Summary

Reproduced from www.worldbank.org/icsid with permission of ICSID.

RESPONDENT'S COUNTER-MEMORIAL

1 INTRODUCTION

1.1 Core of the case

1.1.1 Executive summary

1.1.2 Factual background

1.2 Structure

1.3 Materials

PART A: INTERNATIONAL AND EU CLIMATE POLICY (1992-2022)

2 THE FIGHT AGAINST CLIMATE CHANGE AT INTERNATIONAL AND EU LEVELS

2.1 The international community initiates global action against climate change: the 1992 Rio Declaration and UNFCCC

2.2 The Energy Charter Treaty enters into force in 1994 and recognises the need for measures to protect the environment

2.3 The Kyoto Protocol is adopted in 1997

2.4 The EU takes a pioneering and leading role in the climate change battle from 2000

2.4.1 The Emission Trading System is introduced in 2003

2.4.2 The EU sets significant emission reduction targets in 2007

2.5 The international developments prior to the adoption of the Paris Agreement

2.6 The Paris Agreement is adopted in 2015 and the Glasgow Climate Pact in 2021

2.7 The current state of play

PART B: THE NETHERLANDS' CLIMATE POLICY PRIOR TO THE CONSTRUCTION OF EEMSHAVEN (1998-2009)

3 THE GOAL OF THE NETHERLANDS' CLIMATE POLICY WAS EMISSION REDUCTION

3.1 The 'clean fossil' policy meant coal plants would have to progressively reduce CO2 emissions

3.2 Choosing the means of CO2 reduction was up to market participants

3.2.1 CCS was seen as a means for coal plants to comply with the Netherlands' climate policy

3.2.2 The Netherlands provided once more a temporary subsidy for the use of biomass to achieve CO2 reduction

PART C: INCEPTION OF RWE'S EEMSHAVEN PROJECT AND THE FIRST YEARS OF ITS OPERATIONS (2006-2019)

4 RWE MADE A LOSS-MAKING INVESTMENT IN FULL KNOWLEDGE OF DUTCH POLICY ON CO2 REDUCTION

4.1 RWE recognised that it would need to reduce CO2 emissions

4.2 The permitting process also made clear to RWE that it would have to reduce CO2

4.3 From the start of construction, RWE wrestled with Eemshaven's lack of economic viability

4.3.1 At the time of its investment decision, RWE knew that its investment in Eemshaven may not be profitable

4.3.2 After construction started, RWE wrote off a significant part of the investment costs of Eemshaven

4.3.3 Around the same time, Eemshaven's twin project was partially abandoned due to market conditions

4.4 Before construction completed, RWE cancelled its CCS project in 2011

4.4.1 RWE had committed to CCS

4.4.2 Despite its commitments, RWE abandoned its CCS project

4.5 Other investors decided against investing in coal following public pressure

PART D: THE NETHERLANDS' CLIMATE POLICY DURING EEMSHAVEN'S CONSTRUCTION AND FIRST YEARS OF OPERATION (2009-2019)

5 THE NEED FOR CO2 REDUCTION CONTINUED

5.1 The Government continued stressing the need for CO2 reduction and that CCS could be a means to achieve such reduction (2009-2013)

5.1.1 CO2 reduction in coal plants becomes a topic of Parliamentary discussion

5.1.2 The Energy Report 2011 highlighted the need to reduce reliance on fossil fuels, including coal-fired power plants

5.1.3 Under the 2013 Energy Agreement, the energy industry again agreed to restrictions on fossil fuels

5.2 The need for further CO2 reduction raised discussions about a coal phase-out in the Netherlands (2015-2018)

5.2.1 Parliament and the Government investigated phasing out coal plants to proactively address climate change

5.2.2 The Government described waning role of coal-fired power plants in Energy Report 2016

5.2.3 The Government identified measures to effectively reduce CO2 emissions by phasing out coal-fired power generation

5.2.4 Council of State advised on phasing out coal-fired power generation

6 DUTCH POLICY HAS REPEATEDLY REITERATED THE IMPORTANCE OF CO2 REDUCTION AND THAT COAL PLANTS WOULD HAVE TO TAKE ACTION

7 THE INTRODUCTION OF THE COAL ACT

7.1 The climate policy announcements in the 2017 Coalition Agreement

7.2 The Coal Act was submitted for consultation with the public and received positive consideration from the Council of State

