EU Court of Justice rules that claims under the Energy Charter Treaty do not comply with European law
- The Court of Justice of the European Union has declared illegal disputes under the Energy Charter Treaty when they involve two EU countries.
- The decision could call into question a series of ongoing lawsuits worth billions of euros, such as those recently received by the Netherlands over its decarbonisation plans.
- The No Trade and Investment Treaties (No ICT) campaign organisations, including Ecologistas en Acción, welcome the Court's decision as it could mean the end of a mechanism that threatens climate action.
The Court of Justice of the European Union (CJEU) has ruled that disputes based on the Energy Charter Treaty (ECT) between a European Union (EU) investor and an EU Member State (intra-EU) are incompatible with Union law and therefore illegal.
This interpretation means that, according to the CJEU, European investors and energy multinationals cannot use the ECT to sue governments when they consider that new climate, environmental or social measures go against their current or future economic benefits.
To date, this has been possible thanks to the treaty's Investor-State Dispute Settlement (ISDS) mechanism. This is a parallel system of justice in which there are no judges, but three private lawyers who meet behind closed doors to decide whether or not a country has to pay millions of dollars of public money to investors.
The danger that the ECT poses to the future of the climate has become clear in recent months. The Netherlands has been sued twice by German energy companies RWE and Uniper over its plans to ban coal-fired electricity production by 2030. The multinationals are demanding 1.4 billion and 1 billion euros respectively. But there are many more: other countries such as Italy, Slovenia and Germany have also been sued over measures to limit the extraction of fossil fuels or nuclear energy. Spain is the country most sued under the ECT for the cuts to renewable energy and the amount claimed amounts to more than 10 billion euros.
In 2018, the CJEU had already ruled, through the so-called Achmea ruling, that the ISDS rules of Bilateral Investment Treaties (BIT) between EU countries were incompatible with European law, as they violate the power of EU courts. Now, the Court considers that this ruling should also apply to the ECT. A piece of news that civil society organisations are celebrating as it “may mean the beginning of the end of a treaty that jeopardises climate policies aimed at achieving the Paris Agreement”, says Ecologistas en Acción.
Although this decision is not binding, the organisations consider it a major step and it remains to be seen how the Court's opinion will translate into the pending cases.
Ecologists in Action and the rest of the organisations in the No to ICT campaign maintain that the CJEU decision is yet another reason for countries committed to the climate fight to begin to withdraw from the ECT as soon as possible.
A request that is gaining more and more weight in the face of the failure of the modernisation of the treaty: the six rounds of negotiations held to date have been completely sterile and the process continues without a clear date for its completion. Countries such as Spain and France have already declared that if modernisation fails, the only way out will be the exit.
At the beginning of July, more than 400 organisations around the world – 100 of them from Spain – issued a statement calling on European governments to declare their exit from the ECT no later than COP26 in Glasgow: “It is not possible to fight for 1.5ºC without attacking the root of the problem. The ECT protects fossil fuels through the ISDS mechanism and that is why it must be abandoned.”
