The Energy Charter Treaty and Corporate Engagement with EU Climate Policy

An InfluenceMap Briefing

June 2022

An Analysis of the Energy Charter Treaty’s Potential Impact on EU Climate Goals

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The Energy Charter Treaty (ECT) is an international treaty established in 1994, which provides a framework for companies operating in the energy industry to protect their overseas investment in signatory countries, which include EU Member States and Central Asian countries such as Kazakhstan. The treaty primarily protects investors in the energy industry against political risks which could damage their investment, by granting them the right to an investor-state dispute settlement (ISDS), a mechanism that enables an investor from one country to sue a government of another country in which it has invested.

In 2022, the IPCC highlighted that ISDS mechanisms present a potential blockage to ambitious national climate policy in its Sixth Assessment Report. For example, the ECT could create a potential disincentive for European governments to implement robust climate policy if such policy creates risk for fossil fuel investments and, therefore, might result in legal challenges from energy companies.

This briefing focuses on the members of the ECT’s corporate consultative group, the Industry Advisory Panel, and assesses their advocacy on government policies governing the global energy mix. The analysis provides an indicator of how the ECT might be called upon by industry to challenge future European climate policy.

The analysis shows that the policy engagement activities of a significant majority (64%) of the 56 Industry Advisory Panel members are misaligned with achieving the Paris Agreement’s goals, including companies such as Eni, BP and Equinor. 16% of these Industry Advisory Panel members, including Gaz-System and Lukoil, engage on the energy transition in a way which is severely misaligned with limiting warming to 1.5°C.

Many Industry Advisory Panel members, such Uniper and ČEZ, have engaged negatively on European climate policy between 2019 and 2022, including on the EU Sustainable Finance Taxonomy and the EU Gas and Hydrogen Market Decarbonisation Package, and 70% of members have communicated support for a long-term role for unabated fossil gas in the European energy mix. 14 Industry Advisory Panel members (25%) have specifically advocated to weaken the EU Sustainable Finance Taxonomy, supporting a more favorable treatment for unabated fossil gas.

Only 16% of the Industry Advisory Panel members are supportive of a 1.5°C aligned energy transition in their policy engagement activities, including Enel and EDP. These companies and industry associations largely operate in the renewables and utilities sectors.

InfluenceMap conducted interviews with several such renewable energy-focused members, with many expressing concerns about the current state of the ECT and its impact on the energy transition. However, many also suggested that the treaty is the only viable method of investment protection available. For reference, this briefing overviews several possible alternatives to the ECT to protect foreign renewable energy investments.

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