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EU Policy. MEPs support exit from treaty allowing big oil to sue governments over climate action

Climate activists demand Europe pull out of the Energy Charter Treaty
Climate activists demand Europe pull out of the Energy Charter Treaty Copyright Jonathan Salariya / Friends of the Earth EWNI
Copyright Jonathan Salariya / Friends of the Earth EWNI
By Robert Hodgson
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In a decisive committee vote, MEPs have supported the European Union's exit from the Energy Charter Treaty over concerns its global investor-state dispute settlement (ISDS) system has been weaponised to sue governments over climate policy.

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The European Parliament’s energy and trade committees have overwhelmingly backed a proposal by national governments for the EU to withdraw from the Energy Charter Treaty, a post-Cold War international agreement intended to protect investments in unstable formerly communist states.

“This is a very important vote and gives also a very clear political message,” MEP Bernd Lange (Germany/Socialists & Democrats) said after the assembly’s draft recommendation was adopted by 58 votes to eight with two abstentions. MEP Anna Cavazzini, a German Green and co-rapporteur for the file, welcomed a “historic” vote to pull out of a treaty that had become a “climate killer” used by fossil fuel companies to sue governments when environmental policy impacts their expected profits.

The draft report, co-authored with MEP Marc Botenga (Belgium/The Left), lists several recent cases affecting EU countries in which the most litigated investor-state dispute settlement (ISDS) treaty has been used to sue governments.

In 2022, Italy was ordered to pay British oil company Rockhopper €250m in compensation for its decision to ban offshore oil developments; last November the oil company Klesch Group Holdings Limited sued the EU, Germany and Denmark for at least €95m over windfall taxes, the MEPs noted.

In 2021, German firms RWE and Uniper sought a combined €2.4bn in damages from the Dutch government over its 2030 deadline for the closure of coal-fired power plants, although they subsequently withdrew their claims, the former after unfavourable court rulings and the latter as a condition for a state bail-out.

“The treaty has been a brake on the EU’s climate ambition allowing companies to challenge vital climate policies and claim billions of taxpayers' money,” said Audrey Changoe, trade and investment policy coordinator at Climate Action Network Europe, a campaign group. The vote was a milestone on the EU’s road to the full withdrawal that was needed to provide the “needed policy space” for tackling global heating, Changoe told Euronews.

The parliamentary committee vote comes a month after national diplomats agreed to an exit proposal tabled reluctantly by the European Commission, which had worked over several years to negotiate a reform of the treaty it said would bring it into line with EU climate mitigation policy.

The EU was unable to agree to the reform due to a refusal by France, Germany, the Netherlands and Spain to support the provisional reforms negotiated by the Commission. Any change to the ECT requires unanimous support among the fifty or so parties to the agreement. In the ensuing deadlock, EU countries have been withdrawing one after another. France, Germany and Poland are out, with Luxembourg due to follow by the summer. Denmark, Ireland, the Netherlands, Portugal, Slovenia and Spain have all announced their intention to quit. Italy withdrew in 2016.

“It is high time for all the member states that are still in the sinking ship of the ECT to withdraw from it alongside the EU,” Changoe said.

A sunset clause in the treaty means countries that withdraw remain open to litigation for twenty years. The European Commission tabled at the end of March a separate proposal, invoking a protection clause in the ECT to prevent Russian or Belarusian investors from suing EU governments via shell companies.

Paul de Clerck, an economic justice campaigner at Friends of the Earth Europe, said the vote brought the EU a step closer to exiting the treaty, and the size of the majority in committee was grounds for confidence it would be supported by the full parliament. That would leave governments to make the final decision at a ministerial summit, something Belgium is working to ensure before its EU Council presidency ends in June.

“We call on all member states to follow suit, recognise that the ECT is a blast from the past and take the decision to exit this treaty as well,” de Clerck said.

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