Post-Soviet Treaty Complicates EU's Climate Ambitions

you get your podcasts. On this episode of Parts Pervilion, we go back to the nineties and talk about why a European energy treaty from the era of Nirvana and Pearl Jam is having some major unintended consequences today. Hello, and welcome back once again to Parts per Billion, the environmental podcast from Bloomberg Law. I'm your host, David Schultz. Hey, do you guys remember nineteen ninety one. I sort of do. I was eight years old around that time, so I

wasn't paying much attention to much of anything. But back then, this was on the radio, This was in movie theaters, Astilla Vista Baby, and this guy was winning his first of many NBA titles, Fire and Beyond. All of that pop culture. Nineteen ninety one was also the year this happened. Mikayle Gorbachev said it best today, just moments before he resigned his post as the last president of the Soviet Union.

The collapse of the Soviet Union was a pretty big deal in ways that were still almost thirty years later trying to figure out. But one of the most significant, or at least significant for the purposes of this podcast, is that it turned one really big country into fifteen

much smaller countries. And in the early nineteen nineties, these fifteen new countries, as well as the other former warsaw PAC countries, needed to reboot their economies and fast, and they especially needed investment in their energy infrastructure power plants, oil wells, pipelines, and on and on and on. That's how we got the Energy Charter Treaty, which is the topic of today's podcast. I spoke about this treaty with Stephen Gardner of Bloomberg Law correspondent based in Brussels who

covers the EU. He said the purpose of the treaty was to make it a little less scary for Western countries to invest in an energy project in a brand new country. What it does, essentially is it sets minimum standards for the treatment of energy related investment. So in other words, a German energy company should be treated by those governments in a fair way as they would treat one of their homegrown back companies. So it's a kind of minimum standard or intended to create a level playing field.

At the time, this was seen as a win win for both sides of the recently shattered Iron curtain. Western companies could develop energy projects in the East without the fear of having the rug pulled out from under them, and the new former Soviet countries were more than willing to live with the restrictions the treaty imposed on them.

So the treaty was negotiated about thirty years ago. Now the Soviet Union had just collapsed and it split into fifteen countries in fact, and since then the landscape has changed completely. But back in those days, there was a demand for investment in those countries, and that investment essentially

was going from west to east. It was essentially going from wealthy countries such as Germany or France or the Scandinavian countries to those the much poorer countries of the East, which also had very antiquated energy systems at the time. That's a really important point. The treaty was basically designed to make it easier for energy investment to flow across Europe from west to east, and initially that's exactly what it did. But the world of nineteen ninety one is

definitely not the world of twenty twenty. European countries have very different energy priorities than they did back then, developing fossil fuel resources in form or Soviet republics, and yet the Energy Charter Treaty hasn't really changed since then. The problem that's being highlighted now in some quarters, by some lawmakers in the European Parliament, for example, and by some environmental groups is that the treaty can be used to

protect fossil fuel investments. And obviously we're in a situation now where in the European Union, in particular, there's a move to very rapidly move away from fossil fuel infrastructure and fossil fuel energy supply towards renewables, and the treaty is being seen potentially as an obstacle to that, and some of the arbitration cases that have arisen give weights

to that argument. There have been cases of fossil fuel companies essentially trying to stop governments from phasing out fossil fuels. So that's an outcome that the original signatories of the treaty probably couldn't foreseen when they signed it in nineteen ninety one. And we're going to get into what might be done about this in a minute, but first we're

going to take a quick break. Don't go anywhere. So just to reset the stage here, we've got a treaty from the early nineteen nineties that was designed to prevent former Soviet republics from interfering in energy projects funded by foreign money. And this treaty is still on the books, but now it's being used in a very different way. And Stephen says, to make matters even more confusing, there's no provision in the treaty that says disputes have to

be adjudicated in public. So that means that if an energy company sues a country for violating the treaty, we may not actually know about it. There's no obligation in the treaty for or the parties in a dispute to make their dispute public, and there are no reporting obligations. Particularly, and obviously some of the countries that the Treaty covers are not known for transparency or openness, so there could be many cases going on in those countries that nobody

knows about. Maybe to give one example, there's a German company called Uniper which is reported i should say reportedly suing the Dutch government because the Dutch government has taken a decision to phase out coal from its power generation mix. Uniper is a German company which operates a coal fired power plant in the Netherlands and is reportedly suing the Dutch government over this. I think it's important to point

out the geographical irony here. The treaty was again written to protect Western energy companies from the whims of eastern governments, but now we have a German company suing the Dutch government, so that lawsuit now is flowing from east to west. And there are many cases like this. To give another example, the Swedish company Vatenphile is suing the German government over Germany's nuclear closed down because Germany has taken the decision

to close its nuclear plants by twenty twenty two. Vattenfahl is seeking some five billion euros in compensation. So what's the solution here? Environmental and climate change activists hold a lot of sway in the EU well they persuade lawmakers to take the Energy Charter Treaty and rip it up. Steven says, no, I think there's no chance of it being ripped up. I think that's highly unlikely. But certainly

the European Union wants a revision. However, any revision would have to be agreed animously by the parties to the treaty. It's probably worth pointing out that the parties to the treaty are the European Union and the countries of the European Union. Most other European countries, the countries of Central Asia such as Kyrgyzstan, Tajikistan, Uzbekistan, Mongolia. Also Japan and Australia are parties. So it's quite a diversity of countries

with different interests in terms of energy. For example, Australia is a big coal exporter. Getting all of those countries into the same room would be a major undertaking, let alone getting them to agree to shred a thirty year old treaty. But Stephen also says even the climate hawks in Europe may not want to see this treaty go by the wayside. He says the treaty also provides the

renewable energy sector with some surprising benefits. The European Union is also taking the view that the treaty doesn't need to be trashed because it also protects renewable energy investment. And in fact, the Charter Secretariat pointed out to me that about sixty percent of the cases brought under or the publicly known cases listed cases brought under the treaty

actually concerned renewable energy. There are a whole host of cases relating to Spain because a few years ago Spain introduced a guaranteed price for energy from renewable sources, encouraging a lot of investment into renewables, and then it changed the price dramatically lowering the price, taking away the incentive for investments. So a whole host of cases were brought

or have been brought are still ongoing. So basically the gold now for many environmentalists in Europe is not to get rid of the Energy Charter Treaty, but just to make it a little bit smaller. It's not necessarily the case that the view is that the treaty should be scrapped, that it should be somehow ring fenced so that fossil

fuel investment is no longer protected. But this is seen as a very very difficult thing to achieve because of the different interests of the parties involved, And we'll actually find out exactly how difficult this will be next week, when negotiations over the future of this treaty are scheduled to formally kick off. Well that's it for today's episode of Parts per Billion. If you want more environmental news, check us out on Twitter. We use a pretty easy

to remember handle. It's at environment. Just that at Environment, I'm at David B. Schultz if you want to tell me your deepest, darkest secrets. Today's episode of Parts per Billion was produced by myself with Josh Block. Special assistance on this episode came from Anna Yukonanov. Parts per Billion was created by Jessica Coombs and Rachel Daegel. The music for today's episode is a Message by Jazarre and Smoking Monkey by Tom Hillock and Nicholas Boskovic. You were used

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