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Internal committee minutes show EU frustration over Japan’s protection of fossil fuel interests under Energy Charter Treaty, as deadline for decision approaches

Several European countries are pushing for the EU to leave the Energy Charter Treaty (ECT) as Japan blocks green reforms, according to leaked diplomatic cables.

Coal, oil and gas companies have used the treaty to sue governments over the impact of climate policies. For more than two years, member states – mostly located in Europe and Central Asia – have been engaged in “modernization” talks. The European Commission has called for the phasing out of protections against fossil fuels, to enable a rapid transition to clean energy in line with climate goals.

Since the beginning of these negotiations, Japan has opposed any reform. In an October 2019 submission, he wrote 26 times: “Japan believes that there is no need to modify the current provisions of the ECT. A final decision is expected at an Energy Charter conference on June 24.

The European Commission said at a meeting of the European Council’s energy committee on April 6, according to minutes seen by Climate Home News, that Japan “has taken steps backwards in defining the investment and sustainable development.

Under the treaty, states must respect the “fair and equitable treatment” of investors – or they can be sued. The Commission sought to limit the grounds for legal challenge to a “closed list”.

Japan was “surprised” by the proposal and stressed that it would not accept a closed list, according to the minutes. This ambiguity would allow investors to claim that a number of government interventions are unfair.

Minutes say Azerbaijan and Japan ‘continue to resist reference to workers’ rights’ and Japan and Turkey ‘do not want to accept reference to UNCITRAL (ground) rules on transparency “.

The European Commission reported that “it was not clear why [Japan] was so hard to convince (also given the small number of [Japanese] investments that would be affected.

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Japan’s investment in fossil fuels in ECT countries is limited. But he has supported broad investment protection in a number of different international forums.

In December 2021, Japan’s Ambassador to the EU, Yasushi Masaki, told the ECT conference: “It is necessary for each member country to pursue various energy source options by protecting energy investments, in order to enable their respective energy transitions while taking into account the fact that economic and social conditions may differ depending on the country.

Friends of the Earth Europe campaigner Paul de Clerck said: “After five years of meetings, Japan still does not want to give up on protecting fossil fuel polluters.

During the Council committee meeting, the representatives of the Netherlands, Spain and Poland “reiterated the need to reflect on … possible exit scenarios in due course”. The representative of Spain said “he would consider an exit scenario, as he does not see how the Energy Charter Treaty could be adapted to the Paris Agreement”.

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Several European countries have long said they want a coordinated exit from the ECT if those modernization talks fail. The latest round of negotiations started on Monday.

In the previous round in April, progress was “less than [the European Commission] had hoped” and focused mainly on the “trade aspects” rather than the “energy aspects”, such as whether fossil fuels should remain protected.

Governments have been keen to reform the treaty instead of leaving it due to a “sunset clause” which means that the provisions of the treaty remain in force for 20 years after a government withdraws. Both Italy and Russia left the treaty but remain subject to its sunset clause.

Governments prefer a mass exit to an individual exit, as it would allow European countries to promise not to assert their rights against each other as long as the sunset clause expires. Most ECT cases within the EU come from companies also based in the EU.

The chairmen of the environment and trade committees of the European Parliament wrote to the Commission today asking it to “prepare for a coordinated exit”.

Activists also demanded it. De Clerck said: “The only viable option for the EU and Member States to live up to their climate responsibilities is to withdraw from this toxic TCE.”

The UK and Switzerland did not support EU efforts to reform the treaty. Activists have accused them of trying to cash in on a potential exit from the EU by tricking fossil fuel companies into moving their headquarters and continuing to sue European governments that take climate action.

ECT covers countries in Europe, Central and East Asia and has the ambition to expand. Countries like Nigeria have expressed an interest by joining the treaty.