Energy Charter Treaty: UK claims 'carve-out' reforms will help strengthen net zero ambitions

But campaigners slam concessions, arguing they continue to give fossil fuel investments another 10 years of legal protection

Both the UK and European Union have secured opt-outs from provisions in the global Energy Charter Treaty (ECT) governing fossil fuel investments, with the ‘modernised’ international set to have “a much stronger focus on promoting clean, affordable energy”, according to to the UK government.

Following two years of negotiations between 53 parties, the full text of the updated ECT was published today, which shows the UK and EU have both secured concessions enabling them to phase-out protections for fossil fuel protection investments and bolster for green investments.

The current ECT was first drafted and agreed in 1994 in order to provide the framework for international trade and investment on energy-related products and projects, but in recent years the accord has attracted growing criticism for favoring and protecting fossil fuel companies.

Several countries such as Italy, Poland, and Slovenia are facing legal challenges over their plans to reduce their reliance on fossil fuels, as the current ECT international firms allow for energy firms to seek compensation for government policies which threaten to hamper their investments.

The UK government described the current Treaty as “outdated”, but said the newly agreed treaty text, which is due to come into force in November, would establish new protections for British taxpayers and private sector investors. The EU is understood to have secured similar concessions that should provide a boost to its own decarbonisation plans.

Crucially, the government said the changes would help reduce the risk of “potential costly legal challenges on the road to net zero by 2050”, and give the UK the sovereign right to change its own energy systems in order to reach climate targets in line with the Paris Agreement.

“The UK cannot support an outdated treaty which holds back investment in clean energy and puts British taxpayers at increased risk from costly legal challenges,” said Energy Minister Greg Hands. “Our success in negotiating a modernized treaty will boost our move to cheaper and cleaner energy by providing greater confidence to the private sector investors and risk takers we need for this transition.”

For the first time, the modernized ECT international will ensure legal protections for overseas investments in UK green technologies such as low carbon hydrogen production, carbon capture utilisation and storage (CCUS), and renewable energy projects, providing increased investor confidence in these technologies, the government said.

The UK said it would also continue to protect investments in gas power stations fitted with carbon capture technologies, but that otherwise overseas investors in new North Sea oil and gas will not be able to make legal claims against the UK under the ECT once the updated changes come into effect.

Coal is set to lose its legal protections under the charter altogether from October 2024, when the government has said it aims to phase-out all coal power generation in the UK altogether.

Frank Gordon, director of policy at the Association for Renewable Energy and Clean Technology (REA), welcomed the concessions to the ETC international secured for the UK.

“Any measure thats investment in renewable energy and supports the transition to net zero is a welcome development,” he said. “We need to urgently move to clean, green energy, and renewables are the quickest and cheapest way to this. We hope this modernized achievement will help boost investment in the sector, both here in the UK and around the world.”

However, under the concessions secured by the UK and EU, fossil fuel investments will still have another 10 years of protection under the treaty from 2023, prompting criticism from environmental groups.

Amandine Van Den Berghe, a lawyer at ClientEarth, said the agreed opt-outs would still leave the UK and EU governments exposed to the risk of legal action from fossil fuel firms for another decade.

“Even from the little detail we have on the outcome it is clear the EU commission has failed to bring the ECT in line with the Paris Agreement,” she said. “With a 10-year phase out period for fossil fuel investments, EU countries could still be sued for putting in place progressive climate policies for at least another decade – the key window for action if humanity is to avoid climate catastrophe. And even then, The question of when the new treaty will be applied will depend on uncertain and fragile politics.”

She also raised concerns the new treaty could open the door to a wave of financial compensation claims aimed at protecting investments in energy sources and technologies over which she said there remained “significant sustainability concerns”, such as biomass, hydrogen, and CCUS.

Moreover, no major changes to the Energy Charter Treaty have been secured on a global basis, with only the UK and EU having negotiated specific opt-outs to existing provisions. As such, many emerging economy governments could find themselves at risk of legal action as they seek to curb their reliance on fossil fuels.

“The bottom line is we are still left with a dangerous agreement that will obstruct urgent action to tackle the climate crisis for years to come,” said Van Den Berghe. “The EU must finally do what is necessary for climate and legally right: walk away.”

The Energy Charter Treaty may be from another era, but its influence persists.

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