UK quits treaty that lets oil firms sue government

The UK has withdrawn from an international treaty that lets fossil-fuel companies sue governments pursuing climate policies for billions in compensation for lost profits.

The Energy Charter Treaty (ECT) is meant to make it easier and cheaper to trade energy between countries.

But signatories have struggled to reform it – and late on Wednesday, the UK quit the treaty calling it “outdated”.

Green campaigners welcomed the news.

Energy Security and Net Zero Minister Graham Stuart said: “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.”

Since 2001, nearly 160 legal actions based on the ECT have been brought by investors claiming their investments had been damaged by green policies such as renewable-energy subsidies, and seeking compensation from governments.

Leo Mercer, policy analyst at the Grantham Research Institute on Climate Change, told the BBC: “[The treaty] was designed to protect energy companies from sudden policy decisions that undermine their investments.

“However, it has been abused by the oil and gas industry over the past few years… to the detriment of British consumers.”

In recent years, countries implementing climate-change strategies have tried to exclude fossil-fuel companies from being able to take legal action.

But after more than 15 rounds of negotiations, signatories were unable to agree when this should happen.

And the UK’s withdrawal follows that of France, Spain and Germany, who worried the ECT would see them facing legal action from all sides – companies claiming they had breached the treaty and green organisations claiming they were not fulfilling their climate commitments.

In 2009, Germany faced a $1.9bn (£1.5bn) claim by Swedish energy company Vattendal, after delays for permits to operate a coal-fired power station.

Kierra Box, of Friends of the Earth, said: “Leaving this incredibly flawed treaty is a brilliant win for our environment and the climate.

“Future UK governments will now have more freedom to take ambitious action to protect our planet, without the threat of being sued for millions of pounds by companies based overseas.”

Chris Skidmore, the Conservative MP who led the government’s review into its net-zero policies, said he was “pleased” with the withdrawal, having called for it for over a year.

The government said the withdrawal would take affect in one year – but what will happen to cases already in progress remains unclear.

The UK-listed Ascent Resources company is suing Slovenia, after its environment agency requested an impact assessment on the redevelopment of an oil and gas field.