The UK is considering a new law which would invite applications for new oil and gas production licenses in the North Sea every year.

This Offshore Petroleum Licensing Bill will not help with the UK’s energy security, reduce bills or serve anything but fossil fuel giants’ short-term profits. 

On top of this, if it passes into law, the UK faces the grave risk of economy-wrecking lawsuits.

This is because the UK is a member of the Energy Charter Treaty (ECT) – a multilateral investment pact which allows investors in energy to sue governments over policies that affect their investments in over 50 countries across Europe and Asia.

Investors weapon

The ECT is the most litigated investment agreement in the world. It contains Investor-State Dispute Settlement (ISDS) provisions which are used by fossil fuel companies to deter, delay or raise the cost of climate policies. 

ISDS enables them to sue governments for billion-dollar payouts over their climate policies, in secretive tribunals outside of national legal systems. 

Weak attempts at reforming the Energy Charter Treaty have failed numerous times over the years, and thus many European countries including Germany, France and the Netherlands have decided to exit over the risks to their climate action. 

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The UK government launched a review of its membership last year and is overdue announcing its outcome. 

Recent research by CommonWealth found that at least 40% of the UK’s North Sea oil and gas licenses are owned by foreign investors, many headquartered in ECT member countries like France or Spain.

If the UK government fails to leave the ECT, foreign investment into North Sea oil and gas means not only a headlong sprint in the wrong energy policy direction, but invites a huge bill even if a future government changes course. 

The Labour Party, which is far ahead in the polls, says it will stop new oil production. An election will be held this year.

Coming clash

Carbon Tracker recently showed that North Sea oil and gas companies are financially planning for far slower energy transition scenarios than governments are working to. 

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As a result, they are setting up a clash between climate policies and their financial expectations, raising the risk of ISDS claims.

Producing the first oil and gas from a field can take more than 18 years. By then, the climate policy landscape will be vastly different.

The 1.5 C warming limit is likely to be passed within the next decade or two, so the imperative to reduce fossil fuel use will be even greater. 

The dearth of long-term thinking in Westminster means policymakers are ignoring the risk of leaving the fossil fuel industry with such a powerful weapon.

An investor using ISDS can claim not only for costs sunk by a government policy but for any future lost profit it expected to earn over a project’s lifetime.

These companies can decry far bigger losses than is reasonable given the fast-moving renewables revolution, and ISDS tribunals are rigged to back them up.

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Facing an ECT claim, any reasonable argument the UK may have developed about the environmental, social – even economic – imperative to phase out fossil fuels will have to be left at the door: it signed up to the fossil fuel giants’ charter, failed to leave it when it had the chance, and breached it. 

So much for the polluter pays: the UK taxpayer will have to bail them out.

Failed reforms

There’s no reforming the deadly oil and gas bill, in or out of the ECT. But remaining a member of the treaty adds an incredulous new dimension of fiscal irresponsibility.

The European Commission is proposing a mass withdrawal to neutralise the Energy Charter Treaty’s sunset clause – which extends the right to ISDS claims for 20 years even after countries leave – among exiting parties. 

If the countries leaving together agree to cancel the sunset clause between themselves, then the benefits of exit are magnified.

Given how many ECT-covered investors in 1.5C-incompatible projects on British soil are European, the UK joining this coordinated withdrawal would eliminate 99% of the ISDS risk – leaving little logical argument to remain bedfellows with climate laggards in a collapsing treaty.

It’s time to rip up the get-out-of-jail-free card that dirty North Sea projects, fast becoming obsolete, have up their sleeve. 

At stake is a chill on policies to address the biggest crisis facing humanity, and an unjust transition that would be billed to the UK public. 

Cleodie Rickard is trade campaign manager at Global Justice Now.

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The court’s interim charging order – meaning it is not yet final and can be objected to by the debtor – was issued on Wednesday but made public on Friday.

The judgement was issued under the controversial energy charter treaty (ECT) which protects investments in both clean and polluting types of energy.

The Spanish state-owned land that can be seized by the foreign investors – Infrastructure Services Luxembourg and Energia Termosolar – houses the an international private school located in a former Dominican convent.

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Nick Cherryman, one of the lawyers representing the investors, said the step was “only necessary because Spain, a recalcitrant debtor, refuses to honour the judgment against it”.

The investors took Spain to arbitration under the ECT nearly 10 years ago for withdrawing subsidies for renewable energy.

Spain, which relies heavily on foreign energy sources, tried in the early 2000s to lure renewables investors with a programme combining subsidies, tax breaks and guaranteed fixed feed-in tariffs.

But after the 2008 financial crisis, it started altering the framework under which renewables could receive support, which some investors saw as a violation of their legitimate expectations.

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The World Bank’s International Centre for Settlement of Investment Disputes (ICSID) awarded the investors 101 million euros plus interest in 2018, with the award later being registered at London’s High Court.

Spain tried to overturn the award citing sovereign immunity, but the High Court dismissed Madrid’s application in May.

Alongside other European countries, Spain has announced its intention to leave the treaty – although both renewable and fossil fuel investments will remain protected for 20 years under the treaty’s  so-called sunset clause.

The European Commission negotiated reforms to the ECT last year which allowed countries to stop protecting fossil fuel investments while continuing to protect renewables.

But these reforms were rejected by Spain and other EU countries, who decided to leave under the unreformed treaty and try to limit the effects of the sunset clause through agreements with other EU member states.

The post Court says renewable firms can seize Spain’s property after subsidy cuts appeared first on Climate Home News.

The 1998 Energy Charter Treaty, which has around 50 signatories including European Union countries, lets energy companies sue governments over policies that damage their investments – a system initially designed to support investments in the sector.

But in recent years it has been used to challenge policies that require fossil fuel plants to shut, raising concerns in some European capitals that it is an obstacle to addressing climate change.

A Commission spokesperson told Reuters it will make legal proposals for a coordinated EU exit “in the coming weeks”, after EU countries – some of which already plan to exit the treaty – could not agree to pass reforms to it which would have allowed government to phase out protection for fossil fuels.

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“As it stands, the treaty is not in line with the EU’s investment policy and law and with the EU’s energy and climate goals,” the spokesperson said.

Four sources familiar with the discussions told Reuters the EU executive will make the proposal next week. Three of the sources said Brussels had considered a partial exit that would let some countries stay in the treaty, but opted against it over legal concerns.

Pressure has mounted on Brussels to lead an EU-wide exit after Denmark, France, Germany, Luxembourg, the Netherlands, Poland and Spain announced they planned to quit the treaty. Italy left in 2016.

But the proposal is likely to be opposed by countries including Cyprus, Hungary and Slovakia, which have said they would prefer to stay in an updated version of the accord.

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Any proposal will need backing from a reinforced majority of member states and support from the European Parliament, which has publicly backed the idea.

“A coordinated withdrawal would remove one of the main obstacles to realising the EU’s binding climate targets,” said Lukas Schaugg, an analyst at the International Institute for Sustainable Development think tank.

Treaty signatories last year negotiated reforms designed to address some of the climate concerns, but which received a mixed reception from EU countries and criticism from campaigners. The reforms would struggle to pass without EU support.

The unreformed treaty has a “sunset clause” that would protect existing fossil fuel investments in Europe for 20 years even after the EU quit.

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Despite leaving in 2016, Italy was last year made to pay €190 million ($206 million) to a British oil company for restricting oil drilling.

European officials hope that they can arrange that the treaty is not enforced between EU member states, partly neutralising the sunset clause.

The reformed version would have let governments end investment protections for fossil fuels, a power the EU and UK planned to use to phase out protections in ten years.

