Between rulings and treaties: the battle for the future of the planet is also played in the field of international law
A recent arbitration award by the ICSID (International Centre for the Settlement of Investment Disputes) activated through the EC Treaty on Energy (ETC) concerning Rockhopper, a UK oil company, and the Italian Republic is a defeat for those who fear for the future of the planet and a step backwards for international environmental law. The facts concern the dispute over a concession to exploit an offshore oil field off the coast of Abruzzo to Rockhopper. On the basis of the award, issued in November, Rockhopper had nevertheless fulfilled all the conditions established by Italian law, so the refusal of the concession state was considered illegitimate. Without dwelling on particularly complex legal issues, it seems to us particularly relevant to point out that as a result of the award, international judges have awarded € 185 million in compensation to Rockhopper that reaches over € 240 million with interest. Without underestimating the sacred right of private enterprises to carry out their activities, ultimately, the way the reasoning behind the Rockhopper award expels any environmental considerations has the effect of making climate change interventions much more expensive – increasing the protection of the dispossessed by inflating the amounts to be paid in compensation. The latter judgment includes the future profits not made by Rockhopper, which is paradoxical in view of the objectives linked to the energy transition; this calculation was also possible because of the content of the ETC. In short, the decision increases the (public) price of keeping oil underground, confirming not only the saying that “polluters do not pay” but strengthening it into “polluters make profits”. One aspect seems crucial, a dialogue on the ETC is needed as soon as possible in all institutional fora.
The Energy Charter Treaty
The Treaty was signed in December 1994 and entered into force in April 1998, in a context where there was a need to integrate the energy markets of former socialist countries. When the ETC was negotiated, it was not yet practical to differentiate energy sources according to their compatibility with climate policy commitments. At the heart of ECT is Investor State Dispute Resolution (ISDS). Contracting States can be sued by fossil fuel investors, even if they take democratic decisions consistent with the Paris Agreement and climate neutrality objectives.
In 2017, the contracting parties (from Europe, the EU itself and the Member States) launched a reform process; the mere abandonment of the Treaty may not be conclusive. If one party leaves, there is a clause that provides (a so-called ‘sunset’ or ‘zombie’) that investments in fossil fuels can be protected for 20 years (Art. 45(3), letter b of the treaty). Italy is an example: despite having left the treaty in 2016, the country has compensated its own Rockhopper, as explained above. Among other reform proposals, there is the idea of an inter-state amendment agreement, under which the parties (including the EU) agree that in the event of exit, the sunset clause does not apply. The Commission is pushing for the alignment of ECT with the Paris Agreement and EU environmental objectives. The modernised ETC would allow the contracting parties to exclude new investments from investment protection fossil fuels and to phase out protection for existing investments. While in Europe the debate is ongoing on whether to exit or reform the ECT, 40 countries in the South of the world are currently candidates for membership, including China, Indonesia, Chile, Iran, Iraq and many African countries in the Sahel region. These countries and their economic branches hold huge fossil fuel resources to defend through the ECT, with the risk of exacerbating north-south distribution tensions in the energy transition.
Written by Alessandro Calabrese