Britain and Switzerland are accused of undermining reforms to the EU’s environmental treaties
Activists say Britain and Switzerland are defending fossil fuel interests in talks to modernize the Energy Charter Treaty to tempt companies to relocate their headquarters
The UK and Switzerland have been accused of undermining the European Union’s push for green reforms of an investment deal.
Both countries have not backed European Commission attempts to end protection for fossil fuel investments in the Energy Charter Treaty (ECT) and have no plans to withdraw from the treaty if the reforms are rejected.
Activists accused the UK and Switzerland of trying to lure EU-based fossil fuel companies into relocating their official headquarters so they can continue to sue governments over climate action even if the EU pulls out of the ECT.
Friends of the Earth’s Paul de Clerck said: “Law firms are advising their clients to restructure their investments in countries that are not phasing out [the] Protecting fossil fuel investments so they can continue to apply [investor-state dispute settlement] Cases.”
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“Britain and Switzerland seem set to become such safe havens. That shows how perverse this system is. These countries still prioritize protecting fossil fuel companies rather than tackling climate change,” he added.
Yamina Saheb, who used to head ECT’s energy efficiency unit and is now overseeing the negotiations, said: “It is likely that the UK will become a host country for investors who will use this deal to sue EU countries to phase out fossil fuels . It’s complete madness for the Cop26 host country [climate talks]“.
Cornelia Maarfield of the Climate Action Network said: “The UK and Switzerland stance on ECT reform takes climate hypocrisy to a new level.”
The ECT was established in the 1990s to protect energy investments across the former Soviet Union. It has 92 members, mainly in Europe and Central Asia and Japan.
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Its rules have been used by fossil-fuel companies to sue states over climate action and by renewable energy companies to sue governments that have cut subsidies — and the threat of legal action can sway policy.
The most recent example of this is Slovenia is changing its rules Allowing fracking for gas after a UK company threatened to sue the government.
Talks began in 2020 to “modernize” the treaty, including to make it more climate-friendly.
The EU called for most fossil fuel investment protections to be lifted, but was opposed by other members such as Japan and Kazakhstan.
The tenth round of talks started last week. ECT Secretary General Guy Lentz told Climate Home News: “[On the EU’s proposed reforms]that [UK and Switzerland] are relatively silent…at the moment they’re not involved in that part of the negotiations…they don’t intervene much and are mostly neutral.”
In response to a Member of Parliament’s question in November, the This was announced by the Swiss government His position is that “the ECT does not prevent its member states from pursuing ambitious energy policies, nor does it limit their right to regulate.”
“The risk of foreign investors taking legal action against Switzerland is minimal as foreign investment in its electricity sector is rare,” she continued.
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A spokesman for Britain’s Business and Energy Department declined to say whether it supports a fossil fuel spin-off or is considering exiting the deal.
But the UK is opposed to leaving, and last December the Department for International Trade said: “We have not taken a policy decision to seek the exclusion of fossil fuel investments from ECT coverage”.
The spokesman said: “The modernized treaty must have a greater focus on climate, including clarifying that states can regulate to meet emission reduction targets and align with the adoption of green technologies such as carbon capture, use and storage [CCS] and low-carbon hydrogen production.”
These technologies are controversial, with some green activists arguing that CCS is not commercially viable and is being used as a tactic by fossil fuel companies looking to delay the transition to renewable energy. Maarfield said their inclusion would “put future governments at even greater risk of being sued over their fossil fuel phase-out policies.”
E3G analyst Lisa Fischer said: “Low-carbon hydrogen, if undefined, could include ‘blue’ hydrogen. [which is made with methane gas] and there are many questions about the actual climate value of that.”
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The EU has tried to negotiate a reform of the ECT rather than abandoning it because the treaty includes a 20-year “sunset clause”. This means that its rules will continue to apply 20 years after a country has left.
An EU spokesman told Climate Home News it was considering “other options” if reforms fail. Two more rounds of talks are pending before a planned “ad hoc charter conference” in June 2022. Lentz said this is a “first deadline” for agreement on the broad principles.
If the EU and its member states leave, they will likely promise not to apply the treaty’s provisions to other EU states during the 20-year sunset – although Lentz questioned whether such a promise would hold up in member state courts.
If EU member states successfully halted the use of the treaty within the EU, EU-based fossil fuel companies could retain their ability to sue member state governments by switching to existing ECT members such as the UK or Switzerland.
In November 2021, after a court ruled that the ECT does not apply within the EU, investment lawyer Stephanie Collins said EU investors “may wish to restructure their investments through a non-EU jurisdiction” such as Switzerland or the UK .
Relocating to Switzerland or UK associated jurisdictions such as the Cayman Islands, British Virgin Islands, Jersey or Guernsey may require this Tax and Confidentiality Benefits also.