Switzerland plans to remain in the treaty while the UK’s position is unclear. Other states in Central Asia and Japan have shown no interest in either reforming the treaty or leaving it.

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The European Commission has proposed a mass exit from the Energy Charter Treaty (ECT) on climate grounds, as the treaty has allowed fossil fuel companies to sue governments over climate action.

But the treaty’s head Guy Lentz wrote an angry letter to the president of the European Parliament Roberta Metsola on Monday, arguing that leaving the treaty without reforming it would actually give more power to fossil fuel companies.

Lentz accused the European Union of inconsistency, spreading misinformation. He also warned that the EU exiting the treaty before it is modernised will prolong investment protections for fossil fuels in Europe and elsewhere.

Friends of the Earth campaigner Paul de Clerck accused Lentz of “a rather desperate attempt” to stop the EU leaving the ECT. “Guy Lentz and the ECT missed the boat and now try to call it back, but that will not work,” he told Climate Home.

A post-Soviet treaty

The 1998 Energy Charter Treaty, which has around 50 signatories including European Union countries, was designed to protect companies in the energy industry by allowing them to sue governments on policies affecting their investments.

After several European countries were sued over climate policies that hurt fossil fuel profits, the European Commission persuaded reluctant members like Japan and Azerbaijan to agree to reforms. If enacted, those would give countries the power to end protections for fossil fuels under the treaty.

In June 2022 the EU and UK announced they would end protection for new fossil fuel investments and phase out protection for existing fossil fuel investments in ten years’ time.

This was a slower phase-out than climate campaigners and some EU governments had hoped for, but it was the only compromise other EU members accepted.

At the end of last year, several big European countries said they would quit the treaty despite the reforms. Last week the European Commission backed the proposal of a collective exit.

The European Commission was unable to get all EU states to agree to approve the reforms it had negotiated so a vote on the treaty’s reforms was postponed until April 2023.

The EU has been the driving force behind the reforms, meaning that, without its members’ support, they are unlikely to pass.

The consequence is that remaining ECT member states like Japan, Switzerland, the United Kingdom and countries in Central Asia will not be able to remove investment protections from fossil fuels.

Locking Asia in?

In his letter, Lentz says that if the EU doesn’t modernise the ECT then they will be enacting “an express prohibition” for other ECT members from better aligning with the Paris agreement.

But Yamina Saheb, a Paris-based campaigner against the ECT, says that the EU should withdraw without reforming the treaty and what other countries do “is up to them to decide”. Climate Action Network campaigner Cornelia Maarfield agreed EU countries should leave.

Lentz said that leaving without reforming the treaty will help fossil fuel companies sue governments within the EU over climate action for longer.

This is because the ECT has a 20-year sunset clause, which means it applies to countries for 20 years after they leave.

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Italy left the treaty in 2016. But last year, a British oil and gas company used it to force the Italian government to pay €190m ($204m) over their decision to ban oil drilling near Italy’s shoreline.

If the treaty is reformed before the EU leaves, the 20-year sunset clause will not protect new investments in fossil fuels. If it is not, then new fossil fuel investments will remain protected.

The EU governments who are pushing to leave hope to enforce a joint agreement stopping fossil fuel companies based in the EU from suing EU states while the 20 years runs down.

But Lentz warned that this agreement “may not provide the expected legal certainty”, citing complex legal arguments in four bullet points.

Paul de Clerk said Letnz was “bluffing”. Maarfield said the ECT head made a “number of legally unsound claims that we have already heard from groups with a vested interest in undermining solutions such as the arbitration industry”.

Inconsistency?

Lentz also pointed out EU countries could lack protection from claims outside the bloc. He said EU member states have around 1,500 bilateral investment treaties with other – mostly developing – countries that “do not exclude fossil fuels and do not contain any provision on the Paris agreement on climate change”.

A similar argument has been made by Carlos Pettinato, the European Commission diplomat who negotiated the modernisation and by Jean-Christophe Fueeg, the lead on the ECT for Switzerland and a defender of the treaty.

Some critics of the ECT, like Queen’s University trade and environment academic Kyla Tienhaara, have also said these bilateral treaties are a problem.

She told Climate Home in October: “These [bilateral investment treaties] are substantively the same as the ECT – so if these countries have concluded that the ECT is incompatible with the Paris Agreement then they have to acknowledge that their BITs are also incompatible.”

Tienhaara said that these treaties between European countries and developing countries "do not pose the same threat to climate policy within Europe that the ECT does" but "global issues require us to think beyond our borders".

Misinformation?

Lentz also took issues with the European Parliament claiming that an April 2022 Intergovernmental Panel on Climate Change (IPCC) report described the ECT as a "serious obstacle to climate change mitigation".

"On the contrary," he says, "the report considers the modernisation of the ECT as part of the ongoing reform process incorporating climate change".

As Lentz pointed out, the IPCC report did not explicitly call the ECT a "serious obstacle to climate change". That quote was wrongly attributed to them by a Friends of the Earth press release and repeated by several media outlets.

After Climate Home asked Friends of the Earth about this, the campaign group said the quotation marks had been " a mistake in the editorial process on our part" and had now been removed from their website.

The IPCC said that tackling climate change is "gradually" becoming one of the goals of global energy governance although "the realignment is far from complete and there are still examples of international cooperation having a chilling effect on climate [action]".

This article was updated on 17 February to include the information that Friends of the Earth had corrected their mistake

The post ECT boss accuses EU of protecting fossil fuels by blocking reforms appeared first on Climate Home News.

This week, the European Commission has proposed a joint EU exit from the Energy Charter Treaty (ECT), over fears its protections for fossil fuel investments will slow down climate action.

The United Kingdom’s government said it is “closely monitoring the situation”. The Swiss energy ministry’s Jean-Christophe Fueeg told Climate Home his country, which is not an EU member state, is not leaving.

The Swiss position has sparked fears that fossil fuel companies will restructure their investments through Switzerland in order to keep suing governments over climate action.

E3G campaigner Jonny Peters said: “As the EU looks set to exit the Energy Charter Treaty, there is certainly a risk of companies and law firms treaty shopping [in] Switzerland.”

We’re not leaving

The Swiss energy ministry’s head of international energy affairs Jean-Christophe Fueeg told Climate Home on Thursday: “No change in Switzerland’s position, especially given that the EU has not come to a position yet.”

Over the last few years, Switzerland has not supported the EU’s push to remove fossil fuel protections from the ECT and did not join the EU and UK in last year announcing a phase-out of fossil fuel protections under the treaty.

Fueeg added: “Just as food for thought: Would you think that Swiss investors, who have billions of assets in the EU (much of it in renewables), would appreciate seeing their investors’ protection rights waived by a Swiss exit?”

Friends of the Earth campaigner Paul De Clerck told Climate Home the treaty is “by  no means crucial for renewable investors” and its “main goal is still the protection of fossil fuels”.

Race to the bottom

Kyla Tienhaara, who researches trade and the environment at Queen’s University in Canada, told Climate Home she was concerned that EU-based fossil fuel companies will structure their through Switzerland so that they can still be protected under ECT.

Fueeg has previously dismissed this concern, telling Climate Home last July that “arbitration courts tend to reject claims by investors which have opportunistically relocated to file a claim”.

A 2020 study published in the British Institute for Comparative Law found that depended on the timing. While arbitrators took a dim view of restructuring after a dispute had arisen, preemptive restructuring usually worked. “A majority of tribunals find they have jurisdiction despite the respondents’ objections to restructuring,” its authors wrote.

“The concern with the ECT is that investors will restructure now that they know the EU is leaving, well in advance of specific claims,” said Tienhaara.

