Experts fear that fossil fuel companies will restructure their operations through Switzerland to keep suing governments over climate action
Switzerland will not join the European Union’s proposed mass exit from a controversial energy investment protection treaty, according to the official responsible for engaging on the issue.
This week, the European Commission has proposed a joint EU exit from the Energy Charter Treaty (ECT), over fears its protections for fossil fuel investments will slow down climate action.
The United Kingdom’s government said it is “closely monitoring the situation”. The Swiss energy ministry’s Jean-Christophe Fueeg told Climate Home his country, which is not an EU member state, is not leaving.
The Swiss position has sparked fears that fossil fuel companies will restructure their investments through Switzerland in order to keep suing governments over climate action.
E3G campaigner Jonny Peters said: “As the EU looks set to exit the Energy Charter Treaty, there is certainly a risk of companies and law firms treaty shopping [in] Switzerland.”
We’re not leaving
The Swiss energy ministry’s head of international energy affairs Jean-Christophe Fueeg told Climate Home on Thursday: “No change in Switzerland’s position, especially given that the EU has not come to a position yet.”
Over the last few years, Switzerland has not supported the EU’s push to remove fossil fuel protections from the ECT and did not join the EU and UK in last year announcing a phase-out of fossil fuel protections under the treaty.
Fueeg added: “Just as food for thought: Would you think that Swiss investors, who have billions of assets in the EU (much of it in renewables), would appreciate seeing their investors’ protection rights waived by a Swiss exit?”
Friends of the Earth campaigner Paul De Clerck told Climate Home the treaty is “by no means crucial for renewable investors” and its “main goal is still the protection of fossil fuels”.
Race to the bottom
Kyla Tienhaara, who researches trade and the environment at Queen’s University in Canada, told Climate Home she was concerned that EU-based fossil fuel companies will structure their through Switzerland so that they can still be protected under ECT.
Fueeg has previously dismissed this concern, telling Climate Home last July that “arbitration courts tend to reject claims by investors which have opportunistically relocated to file a claim”.
A 2020 study published in the British Institute for Comparative Law found that depended on the timing. While arbitrators took a dim view of restructuring after a dispute had arisen, preemptive restructuring usually worked. “A majority of tribunals find they have jurisdiction despite the respondents’ objections to restructuring,” its authors wrote.
“The concern with the ECT is that investors will restructure now that they know the EU is leaving, well in advance of specific claims,” said Tienhaara.
Last year, US law firm Jones Day recommended fossil fuel companies restructure “to ensure they are protected by an investment treaty”.
What is the ECT?
The ECT was set up in 1991 to protect foreign investments in energy in the former Soviet Union. Its members span Europe, Turkey, Central Asia and Japan.
The treaty protects investments in any form of energy – both fossil fuels and renewables. Fossil fuel companies have used it to sue governments over climate action.
Fossil fuel companies have been awarded around €500m ($538m) under the treaty while renewable investors have got about twice that amount.
A 2020 study by former ECT employee turned critic Yamina Saheb found that the treaty puts governments at risk of up to $1.4tn in compensation claims by 2050 from fossil fuel investors.
Reform attempts
Between 2020 and 2022, the European Union tried to persuade ECT members to allow govern
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