When Coal Meets Clause: The AET Arbitration That Could Rewire Energy Policy in Europe

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On the surface, the case of Azienda Elettrica Ticinese v Germany might look like just another investor-state spat—an arbitration under the Energy Charter Treaty (ECT), lodged by a Swiss public utility unhappy with losing part of its stake in a coal plant. But beneath that legalese is something more intriguing, more charged. This isn’t only about investment-protection clauses or how compensation gets calculated. It’s about what happens when a treaty from the fossil-fuel age runs headlong into twenty-first-century climate ambition.

It’s also, if we’re being honest, a test. Of how far a state can go in decarbonising its economy without getting punished in international arbitration. And maybe, just maybe, a peek into the strange entanglements of international law, energy policy, and the quiet—but growing—presence of scientific evidence in legal disputes.

Let’s back up a bit.

The Dispute: What Sparked It

In September 2023, Azienda Elettrica Ticinese (AET), a Swiss utility owned by the Canton of Ticino, filed for arbitration against Germany (UNCTAD, 2023). Their grievance? That the shutdown of the Trianel Kohlekraftwerk Lünen—a coal-fired power plant in which AET owns just under 16 %—violated protections under the Energy Charter Treaty. The plant was slated for early closure under Germany’s Kohleverstromungsbeendigungsgesetz, or Coal Exit Act—a mouthful of a law passed in 2020 to wind down coal-fired electricity by 2038, later accelerated to 2031.

AET didn’t take this lightly. The arbitration, now registered as ICSID Case No. ARB/23/47, claims that Germany breached three key legal duties:

• Fair and Equitable Treatment (FET)
• Protection against indirect expropriation
• Denial of justice

In short, AET alleges that it’s being squeezed out of a functioning asset without fair treatment or compensation—and worse, that Germany didn’t provide a real legal remedy when challenged in local courts (Italaw, 2024).

Now, it’s worth noting that Germany withdrew from the ECT in 2022. But thanks to the treaty’s infamous “sunset clause,” protections linger for twenty more years—enough time for cases like this one to unfold well into the 2040s.

Why This Case Matters

At first glance, it’s tempting to see this as an investor protecting its economic interests. And it is that. But it’s also a mirror held up to a broader anxiety: what happens when climate urgency collides with the global system of investor rights?

Germany says its coal exit is part of a legitimate climate policy—backed by public interest, scientific consensus, and its international obligations. AET says it invested in good faith, operated lawfully, and is now being punished without fair recourse.

Who’s right? That depends on how you weigh regulatory freedom against treaty obligations. And, frankly, how sympathetic you are to the notion of sovereign climate action.

What complicates things further—what makes this more than a black-and-white policy dispute—is that the very mechanisms Germany put in place to cushion the coal exit are now being questioned.

Compensation, But Only If You Win the Auction

Germany’s law includes a rather curious mechanism: reverse auctions. Essentially, coal-plant operators bid to see who can shut down for the lowest compensation. The idea is elegant—at least in theory. It keeps costs down for taxpayers and prioritises climate goals. And it’s overseen by the Bundesnetzagentur, the national energy regulator.

But here’s the rub: AET, as a minority investor, claims the auction process didn’t—and couldn’t—adequately reflect its stake, nor the value of its lost earnings (Table Briefings, 2025). Participation wasn’t clear, compensation wasn’t guaranteed, and, according to AET, the whole process lacked transparency.

Germany, in turn, leans heavily on the idea that these auctions are fair, competitive, and applied uniformly. No one, they argue, is being singled out. And in any case, regulating in the public interest—particularly for something as existential as climate change—is well within the state’s rights.

Enter the Scientists

In a rare but telling move, the tribunal overseeing the case allowed amicus curiae briefs from environmental academics in April 2025 (Moody, 2025). It’s a small procedural note that signals something larger: international tribunals are starting to accept that some disputes can’t be fully understood—or fairly decided—without serious scientific context.

These experts aren’t just making general claims about climate urgency. They’re engaging in a kind of evidentiary threading: weighing the social cost of carbon, the comparative impact of continued coal operations, and the feasibility of alternative technologies.

It’s still early days. But the tribunal’s decision to open the door—just a crack—to climate science might be one of the most consequential aspects of this dispute.

Because let’s face it: if investor-state arbitration continues to operate in a bubble, cut off from the reality of planetary boundaries, it risks becoming not only disconnected—but discredited.

The Legal Chessboard

The Energy Charter Treaty, despite being obscure outside legal and policy circles, has become a battlefield for Europe’s energy transition.

Article 10(1) of the ECT—the FET clause—is notoriously broad. It requires states to provide a transparent, predictable legal environment. That sounds reasonable. But in practice, it’s often invoked by investors when states, responding to economic, political, or environmental shifts, change the rules mid-game.

Then there’s Article 13(1), covering expropriation. Not physical seizure, necessarily, but actions that deprive an investor of economic value. Think of it as compensation for lost expectations. AET is leaning heavily on this provision, arguing that the coal plant’s closure effectively extinguishes its return on investment—without just remedy (Italaw, 2024).

