Netherlands faces A$2.2 billion claim against its law to phase out coal powered energy

March 1, 2021: The German electricity generation company RWE filed a request for arbitration against the Netherlands on January 20, 2021, at the International Centre for Settlement of Investment Disputes, based on the Dutch government's decision to phase out coal for electricity generation by 2030.

This use of the Investor-State Dispute Settlement (ISDS) clause in the 1994 Energy Charter Treaty marks the first investment arbitration against the Netherlands. In 2019, another German power company, Uniper, threatened an ISDS case over the same law.

In December 2019 the Dutch Parliament adopted a law that bans the use of coal for power generation as of 1 January 2030. This was to meet the Netherlands’ target to reduce carbon emissions by 49 per cent by 2030 as part of its commitments under the Paris Climate Agreement.

RWE’s Eemshaven coal-fired power station was completed in 2015. It is the largest coal-fired power plant in the Netherlands, and cost €3 (A$4.68) billion. RWE argues that the law will force the closure of the power station, and estimates its damages at €1.4 (A$2.2) billion. RWE argues that the state is liable, and that the government promoted the construction of coal-fired plants in the early 2000s. With one exception, the Dutch climate law does not provide for monetary compensation.

The Dutch government has countered that RWE could enjoy a subsidy to finance the co-firing of biomass in the power plant. This subsidy began in 2003 and ends in 2027. The government also argues that RWE has enough time to switch to another fuel to allow the Eemshaven facility to operate beyond 2030.

At an informal parliamentary hearing on 11 February 2021 about the ISDS claim, RWE said that it fully endorses the government's climate targets and the change of legislation, but nevertheless needs compensation to be able to invest in renewable energy.

The European Union signed the Energy Charter Treaty on behalf of the Netherlands back in 1994. The Netherlands will challenge the jurisdiction of the arbitral tribunal based on the European Court of Justice's 6 March 2018 judgment in Achmea v Slovakia. It argues that an investor based in an EU member state cannot make use of the Energy Charter Treaty's ISDS clause in a case against another EU member state.

Critics argue that the ISDS clause, which allows foreign investors to take legal action against states, frustrates much-needed initiatives against climate change. The case brought by Swedish energy company Vattenfall against Germany under the ECT is a recent example.

The ECT is under review, facing a concerted effort to eliminate ISDS, but this proposal is being blocked by Japan. Faced with this roadblock, there is now momentum for the European Union as a whole to withdraw from the ECT.