What is the Energy Charter Treaty?
The Energy Charter Treaty (ECT) is an international agreement from the mid-1990s. Investor rights apply to 53 countries stretching from Western Europe through Central Asia to Japan, plus the EU and the European Atomic Energy Community. It grants corporations in the energy sector enormous power to sue states at international investment tribunals for billions of dollars, for example, if a government decides to stop new oil or gas pipelines or to phase out coal.
Negotiations for this treaty mostly took place away from the public eye. This means the ECT has so far largely escaped the global storm of opposition which has otherwise hit investor-state dispute settlement in the past decade. Now many more countries in Africa and the Middle East, Asia, and Latin America are in the process of joining the treaty, often without any public debate.
All information on this website has been extracted from the report “One treaty to rule them all”. However, most data on the site has been updated up to December 2019. Download dataset of ECT cases up to December 2019. And the report “Silent Expansion – Will the world’s most dangerous investment treaty take the global south hostage?”
“The Energy Charter Treaty offers unparalleled opportunities for investors in the energy sector to protect their foreign investments and enforce those protections through international arbitration.”
Lawyers at investment arbitration law firm Skadden Arps Slate Meagher & Flom
The chronology of an ECT investment arbitration
How has the ECT been used
in the first 20 years?
An explosion of cases
No other international trade or investment agreement in the world has triggered more investor-state lawsuits than the Energy Charter Treaty. In March 2020, the ECT Secretariat listed a total of 129 corporate claims. And the number of claims has exploded in recent years. While just 19 cases were registered during the first 10 years of the agreement (1998-2007), 102 investor lawsuits were filed during this last decade (2010-2019), representing an increase in 437% in the numbers of filed cases. This trend is likely to continue.
States under attack – A legal nightmare for East and West
While in the first 15 years of the agreement 89% of ECT-lawsuits hit states in Central and Eastern Europe, and Central Asia, between 2013 and 2019, 64% of the investor claims filed were against countries in Western Europe.
|Bosnia and Herzegovina||1|
“Investment treaties were designed to protect European investments abroad. But now they’ve come back to bite Europe.”
Investment arbitration lawyer Mahnaz Malik
The investors suing – Western European companies cashing in
Companies and individuals registered in the Netherlands, Germany, Luxembourg, the UK, and Cyprus, make up 58% of the 171 investors involved in known claims by the end of 2019.
The ECT – a powerful weapon for mailbox companies
Thanks to the ECT’s overly broad definition of “investor” and “investment”, many of the companies suing under the ECT are mere mailbox companies (firms with hardly any employees in those countries but used by large corporations to shift profits and avoid paying taxes).
An extraordinary 24 out of the 25 supposedly ‘Dutch’ investors who led ECT-lawsuits by the end of 2019 are such mailbox companies. They include Khan Netherlands (used by Canadian mining company Khan Resources to sue Mongolia even though Canada is not even a party to the ECT), and Isolux Infrastructure Netherlands and Charanne (both used by Spanish businessmen Luis Delso and José Gomis, two of the richest Spaniards, to sue Spain).
ECT-abuse by mailbox companies
24 out of 25 ECT cases filed by alleged “Dutch” investors are from mere mailbox companies.
“The ECT has been on the radar screen of “treaty shoppers” for some time.”
Arbitration lawyer Paul M. Blyschak
The ECT is increasingly being used by speculative financial investors such as portfolio investors and holding companies. In 85 per cent of lawsuits filed until 2019 over cuts to support schemes for renewable energy in Spain, the claimant is not a renewable energy firm, but an equity fund or other type of financial investor, often with links to the coal, oil, gas, and nuclear industries. Several of the funds only invested when Spain was already in full-blown economic crisis mode and some changes to the support schemes had already been made (which the funds later argued undermined their profit expectations). Some investors view the ECT not only as an insurance policy, but as an additional source of profit.
ECT claims are dominated by financial investors
Investors win in the majority of cases
By the end of 2019, 46% of known ECT cases remained undecided. But the majority (60%) of resolved lawsuits have favoured the investor.
