Media reaction: 4 February 2021

RWE coal compensation claim shows why EU must leave Energy Charter Treaty – lawyers

Energy giant RWE has launched legal action against the Netherlands to claim substantial compensation after the government agreed a coal power phase-out by 2030, affecting two of the company’s coal plants.

RWE, which rebranded with new ‘green’ ambitions in 2019, has come under fire by environmental law charity ClientEarth over this use of the Energy Charter Treaty.

While ClientEarth believes the case is legally unlikely to succeed, they say the Treaty poses a barrier to climate action and are calling on the EU to withdraw.

ClientEarth trade expert Amandine Van den Berghe said: “RWE’s lawsuit is an aggressive response to necessary and foreseeable action by the Dutch government to combat climate change. That is entirely the wrong message to send.

“This is the wrong use of the Energy Charter Treaty. Companies must not attempt to shift their losses from stranded assets onto states by seeking compensation for poor business decisions.

“While we believe the Tribunal should reject RWE’s compensation claim, the move still sets a reprehensible example to other companies, and risks other governments hesitating over stronger and vital climate policies.

“Unfortunately this litigation trend is now becoming evident and this is exactly why the EU should urgently leave the Energy Charter Treaty. It is clearly becoming an obstacle to the energy transition.”

The lawyers also warn RWE’s actions against the Netherlands could augur later attempts to prevent stronger climate ambition in RWE’s home country, Germany.

ClientEarth legal expert Francesca Mascha Klein said: “In Germany, the coal exit has been designed to prevent companies from bringing similar claims over the lignite phase-out, but such action by companies is not out of the question.

“This move by RWE is a worrying precedent and prompts earnest questions about whether the company’s climate ambitions go beyond the posters they’re written on. Those invested in RWE should be formally raising those questions.”


Notes to editors:

The Energy Charter Treaty (ECT) is an international investment agreement, to which both the EU and its Member States are party (Italy left in 2016), as well as non-EU states. It was designed by the EU in the 1990s in the post-Cold War era to protect foreign investments in the energy sector (it also covers the trade and transit of energy between states).

Read ClientEarth’s analysis of why the ECT presents a risk for the climate, and our warning to the European Commission on the reform of the ECT.

A 2018 CJEU ruling resulted in most Member States signing a political declaration in 2019 that no new intra-EU investment arbitration should be initiated. Arbitration tribunals may therefore lack competence to hear intra-EU disputes based on the ECT.

ClientEarth previously commented on Uniper’s similar action.

France has just proposed that the EU leave the Energy Charter Treaty (ECT).

RWE is set to receive billions of Euros in compensation for the German coal phase-out. Following its ‘green’ rebrand as ‘The new RWE’, the company confirmed that it would still proceed with demolishing centuries-old villages for coal mining. It is currently carrying out demolition work in Lützerath, Germany, in the face of on-the-ground protest.

The German coal phase-out design includes a ‘waiver clause’ which in theory should prevent companies using the Energy Charter Treaty to sue for further compensation. ClientEarth’s German coal phase-out experts authored a briefing on whether the waiver clause truly eradicated this risk.

About ClientEarth

ClientEarth is a charity that uses the power of the law to protect people and the planet. We are international lawyers finding practical solutions for the world’s biggest environmental challenges. We are fighting climate change, protecting oceans and wildlife, making forest governance stronger, greening energy, making business more responsible and pushing for government transparency. We believe the law is a tool for positive change. From our offices in London, Brussels, Warsaw, Berlin and Beijing, we work on laws throughout their lifetime, from the earliest stages to implementation. And when those laws are broken, we go to court to enforce them.