Massive ISDS over-reach, climate threat in proposed expansion of Energy Charter Treaty

April 16, 2020: The Energy Charter Treaty (ECT) is the fossil fuel industry's powerful secret weapon. It is now on the brink of a massive expansion into Africa, Asia and Latin America, threatening to bind yet more countries to corporate-friendly energy policies.

Silent Expansion, a briefing published by Corporate Europe Observatory (CEO), the Transnational Institute (TNI) and Southern and Eastern Africa Trade Information and Negotiations Institute (SEATINI) – Uganda in April 2020, unpacks the major challenge posed to efforts to address global warming, poverty and democratic development choices by this expansion.

The Energy Charter Treaty came into force in 1994, at the height of the global corporate hubris, and protection of investor rights is its cornerstone. It has 53 member states, mainly in Europe and the Middle East. It enables resource and energy companies to sue government in international tribunals if they can argue that a change in law or policy harms their investment.

By March 2020, the ECT accounted for at least 129 lawsuits against governments, making it the most-used treaty in ISDS cases. So far governments have been ordered to pay US$52 billion, and claims still in process add up to a further US$32 billion.

Sometimes the act of filing of a costly dispute – or a mere threat to do so – can be enough to freeze government action, when policy-makers realise they would have to pay to regulate.

Under the ECT, a government remains vulnerable to being sued for 20 years after it withdraws from the Treaty. It can withdraw five years after ratification. Italy withdrew in 2014.

While the ECT promises to attract foreign investment and end energy poverty, the report presents evidence that it is used to stop climate action, and efforts to protect energy consumers from price-gouging or failure to supply energy.

Fourteen countries, mainly in Africa, are now poised to ratify the ECT, and a further 18, mainly in Africa and Asia, have signed the International Energy Charter, the first step in the process.

The ICT has run into serious trouble in Europe, whose courts made it illegal for member states to use ISDS against each other in 2018. Despite the notoriety of ISDS and moves to ‘reform it’, and decisions by many governments to withdraw from investment treaties which contain it, the ECT is now expanding into developing countries by targeting energy ministries rather than trade ministries in its expansion program.

In November 2019, Aura Energy Ltd, an Australian company also listed in the UK, lodged a claim under the Energy Charter Treaty (ECT) for US 1.8 billion compensation from the Swedish government because in 2018 it decided to phase out uranium mining for environmental reasons.

The company is claiming compensation for ‘indirect expropriation’ and ‘unfair treatment’ which it claims violated its ‘legitimate expectations’ of future profits.

Australia has not ratified the ECT, and did not opt to provisionally apply the treaty’s investment protections, so it appears that the company is relying on its UK listing to claim jurisdiction because the UK has ratified the ECT. AFTINET has endorsed an open letter warning against the expansion of the treaty and calling for ISDS to be removed from it.