Tuesday, February 11, 2025
HomeClimate ChangeKey hurdle passed for green energy investment treaty reforms

Key hurdle passed for green energy investment treaty reforms

“Green Reforms to Energy Treaty: Ending Protection for Fossil Fuels, Embracing Renewables”

The Energy Charter Treaty (ECT) has taken a significant step towards green reforms that will allow governments to end protection for investments in fossil fuels within their borders while keeping them for renewables. The 51 governments of the ECT have agreed to allow each other to remove protections for fossil fuels, marking a victory for the European Commission’s efforts to stop fossil fuel companies from using the treaty to sue governments over climate policies.

The reforms, which will start applying provisionally in nine months on September 3, 2025, if agreed upon by governments, include a key “flexibility mechanism” that gives governments the power to end investment protection for fossil fuels while maintaining protections for investments in renewables. As part of a compromise, EU countries will use this power to end protection for new fossil fuel investments but continue protecting existing fossil fuel investments for ten years.

Despite the progress made by the European Commission, there are uncertainties about how other ECT member states, such as the UK, Switzerland, Japan, and Central Asian countries, will utilize the new power. The UK and several EU countries have either left or are leaving the ECT but are still bound by its provisions for 20 years under the ‘sunset clause.’

The ECT was initially created in the 1990s to boost energy investment flows between Western and post-Soviet countries but has since been used by energy companies to challenge climate policies. In recent years, companies have sued governments over environmental protections and coal phase-out plans, leading to calls for reforms to remove fossil fuels from the list of protected investments.

The European Commission’s efforts to push for green reforms were initially blocked by Japan and Kazakhstan but eventually led to the agreement on the “flexibility mechanism” in June 2022. However, the reforms faced opposition from some EU governments, causing delays in their implementation.

Despite the challenges, EU states have been debating whether to stay in or leave the ECT and have made decisions to withdraw from the treaty. France, Germany, Poland, Luxembourg, Slovenia, Portugal, the UK, Spain, and the EU will be leaving the ECT in the coming years. However, a compromise was reached in May 2024, allowing governments to support the modernization process while the EU can begin the process of exiting.

Overall, the approval of the green reforms to the ECT marks a significant milestone in the global effort to transition towards renewable energy and combat climate change. The reforms will enable governments to align their investments with climate goals and reduce the influence of fossil fuel companies in shaping energy policies.

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