7.3 The Coal Act was enacted on 20 December 2019, accompanied by an Explanatory Memorandum outlining its rationale and purpose

7.3.1 Energy producers were put on notice that CO2 emission reductions would be necessary

7.3.2 Operators are free to adjust their business model to operating without coal

7.3.3 Energy producers are afforded a suitable transitional period

7.3.4 The Polluter Pays Principle provides that costs for climate change mitigation and prevention be borne by the polluter

7.3.5 The Coal Act provides for a hardship clause

PART E: RWE'S EVOLUTION INTO A COAL-FREE ENERGY PRODUCER (2017-2030) PRIOR TO THE COAL ACT, RWE HAD DECIDED TO PHASE OUT COAL

8.1 Before the Coal Act was enacted, RWE set in motion its transformation into a carbon-neutral and coal-free energy producer

8.2 In Germany, RWE received EUR 216 million to remove Block E at Hamm and Ibbenbüren from the grid in as early as 2021

9 RWE CONTINUED TO PURSUE ITS PLANS TO CONVERT EEMSHAVEN TO FULL ALTERNATIVE USE AFTER THE COALITION AGREEMENT

9.1 RWE intends to fully convert Eemshaven to a 100% biomass plant and continues taking steps to that end

9.2 Coal plants across the world are also being converted to uses other than biomass-fuelled energy generation

9.3 RWE continues investing in the Netherlands PART F: OTHER RECENT DEVELOPMENTS (2015-2022)

10 THE GROWING CLIMATE CRISIS HAS LED TO A SURGE IN CLIMATE CHANGE LITIGATION AGAINST CORPORATIONS

11 OTHER EVENTS AFTER THE COAL ACT

11.1 The phase out of biomass subsidy does not affect the possibility of its use

11.2 The Netherlands set limits on coal-fuelled energy production which were subsequently lifted following Russia's invasion of Ukraine

PART G: ICSID DOES NOT HAVE JURISDICTION OVER THE DISPUTE AND CLAIMANTS' CLAIMS ARE INADMISSIBLE

12 THE DISPUTE IS NOT WITHIN THE JURISDICTION OF ICSID OR THE COMPETENCE OF THE TRIBUNAL

12.1 Introduction

12.2 Consent is the cornerstone of arbitration

12.3 EU Treaties preclude application of Article 26 ECT to intra-EU disputes

12.3.1 Autonomy of EU law is of constitutional importance in the EU legal order

12.3.2 Claimants knew Article 26 ECT was not applicable when they triggered this proceeding

12.3.3 Drafting history of the ECT shows consent has not been extended to intra-EU application

12.4 Article 26 of the ECT must be interpreted in line with the EU Treaties

12.4.1 EU Treaties as a source of international law

12.4.2 The Tribunal must take the interpretation of EU law by the CJEU into account in its application of applicable rules and principles under Article 26(6) ECT

12.4.3 The relevance of EU Law for the interpretation of Article 26(2) ECT: the decisions in the Green Power case

12.4.4 Freedom of States to modify a treaty inter se

12.5 Conclusion

13 CLAIMANTS' CLAIMS ARE INADMISSIBLE

13.1 No losses could have been incurred before or during this arbitration 13.2 Assessment of Claimants' claims requires unwarranted speculation about exclusively future circumstances

13.3 In any event, Claimants' expropriation claim is evidently without merit and therefore inadmissible

PART H: THE NETHERLANDS HAD THE RIGHT TO PASS THE COAL ACT

14 THE NETHERLANDS' RIGHT TO REGULATE

14.1 The right to regulate under general international law

14.2 The right to regulate in international investment law

14.3 The balancing of interests that Contracting Parties undertake is reflected in the ECT

14.3.1 Preamble

14.3.2 Article 2 ECT and the European Energy Charter

14.3.3 Article 19 ECT

14.3.4 Article 24 ECT

15 THE NETHERLANDS DID NOT BREACH ARTICLE 13 ECT BY ADOPTING THE COAL ACT

15.1 The Coal Act is a valid exercise of the Netherlands' police powers and therefore no expropriation took place

15.1.1 The Coal Act is a bona fide regulation adopted in a non- discriminatory manner and aimed at the general welfare

15.1.2 The Coal Act is proportionate to the objective it means to achieve

15.1.3 The Coal Act was not unforeseeable

15.2 The Coal Act does not constitute a measure having effect equivalent to expropriation

15.2.1 Requirements for an indirect expropriation

15.2.2 The Netherlands did not (indirectly) expropriate Eemshaven

15.2.3 The Netherlands did not (indirectly) expropriate the Environmental Permit

15.2.4 There is no sufficient showing of causality between the alleged future closure of Eemshaven and the Coal Act 16 THE NETHERLANDS DID NOT BREACH ARTICLE 10 ECT