Last year, US law firm Jones Day recommended fossil fuel companies restructure “to ensure they are protected by an investment treaty”.

What is the ECT?

The ECT was set up in 1991 to protect foreign investments in energy in the former Soviet Union. Its members span Europe, Turkey, Central Asia and Japan.

The treaty protects investments in any form of energy – both fossil fuels and renewables. Fossil fuel companies have used it to sue governments over climate action.

Fossil fuel companies have been awarded around €500m ($538m) under the treaty while renewable investors have got about twice that amount.

A 2020 study by former ECT employee turned critic Yamina Saheb found that the treaty puts governments at risk of up to $1.4tn in compensation claims by 2050 from fossil fuel investors.

Reform attempts

Between 2020 and 2022, the European Union tried to persuade ECT members to allow governments to choose what energy investments they protected.

Last June, they succeeded in convincing reluctant nations like Japan. The EU and UK announced they would end protection for new fossil fuel investments and to phase out protection for existing fossil fuel investments in ten years time.

This was a slower phase-out than climate campaigners and some EU governments hoped for but it was a compromise between EU member states.

At the end of last year, several big European countries said they would quit the treaty despite the reforms. The reforms were never ratified and so are unlikely to be put into effect if the EU leaves.

Earlier this week, the European Commission said it would propose a coordinated exit from the treaty. This proposal would need the support of at least 15 EU member states.

Anti-ECT campaigner Yamina Saheb said: “Now that the [European Commission] is campaigning for the withdrawal, it is very likely that the withdrawal will be voted [through].”

Sunset clause

The treaty’s 20-year sunset clause means that fossil fuel companies from other ECT states will still be allowed to use the ECT to sue EU countries until at least 2043.

Italy left the treaty in 2016. But last year, a British oil and gas company used it to force the Italian government to pay €190m ($204m) over a decision to ban oil drilling near Italy’s shoreline.

The EU governments who are pushing to leave hope to enforce a joint agreement stopping fossil fuel companies based in the EU from suing other EU states.

But they would need to agree such a deal with other willing treaty members to avoid future lawsuits such as from Switzerland, Japan and – if it remains a member – the United Kingdom.

A recent paper by the European Commission’s said that non-EU ECT members have shown no interest in ending protections for their fossil fuel investments in the EU.

The post Switzerland won’t follow EU out of controversial energy treaty: official appeared first on Climate Home News.

The 1998 Energy Charter Treaty, which has around 50 signatories including European Union countries, was designed to protect companies in the energy industry by allowing them to sue governments on policies affecting their investments.

But in recent years it has been used to challenge policies that require fossil fuel plants to shut – raising concerns that it is an obstacle to addressing climate change.

France, Germany, the Netherlands, Poland and Spain have already announced plans to quit the treaty, increasing pressure on Brussels to coordinate an EU-wide withdrawal.

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In a document shared with EU countries and seen by Reuters, the European Commission said the “most adequate” option would be for the EU and its 27 member states to leave.

“A withdrawal of the EU and Euratom from the Energy Charter Treaty appears to be unavoidable,” the document said.

A spokesperson for the European Commission confirmed it would recommend an EU exit and present the suggestion to diplomats from member countries in a meeting on Tuesday.

Remaining part of this treaty would “clearly undermine” the EU’s climate targets, the Commission said.

Leavings not easy

The treaty’s 20-year sunset clause means that fossil fuel companies from other ECT states will still be allowed to use the ECT to sue EU countries until at least 2043.

Italy left the treaty in 2016. But last year, a British oil and gas company used it to force the Italian government to pay €190m ($204m) over their decision to ban oil drilling near Italy’s shoreline.

The EU governments who are pushing to leave hope to enforce a joint agreement stopping fossil fuel companies based in the EU from suing EU states.

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But they would need to agree such a deal with other willing treaty members to avoid future lawsuits such as from Japan, Switzerland and the United Kingdom.

The European Commission’s said that non-EU ECT members have shown no interest in ending protections for their fossil fuel investments in the EU.

“For the time being, no non-EU Contracting Party has indicated they would be open to such a solution,” said its paper.

Reform attempts

The European Commisison has spent the last few years pushing to modernise the ECT by phasing out investment protection for fossil fuels.

Last June, their negotiators overcame resistance from Japan and Central Asian states to reach consensus on allowing ECT members to decide what investments they protect.

The EU and UK announced they would end protection for new fossil fuel investments and to phase out protection for existing fossil fuel investments in ten years time.

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This was a slower phase-out than climate campaigners and some EU governments hoped for but was the most that other EU states would sign up for.

At the end of last year, several big European countries said they would quit the treaty despite the reforms. The reforms were never ratified.

Given the number of countries quitting individually, renegotiating the treaty does not seem feasible, the European Commission said.

Fifteen members needed

An EU exit would require support from at least 15 EU countries and the European Parliament, which has already backed a resolution calling for the idea.

The reforms’ failure means that fossil fuel investments in the UK and from UK companies will continue to be protected indefinitely unless the UK leaves the treaty.

A spokesperson for the UK government told Climate Home: “The UK is closely monitoring the situation surrounding the Energy Charter Treaty’s modernisation process, including the positions taken by other Contracting Parties.”

They added: “We have been a strong advocate for updating the Treaty to ensure it’s aligned with modern energy priorities, modern international treaty practice, and international commitments on climate change.”

This article was updated on 9 February to include the UK government’s response

The post Europe proposes mass exit from energy treaty appeared first on Climate Home News.

The Energy Charter Treaty (ECT), which has been signed by 53 European and Asian countries, was drafted to protect energy firms in formerly Soviet countries from falling into state ownership and being subject to excessive regulation.

But the ECT has become outdated. The continued protection of fossil fuel investors – and the suing of governments for millions of euros – contradicts the efforts of European countries to curb their emissions in line with the 2015 Paris climate agreement. The legitimacy of the treaty has also come under fire.

European states are therefore exiting the treaty. France announced earlier this year that it was to leave. Spain, the Netherlands, Poland, Slovenia and Germany have since followed. However, with former members bound by the treaty for 20 years after they leave, it could still hamper future climate action unless it is reformed.

International investment agreements protect and promote the investments made by companies from one state in a foreign territory. There are roughly 2,500 such agreements in force today.

Since coming into force in 1998, the ECT has provided the framework for energy cooperation across the European continent by providing the legal basis for open and competitive energy markets. Investors can claim compensation from sovereign states through a mechanism of international law called investor-state dispute settlement if governments breach the investment protections provided by the ECT.

The ECT has allowed energy and fossil fuel investors to receive vast sums of compensation. In 2021, Russia was ordered to pay US$20.5 million (£17.4 million) in compensation to Yukos Capital, an oil company, for expropriation.

Legal imbalance

While investment protection agreements allow investors to sue sovereign states, the reverse is not possible. The investor-state dispute settlement mechanism was designed initially to protect the foreign investments of western companies from legal changes passed by unstable governments in developing countries. This imbalance of legal rights was thus accepted by western countries.

But as investors can now sue states for violating the terms of the ECT, Europe has increasingly become the target of international investment arbitration. Spain has been subject to 45 disputes under the ECT and has paid more than €800 million (£673 million) in claims.

Europe’s divorce from investor-state dispute further intensified following the US$1.9 billion (£1.65 billion) claim made by Swedish energy firm Vattenfall against Germany in 2009 over delays for permits to operate a coal-fired power plant in Hamburg. The claim triggered public campaigns against the investor-state dispute settlement mechanism.

The European Court of Justice, which ensures that EU law is applied consistently across the EU, have since intervened on two occasions to challenge the compatibility of international investment arbitration with EU law.

