Introduction
Facts
Energy Charter Treaty


Introduction

On 20 January 2021 German electricity generation company RWE filed a request for arbitration against the Netherlands at the International Centre for Settlement of Investment Disputes (ICSID) based on the Dutch government's decision to phase out coal for electricity generation. This marks the first investment arbitration against the Netherlands.(1)

In 2019 Parliament adopted the Climate Act, which sets greenhouse gas emission reduction targets for the Netherlands in order to meet the climate change targets under the Paris Agreement 2016. The act stipulates that greenhouse emissions must be reduced by 49% by 2030. To achieve this target, a law was adopted in December 2019, banning the use of coal for power generation by power plants as of 1 January 2030.(2)

Facts

In 2015 RWE completed the construction of the largest coal-fired power plant in the Netherlands, located in the Eemshaven. The costs for building the plant amounted to €3 billion. In its request for arbitration, RWE argues that the plant will have to close its doors due to the new legislation and estimates its damages at €1.4 billion. RWE argues that the state is liable, as the plant had been in operation for only four years before the law was passed; further, the government promoted the construction of coal-fired plants in the early 2000s. Subject to one exception, the Dutch climate legislation does not provide for monetary compensation in relation to the phase out.

However, the Netherlands opines that the government sufficiently accommodated RWE by granting a subsidy to finance the co-firing of biomass in the power plant. This concerns a subsidy that coal-fired power plants have been eligible for since 2003. However, this subsidy scheme is due to expire. For RWE, the subsidy scheme ends in 2027. Moreover, according to the state, RWE has enough time to switch to another fuel to operate the Eemshaven facility, which would allow it to remain open past 2030.

At an informal hearing in the House of Representatives on 11 February 2021 regarding RWE's request for arbitration, RWE indicated that it fully endorses the government's climate targets and the change of legislation, but nevertheless needs compensation to be able to invest in renewable energy.(3)

Energy Charter Treaty

RWE has invoked an investor-state dispute settlement (ISDS) clause in the Energy Charter Treaty, which the European Union co-signed on behalf of the Netherlands.

The Netherlands has indicated that it will challenge the jurisdiction of the arbitral tribunal based on the European Court of Justice's 6 March 2018 judgment in Achmea v Slovakia.(4) It argues that an investor based in an EU member state cannot make use of the Energy Charter Treaty's ISDS clause in a case against another EU member state.

The treaty has been subject to criticism for some time. Critics argue that the ISDS clause, which allows investors to take legal action against states, frustrates much-needed initiatives against climate change. The case brought by Swedish energy company Vattenfall against Germany under said treaty is a recent example, according to critics.

For further information on this topic please contact Sandra Coelen or Basya Klinger at Freshfields Bruckhaus Deringer LLP by telephone (+31 20 485 7000) or email ([email protected] or [email protected]). The Freshfields Bruckhaus Deringer LLP website can be accessed at www.freshfields.com.

Endnotes

(1) Letter from the minister of economic affairs and climate to Parliament, 4 February 2021, 2021Z02290.

(2) Act on the prohibition of the use of coal for electricity production.

(3) RWE press release, 11 February 2021, available here.

(4) European Court of Justice, 6 March 2018, C-284/16 (Achmea v Slovakia).