UK Government Withdraws from Outdated Energy Charter Treaty

UK Government Withdraws from Controversial Energy Charter Treaty, Removing Threat to Net Zero Policies

In a significant move, the UK government has announced its decision to leave the “outdated” and controversial Energy Charter Treaty (ECT), an international agreement that has allowed fossil fuel companies to sue governments over net zero policies that threaten their investments. The decision comes after failed attempts to modernize the agreement to better support cleaner technologies, such as carbon capture, use, and storage (CCUS) and hydrogen, while still maintaining benefits for the energy sector.

The discussions for reforming the ECT took place over two years, culminating in a modernized agreement in 2022. However, the agreement faced a roadblock when it was rejected by nine EU member states, including France, Germany, Spain, and the Netherlands, leading them to withdraw. Concerned that the upcoming European parliamentary election could further delay modernization efforts, the UK has also decided to exit the treaty.

Legal Hazard of the ECT

Enacted in 1998, the ECT was designed to promote international investment in the energy sector and has historically provided protection for investors in fossil fuels. However, a key hazard of the ECT is that it allows companies to sue governments over policies that impact their investments, making it the most litigated investment agreement globally.

Recent cases include a Jersey-based oil refiner suing Denmark, Germany, and the EU for at least €95m over a windfall tax, as well as a UK-listed oil and gas company suing Slovenia over an environmental impact assessment requirement. These cases highlight the potential risks governments face under the ECT.

Graham Stuart, minister for energy security and net zero, had previously indicated that the UK would review its membership if plans to update the treaty were not adopted. Following the decision to withdraw, Stuart stated that the ECT is outdated and in need of reform, but talks have stalled, making sensible renewal increasingly unlikely.

Grave Threat Removed

The UK’s withdrawal from the ECT has been welcomed by civil society organizations and parliamentarians who have long advocated for abandoning the outdated agreement. Campaigners see this move as a significant victory in removing a tool used by fossil fuel companies to deter or punish climate action.

Cleodie Rickard, trade campaign manager at Global Justice Now, emphasized the importance of this decision in enabling a just transition to cleaner energy. Liz Murray, head of Scottish campaigns at Global Justice Now, highlighted the opportunity for the Scottish government to pursue ambitious climate policies without fear of legal repercussions from fossil fuel giants.

Not Free and Clear Yet

While the UK’s withdrawal will apply to new investments after one year, a 20-year sunset clause means that legal action could still be taken against the government for existing investments for many more years. Campaigners and experts have suggested that a coordinated withdrawal from the ECT and a new pact among exiting EU states could neutralize this clause.

The decision to leave the Energy Charter Treaty marks a significant step towards supporting the UK’s transition to cleaner energy and achieving its net zero goals without the threat of legal challenges from fossil fuel companies.