Fossil fuel companies could win nearly $10 trillion in 'compensation' for the fight against climate change – Dr Richard Dixon

Energy Charter Treaty's 'corporate court' enables fossil fuel firms to sue countries for trying to phase out coal and other climate-related policies

The European Union is planning to withdraw from a treaty which holds back climate progress and allows fossil fuel companies to sue governments in a special court. However, the UK Government seems content to stick with it, risking the transition away from fossil fuels in Scotland.

The Energy Charter Treaty was created in 1994 and was meant to help countries cooperate on energy issues. Ironically a prime motivation was to protect western oil companies operating in former Soviet countries. It has over 50 members including the EU and the UK.

The treaty includes a special corporate court, outside any national legal system, which means a company can take a nation to court if it doesn’t like its policies. They may be seeking compensation or to overturn the policy they don’t like. The court has been accused of institutional bias, with lawyers representing fossil fuel firms taking the role of the supposedly-neutral, decision-making arbitrators in subsequent cases.

The Netherlands is being sued by two fossil fuel companies because it plans to phase out coal power, a move which could cost Dutch taxpayers $1.4bn. The US is being sued for $15bn under a similar treaty because it decided to cancel the Keystone tar sands pipeline. There have been 20 cases by British companies.

A claim is being pursued against the government of Slovenia for daring to ban fracking; Italy has had to pay $190m in compensation over a ban on near-shore oil drilling; and more than $700m of compensation is being sought from the government of Azerbaijan over supposed blocks on oil and gas production.

Any action to move away from fossil fuels could end up in the corporate court. One source estimates fossil fuel firms could make nearly ten trillion dollars through compensation claims.

Italy withdrew from the treaty in 2016 and France, Spain, Germany, Slovenia, Poland and the Netherlands have all recently made unilaterally decisions to withdraw. The European Union initially backed a failed attempt to revise the treaty but has now decided that enough is enough, and is proposing to withdraw completely, stating that continued membership is not compatible with its own climate goals.

The UK is also a signatory to the treaty. It called the current treaty “outdated”, and was involved in the attempt to modernise it, even proposing measures to remove protections for fossil fuel projects. Despite the rejection of the revised treaty, and its own climate advisors calling on it to leave, the UK Government is only “monitoring developments of the evolving situation”.

Scotland’s ban on fracking could have ended up in the corporate court. Plans for a ‘Just Transition’ out of fossil fuels and into zero-carbon industries are in draft at the minute and could easily face a legal challenge in this private court.

The EU is planning a coordinated withdrawal from the pro-business, anti-climate Energy Charter Treaty and is hoping to use its collective weight to neutralise sunset clauses that would continue to bind countries. The UK could try to be part of this but instead is sitting on its hands, looking after the interests of UK fossil fuel companies rather than clearing the path for decisive action on climate change.

Dr Richard Dixon is an environmental campaigner and consultant