EU will fail to meet climate targets if it continues to terminate BITs and the ECT

At the Paris climate conference (COP21) in December 2015, 195 countries adopted the first-ever universal, legally binding global climate deal. The agreement sets out a global action plan to put the world on track to avoid dangerous climate change.

The key elements agreed on include a long-term goal of keeping the increase in global average temperature to well below 2°C above pre-industrial levels and  to undertake rapid reductions thereafter in accordance with the best available science.

More specifically, the EU and other developed countries agreed to continue to support climate action in order to reduce emissions and build resilience to climate change impacts in developing countries. Moreover, developed countries intend to continue their existing collective goal to mobilise USD 100 billion per year until 2025 when a new collective goal will be set.

In this context, the EU claims for itself to be at the forefront of international climate action. In particular, the EU has adopted the target of reducing CO2 emissions by at least 40% by 2030. This will require massive investments in renewable energy sources (RES) as well as investments for energy saving measures for private households, for industrial consumers as well as the transport sector (cars, trucks, ships, airplanes).

EU cannot meet its targets by dismantling investment protection

In light of the existing budgetary constraints in practically all EU Member States and the EU itself, the massive investments in RES necessary will have to come from private investors – individuals, SMEs, and multinationals. However, they will only invest in RES if they consider the investment risks to be manageable and if a decent return of their investments can be reasonably expected. In other words, investors need legal certainty and long-term stability, in particular since for RES investments any returns can only be expected after a few years. Indeed, the more than 3,000 Bilateral Investment Treaties (BITs) and the Energy Charter Treaty (ECT) have been concluded for that purpose, namely, to grant investors legal certainty by providing investment protection and access to investor-state dispute settlement (ISDS).

However, whereas the EU and its Member States are pushing for ever more ambitious targets for reducing CO2 emissions, they at the very same do everything they can to terminate their BITs and the ECT. This schizophrenic policy will result in a grand failure of the EU and its Member States to achieve any of their targets. First, the EU and its Member States are not only destroying any remaining confidence in the Rule of Law within the EU, but they also take away any effective legal guarantees which investors still have to protect their investments. Second, and as a result of the first point, the EU and its Member States will fail to meet their own targets as well as the targets agreed in the Paris Climate deal.

The big loser will not only be the investors, but more importantly, the environment.

But the EU and its Member States can still avoid this course of events, if they replace their schizophrenic approach with a more consistent one.

The solution is so obvious and simple: stop terminating BITs and the ECT!

Only by maintaining a high level of investment protection and providing for legal certainty will investors be ready to make the massive investments, which are necessary to achieve the agreed targets. In addition and as welcome side-effect, this would also create a huge number of new jobs. In sum, this would result in a win-win situation for everybody. Therefore, it can only be hoped that sense and sensibility will eventually regain the upper-hand.