More and more money is at stake for states and taxpayers
There are 15 ECT suits in which investors – mostly large corporations or very wealthy individuals – sued for US$1 billion or more in damages.
|ECT case||Energy sector||Type of investor||Money claimed (US$)|
|Hulley Enterprises v. Russia||Oil||Six Russian oligarchs||93 billion|
|Veteran Petroleum v. Russia||Oil||Six Russian oligarchs||16 billion|
|Yukos Capital v. Russia||Oil||Six Russian oligarchs||13 billion|
|Libananco v. Turkey||Hydropower||Affiliate of one of Turkey’s once richest families (Uzan)||10 billion|
|Vattenfall v. Germany (II)||Nuclear||One of Europe’s largest utility companies||5.1 billion|
|Littop v. Ukraine||Oil & gas||Affiliated with Ukrainian billionaire Igor Kolomoisky||5 billion|
|Yukos Universal v. Russia||Oil||Six Russian oligarchs||4.6 billion|
|Cementownia v. Turkey (I)||Hydropower||Affiliate of one of Turkey’s once richest families (Uzan)||4.6 billion|
|Europe Cement v. Turkey||Hydropower||Affiliate of one of Turkey’s once richest families (Uzan)||3.8 billion|
|Cem Uzan v. Turkey||Hydropower||Turkish millionaire and member of one of Turkey’s once richest families (Uzan)||3.5 billion|
|Ascom and Stati v. Kazakhstan||Oil (& gas)||Anatole Stati (who sued with his son and some of their firms) was Moldova’s richest man when he filed the case||2.7 billion|
|PV Investors v. Spain||Solar||Together, the investors (which include Dutch mailbox firm of US-based Fortune 200 company AES) manage over US$30 billion on behalf of other funds and investors||2.2 billion|
|Vattenfall v. Germany (I)||Coal||One of Europe’s largest utility companies||1.7 billion|
|AES v. Kazakhstan||Hydropower & coal||US-based Fortune 200 company||1.3 billion|
|EGS v. Bosnia and Herzegovina||Coal & thermal power||Unclear. Slovenian state owned firm without employees.||1 billion|
“This is the public’s money at stake…. The person paying for it isn’t big business… or anyone who could afford it, no it’s the poor man in the streets.”
ECT cases pending at the end of 2019
Claims which could still be won by the investors have a collective monetary value of US$32 billion (information is available for only half of pending cases). The staggering price tags of ECT lawsuits show the potentially disastrous impacts they can have on public budgets.
Governments have been ordered or agreed to pay more than US$52 billion in damages from the public purse
|Country||Known financial liability in ECT cases (US$)||Unhealthy financial implications at the time of the award (based on WHO 2015 data)|
|Russia||50 billion||20 per cent of Russia’s total annual state budget or the equivalent of the public health spending for 95,419,487 people, 65% of Russia’s population.|
|Spain||925 million||Public health spending for 392,948 people|
|Kazakhstan||520 million||Public health spending for 1,372,032 people|
|Albania||136 million||Public health spending for 511,278 people|
|Hungary||133 million||Public health spending for 148,770 people|
|Mongolia||80 million||Public health spending for 524,590 people|
|Georgia||55 million||Public health spending for 195,730 people|
|Italy||24.5 million||Public health spending for 9,074 people|
|Slovenia||22 million||Public health spending for 12,415 people|
|Ukraine||16 million||Public health spending for 128,000 people|
|Moldova||45 million||Public education spending for 291,667|
|Latvia||3 million||Public health spending for 3,827 people|
|Kyrgyztan||1 million||Public health spending for 10,869 people|
Some of the most expensive claims in the history of ISDS include ECT cases such as Vattenfall’s challenge to Germany for over US$5.1 billion as a result of its exit from nuclear power.
The majority of ECT claims are intra-EU disputes, yet sideline EU courts
66 per cent of ECT investor lawsuits were brought by an investor from one EU member state against the government of another member state, claiming large sums of public money arguably not available to them under the EU legal system. In March 2018 the European Court of Justice ruled that intra-EU investor-state proceedings under bilateral investment treaties violate EU law as they sideline EU courts – an argument which could also apply to the ECT.
Nearly half of all known intra-EU investment disputes were launched under the ECT (the others being based on bilateral treaties).
“The Energy Charter Treaty (ECT) is by far the most often invoked investment treaty in intra-EU relations.”
