There have been concerns that the international Energy Charter Treaty (ECT), which provides a legal framework for cross-border energy cooperation and investment protection, may hinder the global effort to go green.
Introduced in 1994 and currently signed by 53 countries – including seven African nations – the pact was designed to promote energy security across countries. One of the controversial aspects of the treaty is an arbitration system that enables fossil fuel companies to sue governments for millions of euros over policies that affect their businesses.
In May, the Energy Charter Secretariat revealed that the total number of known ECT-based investment arbitration cases has reached 158. “Among these cases, 59% concern renewable power generation. Solar power generation stands out as a sub-sector with the most claims (38% of overall cases),” the secretariat reported.
But experts have opined that the ECT’s massive support for fossil fuel negates objectives of the famousParis Agreementand policy objectives of the EU to phase out fossil fuels in favour of renewable energy sources. This concern resulted in themodernisation process of the ECTwhich started in 2017.
Some provisions of the charter have now been reviewed to form a new agreement in principle. For instance, in the modernised ECT, the definition of protectable “investments” has been broadened to include “every kind of asset”.
It also proposes a flexibility mechanism granting full discretion to its contracting parties to decide whether to exclude investment protection for fossil fuels in their territories, based on individual energy security and climate goals.
While this version of the treaty is yet to be ratified because the voting of contracting parties has been postponed indefinitely, some EU countries have begun moves to exit the ECT.
Commenting on the potential impact of the modernised treaty on Africa, a Nigerian-based energy lawyer, Ivie Ehanmo, said many African countries are taking steps to accede to the treaty, and this presents both positive and negative implications for the region.
Ehanmo, the founder of Electricity Lawyer, a research, legal and regulatory service provider for power markets stakeholders, stated that one key development that may have a significant impact on African countries is the introduction of the “flexibility mechanism”.
She argued that while this mechanism offers a revenue-generating opportunity for African countries which are open to fossil-based operations, it may slow down plans to transition from fossil fuels to renewable energy sources,
“Nevertheless, there is an opportunity for African countries to secure increased revenues from both investments in fossil fuels under the ECT flexibility mechanism timeline, and from revenues based on investments in its renewable energy resources by European countries.”
She further noted that the global investment environment may need to consider the development of a new treaty if the ECT fails.
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