The Energy Charter Treaty (ECT / the Treaty) was signed in 1994 with the objective of promoting international investment into the energy sector. The Treaty aims to provide a stable and predictable investment environment, facilitate energy transit, trade, promote energy efficiency and sustainable development.
Initially, the ECT primarily focused on enhancing energy security by promoting open and competitive energy markets among its signatories. By encouraging competition and openness, the Treaty aimed to improve the reliability, affordability, and availability of energy resources.
While historically focused on fossil fuels, in recent years, there have been efforts to modernise the Treaty to better accommodate and encourage the deployment of cleaner and more sustainable energy technologies.
Proposals to modernise the ECT to better support cleaner technologies have faced prolonged discussions among European countries, resulting in deadlock. Following two years of negotiations, in 2022, the UK played a key role in facilitating a groundbreaking agreement to modernise the ECT.
This agreement aimed to preserve the Treaty’s existing advantages while concurrently promoting the transition to cleaner energy by extending protections to renewable sources such as carbon capture, utilisation and storage as well as hydrogen.
In September 2023, Graham Stuart, Minister of State for Energy Security and Net Zero, has stated that the UK would reassess its membership in the ECT unless en deavours for its modernisation were accepted.
Unfortunately, endeavours reached an impasse, resulting in the rejection of the modernised ECT by nine European Union member states, including France, Germany, Spain, and the Netherlands, all of which subsequently decided to withdraw. The upcoming European Parliament elections in 2024 further raise concerns about the potential indefinite delay of the modernisation process.
On 22 February 2024, the Department for Energy Security and Net Zeroannounced the ECT is outdated and requires immediate reform.
As a result, the UK joined nine EU member states in their decision to withdraw from the Treaty. This strategic move aims to strengthen the UK's transition towards a net-zero economy.
Taking into account the perspectives of businesses, industry stakeholders, and civil society, the UK government has initiated the process of withdrawing from the ECT. This withdrawal will come into effect in one year, resulting in the removal of protections for new investments.
In the meantime, the UK remains an attractive destination for investors across all energy technologies, with significant investments of £30 billion in the energy sector having been made since September 2023. The government continues to support investment in North Sea oil and gas. Additionally, the government is committed to ensuring fairness and providing support for UK investors operating abroad.
