UK Withdraw From Energy Treaty That Allow Fossil Fuel Firms To Sue Government Over Climate Policies

The UK will join a number of European countries in abandoning a contentious energy deal that has allowed fossil fuel companies to sue governments over climate policy, the government announced.

Energy Charter Treaty

The UK will withdraw from the controversial energy charter treaty (ECT) after efforts to match it with net zero emissions targets failed.

The deal empowers fossil fuel investors to sue states for lost profits under an opaque corporate arbitration system established in the 1990s to safeguard fossil fuel investors in the former Soviet economies.

Graham Stuart, the energy security and net zero minister, stated that the energy charter treaty is obsolete and in desperate need of modification, but talks have stopped, and a sensible renewal appears increasingly doubtful.

"Remaining a member would not support our transition to cleaner, cheaper energy, and could even penalize us for our world-leading efforts to deliver net zero," he added.

Treaty protections for new energy investments will expire one year after the withdrawal takes effect.

It is unclear if ongoing cases, such as UK-listed Ascent's €500 million (£428 million) ECT claim against Slovenia, will be affected.

The corporation filed the compensation claim when Slovenia sought an environmental impact assessment before the firm began developing an oil and gas field. Slovenia has now withdrawn from the treaty.

Withdraw From The Treaty

France, Germany, Spain, and the Netherlands are also withdrawing from the Energy Charter Treaty, while the European Parliament has called for the entire 27-nation European Union to do so.

The convention, signed by the EU and Euratom (the European atomic energy organization) in 1994, went into effect in 1998.

Italy, which lost a costly arbitration lawsuit against British oil giant Rockhopper under the pact, said it would leave in 2015.

The convention, which was established in the 1990s when the world's energy system was mainly dominated by fossil fuels (coal, gas, and oil), was meant to promote international energy investment.

In fact, it has enabled foreign businesses to dispute energy policies that jeopardize their interests through a secret arbitration process.

As a result, a number of countries are facing costly legal challenges in order to reduce their dependency on fossil fuels and increase their use of renewable energy.

Kerry McCarthy, the shadow climate change minister, stressed that we are engaged in an urgent worldwide fight against the climate emergency, and we cannot enable fossil fuel companies to prevent democratically elected governments from implementing effective climate policies.

"Labour has long argued that the energy charter treaty is clearly outdated and not fit for purpose. It is good that the government has finally taken the step to leave it," he added.

The ECT is the world's most contested investment agreement, and the UK's continued membership in it has sparked concerns about "climate-wrecking lawsuits" if the government passes its offshore petroleum licensing bill, which seeks to increase UK oil and gas exploitation.

According to Common Wealth's analysis, foreign investors possess almost 40% of North Sea oil and gas licenses.