The government has hailed the successful renegotiation of the Energy Charter Treaty as a “landmark agreement” that will protect taxpayers from costly legal challenges as the UK seeks to decarbonise its energy system.
The Energy Charter Treaty provides an international framework for trade and investment in energy, including legal protections against political risks and provisions for dispute resolution.
The agreement to modernise the “outdated” 1994 treaty marks the conclusion of two years of negotiations between 53 parties.
The government said the new version, which is due to be signed in November 2022, will have a much stronger focus on promoting clean energy, featuring new legal protections for investments in green technologies such renewables, low-carbon hydrogen production and carbon capture and storage (CCS).
The modernised treaty will clarify states’ sovereign rights to impose regulations to reach emissions reduction targets, with legal protection for new investments in fossil fuels in the UK being immediately withdrawn once the treaty comes into force.
Existing fossil fuel investments will also lose protection ten years later, with the exception of coal investments which will lose protection from 1 October 2024 – the UK’s deadline for phasing out coal generation. However, protections will remain in place for gas power stations fitted with CCS.
The government said the changes will shield the UK from legal challenges from fossil fuel investors as the country moves to reduce greenhouse gas emissions in line with the Paris climate change agreement.
Whilst noting that the UK has never faced an investor-state dispute that has proceeded to arbitration, the government also highlighted the example of the Netherlands, which is currently facing a challenge to its coal phase-out that could cost its citizens $1.4 billion.
Energy minister Greg Hands said: “The UK cannot support an outdated treaty which holds back investment in clean energy and puts British taxpayers at increased risk from costly legal challenges.
“Our success in negotiating a modernised 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.”
Frank Gordon, director of policy at the Association for Renewable Energy and Clean Technology (REA), said: “Any measure that encourages investment in renewable energy and supports the transition to net zero is a welcome development. We need to urgently move to clean, green energy, and renewables are the quickest and cheapest way to achieve this.
“We hope this modernised treaty will help boost investment in the sector, both here in the UK and around the world.”