Energy Charter Treaty pitting parliament against nuclear profits – Vattenfall vs. Germany

Nuclear Monitor Issue: 

A new report from the Corporate Europe Observatory and the Transnational Institute exposes how the little-known Energy Charter Treaty gives corporations the power to obstruct the transition towards renewable energy and how it is being expanded, threatening to bind yet more countries to corporate-friendly energy policies. Brief excerpts reproduced below outline the problems and one of the case studies presented in the report: Vattenfall's claim against the German government resulting from the 2011 nuclear phase-out decision.

Two decades ago, an obscure international agreement entered into force, the Energy Charter Treaty. It grants corporations enormous powers over energy systems including the ability to sue governments, which could obstruct the transition towards renewable energy. And the Treaty is in the process of expansion, threatening to bind yet more countries to corporate-friendly energy policies. Today the ECT applies to nearly 50 countries stretching from Western Europe through Central Asia to Japan.

Among its many provisions, those regarding foreign investments in the energy sector – also known under the infamous acronym ISDS or investor-state dispute settlement – are the Treaty' cornerstone. The ISDS provisions give foreign investors in the energy sector sweeping rights to directly sue states in international tribunals of three private lawyers, the arbitrators. Companies can be awarded dizzying sums in compensation for government actions that have allegedly damaged their investments, either directly through 'expropriation' or indirectly through regulations of virtually any kind.

Energy giant Vattenfall, for example, has sued Germany over environmental restrictions on a coal-fired power plant and for phasing out nuclear power. Oil and gas company Rockhopper is suing Italy over a ban on offshore oil drilling. Several utility companies are pursuing the EU's poorest member state, Bulgaria, after the government reduced soaring electricity costs for consumers.

Vattenfall sued Germany in 2012, seeking €4.3 billion plus interest for lost profits related to two of its nuclear power plants. The legal action came after the German Parliament decided to speed up the phase-out of nuclear energy following the Fukushima disaster in 2011 and countrywide anti-nuclear protests. Amongst other things parliamentarians ordered the immediate and permanent shutdown of Germany's oldest reactors, including Vattenfall's Krümmel and Brunsbüttel plants. Due to several breakdowns, both had already been out of service for several years. The case is ongoing at the time of writing (June 2018).

The case is interesting because it shows how the Energy Charter Treaty:

1. Puts a lot of taxpayers' money at stake: Vattenfall's €4.3 billion claim – the equivalent of one quarter of Germany's entire 2017 health budget – is one of the largest in the history of investor-state arbitration. By April 2018 the German Government had spent more than €15 million in legal and administrative costs to defend the case. Furthermore, Vattenfall has spent €26 million on its lawyers which it also claims from Germany.

2. Leaves citizens in the dark: Experts have slammed the German Government for "intentionally leaving the German public out in dark" about the details of Vattenfall's claim. Despite billions in taxpayers' money at stake, not a single case document has been publicly released. A small group of elected parliamentarians have access to Germany's arguments in the proceedings, but only in a high-security building and they are not allowed to reveal anything they see to anyone. While the Government did agree to livestream a 10-day hearing in October 2016, experts questioned the usefulness of that exercise: permanent recordings were only made available for two days while notes were not prepared at all (so people had to watch 8 hours per day for 10 successive days) and viewers had to follow the complex oral arguments without any of the written materials.

3. Creates VIP rights for foreign investors: Together with German energy giants E.ON and RWE, Vattenfall also sued Germany in its constitutional court. In 2016 the latter upheld the nuclear exit, but condemned the fact that its acceleration did not allow the companies to use formerly allocated electricity output allowances, ordering Germany to find a solution for this problem. Even though Vattenfall obtained justice in German courts, it still continues its parallel Energy Charter Treaty claim – possibly counting on a much larger amount of taxpayer money in compensation than would ever be available under German law. Germany's largest association of judges and public prosecutors has criticised parallel justice systems such as those found in the Energy Charter Treaty, which are exclusively available to foreign investors, stating that "the creation of special courts for certain groups of litigants is the wrong way forward".

The English-language report is online, as are summaries in French, German, Spanish, and Italian.

Corporate Europe Observatory and the Transnational Institute, June 2018, 'One Treaty to rule them all: The ever-expanding Energy Charter Treaty and the power it gives corporations to halt the energy transition',