The fight to dismantle the little-known Energy Charter Treaty

Electricity transmission pylons next to the gas-fired power factory, operated by Uniper SE, in Irsching, Germany, on Wednesday 7 July 2021.

Michaela Handrek-Rehle | Bloomberg | Getty Images

LONDON — The Energy Charter Treaty is not widely known, but influence is feared of this international agreement may in itself be enough to derail hope of capping global heat up to 1.5 degrees Celsius.

The ECT contains a highly controversial legal mechanism that: allows foreign energy companies are suing governments over climate action die can hurt future profits.

These “corporate court” cases, also known as investor-state dispute settlement, are highly secretive place outside of the national legal system and can often lead too much bigger financial awards than companies would otherwise expect.

Five fossil fuel companies are: already known be looking over $18 billion in compensation of governments over energy policy changes and most of these have been brought via the ECT.

For example, Germany’s RWE and Uniper sues the Netherlands over coal phase-out plans and die from the UK rockhopper is suing Italy over a ban on drilling at sea.

Don’t do it alone countries need to get out of that treaty, they have to torpedo it on the way out.

Julia Steinberger

Economist and professor from the university of Lausanne

a spokesperson for Uniper told CNBC: “The Dutch government has announced his intention to shut down the last coal-fired power plant by 2030 without compensation.

“Uniper is convinced that closing down U.S power plant in Maasvlakte after only 15 years of operation would be illegal without adequate compensation.”

RWE says it “explicitly supports the energy transition” in The Netherlands. Basically it is also supports the measures to reduce CO2 associated with the law, but believe compensation is necessary.”

Rockhopper did not respond to a request for comment.

The number of these corporate courts are expected to skyrocket in in the coming years, a trend that activists fear will act as a handbrake on plans to over move away from fossil fuels.

Governments die are prepared to take measures to tackle the climate crisis, hit with huge fines.

“The Energy Charter Treaty is a real fall for countries,” Yamina Saheb, an energy expert and former ECT secretariat employee became whistleblower, told CNBC via telephone.

Saheb has left her role with the Secretary in June 2019 after completion, it would be impossible to complete the ECT . tune with the goals of the landmark Paris Agreement. She said any attempt to reform the treaty of modernization would eventually be vetoed as many Member States are highly dependent on income from fossil fuels.

Thick smoke, cloud of water vapor comes out of the cooling towers of the lignite-fired power plant Weisweiler of RWE Power AG in Germany.

Horst Galuschka | photo alliance | Getty Images

“If we retreat, we can protect ourselves, we can start implementing the climate neutrality targets and we can end the promotion of the expansion of this treaty to other developing countries countries’ said Saheb.

“I think the only one way forward is to kill this treaty, “she added. “Or we? kill this treaty, of the treaty will kill us.”

The ECT secretariat was not immediately available to respond when CNBC contact met you record.

The treaty has said its fundamental purpose is “to strengthen the rule of law on energy issues by creating a level playing field of rules” Which help to mitigate the associated risks with energy-related investments and trade.

Who are involved and how Do it work?

The ECT is a unique multilateral framework Which applies to more than 50 countries – largely in Europe and Central Asia – and includes the European Union, UK and Japan as signatories. It is currently looking to expand to new signatory states, in the special in Africa, Asia and Latin America.

Signed in 1994 was the ECT in primarily intended to: help protect western companies die to invest in former Soviet Union countries in the post-Cold War era. It was also designed until help overcoming economic divisions by providing a flow of western finance in the east through binding investments protection.

It has since been sharply criticized by more than 200 climate leaders and scientists as a “big obstacle“to avoid a climate catastrophe.

tens of people walk by water due to heavy rainfall die caused flooding in Dhaka, Bangladesh on October 7, 2021.

Sumit Ahmed | Eyepix Group | Barcroft Media | Getty Images

“I think the treaty on its own is probably enough to… kill 1.5 [degrees Celsius],” Julia Steinberger, ecological economist and professor from the university of Lausanne, told CNBC.

“L know die 1.5 is a very tight target and there are many of stuff die can ruin it, but it’s because it in actually saving fossil fuel industries… from the financial collapse that they should face for their risky — and frankly criminal — investments in a harmful technology.”

Hearings of the Corporate Court Brought via take the ECT place in private and investors are not required to acknowledge its existence of a case, let alone the . to reveal compensation they are looking.

The average cost of Dispute resolution between investors and states is estimated at about 110 million euros ($123.9 million), according to a analysis of 130 known claims from think tank OpenExp, and the average cost of arbitration and legal costs are estimated at approximately EUR 4.5 million.

Experts in international environmental law say that even the threat of legal action is considered highly effective in chilling domestic climate action – and fossil fuel companies are well aware of this.

That’s because governments are allowed to struggle allocate resources to a single issue at the accounting for other priorities. The threat of legal action is gradual more powerful as the budget of the country concerned becomes smaller.

Especially a statement in favor of the state does not lead until zero cost for taxpayers because the defendant state has to pay for legal costs and arbitration costs.

“Don’t do it alone” countries need to get out of that treaty, they have to torpedo it on the way out”said Steinberger. “And that’s something a unit is so big of the European Union could do.”

a spokesperson for the EU was not immediately available until comment when contacted by CNBC.

The EU completed its eighth round of negotiations to modernize the ECT earlier this month, with the ninth round of calls scheduled for December 13th.

France, Spain and Luxembourg all have the option of withdraw as the EU’s modernization efforts fail to comply with the Paris Agreement.

What happens if countries pull back?

Italy withdrew from the ECT in 2016, but it is currently be sued because of a 20-year “sunset clause”, meaning it is subject to the treaty until 2036.

about 60% of cases based on the treaty are intra-EU, with Spain and Italy most indicted countries. Saheb said that given most of these instances are within the block itself, a coordinated withdrawal would likely trigger a domino effect, with states such as Switzerland, Norway and Liechtenstein seen as likely follow business suit.

And if the bloc were to collectively withdraw from the treaty, member states could agree to lift the legal effects of the sunset clause itself.

“That sunset clause is much longer than many sunset clauses in other conventions, but is also completely incompatible with the idea that regulation need until evolve with the changing reality of climate change, to changing demands of protecting the environment and human rights”, Nikki Reisch, director of the climate and energy program in the centre for International environmental law, CNBC told.

“There is a very strong argument to state that the application of enforcement of die sunset clause is in conflict met other principles of international law,” she added.

AN view of open freight cars full of coal under smog for a day that the level of PM2.5 dust concentration was 198 µg/m3 on February 22, 2021 in Czechowice Dziedzice, Poland. The Middle East European country has the worst of the EU air, according to a report from the European Environment Agency (EEA).

Omar Marques | Getty Images News | Getty Images

The European Court of justice ruled in begin September that EU energy companies could no longer use the treaty to sue EU governments. The verdict significantly limits the scope of future cases within the EU and has thrown the legitimacy of a number of ongoing lawsuits of several billion euros under discussion.

“We are not out of the forest yet,” Reisch said. The statement was an important one step blunt an instrument designed to investors in protect fossil fuels, she said, but no arbitration cases are needed by investors die have their residence outside of the European Union off the table.

“We can do our ability for the biggest crisis die we ever have to face faced as humanity, arguably, being held hostage by the interests of investors,” says Reisch.

“I think that it just another memory of the need to die eliminate legal structures and fictions die we have created die really block us to a bygone era of dependence on fossil fuels.”

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