The UK has announced its plan to leave the Energy Charter Treaty. The treaty contains a controversial, and often opaque Investor Dispute Settlement Provision, which allowed fossil fuel investors to sue states for lost profit expectations. One such example is a claim brought by a UK Fossil Fuel company against Slovenia following a request for an environmental impact assessment before the firm proceeded to develop an oil and gas field.

 

The UK’s withdrawal will take effect after one year, at which point the ECT’s protections will no longer apply to any new energy investments, including those supporting fossil fuel developments. However, a 20-year sunset clause means the government could still be exposed to legal action under the treaty from companies behind existing investments.

 

It is believed that the withdrawal from the ECT will facilitate the passage of the Offshore Oil and Gas Bill which will allow an expansion of oil and gas production in the North Sea. It can take up to 18 years to get oil or gas from a new field, by then the landscape of climate policy (and indeed the government) will be quite different. Membership of the ECT means that, any reasonable argument the UK may have developed about the environmental, social and even economic imperative to phase out fossil fuels in the future might be superseded by a substantial financial liability that the UK tax payer would be required to meet under the ECT.  It remains to be seen whether the Offshore Oil and Gas Bill will be passed before the general election.

 

France, Spain, the Netherlands and several other European states have already left the treaty, and the UK’s announcement follows a proposal for all of the EU’s 27 nations to officially depart the treaty.

 

While great care has been taken in the preparation of the content of this article, it does not purport to be a comprehensive statement of the relevant law and full professional advice should be taken before any action is taken in reliance on any item covered.