the EU member states to break away from the treaty to achieve their net-zero and climate-neutral goal by 2050.

About the author
Sai Pranav is a Research Assistant under Europe Studies Program at the School of Conflict and Security Studies, NIAS. He is currently working on a commentary on the history and prejudices of Cryprocurrency.

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