The Implications of the ECT on Nigeria’s Energy Transition

The Energy Charter Treaty (ECT) is an international framework that encourages cross-border collaboration in the global energy industry. Nigeria already plans to join the treaty’s existing signatories and contracting parties. However, what would the implications of the ECT on Nigeria’s energy transition plan be?

The Energy Charter Treaty signed and entered into legal force in 1994 and 1998, has fifty-three (53) signatories. These signatories include countries from Europe and Asia, alongside the European Union (EU) and the European Atomic Energy Community (Euratom). The ECT enables investments covering every energy source, including oil, gas, coal, nuclear and renewable energy.

Although one of the aims includes providing an enabling environment for energy investments across member countries, the implications of the ECT on the global energy transition are arguable. With the treaty supporting investments in fossil fuel projects and other controversial energy sources such as nuclear, it could be used against policies aimed at phasing out these fuels. This could be a hindrance to the global energy transition.

With the current global environmental policy targets, it is essential that the provisions of the ECT primarily encourage investments in clean energy. To achieve this, the signatories have moved for a modernisation of the ECT. The EU submitted a proposal for the modernisation of the ECT in May 2019, and on the 15^th of February 2021, the Union submitted a proposal to address the fossil fuel carve out in the ECT.

So far, the modernisation negotiations have resulted in an agreement in principle from the Energy Charter Conference on the 24^th of June, 2022. Suppose no signatories to the treaty object, the agreement in principle will be adopted as the modernised ECT at the Energy Charter Conference on the 22^nd of November 2022. The modernisation aims to provide a flexible mechanism for investments in fossil projects. Through this, signatories can exclude policy protection for investments in fossil fuels according to their respective climate action goals.

Nigeria aims to reach net-zero emissions by 2060 and recently launched its energy transition plan. However, one might wonder about the implications of the ECT on Nigeria’s energy transition. In March 2017, the country declared its interest in becoming a signatory to the ECT by signing the International Energy Charter Political Declaration. The accession process, which is currently being led by the Energy Commission of Nigeria (ECN) in collaboration with the ECT secretariat, is to be concluded by the end of 2022.

Unless Nigeria signs up for the new flexibility mechanism, the ECT will, on the one hand, continue to protect investments in fossil fuel projects of all kinds. This will significantly affect the country in meeting its climate targets. On the other hand, the country’s plans to move away from oil toward gas and renewables will be soiled. This is because the ECT will protect existing and new investments in the country’s oil refineries. Hence, investors will rely on the provisions of the ECT to sue the country for policies rendering refineries stranded or unprofitable.

To achieve the objectives of its energy transition plan and reach its climate targets, the country needs sufficient funding to develop projects. However, despite possible investments in gas and renewable energy projects, are the other implications of the ECT on Nigeria’s energy transition worth it?