The UK government has reached a “landmark” agreement that will modernise the terms of the Energy Charter Treaty (ECT).
The new version of the ECT, due to be signed in November 2022, will limit the costly legal challenges from fossil fuel investors in the country by ensuring that investments in future projects do not enjoy the legal protection they once had.
Instead, the UK government will focus on promoting clean and affordable energy. The new agreement would protect the UK government’s right to change its own energy systems.
Furthermore, there will be legal protections for foreign organisations looking to invest in green technologies such as carbon capture, utilisation and storage, hydrogen production, and other renewable energy systems.
What will revising ECT accomplish?
The purpose behind this agreement is to make the transition from fossil-fuel-based energy production to renewable energy smoother by extending legal incentives to renewable energy and withdrawing legal protections from conventional energy production.
The move comes as several EU countries face costly legal challenges over reducing their use of fossil fuel-based energy production and boosting the renewable energy industry. For example, phasing out coal in the Netherlands has cost the government over £1 billion.
The revised terms of the treaty will allow the government to make the transition to renewable energy more cost-effective as the revised ECT strips away legal protections geared toward fossil fuels that were costly to the government. Moreover, investors looking to push new oil and gas projects in the North Sea cannot make legal claims against the UK. Finally, it gives private investors an extra incentive to invest in green technologies and aid the UK’s net-zero goals.
Why would the ECT be revised and what does this mean for organisations?
With renewable energy contributing over 40% to overall energy production in the UK, compared to 0.3% when the ECT was drafted in 1994, the UK government has had to revise the terms of the treaty to better reflect the current status quo on energy production. Furthermore, this means that the organisations relying on fossil fuels may want to reconsider their stance because they will now face significant legal hurdles in their production.
However, it can be difficult to make precise calculations on how to adjust internal operations to meet the terms of the revised ECT. To ensure that you avoid penalties for compliance violations, consider investing in energy risk management software to see how revised ECT could affect internal operations.