The energy charter treaty is a major treaty in the area of investor state dispute settlement (ISDS), the legislation that legally entitles private investors based in one state to sue the government of another state when it acts to combat climate change. There is now a complex global web of such treaties, which investor businesses game to extract the greatest compensation from client states.
When taking action to protect the planet by meeting their climate targets, sovereign states must now weigh up the large bills they might have to pay in compensation to commercial investors for a prospective impact on their financial returns. This obviously deters or directly impedes climate action by all governments, at a time when commitment and speed are most needed.
Continuing with ISDS and moving to net zero are incompatible
The issue raised in Yorkshire Bylines’ previous article was that ISDS as a legal construct has become a serious impediment to fighting climate change. It is now a growing cost for governments to absorb, especially in emerging countries and as investors get more litigious. This begged the question ‘Has ISDS had its day in a world of shared climate threat and a quest for greater global equality?’
Under the ISDS regime, corporate profits are protected while climate action is the loser. But governments are increasingly realising that sustaining the status quo under ISDS is not sustainable as far as the planet is concerned. Attempts have been made to rewrite the original energy charter treaty but, to date, no form of reconfiguration or wording has been found to which all the parties will subscribe.
The alternative is for governments to just walk away from the energy charter treaty in a mutual pact. The problem is that the treaty contains a lengthy sunset clause under which its terms remain operable for up to 20 years after it is abandoned. This could, however, be resolved by a collective agreement that no claims would be pursued in the future by any signatories to the original treaty.
The EU has reached the point of no return
In July 2023, the EU commission issued the following statement on a future approach to the energy charter treaty, following the failure of all attempts to agree on a so-called modernised treaty agreement:
“At the beginning of the month, the EU Commission therefore proposed that the EU itself, Euratom and all EU member states withdraw from the energy charter treaty as a whole.
“This treaty, unchanged since the 1990s, is no longer compatible with the EU’s climate targets, the climate pact and the Paris climate agreement.”
Withdrawing from the treaty would be suitable “to ensure that all investors inside and outside the EU are treated equally”. At the same time, the proposals to modernise the treaty were withdrawn, after failing to secure a majority in the council of ministers. Commission vice-president Frans Timmermans commented:
“It is time for Europe to withdraw from the treaty and concentrate on building an efficient and competitive energy system which protects and promotes investment in renewable energy.”
Why is the UK dithering?
Since the UK is a signatory to the original treaty, the government is involved in resolving this, despite our withdrawal from the EU. Amendments to the proposed energy bill come before parliament for debate today, 5 September 2023, including an amendment requiring the government to unambiguously endorse the withdrawal from the energy charter treaty.
The government’s line is currently that it would prefer an agreement on a modernised energy charter treaty, but it has also said that if this not forthcoming by November, it will consider withdrawal from the treaty in full.
Given the number of major signatories to the treaty who have categorically given up all pretence of an agreement ever being reached and are instead committed to abandoning it, it is difficult to justify the stance of ‘Let’s hold out in case something turns up’. Currently, only the UK and Japan are holding out from leaving the treaty.
Could this possibly be a stab at asserting our sovereignty and, in the process, demonstrating that our sovereignty doesn’t carry any weight, at least in this context? There are Conservative MPs, including Chis Skidmore, chair of the net zero review, urging the government to ditch the dither and do the right thing. It’s not too late to contact your MP to ask them to get behind Skidmore’s amendment.
