Switzerland says won’t follow EU out of beleaguered Energy Charter Treaty

Euractiv | 10 February 2023

Switzerland says won’t follow EU out of beleaguered Energy Charter Treaty

By Joe Lo | Climate Home News

Bern said it will not join the European Union’s proposed mass exit from a controversial energy investment protection treaty, sparking fears that fossil fuel companies will use Switzerland as a rear base to keep suing governments over climate action.

This week, the European Commission proposed a joint EU exit from the Energy Charter Treaty (ECT), saying continued protection for fossil fuel investments risks slowing down climate action.

The United Kingdom, which is still a member of the ECT, said it is “closely monitoring the situation”.

But 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 operations 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.

source: Euractiv