Explainer: ECT lawsuits against climate measures

Credit: Alexia Barakou

The fact that investors can sue for compensation on the basis of such vague formulations is likely to lead to many lawsuits against climate laws of the EU and member states in the coming years. This is because in the Paris Agreement and the Green New Deal, governments have committed themselves to meeting strict climate targets. In order to achieve them, they must phase out fossil fuels such as coal and gas in the coming years. Energy companies can sue against such decisions. This is not a distant scenario. Investors have already started threatening or suing states. These cases are known so far:

Rockhopper v. Italy

In summer 2014, the British company Rockhopper acquired the licence for one of the largest oil fields in the Mediterranean, the Ombrina Mare. There, only a few kilometres off the central Italian Adriatic coast, 166 million barrels of oil are said to be stored. Rockhopper wanted to get it out of the ground and was already planning the construction ofa drilling platform. But nothing was to come of it. The more concrete Rockhopper’s plans became, the more the local citizens revolted. In protest marches they demanded the end of the drilling project. The Italian government saw itself under pressure. To avoid a referendum, the parliament finally banned the extraction of oil and gas near the coast at the end of 2015.

Rockhopper sued against this before the Washington ICSID arbitration court. In the proceedings, the British company is not only claiming the approximately 38 million euros it invested in the development of the field, according to its managing director Sam Moody. Instead, Moody also expects to be compensated for lost future profits. “Ideally, we would get the amount we would have made if we had developed the field,” Moody said at an investor conference. According to the Italian State Rockhopper is claiming 225 million Euros, a large part of which is future lost profits. The lawyer Giacomo Aiello, who is representing Italy in the proceedings, warned in an interview with Investigate Europe of the consequences that a victory of the British investor before the arbitration court could have: “A defeat in this arbitration would be very dangerous. It would encourage other corporations whose extraction projects have been banned by the state to emulate Rockhopper.” The arbitrators wanted to announce their ruling in spring 2021.

Ascent v. Slovenia

Unconventional methods such as fracking are needed to extract gas from shale rock near the Slovenian-Croatian border. Although this is controversial, it is still permitted in Slovenia. Therefore, the British energy company Ascent invested 50 million euros to prepare two wells on one of the gas fields in the border region. Before these could be put into operation, the Slovenian state demanded an environmental assessment in spring 2019. The British reacted indignantly to this demand. They announced that they would take the matter to the Slovenian administrative court. There, the judges ruled that it was legal to analyse the environmental impact of fracking once again.

But Ascent was not satisfied. In July 2020, the group had a law firm send a notice to the Slovenian government. It said that the Slovenian state had violated the Energy Charter. Ascent reserves the right to file a lawsuit before an international arbitration court. Such a letter is necessary to start arbitration proceedings. But Ascent also points to another possibility. So time the company ready to negotiate, and “hope that an amicable solution to the current dispute can be found”. A few months later, in October 2020, Ascent announced that the group had started direct negotiations with the Slovenian government. The notice also said, “The negotiations shall not prejudice the Company’s rights to pursue its investment treaty claim.” The threat of an Energy Charter Treaty claim apparently helps the company to collect a large compensation.

Uniper v. Netherlands

In December 2019, the Netherlands decided to phase out coal. It stipulates that energy companies must take their coal-fired power plants off the grid or convert them from 2030 onwards. The German company Uniper had already rumbled against this months earlier. Uniper had only commissioned a power plant in the Netherlands in 2016, Maasvlakte 3. According to its own information, the company invested 1.6 billion euros. Money that it will at least partially reclaim from the Netherlands, Uniper manager Hans Schoenmakers told the Telegraaf” back in September. The company commissioned the law firm Allen & Overy to prepare a lawsuit against the Netherlands and had this announced in the Frankfurter Allgemeine Zeitung”.

Shortly after the coal phase-out was decided, Uniper sent a letter to the Dutch government. In it, the company wrote that it wanted an amicablesettlement“. Should this not succeed, Uniper would go to arbitration. A letter like the one Uniper sent is a condition for an Energy Charter lawsuit. This is because the contract provides for a transitional phase in which the investor and the state try to find an amicable solution. During Uniper’s annual general meeting in May 2020, Group CEO Andreas Schierenbeck said: “We reserve legal options to enforce the interests of the shareholders. We believe that the [Dutch] coal phase-out in its current form is not appropriate. ” So far, Uniper has not filed a claim against the Netherlands before an arbitration court.

RWE v. Netherlands

Another German electricity company is also affected by the Dutch coal phase-out. RWE operates the Eemshaven power plant in the Netherlands, among others. The company calls the law “a form of expropriation”. “The government wanted these coal-fired power plants, we have the permits for them, so we have the right to use coal,” the group told the Volkskrant. For the Eemshaven power plant, the damage amounts to two billion euros, according to the company.

The Dutch government offered the energy company compensation of 328,000 euros per megawatt. For the Eemshaven power plant this would have been around 500 million euros. But RWE refused. Instead, at the beginning of February this year, the company filed a claim against the Netherlands before the ICSID arbitration court in Washington. The statement of claim is not known, but the Dutch Minister of Economic Affairs Bas van ‘t Wout is now demanding compensation of 1.4 billion euros from RWE.