Slovakia was ordered to pay €22.1 million (£19.2 million) in compensation to Dutch investor Achmea in 2018. However, the European Court of Justice found that the arbitral tribunal was “not part of the judicial system” of either country. Three years later, they ruled that an ECT based arbitration brought by Ukrainian electricity supplier Komstroy against Moldova was contrary to EU law.

Independent arbitrators?

Claims made by investors under the ECT are settled via international arbitration. This is where independent experts – called arbitrators – make an official decision that ends a legal dispute without the need for it to be resolved in a national court.

International investment arbitration was initially regarded as an efficient technique for resolving disputes. But in recent years it has been scrutinised. This is particularly true for the ECT where the independence, impartiality and expertise of the arbitrators have been questioned.

Few of the arbitrators who sit in ECT hearings are public international law experts. But as arbitration is frequently used by companies to solve corporate disputes, there is a large pool of arbitrators with a background in corporate law. This could create bias towards investors in dispute hearings.

Some of the arbitrators also play different roles in different cases. Investors have in some cases appointed arbitrators who have acted as legal advisers for them previously. This raises the question of whether arbitrators can separate these roles and act impartially.

Withdrawal symptoms

Given these controversies, signatories to the ECT have proposed that it undergo reform. The reform hinges around several key proposals.

The definition of what classifies as an investment and an investor is to be modified to protect the state against dubious disputes. Fossil fuel investments are to be excluded from legal protection by the Treaty and states are to be allowed to regulate energy firms in the interests of climate and public health policy objectives. Any arbitration within the EU that is deemed incompatible with EU law by the European Court of Justice are also to be discarded.

The proposed reforms have so far failed to convince countries to remain party to the ECT. The European parliament has also lobbied European countries to leave international investment dispute treaties and create their own system.

But there are legal hurdles that prevent the departure of EU countries from taking immediate effect. The ECT includes a “sunset clause” which protects the interests of investors for 20 years following a state’s withdrawal. Should a country withdraw from the ECT in 2022, legal protections for existing and future foreign investments would remain valid and further claims can be made until 2042.

There are many uncertainties surrounding the future of the ECT. Yet it is clear that it requires modernisation. But the rush of withdrawals by the same states that drafted the ECT is indicative of the global shift in power relations. Developing countries are not the only targets of investment disputes and developed states are not the only global rule makers.

Leïla Choukroune is a professor of international law at the University of Portsmouth.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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After tens of thousands of Italians protested against the Ombrina Mare oil drilling project in 2015, the Italian government banned oil drilling within 12 miles of Italy’s shoreline. This prevented the project going ahead.

Represented by no-win-no-fee lawyers, the developer Rockhopper sued the Italian government under the controversial Energy Charter Treaty (ECT).

Despite investing just $40-50m in the project, the company claimed for foregone profits estimated at $200-300m. An ECT tribunal awarded €190m ($190m) plus interest.

The company’s share price doubled on the news. CEO Samuel Moody said he was “delighted” and the award would help Rockhopper drill for oil in the Falkland Islands.

Rockhopper’s share price doubled on the news

Paul De Clerck from Friends of the Earth Europe said: “It is scandalous that Italian citizens are now expected to pay Rockhopper €250 million for not destroying the Italian environment and the climate. It is all the more perverse that they get 8 times more than what they invested.”

Cleodie Rickard, trade campaigner at Global Justice Now, agreed, adding: “We need to get rid of this shadowy legal system that poses a threat to the climate – not in ten years time as governments are proposing at the moment, but right now… the UK and countries across Europe should exit the ECT in a coordinated withdrawal and put an end to the risk of being sued.”

The ECT is an energy investment treaty created after the end of the Cold War. It was designed to protect energy investments from arbitrary seizures in the former Soviet Union. Lately, fossil fuel investors have repurposed it to challenge climate policies that effect their profits.

British gas company Ascent Resources is suing the Slovenian government over its requirement for an environmental impact assessment to frack near a water source.

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The Intergovernmental Panel on Climate Change recently warned that investor-state dispute settlement mechanisms in trade agreements like the ECT “may lead to ‘regulatory chill’… [and] lead to countries refraining from or delaying the adoption of mitigation policies, such as phasing out fossil fuels”.

One study in Science found governments could be liable for up to $340bn in damages.

Italy left the ECT in 2015 but remains bound by its rules until 2035 because of the treaty’s 20-year sunset clause. Campaigners have called for ECT members to leave the treaty together and avoid the worst effects of the sunset clause by promising not to enforce its provisions on each other.

XR Salisbury and Global Justice Now outside the Rockhopper Exploration AGM today. The Salisbury-based company is using an obscure legal mechanism, the ISDS, to sue the Italian government after it banned climate-wrecking offshore drilling.
Italian government: Rockhopper: pic.twitter.com/oFvv2WKEq2

— Extinction Rebellion Salisbury (@SalisburyXR) June 28, 2022

EU member states were unable to agree to this. Instead, they and the UK have agreed to end ECT protection for new fossil fuel investments in August 2023 and existing fossil fuel investments 10 years after ratification of the updated ECT, in 2032 at the earliest.

Other member states like Japan, Switzerland, Turkey and several Central Asian countries will continue to protect fossil fuel investments and have their investments protected in other member states. The ECT is looking to expand into Africa and more of Asia.

The post British company forces Italy to pay €190m for offshore oil ban appeared first on Climate Home News.

Under a “flexibility mechanism” approved by members of the energy investment treaty, the EU and UK will end protection for new fossil fuel investments from August 2023. However, most existing fossil fuel investments will continue to be protected for 10 years from the date the modernised treaty is officially ratified.

The ECT, which has members spanning Europe and Asia, has been used by fossil fuel companies to sue governments over climate policies which hurt their profits. For example, German energy company Uniper is suing the Dutch government over its coal phase-out plans.

In 2020, a study found that ECT member countries faced up to €1.3 trillion ($1.4trn) by 2050 of compensation claims by fossil fuel investors.

The EU initiated “modernisation” talks to try and end these lawsuits but its attempts to remove fossil fuels from the treaty’s protection clause were thwarted by some Asian nations led by Japan.

At an ad-hoc conference, which was disrupted by protesters yesterday, members to the treaty reached a compromise which gives them some flexibility to choose what energy investment they want to continue to protect.

STOP PROTECTING FOSSIL FUELS! Extinction Rebellion & @wemoveEU have blocked the entrances to the toxic fossil fuel treaty (the ECT) building with a climate crime scene.
4 years of talks on the ECT must end today with the only viable conclusion: end the ECT now! #NoECT #ExitECT pic.twitter.com/iGFaA9Tx9L

— Extinction Rebellion Belgium (@XR_Belgium) June 23, 2022

Members like Japan, a staunch defender of the ECT, is likely to keep protecting fossil fuel investments in the country indefinitely. But the EU and the UK have said they will use the flexibility mechanism to limit them.

When the EU and UK end protections for fossil fuel investments for fossil fuel investors from ECT states like Japan then those states are likely to reciprocate, meaning European and British fossil fuel investments will no longer be protected in countries like Japan.

In Europe, environmental campaigners, who have repeatedly called on the EU to leave the treaty, reacted angrily, calling on ECT members to stage an on-mass exit from the treaty despite the reforms.

Former ECT employee turned anti-ECT campaigner Yamina Saheb told Climate Home the agreement was “a disaster from a climate change perspective”. Friends of the Earth’s Paul De Klerck said it would “lock the EU in fossil fuel investment protection” for a decade.

“This means countries will continue to spend taxpayers’ money in compensating fossil fuel companies rather than fighting climate change and moving to a renewable energy system,” added Cornelia Maarfield, trade and investment policy expert at Climate Action Network Europe. “This disastrous agreement must not be ratified,” she said.

