Netherlands Leaves Energy Charter Treaty Despite EU’s Modernization Efforts

Dutch Ministry of Economic Affairs and Climate Policy said it is pulling out of the Energy Charter Treaty (ECT), following Spain’s announcement last week. The treaty has been criticized for protecting oil and gas industry interests. The treaty has been in force since 1998, and has more than 50 signatories, including the European Union. It allows investors to sue governments that jeopardize their investments. However, in recent years it has been increasingly used by fossil fuel and renewable energy companies to challenge regulatory changes.

Dutch Minister for Climate and Energy Policy Jetten told the parliament that the treaty is not in line with Paris Climate Accord and efforts to re-negotiate it have not become successful.

“The mandate for the European Commission was to bring the ECT in line with the Paris climate agreement. Despite many of the modernizations that are now in the negotiation outcome, we do not see how the ECT has been sufficiently aligned with the Paris Agreement,” Jetten said in his parliament speech.

The government also confirmed the move on Wednesday, saying the lack of guarantees on climate in the revamped treaty was the main reason for the decision to leave. The government also underlined that the Netherlands would prefer the entire EU to leave the ECT.

Italy was the first EU member state to quit the treaty in 2016. Spain announced its intention to withdraw last week. Poland has also started formal proceedings to pull out last September.

The European Commission has been trying to modernize the ECT on behalf of the entire bloc for four years. The Commission said it made more sense to make reform than leave the treaty, pointing out that current energy security challenges for Europe makes membership more crucial than ever.

The European Commission acknowledged that the treaty had been rendered “obsolete” by the 2015 Paris Agreement to curb climate change and needed to be reformed.

The Commission announced in June that there was a breakthrough in modernization talks. The new rules will be submitted for approval to all signatories in November. Unanimity is needed to pass a new text.

The reformed treaty included provisions to cease legal protection for new investments in fossil fuels after 15 August 2023. For existing fossil investments, legal protection will expire “after 10 years from the entry into force of the relevant provisions,” the document said.

The EU’s executive arm thinks recent modernization of the ECT should address concerns with regard to right of governments to regulate for environmental and climate purposes, including climate change mitigation and adaptation, and allows the Contracting Parties to exclude new fossil fuel related investments from investment protection.

Moreover, the EU executive underlined that a 20-year sunset clause will continue to apply even for countries that leave the treaty, meaning that investor protection clauses will continue to apply for that period in any event. 

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