The writer is chair of the UK’s Net Zero Review and a former UK Energy Minister
In the Net Zero Review, published earlier this year, I called for the UK to respond to increasing global competition on net zero with a clearer approach to green trade. There would be no better place to start than by acting on the outdated Energy Charter Treaty, which is a threat to the UK’s net zero ambitions at home and its credibility abroad.
The Energy Charter Treaty is an investment agreement that dates back to the mid-1990s. Its original aim was to promote European energy investments in post-Soviet countries after the fall of the Berlin Wall.
However, today, the treaty is increasingly being weaponised by fossil fuel companies in order to sue governments for introducing climate policies. Italy has been sued for its ban on offshore oil drilling, the Netherlands for its coal phaseout law and Slovenia for its fracking ban.
An oil company winning £210mn from the Italian government over its restriction on offshore oil drilling is a perfect example of the risk that this outdated treaty now exposes the UK to as well. The company won six times what it had ever spent on the project, and is now likely to use those winnings to finance new oil exploration.
Clearly the treaty is not suited for 21st-century challenges. It is driving up the cost of the energy transition, while slowing it down.
Alarmingly it also risks having a “chilling” effect if governments back away from important new policies in order to avoid being sued — a danger that UN climate experts specifically warned about in the most recent report of the Intergovernmental Panel on Climate Change.
In April, officials from countries across the Energy Charter Treaty’s membership will meet to discuss possible reforms to it. But we already know the outcome: the modernisation talks have failed.
This is because several European countries, including Germany, France, Spain and the Netherlands, have decided to leave the treaty due to reforms not going far enough to bring it in line with the Paris Agreement.
Even the European Commission, which previously led the modernisation process, now favours a full EU withdrawal.
Without support from the UK’s traditional allies for the reform process continuing, it will be impossible for the country to push through changes on its own against the remaining, less climate ambitious members.
The UK’s previous position, to support modernisation, is therefore no longer credible. Instead, it needs to reach out to like-minded partner countries like Germany, France and the Netherlands, and begin the process of co-leading an orderly withdrawal from the treaty.
The UK government has already recognised the problem, with former energy minister, Greg Hands, saying: “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.”
I hope to see the same clarity from the new Department for Energy Security and Net Zero, as well as the new beefed-up Department for Business and Trade.
The race to achieve net zero is both a huge economic opportunity for UK businesses and jobs, and an environmental imperative. We need to pull every lever to speed up the transition to a green economy, not throw sand in the gears at each step.
In the coming months, the government is due to respond to the Net Zero Review. Alongside an ambitious plan, we must continue to show UK climate leadership by withdrawing from an outdated treaty.