Lawyer from law firm Stibbe
How corporations can use the Energy Charter Treaty to kill the energy transition
The fossil industry’s friend
The ECT is a powerful tool in the hands of big oil, gas, and coal companies to discourage governments from transitioning to clean energy. They have used the ECT and other investment deals to challenge oil drilling bans, the rejection of pipelines, taxes on fossil fuels, and moratoria on and phase-outs of controversial types of energy. Corporations have also used the ECT to bully decision-makers into submission. Vattenfall’s €1.4 billion legal attack on environmental standards for a coal-fired power plant in Germany forced the local government to relax the regulations to settle the case.
The ECT can be used to attack governments that aim to reduce energy poverty and make electricity affordable.
Under the ECT Bulgaria and Hungary have already been sued for compensation in the hundreds of millions, in part for curbing big energy’s profits and pushing for lower electricity prices. Investment lawyers are considering similar action against the UK, where the government has announced a cap on energy prices to end rip-off bills.
“Public funds should be used to support the shift to clean energy not to compensate polluters for their lost future revenues when they have not adapted their business model in a timely and responsible way.”
Professor Gus van Harten, Osgoode Hall Law School
The ECT is currently being framed as a solution to global warming. But the treaty is hardly acting as a champion of small-scale and renewable enterprises.
A prime example are the many cases that have challenged cuts to support for renewable energy in Spain. Almost half of the known ECT-claims against the country (22 out of 47) involve investors with links to the gas, coal, oil, and nuclear industries.
The dirty secrets of the ‘renewable claims’ against Spain
“Energy transition from fossil fuels to renewables will require states and state entities to reconsider and possibly recalibrate existing license, concession and production sharing agreements, leading to claims by investors.”
Global Arbitration Review magazine
ECT power #1: Dissuading governments from effective climate action
ECT power #2: Protecting existing and pushing new fossil fuel projects
ECT power #3: Locking in polluter subsidies
ECT power #4: Diverting public money needed to fund the energy transition
ECT power #5: Undermining affordable electricity prices
ECT power #6: Locking in the failures of energy privatisations
ECT power #7: Undermining public participation and democratic decision-making
ECT power #8: Endangering a regulatory mega-task
Which countries are about to sign on to the ECT and who is pushing for the treaty’s expansion?
Many countries across the world are about to join the ECT, threatening to bind them into corporate-friendly energy policies. Burundi, Eswatini (former Swaziland) and Mauritania are most advanced in the accession process (ratifying the ECT internally). Next in line is Pakistan (where investment arbitration is controversial, but which has already been invited to accede to the ECT), followed by Uganda (waiting for the invitation to join). A number of countries are in different stages of preparing their accession reports (Benin, Serbia, Morocco, Chad, China, Bangladesh, Cambodia, Niger, Gambia, Nigeria, Panama and Senegal). Many more countries have signed the non-binding International Energy Charter political declaration, which is considered the first step towards accession to the legally binding Energy Charter Treaty.
Listen to a podcast co-produced by CEO, SEATINI and TNI, with Pia Eberhardt, Faith Lumonya and Cecilia Olivet discussing the dangers of the ECT expansion.
There is an alarming lack of awareness about the ECT’s political and financial risks in the ECT’s potential new signatory states.
Officials from ministries with experience in negotiating investment treaties and defending investor-state arbitrations are largely absent from the process, which is being led by energy ministries. This is worrying as many of these countries already have disastrous experience with investor lawsuits under other investment agreements, which could multiply if they sign on to the ECT. This is reminiscent of the 1990s when developing countries signed heaps of bilateral investment treaties hoping they would bring investment whilst remaining largely unaware of the risks.
“The Energy Charter Secretariat is in expansion mode, wanting to gain access to energy resources in Africa and Asia for its current – mostly developed – country members.”
Nathalie Bernasconi-Osterwalder, International Institute for Sustainable Development (IISD)
The expansion process is aggressively promoted by the ECT Secretariat, the EU, and the arbitration industry,
who are eager to gain access to the rich energy resources in the global South and to expand their own power and profit opportunities. While they downplay or dismiss the risks to states of acceding to the ECT, they promote the agreement as a necessary condition for the attraction of foreign investment, and in particular clean energy investment for all. But there is currently no evidence that the agreement helps to reduce energy poverty and facilitate investment, let alone investment into renewable energy.