16.1 The starting point under Article 10(1) ECT is that the State has a right to regulate and its conduct is reviewed deferentially

16.2 The Netherlands did not violate any obligation under the first sentence of Article 10(1) ECT

16.3 The Netherlands did not violate any obligation under the FET standard in the second sentence of Article 10(1) ECT

16.3.1 Legitimate expectations form when the investment is made

16.3.2 No clear and specific commitments were made by the Netherlands to Claimants

16.3.3 No regulatory regime aimed at inducing investment was enacted, let alone reversed

16.3.4 Any supposed reliance on immutability of the legal framework would have been unreasonable

16.4 The Coal Act is a reasonable and proportionate measure within the meaning of the third sentence of Article 10(1) ECT

16.4.1 The Coal Act is reasonably connected to the aim pursued

16.4.2 The Coal Act is not disproportionate to the aim pursued

16.5 The Netherlands did not breach the Umbrella Clause in the fifth sentence of Article 10(1) ECT

16.5.1 The claim does not fall within the scope of the Umbrella Clause

16.5.2 The 2008 Sector Agreement was not violated by the Netherlands

16.6 The Netherlands did not breach any obligation related to protection and security

16.6.1 The protection and security standard in the ECT does not extend to legal security

16.6.2 In any event, the Netherlands has acted consistently with the protection and security standard in the ECT

PART I: CLAIMANTS ARE NOT ENTITLED TO COMPENSATION

17 CLAIMANTS HAVE NOT DEMONSTRATED A CAUSAL LINK BETWEEN THEIR ALLEGED LOSSES AND THE COAL ACT

17.1 Claimants must establish a causal link between the alleged wrongful conduct and their alleged loss

17.2 Claimants have not demonstrated that Eemshaven will still be in operation by the time the Coal Act precludes firing coal

17.3 Claimants have not demonstrated that despite their own coal phase-out goals, Eemshaven would still fire coal in and after 2030

17.4 Claimants have not demonstrated that absent the Coal Act Eemshaven would not be converted to alternative use

18 CLAIMANTS' POSITION ON QUANTUM IS FLAWED 18.1 Claimants' position on the date of valuation is untenable

18.2 Claimants' "But-For" case and "Actual" case are based on incorrect premises

18.3 Brattle's assessment is flawed

18.3.1 Brattle's use of the Monte Carlo approach is not appropriate365

18.3.2 Brattle use inappropriate sets of data for their calculations

18.3.3 Brattle's discount rate is too low and does not properly reflect the risks faced by coal plants

18.3.4 Brattle fail to account for the possibility of conversion to alternative use

18.3.5 Brattle's calculation does not pass reasonability checks

18.4 Resolving the flaws in Brattle's calculation reduces their damages estimate to nil

18.5 Claimants can be expected to convert Eemshaven to 100% biomass to mitigate losses, if any

18.6 Claimants should in any event bear part of the losses allegedly incurred

18.7 Claimants' interest claim is incorrect

18.7.1 No interest is due

18.7.2 Claimants apply an incorrect interest rate

18.8 RWE has not sufficiently substantiated its tax claim

18.9 Double recovery should be prevented

PART J: THE ADDITIONAL CLAIM HAS NO MERIT

19 THE GERMAN PROCEEDINGS ARE NOT IN BREACH OF THE ICSID CONVENTION

REQUEST FOR RELIEF

APPENDIX - IMPORTANT FLAWS IN NERA'S ANALYSIS

A.1 NERA's reference date is illogical and irrelevant

A.2 Sources relied on by NERA reveal that unsubsidised electricity generation through biomass can be profitable

A.3 NERA's assessment is based on an incorrect estimate of the capital expenditures required to convert Eemshaven to fire 100% biomass

A.4 Other fundamental assumptions in the NERA Report are incorrect

1 INTRODUCTION

1. The Kingdom of the Netherlands ("the Netherlands") submits this Counter-Memorial in response to the Memorial of 18 December submitted by RWE AG and RWE Eemshaven Holding II B.V. (jointly referred to as "RWE" or "Claimants").