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The ten year protection for existing coal, oil and gas investments was a compromise reached between EU member states, which diverged on the best way forward, according to sources familiar with the negotiations. France, Spain and Luxembourg wanted to end the protection of fossil fuel investments that allows countries to be sued for damages by polluting companies. But several Eastern European states resisted change.

Under the agreement reached, some gas-fired power plants will continue to receive investor protection beyond the 10-year deadline and until the end of 2040. That applies to gas power plants whose emissions are under a certain level and which replace more polluting infrastructure.

The flexibility mechanism would have allowed the UK to end all fossil fuel protection immediately. But it hasn’t done so. Asked why, an energy ministry spokesperson declined to comment.

In a statement published Friday, the UK said protection for existing coal investments in the country will end in October 2024. But, in line with the EU, it will wait 10 years to end protection for oil and gas investments. It will continue to protect abated gas, which uses carbon capture technology, beyond those 10 years.

“Our success in negotiating a modernised treaty will boost our move to cheaper and cleaner energy by providing greater confidence to the private sector investors and risk takers we need for this transition,” said UK energy secretary Greg Hands.

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Campaigners’ call to leave the treaty found some sympathy in EU member states. A Spanish government representative told an EU council meeting in April that Spain “did not see how the ECT could be adapted to the Paris Agreement” and deputy prime-minister Teresa Ribera recently told Politico: “It is time that the EU and its member states initiate a coordinated withdrawal from the ECT”.

But the treaty’s ‘sunset clause’ makes leaving difficult as its rules continue to apply for 20 years after a member decides to leave. Campaigners say the impact of this sunset clause can be greatly reduced if members withdraw on mass and refuse to implement the treaty against each other during that time.

But as well as protecting fossil fuels, the treaty protects renewable investments. Under its rules, renewable companies have claimed compensation for anti-renewable measures. The modernisation talks have led to the addition of protection for carbon capture and storage technology, hydrogen, , ammonia, biomass and biogas.

This article was updated to include the UK government’s decision not to comment.

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Coal, oil and gas companies have used the treaty to sue governments over the impact of climate policies. For over two years, member states – which are mostly in Europe and central Asia – have been holding “modernisation” talks. The European Commission has called for fossil fuel protections to be phased out, to allow a rapid transition to clean energy in line with climate goals.

Since the beginning of these negotiations, Japan has opposed any reforms. In an October 2019 submission, it wrote 26 times: “Japan believes that it is not necessary to amend the current ECT provisions.” A final decision is due at an Energy Charter Conference on 24 June.

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The European Commission told an energy committee meeting of the European Council on 6 April, according to minutes seen by Climate Home News, that Japan “had taken steps backwards in the definition of investment and sustainable development”.

Under the treaty, states must uphold “fair and equitable treatment” of investors – or they can be sued. The Commission sought to limit the grounds for legal challenge to a “closed list”.

Japan was “surprised” at the proposal and emphasised it would not accept a closed list, the minutes said. That ambiguity would allow investors to claim any number of government interventions are unfair.

The minutes state that Azerbaijan and Japan “continue to resist the reference to workers rights” and that Japan and Turkey “did not want to accept a reference to (basic) UNCITRAL regulations on transparency”.

The European Commission reported “it was unclear why [Japan] was so difficult to convince (also in view of the small number of [Japanese] investments that would be affected”.

Governments risk $340bn in legal claims for limiting oil and gas projects, study finds

Japan’s fossil fuel investments in ECT countries are limited. But it has supported wide-ranging protection for investments in a number of different international forums.

In December 2021, Japan’s ambassador to the EU Yasushi Masaki told the ECT conference: “It is necessary for each member country to pursue various energy source options through the protection of energy investments, in order to enable their respective energy transitions while taking into account the fact that economic and social conditions might differ depending on the country.”

Friends of the Earth Europe campaigner Paul de Clerck said: “After five years of meetings, Japan still doesn’t want to give up the protection for fossil fuel polluters.”

In the Council committee meeting, representatives of the Netherlands, Spain and Poland “reiterated the need to think about… possible exit scenarios in a timely manner”. Spain’s representative said “it would consider an exit scenario, as it did not see how the Energy Charter Treaty could be adapted to the Paris agreement”.

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Several European countries have long said that they want a coordinated exit from the ECT if these modernisation talks fail. The last round of negotiations began on Monday.

In the previous round in April, progress was “less than [the European Commission] had hoped for” and mainly focussed on “trade aspects” rather than “energy aspects” like whether fossil fuels should remain protected.

Governments have been keen to reform the treaty instead of leave it because of a “sunset clause” which means the treaty’s provisions stay in effect for 20 years after a government withdraws. Italy and Russia have both left the treaty but remain subject to its sunset clause.

Governments prefer a mass exit to an individual one because that would allow European countries to promise not to enforce claims against each other while the sunset clause runs out. Most ECT cases within the EU are from companies also based in the EU.

The chairs of the European Parliament’s environment and trade committees wrote to the Commission today calling for it to “prepare for a coordinated exit”.

The negotiation around the reviews of the Energy Charter Treaty have so far proven not to deliver meaningful changes up to the #climate crisis. With @anna_cavazzini and @berndlange we call for a coordinated exit of all EU countries from it. #ECT pic.twitter.com/PjJgpu4VSr

— Pascal Canfin (@pcanfin) May 17, 2022

Campaigners have called for this too. De Clerck said: “The only sound option for the EU and member states to live up to their climate responsibilities is to withdraw from this toxic ECT.”

The UK and Switzerland have not supported the EU’s push to reform the treaty. Campaigners have accused them of trying to cash in on a potential EU exit by tempting fossil fuel firms to move their headquarters and continue to sue European governments which take climate action.

The ECT covers countries in Europe, central and east Asia and has ambitions to expand. Countries like Nigeria have expressed an interest in joining the treaty.

The post Leak: EU mulls investment treaty exit as Japan blocks green reforms appeared first on Climate Home News.

That’s more than the $321bn of public money for climate finance in 2020.

“It means that money countries might otherwise spend to build a low-carbon future could instead go to the very industries that have knowingly been fuelling climate change, severely jeopardising countries’ capacity to propel the green energy transition forward,” wrote the authors.

Countries have signed thousands of treaties that protect foreign investors from government action.

These treaties allow investors to sue governments for compensation when contracts have been interrupted, drilling permits refused or policies affecting their operations are introduced. They are known as investor-state dispute settlements (ISDS).

The study warns that these treaties create “a chilling effect” on governments, deterring them from implementing ambitious climate policies.

This “could lock countries into high carbon growth trajectories” and “choke the climate transition,” co-author Kevin Gallagher, professor of global development policy at Boston University, told Climate Home.

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In a major report last month, the Intergovernmental Panel on Climate Change warned that the ISDS mechanism risked delaying the energy transition.

By the end of 2021, there have been at least 231 cases of fossil fuel investors suing a government. Of the 171 that were concluded, a third were ruled in favour of the fossil fuel company and another third were settled.

The latest is that of UK-based company Ascent Resources, which filed a case against the Slovenian government on Thursday for implementing a ban on fracking. The company is already seeking €100m ($106m) in damages after the government demanded it complete an environmental impact study before fracking near a water source.

Another British firm, oil exploration company Rockhopper, is seeking compensation from the Italian government over a ban on coastal oil drilling. In the US, TC Energy, a Canadian company, is seeking $15bn over US president Joe Biden’s cancellation of the Keystone XL Pipeline.

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Developing countries, which require most support to transition away from a fossil-fuel dependent economy, are among those facing the greatest potential losses under the dispute system.

