Is the Energy Charter Treaty unravelling and what does it mean for younger and future generations? Charlotte Foster, IF student volunteer, investigates.
What is the Energy Charter Treaty?
Signed in 1994, The Energy Charter Treaty was originally designed “to promote energy security through the operation of more open and competitive energy markets.” The treaty ensures this by giving foreign companies the ability to claim compensation over governments when they implement policy changes and laws which impact their profitability. Over the decades, the Treaty gained over 53 signatories. Despite this, there is little evidence to suggest the Energy Charter Treaty has been of equal benefit to states and foreign companies. Rather, there has been “no evidence that this treaty has attracted beneficial investment flows” for states and instead caused more risk to governments wanting to pursue climate friendly policies that will protect younger and future generations.
Unravelling?
The Energy Charter Treaty is unravelling. European Countries, such as The Netherlands, Spain, Poland and most recently France, have abandoned the Energy Charter Treaty in favour of implementing more sustainable climate measures. This step forward comes as a result of many European countries prioritising the measures of the Paris Agreement. This should be good news, however, there still remains concern as to whether this restructuring will achieve enough or rather too little, too late.
Company compensation
There is growing attention and criticism as to the ways in which The Energy Charter Treaty has allowed foreign companies to claim compensation from governments when new laws or policy changes were introduced which reduce the use of fossil fuels and thus threaten companies profitability. Under such provisions, foreign companies pursue legal action, normally in the form of lawsuits in order to dissuade governments from pursuing climate forward policies. Recently, the German energy company RWE used the Charter to sue the Netherlands for €1.4 billion because the country brought forward its coal phase-out. This risk, incentives states to continue investing in fossil fuel projects which will put the lives of future generations at risk all for short-term corporate gain. In 2021, it was calculated that the treaty has protected at least €344.6 billion worth of fossil infrastructure in Europe.
Good news?
European countries’ decisions to abandon the Energy Charter Treaty is undeniably a step in the right direction, as the move gives states more autonomy over their policy decision by allowing them to implement climate policies which favour the measures laid out according to the Paris Agreement. This was the motivation outlined by the French President Emmanuel Macron in which continuing to align themselves with the Energy Charter Treaty was no longer “coherent” with their European Climate Strategy.
Trains over planes
France is currently taking progressive steps in implementing greater climate measures. One step is the French domestic flight ban. Given that most domestic flights are comparably faster by rail, when journey times to and from airport are included, France is implementing a policy under which domestic flight routes which can be travelled by train in under 2.5 hours have been banned.
The Intergenerational Foundation has highlighted that a similar domestic flight ban could be introduced on mainland Britain. The think tank argues that the sharpest jump in emissions’ reductions is between 4-4.5 hours; thus, the optimal policy would be to ban flights with a rail alternative of under 4.5 hours. If the UK was to apply such a policy, around 7.35 million passengers would move to the rail equivalent; reducing CO2 by 885Kt. Whilst the French plane policy does not drastically reduce CO2 emissions, and more drastic measures must be taken, it is nonetheless a step in the right direction. Whether states are choosing to leave the Energy Charter Treaty for financial gain or for genuine climate concern, the good news is that action is being taken.
Why does this matter?
Research has shown that in the face of economic downturns, support for climate policy and action diminishes. This does not mean that populations are less concerned about climate change but that economic crises, such as the current cost-of-living crisis, come into sharper focus as populations struggle to pay today’s bills. Longer-term climate policies tend to be abandoned in support for “more immediate” economic policies. What this tells us is that in order for effective climate policy to be enacted it must come from the ambition and drive of governments. Arguably, states abandoning the Energy Charter Treaty is one of the first steps, of many, demonstrating that governments are prioritising sustainability for future generations over the here and now.
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