2. For the reasons set forth in this Counter-Memorial, the Netherlands respectfully submits that the Tribunal lacks jurisdiction over the dispute, that RWE's claims are inadmissible and that RWE's claims are without merit and should be dismissed.

3. In this brief Introduction, the Netherlands sets out in an executive summary what in its submission constitutes the core of the case (Section 1.1), describes the structure of the Memorial (Section 1.2) and presents the materials accompanying its submission (Section 1.3).

1.1 Core of the case

4. RWE operates a coal plant in Eemshaven, the Netherlands. According to RWE, it made the decision to invest in the Eemshaven plant ("Eemshaven") in 2009. Eemshaven started operations in 2015.

5. On 20 December 2019, the Netherlands enacted the Act on prohibition of coal for electricity production (the "Coal Act"), which precludes the use of coal to generate electricity. The Coal Act provides that newer coal plants, such as Eemshaven, can no longer produce electricity by burning coal as of 2030.1 Such plants were thus granted a transitional period of ten years to transition to alternative use, such as biomass- fuelled electricity generation, while being permitted to burn coal until 2030. After 2030, such plants may use alternative fuels or be converted to other use. Moreover, the Coal Act provides a ground to offer compensation to an individual coal plant operator in case the Act would place an excessive and individual burden on that operator. To date, no requests for compensation by Claimants have been submitted invoking this ground.

6. Instead, RWE initiated this arbitration against the Netherlands. It argues that through the enactment of the Coal Act, the Netherlands has violated Articles 10 and 13 of the Energy Charter Treaty (the "ECT"). On this basis, RWE claims damages amounting to EUR plus interest

7. As explained in this Counter-Memorial, this Tribunal does not have jurisdiction, RWE's claims are inadmissible, and they are without merit. The Coal Act does not constitute a breach of the ECT. Rather, it is a legitimate exercise of the Netherlands' right to regulate in the public interest to curb global warming.

8. In Sub-section 1.1.1 below, the Netherlands provides an executive summary of this Counter-Memorial, setting out why RWE's claims cannot be awarded. In Section 1.1.2, the Netherlands describes the factual background of the debate at hand.

1.1.1 Executive summary

9. Global warming is an urgent challenge, perhaps one of the most urgent global challenges, of current times. There is international consensus - notably in the Paris Agreement of 2015 - that, in order to avoid the most severe consequences of global warming, the increase of the Earth's average temperature should be kept to well below 2ºC compared to the average temperature in pre-industrial times, and preferably be limited to 1.5ºC3 - a target that can only still be met if immediate and effective action is taken. This is not in dispute.

10. Global warming is primarily caused by the emission of greenhouse gases, in particular carbon dioxide ("CO2"). In the Netherlands CO2 emissions are in large part attributable to electricity production: in 2016, 56.4 million tonnes of CO2-equivalents were emitted by the electricity production sector, out of total emissions of 197 million tonnes. 4 Within the electricity production sector, coal-fired power plants are by far the largest source of CO2 emissions. RWE has consistently been one of the largest emitters of CO2 in the Netherlands since it opened Eemshaven

11. Limiting global warming to 1.5ºC requires that by 2030 CO2 emissions have been reduced by 50% compared to 1990 levels and that by emissions amount to net zero.6 It also requires that by 2030 electricity no longer be produced from the burning of coal

12. Several countries, such as the United Kingdom, France and Germany, have announced or executed coal phase-out schemes. Similarly, the Netherlands enacted the Coal Act in 2019 to realise its ambition of reducing CO2 emissions by 49% by 2030 (as compared to 1990) and to meet the goal of limiting global warming to 1.5ºC as set by the Paris Agreement.

13. There is no dispute that the Coal Act serves its intended purpose.

Claimants "do not by any means question the coal phase-out".8 There is equally no dispute that the Coal Act was adopted in accordance with due process, and that it is non-discriminatory

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Footnotes omitted