EU to Exit Energy Treaty After Reform Deal

The European Commission persuades member states to back changes to the Energy Charter Treaty before leaving it

by Victor Adetimilehin

The European Union (EU) has reached a compromise to quit a controversial energy treaty that could hamper its climate goals. The EU will first support reforms to the treaty, which would reduce the legal protection for fossil fuel investments, before withdrawing from it.

The Energy Charter Treaty (ECT) is an international agreement that allows energy companies to sue governments over policies that affect their profits. It has been used to challenge measures such as phasing out coal plants or increasing renewable energy targets.

The EU and its member states have been trying to modernize the treaty since 2017 but faced resistance from other signatories, such as Japan and Turkey. The EU wanted to align the treaty with the Paris Agreement on climate change and exclude fossil fuels from its scope.

However, some EU countries were reluctant to back the reform proposal, fearing that it would undermine their efforts to negotiate better terms for their energy investments. Others, such as France, Germany, and Spain, had already announced their intention to leave the treaty, citing its incompatibility with their climate ambitions.

The proposal was approved by a majority of EU countries on Friday, paving the way for the bloc to exit the ECT by the end of 2024. The EU hopes that its withdrawal will encourage other countries to follow suit and join a new global framework for energy cooperation that supports the green transition.

Why the ECT matters for the climate

The ECT was signed in 1994 to promote energy security and cooperation in Europe and beyond. It currently has 53 members, including the EU and its 27 member states. The treaty covers trade, transit, and investment in the energy sector, and grants investors the right to sue states for damages before international arbitration tribunals.

Critics of the treaty say that it gives too much power to fossil fuel companies and discourages governments from taking action to reduce greenhouse gas emissions. According to a report by the Global Energy Monitor, there are currently 62 pending cases under the ECT, with a total value of over $50 billion. Most of them are related to coal, oil, and gas projects.

The ECT also poses a threat to the EU’s Green Deal, which aims to make the bloc climate-neutral by 2050. The EU has pledged to cut its emissions by at least 55% by 2030, compared to 1990 levels, and to phase out fossil fuel subsidies. However, these policies could trigger lawsuits from investors who claim that their expectations have been violated by the change of rules.

The EU is not alone in wanting to leave the ECT. Several countries, such as Italy, Russia, and Ecuador, have already withdrawn from the treaty in the past. Others, such as South Africa, Indonesia, and India, have refused to join or ratify it, citing its negative impact on their sovereignty and development.

A new vision for energy cooperation

The EU’s decision to quit the ECT is not the end of its engagement with the global energy community. The bloc says it remains committed to fostering international cooperation on energy issues, especially with its neighbors and partners.

The EU is working on a new initiative, called the Energy Transition Partnership, that would offer a platform for dialogue and support for countries that want to accelerate their shift to clean energy sources. The partnership would cover areas such as renewable energy, energy efficiency, energy access, and innovation.

The EU also hopes to inspire other regions and countries to develop their regional energy agreements, based on the principles of the Paris Agreement and the UN Sustainable Development Goals. The EU believes that such agreements would provide more legal certainty and stability for investors while respecting the right of states to regulate their energy policies in line with their climate commitments.

The EU’s exit from the ECT is a bold move that could have a ripple effect on the global energy landscape. By leaving behind a treaty that favors fossil fuels, the bloc is sending a clear signal that it is serious about its climate goals and that it expects others to join its efforts to build a more sustainable and resilient future.

Source: Reuters

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