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1、MORETHAN ENTHUSIASM: the EU, the energy transition and the Energy Charter TreatyAlan Riley, Senior Fellow, Atlantic Council, Washington DC.647DECEMBER2020Beyond the immediate Covid-19 health crisis and subsequent economic recovery looms the climate change crisis. The EU has committed itself principa

2、lly via the Paris Agreement to seek to suppress the production ofC02 emissions within the Union and assist in their suppression outwith the Union. While the commitment ofthe EU and its institutions is not in doubt there is a danger that in its enthusiasm to suppress fossil fuel generating C02 emissi

3、ons it may take steps that backfire. One example that is now in train is the Commissions modernisation proposals for the Energy Charter Treaty.As the worlds only multilateral investment agreement the Energy Charter Treaty (ECT) could potentially be an ideal platform to assist in mobilising the enorm

4、ous amount of capital that will be required to transform the global energy system. However the Commissions proposals to modernise the ECT seem to ignore the modern competitiveness of renewables which could transform the role of the Treaty in the delivery of the transition. Its proposals it appears a

5、re likely to have either a marginal effect or in fact undermine the potential of the ECT to mobilise capital to deliver the energy transition. The Commission needs to rethink its approach to modernisation of the ECT. It needs to recognise the potential value of the Treaty to delivering the transitio

6、n and the need to incentivise many more states to join the ECT. Currently the Commission is instead seeking to impose new burdens on ECT members which are likely to disincentivise any other states from joining.The ECT was adopted in 1994. There are already 53 states who are members including all EU

7、Member States save Italy. The European Union is a member in its own right. The Treatys original purpose was to encourage the opening of energy markets principally via providing protection for investments in Eurasia after the collapse of the USSR. While the Treaty asserts the accepted principle in pu

8、blic international law of state sovereignty over natural resources, it also seeks to protect foreign investment in those resources. It does this by providing for a legal right to compensation where an ECT member undertakes to expropriate or otherwise substantially compromise the interests of an inve

9、stor. Investment protection applies not just to investment in direct natural resources such as oil and gas fields but to a whole range of energy investments including transmission networks, storage facilities, power generation plants and renewable generation.cidob opinion 647. December 2020The reali

10、ty now is that the price competitiveness of renewables will ensure that the dominant form of energy investment will now be in renewables. As a consequence, why should the Commission be spending precious political capital on persuading other states to remove fossil fuels from the ECT when the market

11、will do that job in any event?Furthermore, the Commissions proposals also do not take account of the scale of investment that is going to be required to deliver the transition. The International Renewable Energy Agency (IRENA) estimates that the world will need to invest around $27 trillion over the

12、 next 30 years to deliver the Paris targets. The IEA estimates that in order to deliver a sustainable development scenario with a rise in temperatures to approximately 2C we will need to increase investment in clean energy from $0.9 trillion a year in 2019 to $2.7 trillion a year in 2030. It also es

13、timates that most this capital call will be from the private sector; in the order of 70% of the public-private investment mix.Critically, in order to effectively suppress fossil fuels the delivery of clean energy and the capital underpinning it has to be global. One cannot rely on just delivering th

14、e energy transition by delivering capital at scale just to states with developed legal orders. This has to be genuinely global effort to transform the worlds energy system.However; unfortunately much of the world outside North America, Western Europe and Australasia do not have developed legal order

15、s with effective application of the rule of law. The reasons are varied: underfunding, bureaucratic delays, technical incapacity, susceptibility to state pressure or outright corruption. However; these shortcomings separately and sometimes cumulatively undermine the willingness of investors to suppo

16、rt the energy transition at the scale required. Given the substantial majority of the capital that has to be mobilised to deliver the global energy transition is private it is going to be very difficult to mobilise that capital without an effective mechanism to protect it.This is where the ECT poten

17、tially comes into its own. It is the only multilateral investment treaty. It already has 53 members. It has potential to grow to its platform as a mechanism to deliver the global energy transition. In that light one has to ask some questions about the Commissions reform proposals. Some of the propos

18、als such as to remove fossil fuels from the protection of the ECT are now economically redundant. Others are marginal such as the proposal for an environmental impact assessment for energy projects in a world where most new investments will be renewables.Most questionable is the proposal to introduc

19、e a state to state dispute mechanism to underpin the enforcement of the Paris Agreement. At one level it is understandable that the Commission is seeking to underpin these agreements. Howevei; does a significant re-purposing of the ECT make sense from the perspective of trying to mobilise the capita

20、l necessary for the energy transition? One of the dangers with the Commissions proposal here is that it will dissuade more states from joining the ECT. Surely the priority should be to incentivise and not disincentive states to join the ECT in order to make it easier to mobilise the necessary capita

21、l at scale?The Commission should reconsider its modernisation proposals. It should focus perhaps instead on a more practical approach to greening the Treatycidob opinion 647. December 2020by providing more clarity on the scope of the ECT. For example, by making it clear that hydrogen and carbon capture and storage investments are fully covered by the ECT. More broadly it should be supporting the ECTzs secretariat to seek to increase the number of members to make it easier to mobilise the capital at the scale necessary to deliver the energy transition.cidob opinion 647. December 2020