UK blames EU as it pulls out of Energy Charter Treaty

The UK government has announced it is quitting a post-Cold War treaty that was intended to protect investments in petroleum-rich post-Soviet states, but has mainly been used by energy firms to sue western European governments, blaming bickering in Brussels for blocking re-form.

“The Energy Charter Treaty is outdated and in urgent need of reform but talks have stalled and sensible renewal looks increasingly unlikely,” said minister for energy security and net zero, Graham Stuart, adding: “Remaining a member would not support our transition to cleaner, cheaper energy, and could even penalise us for our world-leading efforts to deliver net zero.”

The UK government claimed partial credit for brokering draft agreement to modernise the ECT and extend its core investor-state dispute settlement provisions to clean tech such as carbon capture and hydrogen, a process in which the European Commission was instrumental.

But the provisional reform, which critics argued still gave too much protection to oil and gas firms, requires unanimous approval from some 50 parties to the treaty. It foundered in November 2022 when France, Germany, the Netherlands and Spain prevented the EU Council from approving the deal.

One after another, members of the bloc have decided to quit the treaty unilaterally. France, Germany and Poland are already out, with Luxembourg due to follow by the summer, while the Netherlands, Slovenia, Spain, Denmark, Ireland and Portugal have all announced their intention to quit. Italy withdrew in 2016. But the EU as a bloc remains a party to the treaty.

The UK’s move comes amid continued deadlock in Brussels. Belgium, as current EU Council presidency holder, urged government delegates at a Tuesday (20 February) meeting to quickly endorse an EU-level withdrawal, a diplomatic source told Euronews.

But, the source added, the outcome was “a shared frustration…about the European Commission’s refusal to come up with a proposal” that would allow member states who remain in the ECT to vote on its modernisation and remain inside, an idea floated by Sweden last year.

The European Commission maintains that the bloc’s single market rules would make it legally impossible for some countries to remain while others, and the EU as a body, pull out. London clearly believes that under these circumstances, there is no visible prospect of reform.

“The European Parliament elections in 2024 mean modernisation could now be delayed indefinitely,” the UK government said in a statement.

The Energy Charter Treaty (ECT) has been invoked in dozens of cases of EU governments being sued, often by European companies, as in 2021 when Germany energy firms RWE and Uniper sought €2.4bn in damages from the Dutch climate ministry over its 2030 coal phase-out deadline.

Unsurprisingly, a treaty that enables petroleum firms to sue governments whose climate and environment policies impact hoped for future profits has long been a target for climate campaigners – but now they see the end in sight.

The UK’s move was a “hammer blow” to the ECT’s chances of survival, according to Eunjung Lee, a specialist in investment governance at the climate think tank E3G.

“With the discussions in the EU still at an impasse, this is likely to swiftly lead to the Treaty’s collapse,” Lee said. “It would be best for remaining countries to leave the treaty promptly and insulate themselves from future litigation risks.”

This view was echoed in Brussels by Friends of the Earth Europe campaigner Paul de Clerck. “The UK government rightly realised the ECT is a sinking ship,” he told Euronews, stressing the need to finalise an EU withdrawal before elections in June.

“It is now crucial that also the EU prioritises this and both Commission and Parliament ap-prove the decision to leave the ECT before the end of their mandate,” de Clerck said.