The European Commission’s proposal to reform an outdated energy investment treaty is not in line with the objectives of the Paris agreement and the Green Deal to tackle climate change, lawyers from environmental law charity ClientEarth have found.
In a letter sent to Vice President of the European Commission Frans Timmermans, ClientEarth and the International Institute for Sustainable Development say that the current reform proposal does not provide sufficient safeguards to shield European climate efforts from the threat of investor-state arbitration.
The Commission’s draft proposal to reform The Energy Charter Treaty (ECT) – an international investment agreement in the energy sector – does not provide sufficient guarantees to protect governments against investors’ attempts to challenge climate and energy transition policies.
The ECT contains the controversial investor state dispute settlement mechanism (ISDS), which enables foreign investors to challenge governments over social or environmental policies and laws that may impact their business, claiming huge compensation.
This mechanism has a demonstrable chilling effect on environmental regulations as the threat of legal action may discourage or delay governments’ plans to shift to a low carbon economy in fear of retaliation from foreign investors, including within the European Union.
ClientEarth Trade and Environment lawyer Amandine Van Den Berghe said:
“The reform of the Energy Charter Treaty is a unique opportunity to match the EU’s climate objectives with international investment policies. This process should be used to transform the ECT into a positive force for the clean energy transition.
“Right now, the Commission’s proposal to reform the ECT is clearly not ambitious enough. The cosmetic changes proposed by the EU will not amount to ‘modernisation’ and will fall far short of making the ECT fit for purpose. Without more significant changes, it will jeopardise the achievement of the EU’s and its member states’ climate action objectives.”
“If the Commission is serious about its plan of making the EU climate-neutral by 2050, the Commission must put the fight against climate change and energy transition at the heart its investment policy.”
In a legal analysis sent along the letter, lawyers have highlighted the main flaws of the EU proposal, which fails to ensure investment protection does not come at the expense of human rights and environmental obligations, and does not clearly forbid ISDS claims over public interest measures.
Lawyers have also asked to hold investors accountable and to authorise states to differentiate low-carbon from carbon-intensive investments, in order to grant beneficial treatment to responsible investors in renewable energies only and shift investment away from fossil fuels.
The Commission is expected to submit its final proposal before the end of May, following further discussions with the Member States.
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