Today (Feb 22), the UK government announced that the UK will leave the Energy Charter Treaty (ECT). This welcome decision will reduce the risk of fossil fuel companies suing the UK government for its climate measures and support the UK to deliver its climate commitments.
The decision resulted from a government review, during which the UK tested whether treaty reforms could progress during this time. In September 2023, Energy Security and Net Zero Minister Graham Stuart announced that the UK would consider withdrawing from the ECT if it was not reformed.
The UK’s decision to leave follows the treaty members’ failing to progress reforms at their annual meeting in November 2023 due to the absence of a common position in the EU. Although the European Commission has favoured a joint withdrawal of the EU and all its Member States since July 2023, some Member States still want to remain in a modernised treaty.
The ECT has more than 50 signatories and is the most litigated investment treaty in the world. It allows fossil fuel companies to sue governments for legitimate policy measures such as fossil phase-out policies. Despite efforts to modernise the treaty, negotiations for which ended in 2022, nine European countries have announced their intent to leave the treaty saying reforms were insufficient. This included Germany, France and Poland, who quickly formalised their withdrawal and are no longer signatories to the treaty.
The UK’s ECT exit will come into effect one year after the Secretariat has been notified of the withdrawal. From that point on, new investments in the UK will not enjoy any protection given by the treaty. However, the ECT contains a sunset clause which protects existing investments for another 20 years. Now that the UK government has decided to leave the treaty, it will need to work with other withdrawing countries to try to eliminate that risk.
Quotes
Eunjung Lee, Senior Policy Advisor on Investment Governance said:
“The UK withdrawal from the Energy Charter Treaty is a hammer blow to its survival chances. With the discussions in the EU still at an impasse, this is likely to swiftly lead to the Treaty’s collapse. It would be best for remaining countries to leave the treaty promptly and insulate themselves from future litigation risks. This treaty was written to protect the incumbents – the fossil fuel industry – and has held back the transition to clean energy. Its demise cannot come fast enough.”
Jonny Peters, a trade expert at E3G said:
“This decision is a victory for campaigners and politicians across the political spectrum, who have long called out the Energy Charter Treaty for being incompatible with our climate commitments. The UK now needs to develop a diplomatic strategy to ensure other investment agreements are compatible with net zero”.
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Available for comment
Eunjung Lee (EN), Senior Policy Advisor, Investment Governance
m: +44 7935 377 622 | eunjung.lee@e3g.org
Jonny Peters (EN), a trade expert
m: +44 7954 201 039 | jonny.peters@e3g.org
Notes to Editors
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