No reason to stay is a good reason to go: The Energy Charter Treaty influencing the fossil fuel phase-out.
This decade is decisive for climate change action (IPCC, 2022). As governments take increasingly bold steps, regulatory changes are likely to have a major impact on fossil fuels protected under the Energy Charter Treaty (ECT). The influence of the ECT as a multilateral investment agreement on the phasing- out of fossil fuels has been insufficiently addressed in current literature. Therefore, this thesis explores whether the Energy Charter Treaty promotes or hinders a smooth low-carbon transition away from fossil fuels among its parties, and how its modernisation process impacts its role in supporting this transition. A mixed-methods approach identified seven reasons why the ECT is hindering the fossil fuel phase-out. 1) ECT enables investors to sue states for regulating in the public and environmental interest by influencing profits, limiting states’ regulatory space and energy sovereignty. The threat of disputes can directly discourage measures (threat chill) or indirectly (internalisation chill) by the general awareness of ISDS-threats postponing phase-out deadlines. 2) ECT is designed to protect the status- quo and encourages new fossil fuel-investments. It pressures states to postpone or withdraw the cancellation of licences or permits for new projects. At least 61 coal-fired-power-plants are protected under the ECT, the total protected fossil fuel infrastructure exceeds €345 billion. 3) Its Investor-State- Dispute-Settlement-mechanism (ISDS) conflicts with EU and domestic law systems. Consequently, three key issues with ISDS under the ECT were found: a) a lack of uniformity in the system, b) arbitrators have freedom of provision-interpretation and tend to rule investor-friendly, c) compensation appraisal includes future profit protection. ISDS-claims amount to $35 billion: more than Africa’s annual costs for climate adaptation to reach the Paris Agreement goals and more than the annual investment required to provide energy access to everyone around the world that currently has not. 4) If agreement in the modernisation process is reached, the most climate-friendly outcome protects existing fossil fuel investments for at least ten years. 5) ECT-accession locks countries into fossil fuel-dependent futures – the Sunset-clause keeps countries liable for ECT-breaches twenty years after their withdrawal – and undermines recent domestic transparency and independence reform. 6) There is no evidence for the ECT’s promised investment attraction and contribution to energy poverty reduction. It could even worsen energy poverty by allowing investors to sue states for restraining energy profits and lowering energy prices. Lastly, 7) by awarding investors for not adapting their business model in a timely and responsible manner public money is diverted from climate change measures benefiting the fossil fuel phase-out.