The UK should quit a controversial energy treaty to stop it delaying vital climate action and triggering huge taxpayer payouts to fossil fuel companies, according to the government’s official advisers.
The energy charter treaty (ECT) is a system of secret courts that enables companies to sue governments over policies that would cut their future profits. Companies have sued over phasing out coal-fired power stations, ending offshore oil drilling and banning fracking. The UK’s Climate Change Committee said Britain should withdraw from the ECT because recently proposed reforms did not go far enough.
The UK and Japan are the only major economies not to have committed to exiting the ECT. France, Germany, Spain and others have already said they will leave and the EU is set to pull out en masse after saying that staying would “clearly undermine” climate targets.
The ECT was set up in the 1990s to protect energy companies working in former Soviet Union countries from government expropriation. But critics said the “climate-wrecking” treaty was being “weaponised” by fossil fuel companies.
The CCC said in its most recent report: “The UK should announce intent to withdraw from the ECT [as] continued membership represents risks to both a timely climate transition and to the taxpayer.” The committee said the ECT was outdated and the prospects for further reform were uncertain.
Cleodie Rickard, a trade campaigner at Global Justice Now, said: “This welcome recommendation comes at a crucial time for the future of this climate-wrecking treaty. Numerous European countries have committed to leaving, but they’re still discussing the kind of coordinated withdrawal that would neutralise the sunset clause in the treaty and maximise the benefits of leaving. The UK announcing its exit now could really tip the balance.”
The UK supported recent attempts to reform the ECT. But Rickard said: “The CCC is clear that attempts to patch up the treaty have failed. The proposed reforms would actually keep oil and gas projects protected for at least 10 more years – a decade that is crucial for the climate transition if we are to have a livable future for all.” Global carbon emissions must be reduced by almost half by 2030 to keep global heating below the internationally agreed goal of 1.5C.
The Netherlands is facing a $1.4bn (£1.1bn) ECT challenge over its phase-out of coal and UK oil firm Rockhopper was awarded $190m in a case it brought against Italy. ECT critics have estimated the compensation to fossil fuel companies could rise to more than $1tn. Some renewable energy companies have also used the ECT to sue for compensation after subsidy changes.
The ECT has a binding 20-year sunset clause for existing assets. But the CCC said: “As momentum gathers behind the ECT exit, departing parties may come together to agree not to apply the sunset clause to each other.” The CCC said “a critical mass of exiting parties” would bring “bargaining power”.
Chris Skidmore, a former UK energy minister who led a net zero review for the government in 2022, said in March that the ECT was being “weaponised by fossil fuel companies in order to sue governments for introducing climate policies” and was a “threat to the UK’s net zero ambitions at home and its credibility abroad”.
A spokesperson for the Department for Energy Security and Net Zero said: “The UK has been a strong advocate for modernising the ECT, recognising the need to align it with modern energy priorities, international treaty practice and international commitments on climate change. We continue to monitor developments of the evolving situation.” Skidmore said the UK’s support of ECT reform was “no longer credible”.
The Guardian revealed in November that the ECT court system was accused of institutional bias, self-regulation issues and perceived conflicts of interest. “The treaty is not consistent with the Paris climate agreement,” said Patrice Dreiski, a former ECT executive. “The main goal of the ECT is to promote and protect fossil fuel investment.”
The CCC’s recent report said the UK government’s targets for climate action were being missed on nearly every front and that political leadership was missing. The government minister and environmentalist Zac Goldsmith resigned on 30 June, accusing the prime minister, Rishi Sunak, of being “simply uninterested” in the environment and the climate crisis.
