Our thinking

Farewell Fuel-lishness

1 March, 2024

Following in the footsteps of France, Spain, and the Netherlands, the UK is calling it quits on the Energy Charter Treaty (ECT), the most litigated investment agreement in the world. In case you haven’t heard of it, the ECT granted investors in fossil fuel companies the ability to take legal action against governments regarding climate policies. After a series of unsuccessful attempts to align the treaty with the UK’s net-zero emissions plans, it was time to part ways.

Established in the 1990s, the ECT provided a way for investors to seek compensation for lost profits arising from net zero policies under clauses initially intended to protect investors in former Soviet economies. Graham Stuart, the UK’s energy security and net-zero minister, stated that the treaty hinders the transition to cleaner energy and may penalize efforts towards achieving net-zero emissions.

Protection under the ECT for new energy investments will cease a year after the withdrawal and it remains uncertain how this decision will impact ongoing cases. The treaty’s exit is seen as a positive step by many, as concern had been raised about “climate-wrecking lawsuits” with the treaty described by some as a “straitjacket” to a just transition. More than 54 countries are still listed as ECT signatories on the treaty organisation’s website, but as talks of modernisation have failed, many plan to walk away. The European Union is considering a mass departure from the treaty, citing misalignment with energy and climate goals.

While on the face of it, this is good news for the climate, the ECT also protects the rights of investors in clean energy projects, and there are concerns that withdrawing from the treaty may make the UK a less appealing market for investment in renewables as a result. And the original aims of the treaty were to promote energy security and diversity by reducing legal and political risks associated with energy investment, and those remain as pressing concerns as ever. Arguably, remaining as a signatory to the treaty and arguing for radical and ambitious change would have had better outcomes than abandoning it; as it is, we hope that a new, more robust, and future proof treaty will emerge from the wreckage of the ECT in due course.

By Meg Seckel