UK Departs Energy Charter Treaty

22nd February 2024

The UK government confirms its withdrawal from the Energy Charter Treaty after efforts to agree vital modernisation fail.

European countries have been unable to reach agreement on modernisation of the Energy Charter Treaty.

UK joins France, Spain and the Netherlands in withdrawing from the Treaty.

Strong legal framework is already in place to ensure continued investment in UK energy sector.

The UK will leave the Energy Charter Treaty (ECT) after the failure of efforts to align it with net zero, the government has announced today (Thursday 22 February 2024).

Signed in 1994, the Energy Charter Treaty was designed to promote international investment in the energy sector, historically providing protections for investors in fossil fuels. Proposals to modernise the ECT better to support cleaner technologies have been subject to months of talks between European countries, resulting in a stalemate.

Energy Security and Net Zero Minister Graham Stuart announced in September 2023 that the UK would be reviewing its membership of the ECT if plans to update it were not adopted.

Today, the UK joins 9 EU member states, including France, Spain and the Netherlands, in withdrawing from the treaty. The decision will support the UK's transition to net zero and strengthen its energy security.

Minister of State for Energy Security and Net Zero, Graham Stuart, said, "The Energy Charter Treaty is outdated and in urgent need of reform but talks have stalled and sensible renewal looks increasingly unlikely.

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.

With £30 billion invested in the energy sector just since September, we continue to lead the world in cutting emissions, attracting international investment and providing the strongest legal protections for those who invest here.

Discussions around reform of the Energy Charter Treaty have gone on for several years. After 2 years of negotiations, in 2022, the UK helped broker a landmark agreement to modernise the ECT. This would have maintained its current benefits, while supporting the transition to cleaner energy by extending protections to renewables like carbon capture, utilisation, and storage (CCUS) and hydrogen. 

However, this led to an impasse and the modernised ECT, which should have been adopted in November 2022, was rejected by 9 EU member states. This included France, Germany, Spain and the Netherlands - all of whom decided to withdraw. The European Parliament elections in 2024 mean modernisation could now be delayed indefinitely.  

After considering the views of businesses, industry and civil society, ministers will now instigate the UK's withdrawal, which will take effect after one year, removing protections for new investments after this period.  

Shaun Spiers, executive director, Green Alliance said, "Civil society organisations and parliamentarians from all political parties have been clear that the Energy Charter Treaty is an out-of-date agreement and undermines our efforts to tackle climate change. We welcome the UK's decision to leave, which will strengthen global efforts to roll out cheap, clean renewable energy.

Meanwhile, the UK remains an attractive destination for investors across all energy technologies, with government continuing to support investment in the North Sea oil and gas as part of the transition to net zero, alongside the drive towards renewables, such as wind power and hydrogen. The government is also committed to ensuring fairness for and support for UK investors operating abroad.

Previous Statement 5 November 2023
Government to mandate annual oil and gas licensing to bolster UK's energy security and reduce dependence on imports from overseas
Certainty on future licensing will help secure 200,000 jobs and billions in tax receipts
Licensing rounds will support lower carbon emissions and be contingent on specific tests to transition to net zero
The Government is taking further steps to support the UK’s transition to net zero in a pragmatic, proportionate and realistic way, confirming new licensing opportunities that will protect British jobs and bolster energy security, reducing the UK’s reliance on imports from hostile foreign regimes such as Russia.

Legislation to be set out later this week in the King’s Speech will require the North Sea Transition Authority (NSTA) to invite applications for new production license on an annual basis, providing certainty and confidence to investors and industry.

The UK still relies on oil and gas for most of its energy needs, and data published by the Climate Change Committee shows that the UK will continue to rely on oil and gas to help meet its energy needs even when the UK reaches net zero in 2050.

Encouraging domestic gas production, rather than importing higher-carbon emitting liquified natural gas from other countries, means lower carbon fuels for the UK and also benefits families and businesses. The combined oil and gas industry supports more than 200,000 jobs and adds about £16 billion to the UK economy annually. 

We are reducing our vulnerability to imports from hostile states, leaving us less exposed to unpredictable international forces. This will ensure we have a more secure and diverse energy system and as we make progress on renewables and new nuclear, our more robust energy mix will help to lower household bills in the long-term.

Each annual licensing round will only take place if key tests are met that support the transition to net zero. The first test is that the UK must be projected to import more oil and gas from other countries than it produces at home.

The second is that the carbon emissions associated with the production of UK gas are lower than the equivalent emissions from imported liquefied natural gas.

If both these tests are met, the NSTA will be required to invite applications for new licences annually.

The legislation is part of a King Speech that will prioritise the long-term decisions that will safeguard the prosperity of our country.

Prime Minister Rishi Sunak said:

"I am proud that the UK is a world leader in reducing emissions, and of our new plan to transition to net zero without adding undue burdens on households and securing the country’s long-term interest.

"Domestic energy will play a crucial role in the transition to net zero, supporting jobs and economic growth, while also protecting us from the volatility of international markets and diversifying our energy sources. The clarity and certainty that our new legislation will provide will help get the country on the right path for the future."

The UK’s oil and gas industry has an important role to play in the UK’s energy transition.

Production from new gas and oil fields in the North Sea can be much cleaner than producing hydrocarbons from older existing fields, reducing the emissions impact of future production.

Domestic production will help unlock green investment, drawing on the key role our oil and gas industry plays, and driving forward investment in clean technologies that we need to realise our net zero target.

Secretary of State for Energy Security and Net Zero Claire Coutinho, said:

“The UK has cut its emissions faster than any of its peers. But as the independent Climate Change Committee acknowledges, we will need oil and gas even as we reach net zero in 2050.

“As energy markets become more unstable it’s just common sense to make the most of our own homegrown advantages and use the oil, gas, wind and hydrogen on our doorstep in the North Sea. Rather than importing dirtier fuels from abroad, we want to give industry the certainty to invest in jobs here and unlock billions of pounds for our own transition to clean energy."

Offshore Energies UK CEO David Whitehouse, said:

“The UK needs the churn of new licences to manage production decline in line with our maturing basin. A predictable licencing process with transparent checks will support the highly skilled people working in the sector, while ensuring the granting of new licences is compatible with energy security and net zero.”

“We all recognise that our energy system must change, and the offshore energy sector is committed to delivering on the climate goals of the UK. While we continue to use oil and gas, we should prioritise our homegrown production to support our energy security, our economy, our jobs, and our world class supply chain that will be the foundation of our low carbon future.”

Jon Butterworth, CEO of National Gas, said:

“Gas is the backbone of our nation’s energy system - and it is vital we make the most of the abundant resources we have to keep the lights on, homes warm and businesses running.

“That’s why National Gas are delighted to see the government give their firm backing to the UK’s gas sector today - maintaining the security of our energy supply and ensuring we can continue to power the country as we transition towards net zero.

“By backing gas today and embracing hydrogen for the future - we can create jobs, secure energy independence, deliver net zero, and keep costs down for households and businesses.”

The UK is committed to delivering on its climate goals and achieving net zero by 2050. The Government’s record reflects this – we achieved the fastest rate of greenhouse gas emissions reductions of all G7 countries between 1990 and 2021 – and we are scaling up our renewable energy supplies, including wind, solar and nuclear. Renewables already generated a record 48.1 per cent of our electricity in the first quarter of this year.  

The UK’s current dependence on fossil fuels (75 per cent) is similar to other advanced economies. Japan gets 85 per cent of its energy from fossil fuels, the United States 81 per cent and Germany 76 per cent.