The ECT accession risks
An avalanche of expensive lawsuits – for decades
Today no other trade and investment agreement has triggered more investor-state lawsuits than the ECT. By March 2020 a total of 129 ECT investor lawsuits were listed on the website of the ECT Secretariat. Both the number of cases and the amount of money at stake for public budgets and taxpayers is on the rise.
Undoing reform with an old treaty that bites
The United Nations Conference on Trade and Development (UNCTAD) has warned about ECT-like “old generation” investment treaties, which“are not ‘harmless’ political declarations, but do ‘bite’”. The EU, too, has recently stated that while the ECT is “outdated provisions are no longer sustainable or adequate for the current challenges”. Remarkably, several countries which are terminating or reforming their existing investment treaties over concerns about being able to maintain their policy space, still seem ready to undermine these reforms by signing up to the ECT. Tanzania and Uganda, for example, have both started terminating old investment treaties such as with the Netherlands that had been criticised as “biased”. Also, Nigeria and Morocco signed an investment
treaty with each other which differs significantly from the ECT. So, while many countries are seeing the dangers inherent in an overempowered investors’ rights regime and rolling back commitments from past investment treaties, the dangers of the ECT do not yet appear to be on their radar.
Driving the climate crisis by locking-in fossil fuels
Climate scientists agree that three quarters of the world’s remaining fossil fuels (coal, oil, and gas) need to stay in the ground if we do not want to cause dangerous, runaway global heating. But governments which halt dirty power plants or drilling rigs could be held liable for millions if not billions of damages under the ECT. The treaty could also be used to put significant pressure on governments to allow new projects which would accelerate climate change and further lockin fossil fuel dependence. This danger is illustrated by several existing cases, such as Rockhopper’s ongoing legal challenge to Italy’s ban on new off-shore oil drilling projects, as well as ECT litigation threats against laws to put an end to fossil fuel extraction (in France), and to ban the use of coal for electricity production (in the Netherlands).
Locking-in the failures of energy privatisations
In many parts of the world communities and governments are reversing failed privatisations and taking energy distribution systems back into public hands. Often such energy privatisations have led to higher prices for consumers, poorer service, underinvestment in infrastructure, workers being fired, harsher conditions on the job – and the list goes on. But reversing failed energy privatisations can trigger investor-state lawsuits with potential damages claims running into millions. This happened, for example, to Albania after it revoked the electricity distribution license of Czech energy giant ČEZ. Also, When in 2019 the opposition British Labour Party planned to take the energy industry back under public control, arbitration lawyers predicted a “flood of claims” under the ECT and other investment deals.
Undermining efforts to make electricity affordable for all
Energy poverty is a reality across the globe. It is estimated that 600 million people still don’t have access to electricity in Africa. A key to address this problem is the ability of governments to regulate electricity prices, and impose a cap when needed. But the ECT could be used to undermine government action to reduce
energy poverty. Several Eastern European countries have already been sued under the ECT because they took steps to curb big energy’s profits and lower electricity prices for consumers. In the UK investment lawyers predicted “more regulatory disputes” under the ECT when the former Conservative government under Theresa May announced a cap on energy prices for consumers.
Restricting sovereignty over energy resources
Many countries and regions on the ECT accession road are significant fossil-fuel producers and/or on the verge of multiplying production: China is the world’s biggest producer of coal as well as the world’s fifth producer of oil ; Nigeria is Africa’s largest producer of oil and gas; both Bangladesh and Pakistan are building new coal power plants expected to triple their coal power generation capacity; the East African Community is actively advertising fossil fuel investments, aiming to fully “develop Partner States’ petroleum potential”. The ECT would significantly boost the power of foreign energy investors in these and other accession countries, not only risking locking in fossil fuel dependency and further driving the climate crisis, but also restricting countries’ policy-space. Under the ECT large energy companies can sue governments if they, for example, decide to apply taxes on windfall profits, force companies to hire local workers, transfer technology, or process raw materials before they are exported.
