EU exit from the Energy Charter Treaty shows need for global government action to end corporate rights to sue governments

June 28, 2024: Rachel Thrasher and Kyla Tienhaara report that the 27-member EU has taken the final step to leave the Energy Charter Treaty (ECT). Signed in 1994 by European and some Central Asian countries and Japan, the ECT was intended to encourage investment in energy but also contained Investor-State Dispute Settlement (ISDS) rules. These rules are found in some but not all trade and investment agreements.  They give special legal rights to international investors to claim billions in compensation if they can argue that a change in law or policy will reduce their future profits. Although ISDS has never been included in World Trade Organisation trade agreements, there are thousands of bilateral investment treaties and some regional trade agreements containing ISDS.

ISDS has been used against government regulation of healthenvironmental regulation and climate change policy, indigenous land rights and even regulation of the minimum wage.

This has resulted in increasing resistance from social movements and governments. The increasing use of ISDS by fossil fuel companies to claim billions in compensation from governments has been described by a United Nations report as a threat to the global green energy transition and finally prompted the EU to leave the ECT. The UK also decided to leave the ECT in April 2024. 

However this was not an easy process as many ISDS rules, including those in the ECT, contain a sunset clause which protects existing investments for an additional 20 years after withdrawal. EU countries are now negotiating an agreement to nullify the sunset clause from applying to European countries. If the UK government changes at the coming election, it is possible that the UK will also join the nullifying agreement.

The authors argue that more widespread global withdrawal from ISDS arrangements is urgently needed to prevent delay of the global transition to clean energy. The rich countries’ club of the Organisation for Economic Co-operation and Development (OECD) has recognised this danger by hosting research and conferences on how to address this threat. One option would be for committed governments like the EU to develop a global multilateral agreement for a coordinated withdrawal from ISDS arrangements and nullification of sunset clauses. 

AFTINET is advocating that the  Australian government, which has a policy of excluding ISDS from new agreements and removing it from existing agreements, could take a lead in such initiative.