On 22 February 2024, the UK announced it is withdrawing from the Energy Charter Treaty (ECT) on the basis that it is incompatible with the energy transition, being the 11th state to do so. However, ECT protections for existing renewable and fossil fuel investments will continue for another 20 years, and new investments may be structured to be protected under other investment treaties.
A feature of the energy transition is investor-state claims related to changes in government support for the transition (as seen with the raft of claims against Spain for its change of policy for solar projects in the 2010s) and the imposition of policies to restrict production and use of fossil fuels (such as the claims against the Netherlands for prohibiting coal-fired power generation and against Italy for banning oil and gas exploration). Such claims are typically brought under investment treaties which provide protections for cross-border investments, including in fossil fuels, and have been criticised as being negative to the transition. A key investment treaty in this area is the ECT, but efforts to reform it have so far been unsuccessful—and the UK has now announced it is withdrawing, following the course taken by 10 other states including Germany, Spain, France and the Netherlands. However, under the ECT’s “sunset clause”, qualifying investments made prior to the date of withdrawal will continue to be protected for the next 20 years. Further, new investments may still be protected if they are structured to fall under other investment treaties. Therefore, investor-state claims will continue to be brought.
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