Mozambique, which gave the green light to a huge gas development project, tops the list, risking $7-31bn in compensation costs should it change course, according to the study. It is followed by Guyana, home to one of the largest oil discovering in recent years, where $4-21bn is at stake. They are followed by Venezuela and Russia.

A total of 33 governments are vulnerable to claims if they cancel oil and gas projects that are further along in development but not yet producing. Kazakhstan could lose $6-$18bn and Indonesia $3-$4bn.

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This is the first peer-reviewed study to estimate the potential costs of investments covered by an ISDS mechanism but it only provides a partial picture.

It is limited to upstream oil and gas projects in pre-production phases. It doesn’t cover coal, operating oil and gas projects, fuel transport infrastructure such as pipelines and LNG terminals, or investments related to projects that cause tropical deforestation – the third largest source of global emissions.

Companies often use complex subsidiary structures to hide the real owner of a firm, which means the estimate of oil and gas production projects that are covered by ISDS are likely underestimated.

In 2020, a study looking solely at the Energy Charter Treaty – the greatest contributor to potential claims – found that member countries faced up to €1.3 trillion ($1.4trn) by 2050 of compensation claims by fossil fuel investors.

The author, Yamina Saheb, used to head the Energy Charter Treaty’s energy efficiency unit and is now one of its most vocal critics.

“It’s a disaster for climate action,” said Saheb, an analyst with thinktank OpenExp. She described the continuation of ISDS mechanisms as “ecocide” and a “neocolonial way to keep control on developing countries”.

Saheb explained that power purchase agreements, which were promoted by the World Bank and other international institutions to provide long-term electricity contracts for developing countries, have locked nations into contracts with investors protected by ISDS mechanisms.

“If the UN secretary general [António Guterres] wants to practice what he preaches, he needs to call for an emergency meeting to cancel all ISDS treaties,” said Saheb. The world’s ability to meet the Paris Agreement goals depend on it, she added.

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But why has the German government delayed this decision for so long? And why did Scholz merely halt the certification rather than cancelling it?

The words of German environment minister Svenja Schulze from last February give a clue. “We also run the risk of ending up in international arbitration courts with compensation claims if we stop the project,” she said.

Her warning added to a growing list of ministers admitting that they feared investor-state-dispute settlement (ISDS) claims under the Energy Charter Treaty (ECT), of which Germany is one of 53 members.

The ECT is a binding multilateral agreement, established in the 1990s, which protects foreign investments in economic activities related to nuclear energy, fossil fuels and electricity without distinguishing between the energy sources used to produce electricity.

It has been used by energy companies to sue governments whose policies damage their investments, whether fossil fuel based or renewables.

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In 2019, the multinational consortium behind Nord Stream 2 used the treaty to sue the EU over the implementation the implementation of measures to separate energy supply and generation from transmission included in the 2019 revised EU gas directive.

Lobbyists from one of the companies behind the pipeline, Shell, pushed for the case to be against Germany rather than the EU – which the European Commission was happy to support.

Other ECT cases against Germany include Swedish company Vattenfall asking for €1.4 billion ($1.5bn) in compensation over measures to protect water from coal power plants’ pollution and €4.7bn ($5.2bn) over nuclear power phase-outs.

Germany and some other EU member states are trying to reform and improve the ECT. They have empowered the European Commission to argue on their behalf in ongoing modernisation talks.

But the European Commision’s proposed changes will not affect existing fossil fuel investments and, similarly to the EU taxonomy, will end protection for new coal and oil but keep protection for nuclear and most gas-fired power plants.

They are now proposing a “flexibility mechanism”, where countries decide which energy sources they want to protect.

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The adoption of this mechanism means the European Commission’s proposal would apply in EU countries. In other words, most gas-fired power plants and the Nord Stream 2 pipeline will be protected until 2040 in EU member states.

The next round of negotiations begins next week behind closed doors. France has previously looked into the legal implications of the EU collectively leaving the treaty.

But, President Emmanuel Macron has not placed the ECT in his priorities for France’s time as chair of the European Council. We could soon be paying the price for that omission.

Yamina Saheb used to head the Energy Charter Treaty’s energy efficiency unit and is now an energy policy analyst at the OpenExp think tank.

This article was amended after publication to clarify that, under the European Commission’s proposal, most gas-fired power plants and the Nord Stream 2 pipeline will be protected until 2040 rather than “forever”, as previously stated.

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While states like France, Spain and Luxembourg want drastic reform of the Energy Charter Treaty (ECT), sources familiar with the negotiations said several Eastern European nations are resisting change.

The treaty allows fossil fuel companies to sue nations when climate policies affect their profits. Recently, German utility RWE filed a suit against the Dutch government for €1.4 billion in damages over coal phaseout plans that hit the value of a plant the company built in 2015.

Similar cases could cost taxpayers across the world up to €1.3 trillion ($1.5tn) by 2050, according to the Open Exp think tank, based on the value of fossil fuel assets protected by the treaty. Just under half of these costs would fall on the EU.

Campaigners and some member states have called on the EU to leave the treaty – a matter complicated by a clause meaning the ECT’s rules apply for 20 years after leaving.

“The ECT leaves us in a dead end street and the only good option is therefore to leave the ECT,” Paul de Clerck, from Friends of the Earth Europe, told Climate Home News.

The European Commission has been pushing for reform of the ECT at modernisation talks which began in July 2020. Any amendment to the treaty would have to be agreed unanimously between its 53 signatories.

Leaked ECT notes previously seen by Climate Home show the EU’s proposals for reform have so far been blocked by Japan and Kazakhstan, which argue “modernisation should be mininimal”. Japan’s position as the largest single donor to the ECT and the vice chair of the modernisation negotiations means it is influential.

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Monday was the deadline for parties to the ECT to send proposed text ahead of the third round of negotiations on 2-5 March. The EU proposal was submitted shortly before midnight.

The document proposes to protect existing fossil fuel infrastructure for ten years after the amendment comes into force. New power generation would be protected during that period if it emitted less than 380g of CO2 per kWh, covering efficient gas-fired plants as well as renewables.

That is strengthened from an earlier draft EU position seen by Climate Home, which set the emissions intensity threshold at 550g of CO2. But it remains far above levels considered by the EU in its own draft taxonomy, which would only label as “sustainable” gas power plants that emit less than 100g of CO2 per kWh – requiring carbon capture and storage.

The EU also seeks to extend protection to hydrogen, biomass and biogas investments.

Hydrogen can be made from fossil fuels or clean electricity. The EU’s proposal protects renewable and “low-carbon” hydrogen which it defines as either fossil-based hydrogen with carbon capture technology or electricity-based hydrogen “with significantly reduced full life-cycle greenhouse gas emissions”.

Cornelia Maarfield, climate and trade manager at Climate Action Network Europe, said hydrogen and biomass should not be included as they are not necessarily green.

“Why set a new trap for policy makers if you haven’t found the way out of the existing one?” she told Climate Home.

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A European Commission spokesperson told Climate Home that modernisation negotiations were still “at an early stage”. Campaigners argue the reform process is hopeless and member states should leave the treaty.

Maarfield said: “It is now crystal clear that even after the reform, the ECT will remain an obstacle to climate and sustainable energy policies.”

“European countries must shift from modernisation to complete withdrawal from the outdated ECT. If they pull out jointly, they can cancel the sunset clause, which allows investors to sue for another 20 years after withdrawal, by excluding investor-state disputes amongst themselves.”

Yamina Saheb, who used to head the ECT energy efficiency unit and now monitors negotiations, said just 20% of energy investments in the EU or the European Free Trade Association are from outside of its borders. So, by leaving together, EU nations could avoid most legal cases.

