A 1990s trade agreement is hampering the efforts of signatories, particularly EU countries, in transitioning to low/zero-carbon forms of power generation, as the Financial Times reports. The Energy Charter Treaty was created to give companies some surety that their investments in major infrastructure such as power plants would be protected, and over 50 countries joined the agreement. Now, as some countries move to phase out certain types of power, power companies are using the provisions of the ECT to sue or otherwise arrange for compensation for the early redundancy of their assets.

An example is RWE’s move in recent weeks to sue the Dutch government over its decision to end coal firing by 2030, seeking €1.4 billion (US$1.69 billion) in damages, but Spain, Germany, Poland, Hungary, the Czech Republic and Latvia have all faced legal action also. With these legal disputes occurring, some EU member countries – such as France and Spain – are calling on the EU to use its collective power to remove the EU from the treaty. This may not be so straightforward, however, with a sunset clause in the agreement meaning that departing signatories are bound to it for 20 years after formally leaving. Because of this, the EU may instead seek to have the treaty modified to something broadly acceptable to all parties, and one can see companies being torn between a desire to recover their previous investments and a wish to appear climate friendly and government friendly in order to win new contracts.

Interestingly, the news comes at around the same time as an opinion piece in the Financial Times was published which rather cheekily – but not stupidly – suggests investors in the USA would do well to buy ageing coal-fired power plants cheaply so as to then be compensated by the US government for enforced closures of their operations.