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Academics join in call for withdrawal from Energy Charter Treaty

© Shutterstock / Peter GudellaPost Thumbnail

More than 110 UK academics have signed an open letter calling on the Government to exit the Energy Charter Treaty (ECT), a little-known legal pact that could hamper climate ambition.

  • 100 academics signed an open letter calling on the UK to withdraw from the Energy Charter Treaty (ECT), which allows companies to sue governments for policy changes affecting their profits.
  • Fossil fuel companies are increasingly suing governments for taking action on energy emissions.
  • The EU has said its unavoidable to leave the ECT in order to effect climate action but Switzerland has said it plans to remain in.

Currently, the ECT allows companies to sue governments directly for policies that could affect their profits, and the number of cases being brought under the treaty against climate measures has been increasing.

The Energy Charter Treaty was signed in 1994 and it is arguable that it is no longer fit for purpose in the 21st Century. It was set up as a multilateral scheme to manage international investments in the energy sector, particularly to protect energy firms operating in the former Soviet Union from ‘hostile’ legislation or policy change, by giving such companies the right to sue for compensation.

Fossil fuel companies can sue governments for climate action

UK company Rockhopper (LSE:RKH.L) was famously awarded £210 million against Italy when the country banned the exploitation of oil and gas along its coastline, while German companies Uniper (XETRA:UN01)and RWE (XETRA:RWE) threatened to take the Netherlands to court for its phase-out of coal-fired power stations.

Vattenfall sued Germany for €6 billion for planning to phase out coal. To date, says Gunther Pauli, founder of the Zero Emissions Research Institute, there are 286 outstanding cases from traditional energy companies suing various Member State governments.

It has been said that total global commitments under the Energy Charter Treaty to 2050 could see up to €1.3 trillion being paid to the traditional fossil fuel industry. In 2021 analysis from investigative collective Investigate Europe, the value of fossil infrastructure in the EU, the UK as well as Switzerland protected by the Energy Charter Treaty was calculated to be €344.6 billion overall.

Academics urge the UK to take action alongside the EU

The letter comes at a moment of crisis for the ECT, when members increasingly view it as incompatible with their climate goals. Leaks from the European Commission signalled in early February 2023 that it intended to withdraw as a block from the treaty, and previously seven European countries – including France, Germany and the Netherlands – have already stated plans to withdraw, while Italy withdrew from the treaty in 2016. 

There are complications, from a sunset clause that would see claims payable for another twenty years and concerns about non-EU claims with partner countries. There is however a groundswell of concern about how climate goals can be achieved with the ECT hanging over countries heads.

While the UK may no longer to part of the EU, it faces similar issues. The letter explains that now is the time to withdraw – given the conclusion of COP27, the recent end to the UK’s COP26 presidency, and the ECT modernisation meeting proposed for early April 2023.

The 110 academics who signed the letter warn of “very limited time to undertake a drastic reduction in greenhouse gas emissions”, and note that “continued membership of the ECT will harm our prospects of limiting global warming to 1.5 degrees because it will prolong the UK’s dependence on fossil fuels and impede the transition to renewable energy”. This echoes warnings by the IPCC in 2022 that the ECT risks blocking the phase-out of fossil fuels.

By staying in the treaty, estimates suggest the UK could end up exposed to around £5.3 billion in claims. However, despite clear climate concerns and mounting international pressure, the Government has remained silent on the issue.

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