Saheb told Climate Home that while the EU’s proposal wasn’t ambitious enough, it still wouldn’t be accepted by other ECT parties. It is now time for countries like France, Spain and Luxembourg, which have threatened to leave the ECT, “to take action,” she said.

Spanish energy and environment minister Teresa Ribera tweeted on Saturday: “Full alignment with the Paris Agreement [on climate change] or withdrawal from the treaty.”

Europa se prepara ya para la siguiente ronda de negociación de la #CartaDeLaEnergía.
Hemos comunicado a la @EU_Commission nuestra posición:
a) la plena alineación con el #AcuerdoDeParís o el abandono de este tratado,
b) la consideración “doméstica” del espacio jurídico #UE. pic.twitter.com/BCMWlHLhVb

— Teresa Ribera (@Teresaribera) February 13, 2021

French ministers have told the European Commission that the “option of a coordinated withdrawal of the EU and its member states should be raised publicly from now on”.

Luxembourg’s energy ministry told Climate Home News that, while minister Claude Turmes supported the EU’s attempts to modernise the treaty, “he also recalls the urgency to find a swift agreement on this issue since climate is an emergency and as such 2030 and 2050 objectives cannot be slowed down. March is our last chance for a deal.”

On the other hand, a Slovak official in Brussels told Politico on Sunday: “We support the Commission’s current proposal” but “we are not supportive of any stricter criteria on deadlines or thresholds” that would undermine investments in gas infrastructure.

The ECT was set up in the 1990s after the collapse of the Soviet Union to encourage global investments in energy. Italy and Russia have since left the ECT although they are still subject to its sunset clause.

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Recently, fossil fuel companies have used the ECT to sue the Slovenian government over environmental protections and challenge the Dutch government‘s coal phaseout plan. The firms have argued that green government policies unfairly damage the value of their assets.

Similar cases could cost taxpayers across the world up to €1.3 trillion ($1.5tn) by 2050, according to the Open Exp think tank, based on the value of fossil fuel assets protected by the treaty. Just under half of these costs would fall on the EU.

The EU has been pushing for green reform of the treaty but all 53 ECT countries need to be on board for changes to be made and Japan and Central Asian countries have blocked reforms.

Speaking on Monday, the European Commissioner for energy Kadri Simon said that “greening” was “at the heart of the [ECT] modernisation process”.

A leaked European Comission proposal for ECT reform proposes removing coal, oil and gas from the energy investments protected by the treaty. If approved, this rule change would come into force in ten years time and investments made in the meantime would not be protected.

Environmental campaigners said the Commission’s proposal was too slow and had too many loopholes, particularly on gas. Paul de Clerck, from Friends of the Earth Europe accused the EC of “blind pandering to fossil fuel interests” by “protect[ing] fossil fuels for at least another ten years”.

The EC’s proposal says that investments in gas made before 2030 should be protected if they emit less than a certain amount of CO2 and if their plants and infrastructure enable the use of low-carbon and renewable gases. The EC adds that investments in coal-to-gas conversions or gas pipelines which can carry low-carbon and renewable gases should be protected until 2040.

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The document also proposes that investments in hydrogen and materials used to insulate buildings should be protected. Hydrogen can be renewable or non-renewable depending on how it is produced.

Amandine Van Den Berghe, trade and environment lawyer at ClientEarth said the Commision’s proposal was “a step in the right direction but contains major loopholes around gas and non-renewable hydrogen, which increase the risk of locking in gas infrastructure and more future emissions”.

Yamina Saheb used to be the head of the ECT energy efficiency unit and now monitors negotiations. She said that on Thursday, the document will be discussed by the European Council’s energy working party, which is made up of representatives of the EU’s member states.

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Saheb said that the proposal was submitted too late to be discussed at next week’s ECT negotiations and so won’t be discussed at all this year. The next round of negotiations is scheduled for February or March 2021. Saheb said that although the EC’s proposal is “weak from a climate perspective”, the other ECT member states will still reject it.

Saheb and De Klerk argue that, instead of pushing for reform, the EU should leave the ECT. States like Luxembourg and France have said the EU should consider leaving and Italy and Russia have already left.

The treaty’s ‘sunset clause’ means that, even if the EU states left, the ECT’s rules still apply for 20 years. Commenting on whether this made reform better than leaving, Saheb said that 80% of energy investments in the EU are from fellow EU or EFTA countries so, when they leave, these countries could also agree to end the sunset clause between themselves. They should then plan carefully so as to avoid legal cases over the 20% of investments from outside of Europe, she said.

This article was amended to say that Italy and Russia have left the ECT. Previously, it said they had started the process of leaving.

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In the past year, fossil fuel companies have used the Energy Charter Treaty to sue the Slovenian government over environmental protections and challenge the Dutch government‘s coal phaseout plan.

Similar cases could cost taxpayers across the world up to €1.3 trillion ($1.5tn) by 2050, according to the Open Exp think tank, based on the value of coal, oil and gas assets protected by the treaty.

Around 42% of these costs would fall on the EU. The bloc is pushing for amendments of the treaty to support climate goals, including replacing the investor state dispute settlement (ISDS) model with something more transparent.

But at “modernisation” talks between the 53 signatories of the pact last week, Japan and central Asian countries refused to entertain fundamental changes to the ISDS system.

Japan blocks green reform of major energy investment treaty

In its statement on the talks, the ECT secretariat said: “No consensus was reached on a request by one delegation to discuss a broader reform of ISDS beyond the list of topics for modernisation.”

Investment law expert at the Columbia Center on Sustainable Investment Lise Johnson told Climate Home News the talks were “a missed opportunity” and “risk locking in the same unsustainable status quo”.

Harro van Asselt, climate law professor at the University of Eastern Finland, said replacing the ISDS is just one of several possible ways of ‘greening’ the ECT. “Such proposals could still be pursued under the current list of topics for modernisation. However, the unwillingness by some parties to even discuss these issues does not bode well for reform efforts,” he concluded.

Proposals still on the table include measures to deter frivolous claims and regulate the role of “no win, no fee” litigation finance companies.

Kyla Tienharaa, assistant professor of environmental studies at Canada’s Queen’s University said if fully pursued, these changes might help prevent lawsuits by fossil fuel companies bankrupted in the transition to clean energy. But negotiators were merely “tinkering” and “ultimately, in my view, termination [of the treaty] is the way to go”.

Friends of the Earth campaigner Paul de Clerk said the decision not to discuss broader reform, shows “the ECT will continue to promote an ISDS model that was declared unacceptable by the EU and its member states a couple of years ago. Therefore, it is time to leave the ECT.”

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Several European politicians have said the EU should consider pulling out of the treaty if it doesn’t achieve meaningful reform. Italy and Russia left the ECT after legal action was brought against them, although a ‘sunset clause’ means the treaty’s provisions apply for 20 years after the exit date.

The head of the ECT secretariat, Urban Rusnák, has said that if modernisation talks fail, there is no future for the treaty. But he insisted it could be a positive force for climate protection in a June interview with Borderlex.

“Apart from the Yukos case, damages awarded under arbitration cases up to now are twice as high in the renewable energy sector as in fossil fuels. Yet somehow the NGOs fail to mention this,” he told Borderlex.

The treaty’s disintegration “would seriously hamper the ability of the world to meet the Paris climate targets,” Rusnák said. Unlike Paris, the ECT protects investments, he said, and so the two are complementary.

Fracking company sues Slovenia over ‘unreasonable’ environmental protections

In response to this point, Johnson said that renewable subsidies were important but “it is dangerous if we use the treaty to lock in unsustainable incentive schemes”. She said governments needed the ability to review and withdraw subsidies if they were not catalysing investment or were an “excessive” use of taxpayers’ money.