The ECT empty promises
The ECT will not solve energy poverty
Many countries hope that by joining the ECT they will attract investment to end energy poverty. This hope is nurtured by the Secretariat and other ECT advocates who repeatedly assert “the Treaty’s potential… to attract foreign investments to the energy sector” to “eradicate energy poverty”. A PR text on Africa and the ECT suggests: “Perhaps the key to unlocking Africa’s investment potential in order to guarantee universal access to energy and to overcome energy poverty is the Energy Charter Treaty.”
The ECT’s investment rules, however, do not live up to these promises: as with other similar agreements, there is no hard evidence that it actually encourages investment.
The ECT will not advance the energy transition
Proponents of the ECT – and ISDS more broadly – sometimes claim that they are effective tools to combat climate change. They argue that by reducing investment risks, the ECT helps to attract capital into clean energy and that its ISDS enforcement mechanism is a way to put strong pressure on states to keep their climate promises, as in cases in which investors have sued countries for cutting support to renewable energy projects. However, there is no evidence that the ECT actually has a positive impact on flows of investment in any sector, including into clean energy. The agreement neither discourages climate-wrecking oil, gas, and coal investments, nor does it encourage a transition to genuine renewable energy from wind, wave, and solar.
More importantly the ECT might not just fail to facilitate a transition away from fossil fuels and towards renewables, but could actively impede it . According to a former employee at the ECT Secretariat, “investments in fossil fuels represented at least 61% of total investments protected by the ECT”.
ECT modernisation will not fix the problems
In 2017 ECT member states began assessing “the potential need and/or usefulness of updating, clarifying or modernising” the agreement’s investor rights and in November 2018 approved a list of topics for discussion. ECT proponents like the European Commission argue that this will make the agreement climate-friendly and costly lawsuits against legitimate regulation less likely.
The modernisation agenda, however, does not live up to these promises. Meaningful reform options are missing from the list of topics that will be discussed: the exclusion of carbon-intensive energy investments from the scope of the ECT, and the exclusion of ISDS. Both would prevent polluters from challenging climate change mitigation actions of states outside of their legal systems, limiting the risk of a chilling effect on climate action.
Every treaty amendment would require a unanimity vote by the ECT parties and parties such as Japan have already stated that they see no need for any amendments. This is why, even the European Commission considered it “not realistic” that the ECT will really be amended and why more and more experts and a large number of civil society organisations argue for a withdrawal from the treaty entirely.
“Energy investment would of course take place if there was no Treaty.”
Howard Chase, chairman of the Energy Charter’s Industry Advisory Panel
Who are the ECT profiteers?
A small number of arbitrators dominate ECT decision-making
Until end of 2017, 25 arbitrators had captured the decision-making in 44 per cent of the ECT cases while two-thirds have also acted as legal counsel in other investment treaty disputes. Acting as arbitrator and lawyer in different cases has led to growing concerns over conflicts of interest, particularly because this small group of lawyers have secured extremely corporate-friendly interpretations of the ECT, paving the way for even more expensive claims against states in the future.
