Modernisation of the Energy Charter Treaty: A Global Tragedy at a High Cost for Taxpayers

The Energy Charter Treaty (ECT) is a multilateral investment agreement solely dedicated to protecting foreign investments in energy supply. By January 2020, the Treaty has been ratified by 53 countries and the European Union/Euratom. Under the ECT regime, foreign investors can sue host States through arbitration tribunals, typically, composed of party-appointed private lawyers.

After more than two decades of existence, the ECT failed in meeting its policy objectives and the “raison d’être” of the Treaty became obsolete. Contracting Parties launched, in 2009, the year Russia withdrew from the provisional application of the ECT, a modernisation process of the Treaty. Negotiations of the policy options to “modernise” the ECT will take place in 2020.

However, the “modernisation” of the Energy Charter Treaty (ECT) is unlikely to lead to a fossil fuel-free and a climate friendly Treaty. In fact, phasing-out protection of foreign investments in fossil fuels is not on the negotiating table. The continuation of investment protection of foreign investments under the ECT regime will potentially lead to 216 Gt of carbon protected by the Treaty by the end of 2050. This is equivalent to more than one-third of the remaining global carbon budget to limit planet’s warming to 1.5°C by the end of the century. Similarly, the “modernisation” of the Treaty will not end the Investor-State-Dispute-Settlement (ISDS) mechanism under the ECT regime. Thus, leading, by 2050, to a potential cost for taxpayers of €1.3 trillion out of which 42% should be paid by EU taxpayers.

The EU and its Member States cannot on one hand phase-out the use of public finance for domestic investments in fossil fuels, through the EIB energy lending policy, and on the other hand sign off on the continuation of protection of foreign investments in fossil fuels, through the continuation of the ECT. For consistency with the European Green Deal and its ambition of making the EU a global climate leader, the EU and its Member States should withdraw collectively from the ECT.

Moreover, under the UNFCCC umbrella, the EU and its Member States could take a lead and join efforts with the most advanced countries in their carbon neutrality targets, to develop a Treaty for the Non-Proliferation of Fossil Fuels. Such a Treaty would require all countries to develop their roadmaps to gradually phase-out fossil fuels and will avoid locking the world, especially developing countries, in carbon at high cost for taxpayers.