The Energy Charter Treaty (ECT) is an international agreement, in force since 1998, that currently has more than 50 signatories. The ECT provides international investors in the energy sector with the power to sue governments over policies that damage the value of their investment. Cases are heard by tribunals, rather than by domestic courts – in effect, an ISDS mechanism that applies to energy companies.
This means that corporate profits are protected, at the expense of the ability of governments to legislate in the interests of people and planet. The ECT is a significant obstacle to international climate action, providing energy corporations with a means through which to challenge and frustrate policies that phase out fossil fuel usage.
Countries transitioning away from fossil fuels are starting to face massive lawsuits from fossil fuel companies. For example, German energy company RWE is suing the Netherlands for two billion euros over the government’s plans to phase out coal power. Even when lawsuits are not successful, they are extremely expensive for states to fight.
- The number of ECT lawsuits has hugely increased – half of the 136 arbitrations ever brought under the ECT have happened since 2015.
- Under the ECT, governments have been ordered or have agreed to pay more than $52 billion in damages from the public purse
- 97% of investors using the ECT were fossil fuel companies
Countries are able to leave the ECT, but the rules of membership mean that they remain vulnerable to being sued by investors for 20 years after having withdrawn. Nonetheless, there are a number of civil society groups globally seeking to pressure governments to reject the ECT, including the #ExitECT campaign. The European Parliament has expressed its support for ECT withdrawal, and a ruling from the EU Court of Justice has signalled that the ECT is incompatible with EU law, although it is unclear what impact this ruling will have on tribunals.
At the same time, the ECT secretariat has expressed its intention to expand its membership by encouraging countries in Africa, Asia and South America to accede to the Treaty. Reforms to the Energy Charter Treaty, which remove the protections offered to fossil fuel investors but over a ten-year transition period, have been criticised by campaigners as insufficient.