Germany, predictably, pushes back. It invokes the so-called police powers doctrine, a principle in international law that allows states to regulate—without paying compensation—so long as the regulation is non-discriminatory, proportionate, and in the public interest. In the age of climate change, that’s a potent shield.

But how far can that shield extend before it blurs into arbitrary treatment? It’s a thin, moving line—and one the tribunal will need to walk carefully.

The Bigger Picture: Why This Isn’t Just About Germany

Zooming out, the AET case is just one tile in a much larger mosaic. Similar disputes are unfolding across Europe. RWE and Uniper, two German companies, are suing the Netherlands over its own coal-phase-out policies (Climate Case Chart, 2025). Spain, France, and Poland are also bracing for potential ECT-related claims tied to fossil-fuel transitions.

This growing friction has triggered mounting criticism of the ECT itself. Critics argue the treaty—originally drafted in the post-Cold War era to stabilise energy investments—is no longer fit for purpose. It was never designed for decarbonisation. And yet here it is, shaping the pace and cost of Europe’s climate commitments.

The result? A looming paradox: the very legal tools meant to attract energy investment are now being used to protect investments in assets—like coal—that the world is desperately trying to phase out.

Unresolved Tensions

This case raises difficult, perhaps unanswerable, questions.

What happens when legitimate expectations clash with the imperative to act swiftly on climate? When investor protections, meant to ensure fairness, risk entrenching emissions-heavy infrastructure?

Is Germany’s auction scheme a clever balancing act—or a workaround that leaves smaller investors out in the cold? And does opening the arbitration process to climate scientists introduce needed realism—or risk muddying legal waters with contested data?

One might argue that AET knew the risks. Coal’s days have been numbered for years. But still, if rules change midway—if the policy environment shifts abruptly—it’s understandable that investors would push back.

Perhaps the more important question is whether legal structures like the ECT can evolve fast enough to reflect a climate-constrained world. Or whether they will continue to function like amber fossils—preserving outdated norms long after they’ve lost their utility.

What Comes Next?

No final decision is expected before late 2025. But already, this case is exerting quiet influence.

Germany may tweak its auction schemes or issue clarifying guidelines. Investors in similar positions are watching closely. And the arbitration community—never fast to adapt—is being forced to reckon with a new kind of dispute: one where facts are wrapped in science, morality, and politics.

There’s even speculation that this case, along with others, could catalyse real reform in the ECT. Proposals for environmental carve-outs or revamped compensation mechanisms are gaining traction. Whether these efforts arrive in time—or go far enough—is another matter.

It’s also not inconceivable that Germany and AET could settle. Arbitration often nudges parties toward the middle. A well-structured deal might include a compensation agreement tied to emission-reduction targets, or even AET’s reinvestment in renewables. But that’s speculative.

Final Reflections

This isn’t just a story about law. It’s a story about transition.

The kind of transition that is messy, uncomfortable, and legally fraught. AET v Germany captures the tension between where we are and where we say we want to go. It forces a confrontation between financial certainty and ecological urgency.

In the end, the tribunal will issue its decision, the briefs will be filed, and the lawyers will argue their points. But the deeper reckoning—the one that touches treaties, climate policy, and the ethics of economic loss—will take longer to resolve.

Maybe it never will be.

References

• Agora Energiewende (2021) Hard Coal Exit Auctions in Germany: Design, Implementation, and First Results. Available at (Accessed: 20 June 2025).
• Climate Case Chart (2025) ‘RWE and Uniper v State of the Netherlands (Ministry of Climate and Energy)’. Available at (Accessed: 20 June 2025).
• Energy Charter Secretariat (2012) Expropriation. Brussels. Available at (Accessed: 20 June 2025).
• Fontanelli, F., Gattini, A. and Tanzi, A. (2018) ‘Police Powers Doctrine and International Investment Law’, in General Principles of Law and International Investment Arbitration. Leiden: Brill, pp. 323–343.
• IISD (2025) ‘Overview of Recent Fossil Fuel Arbitration Cases Under the Energy Charter Treaty’, International Institute for Sustainable Development, 27 January. Available at (Accessed: 20 June 2025).
• Italaw (2024) Azienda Elettrica Ticinese v Germany, ICSID Case No. ARB/23/47: Memorial Excerpts, 26 July. Available at (Accessed: 20 June 2025).
• Moody, S. (2025) ‘Climate academics weigh in on German coal phaseout’, Global Arbitration Review, 19 June. Available at (Accessed: 20 June 2025).
• Pro Natura (2025) ‘Dangerous precedent: How an arbitration claim is jeopardising Germany’s coal phase-out’, Pro Natura Policy Brief, May. Available at (Accessed: 20 June 2025).
• Table Briefings (2025) Veit, A., ‘Energy Charter: NGOs criticise lawsuit against coal phase-out’, Table.Briefings, 21 May. Available at (Accessed: 20 June 2025).
• UNCTAD (2023) Azienda Elettrica Ticinese v Federal Republic of Germany (ICSID Case No. ARB/23/47), Investment Dispute Settlement Navigator. Available at (Accessed: 20 June 2025).