Energy Central News | 27 July 2023

EU countries can challenge energy company arbitration claims in court

Karlsruhe, Germany — Energy companies cannot force European governments into arbitration over compensation demands for investments hit by changing state climate goals, Germany’s highest civil court ruled on Tuesday.

Energy companies including German-based RWE and Uniper had sought €1.4 billion ($1.6 billion) in compensation for lost revenue after the Dutch government decided to close coal-fired power plants by 2030 as part of the effort to fight climate change.

In another case, an Irish energy company claimed losses after the German government shifted policies around offshore wind energy.

The energy companies argued that the Energy Charter Treaty, signed in the 1990s to protect investments by energy companies in foreign countries, allows them to pursue such claims in international arbitration proceedings.

The companies wanted the matter settled by an arbitration court run by the World Bank.

Both Germany and the Netherlands turned to German courts to block the arbitration proceedings. But lower court judges reached differing conclusions.

Germany’s Federal Court of Justice ruled on Thursday that German judges have the power to decide in such cases whether arbitration is admissible.

The decision comes amid ongoing controversy over the Energy Charter Treaty itself. Critics consider it a barrier to enacting climate change and renewable energy policies.

The German government decided to leave the treaty last year, but faces a phase-out period of 20 years.

Italy quit the treaty in 2016 and other European Union countries including France, the Netherlands and Spain have also announced plans to do so.

The European Commission is currently considering a plan to coordinate the withdrawal of the entire bloc from the treaty, as it believes the treaty is no longer compatible with the EU’s climate goals.