The UK is pulling out of a controversial international energy treaty that lets fossil fuel companies to sue Governments over their climate policies.
The Energy Charter Treaty (ECT) was originally designed to encourage international energy investment but many countries have faced expensive courtroom battles over reducing their reliance on fossil fuels and boosting renewables.
Calling the accord “outdated and in urgent need of reform”, Minister of State for Energy Security and Net Zero Graham Stuart said efforts to negotiate a modernised treaty “have stalled and sensible renewal looks increasingly unlikely”.
EU members’ exit
The UK joins nine EU member states, including France, Spain, and the Netherlands, in withdrawing from the treaty. In 2009, Germany faced a £1.5bn claim by a Swedish firm Vattendal after there were delays in obtaining permits for a coal-fired power station; and Italy withdrew in 2015 after losing a costly arbitration case against British oil company Rockhopper.
According to a report in The Guardian, more than 54 countries are still listed as ECT signatories on the treaty organisation’s website, but in reality, many have already exited, or are planning to withdraw, after the failure of modernisation talks.
The UK’s announcement follows a proposal for the EU’s 27 nations to officially depart the treaty en masse, the report added.
The ECT, signed in 1994, was intended to promote international investment in the energy sector. It also provided protections for investors in fossil fuels. Proposals to modernise the ECT so as to support cleaner technologies resulted in months of dialogues between European countries, without any conclusion.
In 2022, after two years of negotiations, the UK helped broker a landmark agreement to modernise the ECT. This would have maintained its current benefits, while supporting the transition to cleaner energy by extending protections to renewables like carbon capture, utilisation, and storage (CCUS) and hydrogen.
However, this led to an impasse and the modernised ECT, which should have been adopted in November 2022, was rejected by nine EU member states. Among these countries were France, Germany, Spain and the Netherlands, who decided to withdraw. The European Parliament elections in 2024 mean modernisation could now be delayed indefinitely, a Government release added.
Most litigated deal
After considering the views of businesses, industry and civil society, ministers will now initiate the UK’s withdrawal. It will come into effect after one year, removing protections for new investments after this period. The ECT is the world’s most litigated investment agreement and the UK’s continued presence within it had raised fears of “climate-wrecking lawsuits” if the Government manages to pass its offshore petroleum licensing Bill, which aims to jack up UK oil and gas extraction, said The Guardian report. Campaigners, it added, have welcomed the news.
