Euractiv | 4 September 2019
Luxembourg leads EU push to climate-proof Energy Charter Treaty
By Frédéric Simon
Luxembourg will push for a deep reform of the Energy Charter Treaty at the EU level in order to align it with global climate objectives, said the country’s energy minister Claude Turmes, who did not rule out scrapping the treaty altogether if reform talks don’t progress fast enough.
EU member states gave the European Commission a mandate last July to revise the Energy Charter Treaty, saying the legally-binding charter – originally signed in 1991 after the collapse of the Soviet Union – must reinstate Europe’s “right to regulate” in areas like climate change and workers’ rights.
But Luxembourg believes the mandate “is not good enough” with regards to climate policy, Turmes told a Brussels audience on Wednesday (4 September).
“The Luxembourg government is now trying to build a coalition of climate-responsible countries” in the European Union to reform the treaty and align it with the objectives of the Paris Agreement, he said, adding the EU should be “much more pro-active” in pushing the reform forward.
“I will again put it on the agenda when we meet on the 24th because I think we need to deepen this mandate,” Turmes said referring to a meeting of EU energy ministers scheduled for 24 September.
“There is a huge responsibility on the new Commission to make this energy charter one of its priorities,” Turmes added, saying the reform was a question of coherence for incoming Commission President Ursula von der Leyen, who promised to table a “Green Deal for Europe” during her first 100 days in office.
The Energy Charter’s initial objective was to provide legal protection for oil and gas companies investing in the former communist bloc.
But critics say it provides excessive legal protection for oil and gas companies, which can claim uncapped reparations from governments who frustrate investments in fossil fuel projects.
The European Commission, which tabled a reform proposal earlier this year, now regards the treaty as “outdated”, notably when it comes to investor protection clauses, climate change and the clean energy transition.
“The EU is the main proponent of modernisation,” said Carlo Pettinato, an official who leads the treaty reform process at the European Commission.
“We have to make sure not only that the provisions reflect our approach on investment protection and dispute settlement, but also that it is fully compatible with the Paris Climate Agreement,” he told the conference.
“This is our mandate. More explicit than this, I have never seen,” he said.
Withdrawal is an option ‘worth taking seriously’
However, some believe the treaty will be too complicated to reform because any change would require unanimity from all of the treaty’s 55 members, which include energy exporting countries like Kazakhstan, Turkmenistan and Uzbekistan.
“It is more likely that these countries will not vote for ending investment protection to fossil fuels as this would lower their revenues,” says Yamina Saheb, a former employee of the Energy Charter secretariat who spoke at the Brussels event.
“This is particularly true for countries with fossil fuels revenues above 1% of their Gross Domestic Product (GDP),” she wrote in a report assessing the geopolitical, climate and financial impacts of the ECT, published on Wednesday (4 September).
“This is going to take years, but climate change is happening now,” said Nathalie Bernasconi-Osterwalder from the International Institute for Sustainable Development (IISD).
“Unfortunately, I think the modernisation process will be very narrow, it will be tinkering,” she told the audience. “I think at this point, withdrawal is the right thing to do.”
Turmes agreed that withdrawal is “an option worth considering seriously” should discussions on the treaty’s modernisation lead to nowhere. “I would give it a few months,” Turmes added, saying the incoming European Commission should define its negotiation strategy, including “carrots and sticks” and how long it wants to negotiate.
“Let’s be clear: we have the money, we have the diplomatic influence, we have the firepower to do this. Our problem is that we are not bold enough and often we are not united enough,” Turmes said.
Pettinato, for his part, said the Commission wanted to negotiate in good faith and the reform process should be given a chance to succeed before talking about withdrawal. “Negotiations haven’t started, all member states are putting their options on the table,” he reminded.
“We’re not threatening anything. We want to reform and are presenting our proposal in good faith,” Pettinato said.
There is another reason for Europe to try and negotiate a reform. A so-called “survival clause” ensures the treaty continues to apply for twenty years after a member withdraws. And any reform to that clause would require unanimity as well.
“A unilateral termination of the treaty would trigger the survival clause,” while a consensual reform could change that, Pettinato confirmed, suggesting it would be wiser to reform than pull out.
But not all EU member states seem to agree on the objectives of the reform when it comes to Investor-state dispute settlement (ISDS) clauses. In the 2018 Achmea judgement, the EU court of justice said ISDS clauses were incompatible with EU law because they undermine the powers of domestic courts to regulate.
However, the ruling was disputed by six EU member states who have issued a declaration following the Achmea judgement, saying the ruling does not apply to the Energy Charter Treaty (ECT). Those countries are Finland, Luxembourg, Malta, Slovenia, Sweden and Hungary.
For Pettinato, “finding a solution on the intra-EU application of the ECT would solve 95% of all the cases” which are brought to litigation under the Energy Charter. “Once we resolve intra-EU application, we can relax a little bit and perhaps reform the treaty properly,” he said. “And we will avoid these massive cases for which the ECT was not intended in the first place.”