The European Parliament has voted in favour of a European Union exit from the Energy Charter Treaty (ECT), paving the way for the bloc to start a process that could lead to abandoning what critics have slammed as a threat to energy transition.
On Thursday, the European Parliament adopted a resolution calling on the European Commission to “immediately start proceedings” for the EU to leave the treaty, saying that members of the European Parliament (MEPs) will support the move.
Fossil fuel developers can sue governments whose actions lead to a loss of profit in the course of their legislative process or climate action, under the provisions of a treaty signed in the 1990s to support energy investment and protect energy companies with assets in the former Soviet Union.
This could include, for example, impeding fossil fuel projects on environmental grounds or as part of an energy transition policy that favours clean energy sources and renewables.
MEPs said they consider the current ECT “an outdated instrument which no longer serves the interest of the EU, especially with regard to the objective to become climate neutral by 2050”.
The treaty’s member countries, made up of 52 signatories, were due to consider an updated version of the ECT later this month.
But a majority of MEPs agreed that leaving the treaty altogether, as opposed to updating its terms, is the “best option for the EU to achieve legal certainty and prevent the ECT from putting the EU’s climate and energy security ambitions in further jeopardy”.
These lawsuits are pursued in international arbitration courts which operate as closed-door tribunals that rule on investor-state dispute settlements (ISDS) and which critics claim protect business interests.
The ECT has been called into question in recent months as the threat of legal action could deter governments from legislating against fossil fuel investments.
Critics of the ECT also point to a so-called ‘sunset clause’, which states that the treaty is still valid for a 20-year period even after a nation has opted out.
The resolution passed by the European Parliament on Thursday rejected a proposed updated version of the treaty, specifically citing that the proposal would maintain protection of fossil fuel investors “indefinitely” and also keep the 20-year sunset clause unchanged.
The full force of the clause was seen earlier this year, when an arbitration court ruled that Italy — which left the ECT in 2016 — was told to pay UK oil company Rockhopper Exploration €190 million ($198 million) after the company abandoned its planned oil project offshore the Italian coast following a change in Italian laws in 2015.
The award was far higher than the £33 million ($40 million) the company was reported to have invested in the project. Italy contested the decision during ISDS in October.
Other European states, including Spain, Poland, the Netherlands, France and Slovenia have in the past months announced their intention to leave the treaty, calling for an EU-wide action.
ClientEarth trade & environment lawyer Amandine Van Den Berghe called the EU Parliament resolution “the final nail in the coffin” for the treaty, saying it “fundamentally conflicts with EU law”.
“With parliamentarians confirming they will not support the modernised agreement there is no way the reformed ECT will ever be adopted in the EU,” she said.
“The sooner the EC realises its hands are tied, the sooner European governments will be able to accelerate their climate plans without fear of retribution through the ECT.”