The Energy Charter Treaty allows companies to sue governments over taking climate action that hits their profits. Whilst we are still signed up to the treaty, we will not be able to reach net-zero. I tabled an amendment to the Energy Bill, calling for an immediate withdrawal from the treaty.
Despite the Government’s own independent advisors warning yesterday that reform is “insufficient”, the Minister still refused to act. I will continue to push on this until the UK commits to a coordinated withdrawal from this damaging treaty.
You can read my speech here:
I rise to speak in favour of my amendment NC86.
This amendment would ensure the UK commences withdrawal from outdated investment provisions in the Energy Charter Treaty, provisions which currently risk undermining:
- Climate Change Act targets,
- Internationally agreed emissions reductions
- AND duties introduced within this very bill, regarding the impacts of energy production on habitats, species and the climate.
The Energy Charter Treaty (ECT) is an investment agreement between 50 countries specifically for the energy sector. The investor state dispute settlement – ISDS – mechanism within this Treaty allows foreign companies to sue governments outside of the national legal system – in secretive tribunals.
The amounts at stake can be in the billions.
The ECT has already generated at least 135 claims, making it the world’s most litigated ISDS agreement.
In the most recent IPCC report, UN climate scientists warned of the risk of, and I quote, “ISDS being able to be used by fossil-fuel companies to block national legislation aimed at phasing out the use of their assets”. They even name checked the Energy Charter Treaty.
Yet the UK continues to be a party to it.
This is not just a potential risk. There have already been several high-profile cases of fossil fuel companies suing governments.
- For example, German energy giant RWE is suing the Netherlands for €1.4 over its coal phaseout
- UK oil company Rockhopper won a case this summer against Italy over a ban on offshore oil drilling. It won over £210m – more than six times what it had spent on the project.
- And UK fracking firm Ascent Resources launched legal action against Slovenia over requirements for an environmental impact assessment. They have now also launched legal action over Slovenia’s subsequent ban on fracking introduced by parliament. The case is pending.
The Energy Charter Treaty poses a huge threat to climate action. As states take necessary steps to phase-out fossil fuels, more and more fossil fuel giants will turn to these mechanisms to sue governments.
It has been estimated that if the UK follows the International Energy Agency’s recommended pathway – and cancels oil and gas projects in the pipeline – it could face legal claims of up to £9.4 billion from the ECT alone. Globally the risk is up to $111.5 billion.
But that’s not the only risk.
The most recent IPCC report warns of the risk of “regulatory chill” from investment agreements, again, particularly highlighting the Energy Charter Treaty.
The fear of being sued is causing governments to delay or decide against taking action that is needed on climate. Last year, two countries acknowledged this was already happening.
Countries across Europe are seeing these risks for what they are, and are taking action.
Towards the end of 2022 there was a cascade of announcements from countries planning to exit the Energy Charter Treaty. Germany, France, the Netherlands, Spain, Poland, Slovenia, Luxembourg and Denmark have all said they are leaving. Italy has already left.
The European parliament has voted for a coordinated withdrawal of all EU countries, and the European Commission is now recommending this.
That is because, put simply, reform of the Treaty has not and will not work.
Current proposals for ‘modernising’ the treaty are weak. They will mean:
- existing fossil fuel projects will remain protected for at least ten years – and some gas projects will be protected until 2040
- projects that have just been given new or extended licences, like the Cambo oil field, will be protected
- And all of the existing cases can still continue.
Reform has been a failure. Exiting is the only option.
Germany, France, the Netherlands, Spain and Slovenia have all referred to the incompatibility of the ECT with the Paris Climate Agreement and climate goals. And most recently the EU Council has decided it will not support the reform.
If countries exiting the ECT do so in coordination, they could agree not to apply the 20 year ‘sunset clause’ between each other.
This has been suggested by several of the countries leaving.
In June, the energy minister at the time, the Member for Chelsea and Fulham, said: “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.” (Press release 24/6/22)
Back then, the Government wanted to put its trust in the reform proposals to fix the problem. But country after country has done their assessments and concluded that reform has failed.
If the UK does not step up and become part of the vanguard for the exit, it could be left behind in an obsolete and collapsing treaty, bearing all the risk, while others move on.
Put simply: Whilst we are still members of the ECT, we will not be able to achieve the aims of this Bill or meet our net-zero obligations.
A coordinated withdrawal from this Treaty is the most effective way to protect taxpayers, the planet and our future from this damaging treaty. I urge Members to rethink.