Rebellion has mounted among EU countries over an international energy treaty that gives multinationals the power to sue governments, as the Netherlands became the third country to announce plans to withdraw from a pact it says stymies plans to tackle climate change.
The Netherlands joined a move last week by Spain, following in the footsteps of Poland, in preparing to exit the Energy Charter Treaty that was intended to protect international energy investments by foreign companies or individuals. Italy withdrew in 2016 but remains bound by a 20-year sunset clause.
Campaigners say the pact, designed in the 1990s to encourage post-cold war investment, has become an obstacle to curbing the greenhouse gases produced by coal, oil and gas projects.
Investors may sue governments if they believe their assets are under threat from legislation or policy changes. The treaty covers more than 50 countries, including the EU as a bloc.
The Dutch government said on Tuesday that the treaty was not aligned with the Paris climate accord goal of limiting global warming to “well below” 2C, and ideally 1.5C, since pre-industrial times.
Three energy groups, including Germany’s RWE, are suing three European governments over decisions to mandate the closure of coal power plants, prevent the development of specific projects or require an environmental impact assessment.
RWE targeted the Netherlands over the country’s decision to phase out coal-fired generation by 2030. The company announced this month that it would end coal-fired electricity generation in Germany by 2030, but it said it would not drop the case against the Dutch.
In August, the UK’s Rockhopper won about €250mn in a case it filed against Italy over a proposed oilfield in the Adriatic Sea. Despite its withdrawal from the treaty, Italy remains subject to a clause that binds those that leave to its rules for a further 20 years.
A process to “modernise” the pact has been under way since 2018, and campaigners have said the revised text must end protections for fossil fuel investments.
An agreement in principle was reached in June, but the text, which is yet to be ratified, would continue to protect coal, oil and gas investments in the EU and UK for 10 years after it comes into force. It would also protect new fossil fuel investments made before August 2023.
EU member states are in a tug of war over whether to approve the updated treaty. This month, Belgium said it would abstain from voting on whether the EU should endorse the text, because there was “no intra-Belgian consensus” among lawmakers.
While some supported the text, others felt it was “insufficiently ambitious” and wanted the EU to withdraw from the treaty altogether, according to a government document seen by the Financial Times.
Germany is also considering abstaining from the EU vote on the updated text, as is France, which wants a bloc of EU countries to withdraw as a group, according to French liberal Pascal Canfin, who chairs the European parliament’s environment committee. If enough countries abstain or vote against the text, the European Commission would not win EU-wide support for it.
The commission’s position is that the treaty cannot be used by one EU member state against another.
Brussels has been supportive of Spain’s decision to challenge the legality of damages awarded under the treaty to EU-based investors. Many of those cases were brought by renewable energy companies after the country changed its support regime for clean energy.
Advocates of the treaty say it protects investors in renewable projects. However, the European Renewable Energies Federation has called for the EU to leave the treaty.
The revised text of the treaty states that it “shall not apply” among members of the same “regional economic integration organisation”, such as the EU. However, all signatories must unanimously approve it for the revised text to be adopted. A meeting is scheduled for November 22.
Additional reporting by Barney Jopson in Madrid
Where climate change meets business, markets and politics. Explore the FT’s coverage here.
Are you curious about the FT’s environmental sustainability commitments? Find out more about our science-based targets here