Since 2012 the ECT Secretariat has been putting great effort into expanding the geographical reach of the agreement to countries in Africa and the Middle East, Asia, and Latin America. Many hope joining the ECT will attract investment to end energy poverty among their people who often lack access to electricity for basic needs like cooking. This hope is actively nurtured by the Secretariat who has repeatedly asserted “the Treaty’s potential… to attract foreign investments to the energy sector” and to “eradicate energy poverty”. A promotional document on Africa and the ECT even suggests: “Perhaps the key to unlocking Africa’s investment potential in order to guarantee universal access to energy and to overcome energy poverty is the Energy Charter Treaty.”
The reality is: While there is little evidence that the ECT offers any benefits, its risks are substantial, particularly for low-income countries.
For countries keen to increase energy investment, joining the ECT is unlikely to produce any benefits (see myth 1 above). Likewise, there is no evidence ECT membership reduces energy poverty. However, its downsides are clear and particularly severe for low-income countries:
Countries joining the ECT risk a flood of costly investor lawsuits. Globally, the ECT is already the most used treaty for investment arbitrations and companies from ECT member states are the heaviest users of the system. 60 per cent of all 1061 known investor-state cases worldwide (633) are from companies whose home state is a member of the ECT – the vast majority of them EU states.
“The ECT privileges… interests of foreign investors over the societal and economic interests of the host state and national stakeholders who have no rights under the system.”
― Yamina Saheb, energy expert and former employee at the ECT Secretariat
With corporations seeking compensation not just for actual cash invested but for future anticipated losses, states can be forced to pay huge amounts in damages unless they prevail in an ECT suit. Governments have already been ordered or have agreed to pay more than US$52 billion in damages from public coffers – more than the annual investment needed to provide access to energy for anyone globally who currently lacks it.
The ECT can also restrict governments’ ability to fight energy poverty and regulate investments so they contribute to national development. Several Eastern European countries have already been sued under the ECT because they tried to curb energy companies’ profits and lower electricity prices for consumers. Under the ECT, large energy companies can also sue governments if they decide to tax windfall profits, force companies to hire local workers, transfer technology, process raw materials before export, or even protect natural resources, among other things. Hence it becomes harder for states to minimise the social and environmental costs of foreign energy investments while maximising their benefits to the local community.
Notably, once a country joins the treaty it is vulnerable to ECT lawsuits for at least 26 years – even if subsequent governments decide to leave. While any state can withdraw five years after ECT accession and withdrawal takes effect a year later, it can still be sued for 20 more years for investments made before the withdrawal (see the next section).