Fighting climate change could become a sued if you do, sued if you don’t problem for governments.
German utility RWE this week slapped the Dutch government with a €1.4 billion lawsuit over its plans to end coal power.
But the coal phaseout itself was compelled by the Dutch Supreme Court, which found in 2019 that the government was failing in its duty to protect citizens from climate change and mandated that it speed up emissions cuts.
It’s the wicked problem facing EU members. They are under pressure from lawsuits holding them to climate pledges that require huge drops in fossil fuel use, but are all signed up to a 55-country investment protection deal called the Energy Charter Treaty (ECT). That treaty allows foreign investors in the energy sector to claim compensation for profits deemed unfairly lost due to government regulation.
“It’s not inconceivable that there will be more cases” from both fossil fuel and renewable energy investors, said Johannes Tropper, international law lecturer at the University of Vienna.
RWE, which operates the Eemshaven power station in the Netherlands, triggered the treaty claiming that the Netherlands had failed to offer adequate time or money for the plant built in 2015 to be converted to burn biomass instead of coal.
Green groups said the RWE case was the first time a coal operator had sued a European country over climate policy.
Such lawsuits from utilities could become more common as governments face a growing wave of climate-focused court cases compelling them to cut emissions and shut down fossil fuels faster. On Wednesday, a French court found that the government wasn’t following through on its Paris Agreement promises to slash its greenhouse gas emissions. The government has two months to spell out its plans after which it could face court-mandated action.
The U.N. Environment Program reported in January that it expected the number of climate litigation cases globally to rise.
Heavily polluting coal plants are often the first victims of climate policy. Sixteen EU countries have already pledged to stop using coal in their power systems. Ending coal is usually accompanied by lavish payments; Germany plans to end coal use by 2038 and is budgeting €4.3 billion to compensate utilities.
But RWE spokesperson Vera Bücker said the Dutch coal phaseout was “not legal.”
“Unlike the German coal phaseout law, the Dutch law does not include an adequate compensation for this interference with the company’s property,” she said.
The legal basis for companies to sue countries really depends on how countries enact legislative changes, Tropper said. Investment courts do recognize a state’s sovereign right to regulate, but it all depends on how laws are changed, he said.
A spokesperson said the Dutch economy and climate ministry would fight the RWE case “on both the jurisdiction of the tribunal as well as the content of the dispute.”
It’s not the only such threat facing The Hague.
There are five coal power stations in the Netherlands. Eemshaven and one other operated by Uniper, another German utility, are less than six years old. Uniper has said the Dutch government encouraged the companies to build the plants to cut reliance on gas. Uniper has threatened to also sue the government under the ECT. A spokesperson said the company and government were having “constructive discussions” over compensation.
Rethinking the Energy Charter
Those kinds of cases are fueling a push among EU countries to minimize the threat of lawsuits or even withdraw from the ECT.
There’s a lively discussion over whether the treaty allows lawsuits among EU countries. The Netherlands, along with 20 other EU countries, concluded in 2019 that intra-EU investor-state dispute settlements are indeed illegal and chose to terminate all cases between each other.
Last year, Belgium asked for an opinion from the Court of Justice of the EU on the issue, which it’s still awaiting.
“I would expect the ECT to be in violation of EU law in intra-EU disputes,” Tropper said.
The EU could choose to quit the ECT altogether out of fear that it undermines its green agenda. Although the EU’s current position is to negotiate for reforms to the treaty, chances are that conservative treaty members such as Japan may block any substantial change.
EU member countries are taking varying positions. France and Spain have called for Brussels to prepare to withdraw. Last January, the Dutch government said leaving the treaty would expose Dutch companies investing in energy projects abroad — something that could harm oil major Royal Dutch Shell.
A spokesperson for the German energy ministry said the ECT needed “numerous clarifications” to prevent “unjustified complaints against legitimate state measures for the common good.”
But if Brussels were to pull out of the ECT, it wouldn’t stop applying for 20 years under a sunset clause. This has been the fate of Russia, which withdrew from the agreement in 2009 but has since faced billions in claims from energy giant Yukos on the basis of the ECT.
Most claims brought under the treaty stay within the EU, so the reasoning is that Brussels and member countries could simply agree among themselves to cancel the sunset clause for cases brought within the bloc.
The question is whether such an agreement is feasible. That hinges on EU courts ruling that the ECT contradicts Union law, something that’s “not unrealistic,” said Andreas Gunst, a partner at law firm DLA Piper.
The fight could determine the future of Europe’s Green Deal. Wendel Trio, director of the NGO network Climate Action Network Europe, said: “It’s outrageous that fossil fuel firms can use this powerful treaty to obstruct the clean energy transition.”