Some of the busiest ECT arbitrators with a track record of siding with corporations
|Total number of ECT claims||Role in ECT claims||Law firm||What you should know about the arbitrator|
|Gary Born (US)|
|9||Exclusively nominated by investors.||Wilmer Hale||ECT cases against Spain and the Czech Republic boosted his rather recent career as super-arbitrator. A real go-to arbitrator for investors who appointed him in 18 of his total 20 ISDS cases. In the infamous Philip Morris suit over anti-smoking laws in Uruguay, Born was the only arbitrator who sided with the tobacco giant.|
|Yves Fortier (Canada)|
|7||Nominated by investors in 3 cases; sat 4 times as President.||20 Essex Street Chambers (2011-) Norton Rose (1992-2011)||All concluded ECT cases, which involved Fortier, were investor-wins, including Yukos where he billed a staggering €1.7 million for his services as tribunal chair. For many years Fortier sat on company boards, including those of mining giants Alcan Inc. and Rio Tinto, where he developed a corporate world view.|
|Charles Poncet (Switzerland)|
|6||Exclusively nominated by investors||Poncet Law(2017-) CMS (2014-2017) ZPG Avocats (1986-2014)||A prime example of a corporate lawyer turned arbitrator. ECT cases make up 60 per cent of his arbitrator caseload, but he has also acted as counsel for energy giants like Repsol. He was the investor-appointed arbitrator in the Yukos cases where he billed €1.5 million. This seems to have earned him a pro-investor reputation: when Rockhopper choose Poncet as arbitrator in its ECT challenge against Italy, investors celebrated, saying the claim would now be “a walk in the park” Poncet is also on the board of financial services company London Capital Group.|
|Stanimir Alexandrov (Bulgaria)|
|5||Nominated by investors in 4 cases, as President in another.||Sidley Austin (2002-17); continues to co-counsel with the firm||A prominent “double hatter” and revolving door case. After being Vice Minister for Foreign Affairs and investment treaty negotiator with the Bulgarian Government in the 1990s, he moved to law firm Sidley Austin where he sued countries in ISDS proceedings, acting as lawyer for major corporations like Vivendi, Bechtel, Veolia, Philip Morris, and TransCanada, the pipeline developer that sued the US after the government halted the dirty Keystone XL pipeline. He continues on-the-side-lawyering with Sidley. Many states have questioned his arbitrator independence over different conflicts of interest, including in ECT cases.|
|Charles Brower (US)|
|5||Exclusively nominated by investors||20 Essex St Chambers (2005-) White & Case (1961-2005)||The “reigning king of international arbitrators” and the ultimate pro-corporate arbitrator who sat in 45 known ISDS tribunals, but was never nominated by a state. He is well-known for his investor-friendly interpretation of vaguely worded treaty clauses and as being an ardent defender of the status quo in investment arbitration. He opposes reforms to ISDS, for example, to improve the independence of the system, and has attacked reform-oriented colleagues for “bringing termites into our wooden house of investor state dispute settlement”.|
Five elite law firms have been involved in nearly half of all known ECT investor lawsuits
Law firms have been key drivers of the surge in ECT cases, relentlessly advertising the treaty’s vast litigation options to their corporate clients, encouraging them to sue countries.
The 10 busiest law firms in known ECT claims
|Law firm||Total number of ECT cases (until 2017)||Role in ECT claims||What you should know about the firm|
|Allen & Overy (UK)||16||Works for investors (with very few exceptions).||Brought the first-ever ECT-based arbitration in 2001 (of US energy giant AES vs. Hungary). Today suing Spain is their main asset: 10 out of the firm’s 16 total known ECT engagements are against Spain. The firm also represented AES when it challenged Hungarys attempt to curb excessive profits of energy generators in 2007.|
|King & Spalding (US)||15||Has only represented investors.||If there is one Big Oil law firm, this is it. But in the ECT world they are mainly engaged in the renewable claims against Spain and Italy. Also representing UK oil company Rockhopper in a claim that hit Italy after its exit from the ECT, challenging a ban on offshore oil drilling.|
|Arnold Porter Kaye Scholer (US)||10||Has only represented states, but acts on both sides in ISDS more generally.||No firm has been appointed more often by states in ECT disputes. Several of its lawyers are on the ICSID list of arbitrators (and can be picked as tribunal presidents when parties can’t agree).|
|Freshfields Bruckhaus Deringer (UK)||10||Represented mostly investors.||The world’s busiest ISDS firm with involvement in 45 investment treaty cases in April 2018. Represents EVN challenging Bulgaria’s decision to lower escalating energy prices.|
|Weil Gotshal & Manges (US)||9||Represented mostly states, but acts on both sides in ISDS disputes more generally.||Represents the Czech Republic in its six ECT cases (together with Arnold Porter). Also acted as counsel for Czech energy behemoth ČEZ, which won a €100 million settlement after a failed energy privatisation in Albania.|
|Cuatrecasas, Gonçalves Pereira (ES)||8||Has only represented investors.||All its arbitrations are against Spain, including the first known claims by Japanese investors. The top lawyer at the ECT Secretariat joined the institution after nearly 13 years with Cuatrecasas – a notable revolving door case.|
|White & Case (US)||7||Represented mostly states, but acts on both sides in ISDS disputes more generally.||Another veteran ISDS law firm with over 100 cases which it handled at ICSID in total and 35 ongoing investor-state lawsuits in April 2018.|
|Latham & Watkins (US)||7||Has represented both states & investors.||The world’s second richest law firm by revenue has a knack for Spanish elites: amongst others, it represented Spanish businessmen Luis Delso and José Gomis in their suits against Spain while hiring Spain’s former Prime Minister José María Aznar as political advisor in early 2018.|
|ArBLit – Radicati di Brozolo Sabatini (IT)||6||Has only represented investors.||A small boutique with a near exclusive focus on international arbitration. Nearly all cases relate to changes in the Czech renewables sector.|
|Shearman & Sterling (US)||6||Has only represented investors.||The US$1,065 per hour lawyers from the Yukos mega arbitrations. Elite arbitrator Emmanuel Gaillard is the firm’s figurehead, attracting vast amounts of work as counsel in ISDS cases.|
Third party funders are becoming more and more established in ECT arbitrations.
