The United Kingdom is withdrawing from an agreement that allows companies in the fossil fuel industry to take legal action against governments for their environmental policies.

The United Kingdom has decided to withdraw from the Energy Charter Treaty (ECT) due to its failure to align with the country’s net zero emissions goals. The government made this announcement on Wednesday evening.

The agreement permits investors in fossil fuels to take legal action against countries for not meeting their expected profits. This is done through a corporate arbitration system that was established in the 1990s to safeguard the interests of fossil fuel investors in former Soviet economies.

According to Graham Stuart, the Minister for Energy Security and Net Zero, the energy charter treaty is no longer relevant and requires immediate reform. However, discussions have reached a standstill and it seems unlikely that a practical update will occur. Staying a member of this treaty would not aid our shift towards cleaner and more affordable energy, and could potentially penalize us for our pioneering efforts in achieving net zero emissions.

According to the government statement, the treaty’s safeguard for new energy investments will end in a year when the withdrawal becomes effective.

It is uncertain if ongoing legal disputes, like the €500m (£428m) ECT case filed by UK-based Ascent against Slovenia, will be impacted. Ascent filed for compensation after Slovenia required an environmental impact assessment before allowing the company to develop an oil and gas field. However, Slovenia has now pulled out of the treaty.

Kerry McCarthy, the opposition’s spokesperson for climate change, stated that the world is facing an urgent battle against the climate crisis. It is crucial that we do not allow fossil fuel companies to hinder the efforts of democratically elected governments in implementing effective climate policies. The Labour party has been advocating for the termination of the outdated and inadequate Energy Charter Treaty for a long time. It is a positive development that the government has finally decided to withdraw from it.

The ECT is the world’s most litigated investment agreement and the UK’s continued presence within it has 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. About 40% of North Sea oil and gas licences are owned by foreign investors, according to research by the Common Wealth thinktank.

Advocates celebrated the update, with Global Justice Now stating that it released limitations for a fair transition. “The ECT is now on its way out, and only those benefiting from the harm of our environment will grieve its demise,” stated Cleodie Rickard, the group’s manager for trade campaigns.

Unfortunately, the component within the ECT that rendered it highly lethal, known as the investor-state dispute settlement (ISDS) provisions, still remains in effect in several other agreements, such as the Pacific trade deal. As the credibility of ISDS continues to deteriorate, it is imperative that we abolish this entire system.

According to a report by the United Nations last year, the ISDS system poses threats of partiality, conflicting interests, and misuse of authority, potentially leading to devastating impacts on efforts to address climate change.

Over 54 nations remain included as ECT signatories on the organization’s website, but in actuality, numerous have already withdrawn or intend to do so following the unsuccessful negotiations for modernization.

Several European nations, including France, Spain, and the Netherlands, have withdrawn from the treaty, and the UK has announced its intention to do the same. This follows a proposal for all 27 EU nations to officially leave the treaty together. On Tuesday, a technical meeting gave a positive review to the proposal, which may be officially approved by EU energy ministers next month.

A spokesperson for the European Commission stated that the current version of the treaty does not align with the EU’s energy and climate objectives, as well as its investment policies and laws. Despite the commission’s efforts to negotiate updates with other countries, member states were unable to reach a majority to approve the revised treaty. As a solution, the EU, its member states, and Euratom have proposed to withdraw from the ECT in a coordinated and organized manner.

Yamina Saheb, a former official in charge of treaties who is now a critic, advised caution following a string of recent instances where the EU has backed away from taking action on climate change. She warned that if EU President Ursula von der Leyen does not withdraw the EU from the treaty, her leadership will be viewed as a total failure in terms of addressing climate issues. Saheb also suggested that countries who have already withdrawn from the treaty should urge von der Leyen to accelerate the withdrawal process.

Source: theguardian.com