Zombie treaty

Ditching gas could see EU face hundreds of billions in compensation claims

How the Energy Charter Treaty could stop the EU moving beyond gas

Europe’s Energy Commissioner, Kadri Simson, proposes ending EU funding for fossil gas infrastructure. The European Investment Bank (EIB) has done likewise. If true, this is good news for the climate. But if the EU wants to meet its commitment of limiting temperature rise to 1.5oc, it needs to decommission existing gas infrastructure in addition to stopping new projects. However, the gas industry has a powerful tool to stop this happening: the climate-wrecking Energy Charter Treaty (ECT).

The ECT allows companies to sue governments for billions when they act to keep fossil fuels in the ground. For example, German coal giant RWE is suing the Netherlands for banning the burning of coal for electricity from 2030, demanding €1.4 billion in ‘compensation’. British company Rockhopper is suing Italy over a ban on new oil and gas drilling near the country’s coast, claiming €225 million for lost future profits from a controversial oil platform.

Such ECT claims over stranded gas assets could make any move away from gas exorbitantly expensive – so expensive it may not happen. According to research by InvestigateEurope, current gas infrastructure in the EU, UK and Switzerland protected by the ECT is valued at €324 billion. It would also cover any new pipelines or power plants, which certain governments want the EU to keep supporting. As long as governments remain inside the treaty, moving beyond gas is unlikely, but one million people have already signed a petition calling on the EU and member states to pull out of the ECT – and a growing number of climate scientists and Parliamentarians support that call.

ECT assets by category

Moving beyond gas – who foots the bill?

The reason Europe has so much gas infrastructure today is due to gas industry lobbying rather than actual need, and as a result much of it remains chronically under-utilised. In light of the EU’s goal of keeping temperature rise below 1.5oc, many of today’s pipelines, gas fields, power plants and liquified natural gas (LNG) terminals may already be obsolete. Campaigners have been calling for the infrastructure to be decommissioned, but this poses a direct threat to the investments of those companies operating them, which are protected by the ECT’s ‘Investor-State Dispute Settlement’, or ISDS. This is the same dreaded mechanism proposed for TTIP and CETA, the EU-US and EU-Canada trade deals.

Gas investments make up the vast majority of the ECT: currently protected infrastructure in the EU, UK and Switzerland is valued at €324 billion. Since ECT-protected investors can sue not only for the actual value of their infrastructure but also for lost profit expectations, the actual sum of possible gas-related compensation claims could be much higher.

European gas infrastructure covered by the ECT:

  • Oil and gas fields = €126.2 billion
  • Gas pipelines = €148 billion

  • LNG terminals = €16.3 billion

  • Gas power plants = €33.5 billion

source: https://www.investigate-europe.eu/en/2021/ect-data/ 

So what does this mean when we successfully cancel new North Sea oil and gas drilling permits? Or Nord Stream 2? Or decommission TAP, the Trans Adriatic Pipeline? Or scrap Spain’s underused LNG terminals?

Because of the ECT, success could mean billions of euros given in compensation to gas companies for their lost future profits. Or, scared by the enormous price tag, governments cancel, delay or weaken their plans. This is what happened to the German anti-coal movement: fear of being sued by the coal industry is one reason why the government delayed the coal phase-out until 2038 and paid billions in compensation to the coal operators. In exchange, the coal industry officially waived its rights to sue Germany under the ECT.

New infrastructure also protected by treaty

Despite claims from Commissioner Simson, the EU may keep funding fossil gas infrastructure into the future. A group of ten governments appears to have successfully won support for gas as a ‘transition fuel’, while the Commission itself is committed to ‘low carbon’ gases. There is not yet an official Commission definition of a ‘low carbon’ gas, but the lobbygroup Eurogas is pushing for it to include both hydrogen from fossil gas and just plain fossil gas, with or without CO2 abatement. There have even been reports of funding new ‘hydrogen-ready’ gas pipelines that carry fossil gas until hydrogen arrives – if it ever does. All of this is being presented by industry as a reason to build more infrastructure. And as long as the EU and its member states remain in the Energy Charter Treaty, these new infrastructure investments will all be protected by the ECT, risking a prohibitively large bill for the tax payers when governments finally accept fossil gas is not a solution.

ECT locking in gas infrastructure and undermining the climate justice movement

In Europe – and in every country covered by the ECT – today and tomorrow’s victories against new gas infrastructure are in grave danger. Italy is being sued for its ban on offshore oil and gas drilling after a huge grassroots campaign against it. Slovenia is being sued by a fracking company for trying to protect its groundwater. What does the ECT mean for Ireland’s fight against new LNG terminals? Or the struggle to stop the EastMed pipeline? Even if a project is not completed or still lacks important approvals and permits when cancelled, the company behind it can still use ISDS to sue.

Pull out of the ECT so we can move beyond gas

As well as stopping all new gas infrastructure, keeping below 1.5oc means decommissioning many existing pipelines and LNG terminals. But doing so could see compensation claims of more than €300 billion. Eye-watering sums that may scare governments away from acting, despite the pressure from below.

The beyond gas movement continues to grow in strength – the Commission and EIB statements are proof of that – but its hard work could be undone by the ECT. Joining forces with more than a million voices already calling for governments and the EU to pull out could be both valuable and strategic. Italy has already pulled out of the ECT, France and Spain are open to a co-ordinated EU withdrawal, but the European Commission and other EU governments are insisting on reforms that will keep the ECT protecting gas investments. As long as governments remain inside the treaty, moving beyond gas will be expensive, slow or downright difficult, but getting the EU and member states to pull out of the ECT is within our power.

To sign the petition against the Energy Charter Treaty click here


Image credit:  Alexia Barakou

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