These investment funds finance the legal costs in investor-state disputes in exchange for a share in any granted award or settlement. This is likely to further fuel the boom in arbitrations, increase costs for cash-strapped governments, and make them more likely to cave in to corporate demands.
“Third party funding is poorly regulated internationally. The identity of third party funders is rarely public information and is sometimes even withheld from countries being sued.”
Trade Justice Movement UK
Putting polluters in the driving seat
The Secretariat has close links with energy companies and forprofit lawyers who make money when investors sue states under the ECT. This is strikingly illustrated by the advisory bodies which the Secretariat has set up: the Industry Advisory Panel and the Legal Advisory Task Force.
Two thirds of the lawyers on the ECT’s Legal Advisory Task Force have a financial stake in investor lawsuits against states.
Members of the ECT Legal Advisory Task Force
Both advisory groups are given ample opportunities to influence the Secretariat, ECT member states, and the wider Charter process in their own interest. Several high-ranking officials at the ECT Secretariat were with arbitration law firms before and/or after they worked at the Secretariat.
ECT emblematic cases
Vattenfall v. Germany II
Pitting parliament against nuclear profits
Rockhopper v. Italy
How an oil company could make millions with wells it never built
Yukos v. Russia cases
Bonanza for lawyers and investors!
EVN, Energo-Pro and ČEZ v. Bulgaria
Corporations versus affordable electricity
Investors v. Spain
How Spain might have to pay billions for imaginary corporate profits
The ECT modernisation process is bound to fail; pulling out is the only option
The clock is ticking on climate change, but ECT parties are wasting time with potentially endless negotiations to ‘modernise’ the dangerous treaty. In November 2018 a list of topics for modernisation negotiations was approved. Negotiations are now underway with a stocktaking planned for 16-17 December 2020, when the Energy Charter Conference will meet in Baku, Azerbaijan.
The agenda for the modernisation talks does not live up to the promise of making the ECT climate-friendly. Two of the most obvious and effective reform options are missing from the list of topics that will be discussed: firstly, the exclusion of carbon-intensive energy investments from the scope of the ECT, and secondly, the exclusion of investor-state dispute settlement or ISDS. Both options would prevent polluters from challenging climate change mitigation actions by states outside of their national legal systems, limiting the risk of a chilling effect on climate action.
Cosmetic changes such as those proposed by the European Commission, will not prevent ECT lawsuits against climate action. While the EU proposal for the ECT modernisation contains nice-sounding formulations on states’ right to regulate and the Paris Agreement, they will not shield climate response measures from ISDS challenges. As environmental law group ClientEarth argues: “The ECT, even if revised according to the Commission’s proposal, would still lead to a dangerous chilling effect on environmental and social regulation. The fossil fuel industry does not need to win on the legal arguments. The threat or initiation of an ISDS claim can be enough to delay or undermine policy action, even across borders, regardless of the arbitration’s outcome.”
“It is unlikely that Contracting Parties would reach an agreement to align the Treaty with the Paris Climate Agreement.”
Masami Nakata, former assistant to the ECT Secretary General, on the ECT modernisation
A revised ECT may never see the light of day: members have clashing interests and any change requires unanimity. ECT parties such as Japan have already stated that they see no need for any amendments. An internal European Commission report from 2017 already considered it “not realistic” that the ECT will really be amended. As energy expert Yamina Saheb, a former employee at the ECT Secretariat, put it in a scathing report on the ECT modernisation in February 2020:
“The potential outcomes of ECT modernisation, if any, will be rather marginal compared to the challenges raised in more than two decades of the existence of the ECT…. Withdrawing from the ECT is, therefore, the only option left.”
