Germany will pull out of the 1994 energy treaty that has been widely criticized for protecting investments in fossil fuels, a spokesperson for the government said Friday.

Franziska Brantner, parliamentary state secretary at the Economy Ministry, said the decision to withdraw from the Energy Charter Treaty (ECT) was part of the country's commitment to "consistently aligning our trade policy with climate protection."

She added that the move was also an important signal to the United Nations Climate Change Conference, COP27, underway in Egypt.

Europe's largest economy joins France, the Netherlands, Spain and Poland in withdrawing from the pact.

The other countries have said the pact is incompatible with their commitments to the 2015 Paris accord to combat climate change.

What is the Energy Charter Treaty?

The ECT, which has more than 50 signatories including the European Union, was designed to secure energy supplies and offers protection to companies investing in the energy industry.

Its focus was mostly on energy infrastructure investments in volatile ex-Soviet states in Central Asia and Eastern Europe, 

A key element of the treaty allows energy companies to sue governments over energy policy changes that could hurt their investments — exposing states to multi-billion-dollar compensation claims.

German utility company RWE has used the ECT to start legal action against the Netherlands, alleging that the government failed to allow adequate time and resources to transition away from coal.

The case may have partly motivated the Dutch decision to quit the treaty.

In June, the European Union struck a compromise deal — to come into force next month if no signatories object — to revise the treaty to limit legal actions where they jeopardize climate goals.

But climate groups have criticized loopholes left in the update and say it continues to put efforts to curb global warming at risk.

'Obstacle to energy transition'

Green parliamentary group leader Katharina Dröge hailed the German decision as a "milestone."

"No other international trade or investment agreement in the world has triggered more investor lawsuits than the Energy Charter Treaty," she told the dpa news agency.

"This pact is an obstacle to the energy transition and costs the state billions."

mm/aw (AFP, AP, dpa, Reuters)