Euractiv | 16 July 2019
EU asserts ‘right to regulate’ as part of energy charter treaty reform
By Frédéric Simon
EU member states gave the European Commission a mandate on Monday (15 July) to revise the Energy Charter Treaty, saying the legally-binding charter must reinstate Europe’s “right to regulate” in areas like climate change and workers’ rights.
The Council of the EU, representing the bloc’s 28 member states, gave the European Commission its green light to begin negotiations on the revision of the Treaty.
“The modernised ECT should explicitly reaffirm the so-called ‘right to regulate’” in areas such as health, safety, and the environment, the Council said, announcing the approval of EU negotiating directives to revise the charter.
In a statement, the Council insisted on “ensuring that climate change and clean energy transition goals are reflected in the modernised ECT.” This, it added, includes “a clarification” that EU governments are entitled to enforce environmental and safety laws on foreign companies operating on their territory.
As part of the revision process, the EU also seeks to clarify that investment protection clauses in the ECT “cannot be interpreted as a commitment” that EU laws won’t be changed in the future, “even if that may negatively affect the investor’s expectations of profits”.
Signed in 1991 after the collapse of the Soviet Union, the Energy Charter’s initial objective was to provide legal protection for oil and gas companies investing in the former communist bloc.
However, the treaty is regarded as “outdated” by the European Commission, which proposed reforming the energy charter earlier this year, notably when it comes to investor protection clauses, climate change and the clean energy transition.
In a statement, the European Commission welcomed the Council’s mandate to reform the charter, including “stronger provisions” on climate change, clean energy, human rights and international labour standards.
“The world is evolving, and the energy/climate world is disrupting,” Luxembourg wrote in an internal room document about the treaty’s revision process, obtained by EURACTIV.
“Contracting parties have taken engagements in Paris towards climate objectives,” Luxembourg said in the document, adding that the “ultimate goal” of the Paris Agreement is to achieve “a net-zero carbon world in 2050” and limit the rise in global temperatures to 1.5°C maximum.
“Luxembourg shares the view that these major evolutions need to be horizontally reflected in the revised Treaty,” the document reads.
Investor protection clause
Discussions in Europe have focused mainly on trade aspects, in particular the Investment-State Dispute Settlement (ISDS) clause.
In the room document, the EU calls for a “fundamental reform” of the ISDS, including a stricter definition of investors in order to “prevent that mailbox companies bring disputes under the ECT” when they have no substantive business activities in their country of residence.
Activists see those guarantees as insufficient, however, saying the EU’s arbitration system is “flawed” and won’t be sufficient to safeguard the environment, public health or workers’ rights against the interests of private companies.
“Investment protection under the EU’s current system is a simple rebranding of the infamous ISDS arbitration scheme – a parallel justice system in which corporate investors file multi-million dollar lawsuits against governments before private tribunals,” said Vicky Cann from the Corporate Europe Observatory (CEO), a campaign group.
“A reform of the Energy Charter Treaty that is based on the EU’s investment court system will only ensure that the treaty remains a risk to public interest policy-making,” she said in e-mailed comments to EURACTIV. “Reforms that tinker at the edges will not suffice to foster confidence in what remains a thoroughly skewed system.”
Ditch the treaty?
Others are more radical, saying the EU should withdraw from the treaty instead of seeking to reform it.
“I don’t see how the Treaty could be aligned with EU investment protection standard or the Paris Climate Agreement as any amendment to the Treaty requires unanimity vote,” said an insider at the Energy Charter Secretariat who spoke to EURACTIV on condition of anonymity.
“It’s insane to think that countries making their income from the export or the transit of fossil fuels would vote to terminate the protection of fossil fuels under the ECT,” the insider said.
The source pointed to the Rockhopper case in Italy as a case in point. Under a “sunset” clause in the charter, energy companies can sue signatory countries even after they pull out from the Treaty.
Italy decided to withdraw from the Energy Charter Treaty as of 1 January 2016. But despite this, existing investments will remain protected until 2036 under the charter.
“I wonder how many ECT cases does the EU need to acknowledge that the only way forward is to withdraw from the Treaty,” the insider said.