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EU to Quit Treaty That Allows Oil Firms to Sue Governments Over Climate Policies

European Union member states agreed on Thursday to jointly leave a 1990s energy treaty that allows oil companies to sue governments over their climate policies, EU officials told Reuters.

The Energy Charter Treaty (ECT), signed in 1994 and in force since 1998, was originally designed to promote international investment in the energy sector and has historically provided protections for investors in fossil fuels.

The treaty basically allows oil firms to sue governments for compensation for lost profits if they think energy policies have harmed their business.  

As the EU and other developed economies are looking to become carbon neutral by 2050, staying in this treaty has become problematic for many of them.

Last year, the European Commission proposed a coordinated EU withdrawal from the pact, as the treaty has been “largely unchanged since it was agreed in the 1990s, and is no longer compatible with the EU’s enhanced climate ambition under the European Green Deal and the Paris Agreement.”  

European Commissioner for Energy, Kadri Simson, said at the time,

“Keeping an unmodernised Energy Charter Treaty is not a viable option for the EU. The Treaty in its current form is not in line with the EU’s investment policy or our energy and climate goals.”

The EU looks to reform the treaty before leaving it, a source at the Belgian rotating presidency of the bloc told Reuters on Thursday.

Last month, the UK announced it would quit the “outdated” treaty, effective in one year.

Efforts to modernize the treaty have failed, resulting in a stalemate, which prompted the UK government to announce in February that it would leave the Energy Charter Treaty “after the failure of efforts to align it with net zero.”

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“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,” the UK’s Minister of State for Energy Security and Net Zero, Graham Stuart, said in a statement.

By Tsvetana Paraskova for Oilprice.com

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