Civil society calls on states to withdraw from the ECT if negotiations fail to deliver a fossil fuel-free and climate friendly ECT within a reasonable timeline. Rather than waste time and effort on a process that won’t improve the ECT and is unlikely to succeed, we need to focus on the real flaws. The ECT has no chance to be compatible with the Paris Agreement, unless, at the very least it:
1- Excludes fossil fuels from any treaty protection;
2- Removes the investor-state dispute settlement provisions from the agreement.
Anything short of these will not address the risks the ECT poses to climate policies and a just energy transition.
Reasons to leave or never join ECT
After 20 years of the ECT in action, it is clear that the dangers of its foreign investor rights outweigh any potential gains that states might have expected from signing the agreement. In summary, here are eight key reasons for leaving – or never joining – the ECT.
Reason #1: The ECT is a tool for big business to make governments pay when they regulate to fight climate change, make energy affordable, and protect other public interests. It has been used to attack environmental restrictions on dirty power plants, bans on climate-wrecking new fossil fuel projects, cuts to soaring electricity prices, rectifications to failed energy privatisations – and the list goes on.
Reason #2: Under the ECT governments can be forced to pay out billions in taxpayers’ money to compensate corporations, including for missed future profits that they could have earned in theory. The value of the ECT lawsuits pending at the end of 2019 – US$32 billion – exceeds the GDP of many countries and the estimated annual amount needed for Africa to adapt to climate change. Due to the opacity of ECT arbitrations, the actual figure is likely to be much higher.
Reason #3: The ECT is an instrument to undermine democracy and bully decision-makers, acting as a brake to desirable policy-making. This is particularly worrying for the rapidly-needed transition off fossil fuels and to wind, wave, and solar energy, which requires bold regulations by governments and will curtail the profits of some of the world’s largest oil, gas, and coal corporations.
Reason #4: Investor-state arbitration under the ECT is highly flawed. It is not fair and independent, but dominated by a self-serving, multi-million dollar industry of elite law firms, arbitrators, and speculative funds. At the expense of states and taxpayers, they have used their power to secure extremely corporate-friendly interpretations of the ECT and a steady flow of costly lawsuits.
Reason #5: The ECT’s investor privileges do not bring the economic benefits claimed for them. There is currently no evidence that the agreement helps to reduce energy poverty and facilitate investment, let alone investment into renewable energy. The ECT can even be used to undermine the clean energy transition and measures to guarantee affordable access to electricity for all.
Reason #6: The rules for settling investor disputes under the ECT undermine domestic legal systems and are at odds with the rule of law as they discriminate, being an exclusive legal channel for foreign investors alone. Following a recent ruling by the EU’s highest court, it is questionable whether the ECT’s investor privileges are even compatible with EU law.
Reason #7: It is highly unlikely that the ECT modernisation process, which started in 2017 will change the fundamental flaws of the agreement’s parallel justice system for corporations. Even minor reforms such as making investor lawsuits less secretive seem to be controversial within the ECT membership.
Reason #8: Due to its wide geographical reach and the near limitless rights it grants to investors in the energy sector, the ECT is arguably more dangerous for the public purse, public interest policies and democracy than other international investment treaties. Globally, no other agreement has triggered more investor attacks against states than the ECT.
All information on this website has been extracted from the report “One Treaty to rule them all: The ever-expanding Energy Charter Treaty and the power it gives corporations to halt the energy transition,” written by Pia Eberhardt, Cecilia Olivet and Lavinia Steinfort. Download dataset of ECT cases up to December 2019. And the report “Silent Expansion – Will the world’s most dangerous investment treaty take the global south hostage?
Contact the authors:
Pia Eberhardt: Pia[at]corporateeurope.org
Cecilia Olivet: ceciliaolivet[at]tni.org
This website was produced by
Corporate Europe Observatory (CEO), a research and campaign group working to expose and challenge the disproportionate influence that corporations and their lobbyists exert over EU policy-making.