These talks were the second of three ‘clarification rounds’ this year, meaning that no substantive decisions were expected. There will be a further clarification round in November before a progress report is submitted to the ECT’s December conference and then negotiations will continue throughout 2021.

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In a letter to the Slovenian government, the company’s lawyers described the government’s actions as “arbitrary and unreasonable”. Environmentalists said it was the company whose behaviour was “outrageous”.

Friends of the Earth Slovenia accused Ascent of endangering the country’s drinking water supply and urged the new Slovenian government not to bow to pressure.

Paul de Clerck, economic justice coordinator for Friends of the Earth Europe, said: “It’s a scandal that, amid a climate and environmental emergency, a country like Slovenia can be sued for doing the right thing, protecting its water and environment from destructive fracking.”

London-based Ascent Resources is taking legal action using the UK-Slovenia bilateral investment treaty and the controversial multilateral Energy Charter Treaty (ECT), which the UK and Slovenia have both signed up to.

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The ECT has previously been used by a German energy company to fight the Dutch government over coal phaseout plans and by a Swedish company to sue the German state over its policies against nuclear and coal power.

In 2007, Ascent entered a joint venture with a state-owned Slovenian company called Geonergo to extract gas from Petišovci in eastern Slovenia and sell it to Croatian company INA. It says it has since invested €50m (US$59m) in the project.

In 2017, the company decided it needed to inject water underground to stimulate gas flow, known as fracking, and applied for government permission. Ascent’s lawyers say that they did not need to apply for this but Geonergo did so anyway “in an abundance of caution”.

In March 2019, the Slovenian Environment Agency (ARSO) ruled that the company must conduct an environmental impact assesment because the site is close to water sources.

Ascent’s lawyers said this decision went against expert opinions from several other government bodies and was “manifestly arbitrary and unreasonable”. They add that the Minister of the Environment and Spatial Planning’s public criticism of the company and leaks from ARSO to the press show that ARSO was “biased” and its decision was “politically motivated”.

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Geonergo challenged ARSO’s decision but, in May 2020, the Slovenian court ruled against the firms. In July, Ascent’s London lawyers told Slovenia they were taking legal action.

Lidija Živčič, from Friends of the Earth Slovenia, told Climate Home News she feared the Slovenian government elected in March 2020 would reverse the previous government’s opposition to fracking.

The previous government, led by Marjan Šarec, had been preparing a law which would ban fracking. It was voted out before the law could pass and, Živčič said, Janez Janša’s new government seems much more in favour of fracking.

If fracking went ahead in Petišovci, Živčič said, the nearby sources of drinking water and thermal waters could be affected by the fracking chemicals. In other countries, poorly-built shallow fracking wells have injected gas into underground freshwater aquifers.

Fracking could also damage nearby ecosystems and would contribute to global climate change, Živčič said. The site is near the borders of Hungary and Croatia.

Japan blocks green reform of major energy investment treaty

Friends of the Earth has brought attention to the case at the same time as members of the ECT are negotiating ‘modernisation’ of the treaty, which dates from the early 1990s.

The European Union wants to improve governments’ ‘right to regulate’ on climate change without facing legal action under ECT but nations like Japan and Kazakhstan are resisting reform.

Luxembourg’s energy minister has said his nation and others could leave the ECT if its environmental protections are not improved. Russia and Italy have already left the treaty after it was used to sue them.

An Australian mining company called Prairie Mining also announced ECT legal action this week. It says the Polish government has unfairly damaged its coal mining prospects by not renewing one of its concessions and granting part of another to a rival firm.

The post Fracking company sues Slovenia over ‘unreasonable’ environmental protections appeared first on Climate Home News.

While the European Union is pushing for updates of the Energy Charter Treaty (ECT) to make it more climate-friendly, Japan has resisted any changes.

Ahead of a second round of negotiations on modernising the pact this week, Luxembourg’s energy minister Claude Turmes said in a webinar the EU might quit the treaty if there was no progress.

“I would not rule out that if nothing moves, if there is not sufficient movement, then you would have no other option than to collectively step out. That was also a discussion raised by France, although I can’t confirm the French government’s commitment,” he said.

Marjolaine Meynier-Millefert, a French lawmaker from president Emmanuel Macron’s party, said reform was preferable to ditching the treaty, but “if we are forced to do so then there would be no other option than to do so”.

On Tuesday, 139 lawmakers in the European Parliament issued a statement warning the treaty “is threatening the climate ambition of the EU domestically and internationally”. They said the EU should withdraw unless it can achieve a rewrite of the pact to scrap protections for fossil fuel investors.

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The ECT is a pact signed in the 1990s to boost investment flows between western and post-Soviet countries. Provisions to deter states from grabbing private assets have been retooled by energy companies to fight climate policies.

Last year, German utility Uniper threatened to sue the Dutch government under the treaty, because a national plan to phase out coal burning would force the early closure of Uniper’s power station near Rotterdam.

The European Union has proposed amendments that reinforce governments’ “right to regulate” on issues like public health and the environment. But any changes must be passed unanimously and so can be blocked by any of the ECT’s 53 signatories.

A written submission from Japan published by the ECT secretariat in October 2019, before modernisation talks began, asserts 26 times: “Japan believes that it is not necessary to amend the current ECT provisions”.

Among the proposals rejected by Japan are language on the “right to regulate” and changes to the investor-state dispute resolution (ISDS) mechanism.

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Leaked ECT notes seen by Climate Home News show that, ahead of the first round of negotiations in July 2020, Japan expressed “great concerns” about an EU plan for a multilateral investment court to replace the ISDS.

Japan was supported in this by Kazakhstan. In the notes, both nations said “modernisation should be minimal”.

According to Yamina Saheb, a former head of the ECT energy efficiency unit and observer of the negotiations, the 12-strong Japanese delegation in July made no proposals to change the text and called for 2020 discussions to be limited to clarifying national positions.

Japan’s position as the largest single donor to the ECT and the vice chair of the modernisation negotiations means it is influential.

Pia Eberhardt, a researcher at Corporate Europe Observatory, told CHN Japan’s opposition means “it’s very unlikely that we will see any of the changes which we would need to see to make this agreement compatible with climate action”.

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Japan’s reluctance to change the ISDS mechanism reflects the fact that, unlike many European countries, it has never been sued by foreign investors.

On the other hand, Japanese companies have used the ECT to take legal action against governments. So far, these have only been renewables companies angry at a decision by Spain’s previous government to cut subsidies and increase taxes – but fossil fuel companies could use the treaty in a similar way.

Japan is the only G7 country still building coal-fired power plants, both in Japan and overseas. According to Mission 2020, Japanese public finance is behind 24.7 GW of coal power in other countries. That is larger than Australia’s entire coal fleet.

These coal power plants are in India, Indonesia, Vietnam, Bangladesh, Chile and Morocco. None of these countries are signatories to the ECT but several are either in the process of acceding or are observers.

And in 2016, the Japanese government changed the law to allow its state-run JOGMEC agency to buy foreign energy assets.

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Italy and Russia have left the ECT, although a ‘sunset clause’ means the treaty’s provisions apply for 20 years after they leave.

Russia withdrew from the treaty in 2009, when former shareholders of the Yukos energy company used the ISDS to claim compensation for assets they said had been expropriated by the Russian government.

Italy withdrew from the ECT in 2016. The government said this was to reduce costs associated with membership but it may also have been a response to renewable energy companies taking legal action over a reduction in solar power subsidies.

The post Japan blocks green reform of major energy investment treaty appeared first on Climate Home News.