Will UK pull out of energy treaty now or wait to see if low-carbon and green provisions will be woven into its fabric?

The worsening climate change conditions proclaim that there is no backing out of the energy transition journey. With this firmly entrenched in its mind, the UK is set on reviewing its Energy Charter Treaty (ECT) membership, which will enable it to consider withdrawal as an outcome of the review, if revamped terms are not agreed. These new terms, if incorporated into the multilateral treaty, would spotlight the shift to cleaner energy, making room for renewables, hydrogen, and carbon capture, utilisation and storage (CCUS) in the treaty’s framework. Some believe that the UK should join the exodus from the ECT now rather than put off the decision to see if modernisation would be greenlighted.

The members of the Energy Charter Treaty, a multilateral treaty signed in 1994 to promote international investment in the energy sector, have been in negotiations since 2020 to modernise the treaty in line with the latest international investment treaty practice and to reflect new energy priorities. Progress was made last year, when the UK reached a landmark agreement to update the terms of the treaty, maintaining its current benefits while supporting the transition to cleaner energy.

The revamped treaty, which was supposed to have been adopted in November last year, would have a much stronger focus on promoting clean, affordable energy, such as carbon capture, utilisation and storage as well as hydrogen and other renewables. The modernised treaty would also strengthen the UK government’s sovereign right to change its energy system to reach net-zero and protect its investors abroad.

While the UK has never faced an investor-state dispute under the Energy Charter Treaty that has proceeded to arbitration, the country has specifically tabled terms that mean new investments in all types of fossil fuels would lose protection under the treaty nine months after adopting the updated terms of the treaty.

However, several EU member states have decided to leave the treaty, leading to an impasse on modernisation. As a result, the UK ministers are reviewing Britain’s membership of the Energy Charter Treaty to support the transition to cleaner, cheaper and home-grown energy sources, in a mission to bolster energy security.

The treaty has historically provided protections for investors in fossil fuels, but the UK’s future membership will depend on whether proposals for the treaty’s modernisation are adopted in November 2023, as the protracted stalemate over whether to proceed with new terms has pushed the UK to take action in a bid to safeguard its green transition aspirations.

Graham Stuart, Minister of State for Energy Security and Net Zero, commented: “Rather than being stuck indefinitely with an outdated treaty, the UK wants to see an agreement on a modernised treaty as quickly as possible. In its current form, the Energy Charter Treaty will not support those countries looking to make the transition to cleaner, cheaper energy sources such as renewables – and could even penalise our country for being at the forefront of those efforts.

“Governments around the world are looking to boost their sources of home-grown energy, including with new clean technologies – and that is why the Energy Charter Treaty must be modernised. It is also why we are reviewing our membership and will consider withdrawal if that vital modernisation is not agreed.”

According to a new poll of 2074 UK adults – conducted between 25 and 26 August 2023 by Yonder Consulting on behalf of Global Justice Now – less than one in ten (9 per cent) believe Britain should remain in the Energy Charter Treaty. The UK-based campaigning organisation for social and environmental justice claims that this international agreement between 50 countries is used by fossil fuel companies to sue countries over their climate action.

The treaty contains a mechanism called investor-state dispute settlement, or ISDS, which enables companies to sue states in secret courts outside of national legal systems when the firm believes its profits could be affected by government policies or parliamentary decisions. Global Justice Now claims that the UK is facing widespread calls to exit the ECT as climate experts, civil society and even the government’s advisors have highlighted how it has been used to delay “vital climate action and trigger mammoth taxpayer-funded payouts to fossil fuel companies.”

To hammer this home, the organisation underlines that a corporate tribunal ordered the Italian government to pay more than £210 million last year to the UK oil company, Rockhopper, as compensation for an offshore oil drilling ban. Citing similar risks, eleven countries including Germany, France, the Netherlands, and Ireland have decided to exit the treaty, with the European Commission proposing a coordinated EU withdrawal in July.

Global Justice Now emphasises that staying in the treaty places the UK at risk of potential ECT compensation claims totalling $5.3 billion, which suggests that the country could benefit the most from ECT termination. The poll results show that almost three in four (74 per cent) of the UK public think it is a problem if the Energy Charter Treaty clashes with government policies, parliamentary decisions and climate goals.

On the other hand, almost 3 in 5 (58 per cent) think the Energy Charter Treaty is outdated while only 17 per cent think it is okay for private companies to sue the UK government through private international courts rather than British courts. These findings come as the Energy Bill is set to be debated once more in the House of Commons this week on 5 September 2023, to which the former chair of the government’s Net Zero Review and Conservative MP, Chris Skidmore, has tabled an amendment on a UK withdrawal from the ECT.

Cleodie Rickard, trade campaign manager at Global Justice Now, adamantly states: “The UK government must immediately take the opportunity to exit the climate-wrecking Energy Charter Treaty, as its own former net-zero tsar lays out an exit ramp in this week’s Energy Bill reading. With low levels of public support in the UK, a cascade of other major economies out the door, and the government’s own advisors sounding the alarm on its huge risks, it is staggering that it is even up for debate.

“The ECT is outdated and allows foreign fossil fuel companies to overturn the democratic decisions we must make as a country to urgently address the climate crisis. The UK quite literally cannot afford to let fossil fuel companies hold us to ransom and keep this straitjacket on our ability to act as the planet burns.”

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Following a recent cabinet reshuffle, the UK announced new ministerial appointments. As a result, Claire Coutinho was appointed Secretary of State for Energy Security and Net Zero on 31 August 2023 to replace Grant Shapps, who was appointed as Secretary of State for Defence by Prime Minister Rishi Sunak after the resignation of Ben Wallace.

Prior to this, Coutinho was Parliamentary Under Secretary of State at the Department for Education from 26 October 2022 to 30 August 2023. Previously, she held the role of Parliamentary Under Secretary of State at the Department for Work and Pensions from 21 September to 27 October 2022. Coutinho was elected Conservative MP for East Surrey on 12 December 2019.

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While welcoming ministerial appointments, Dave Whitehouse, CEO of Offshore Energies UK (OEUK), remarked: “We welcome the appointment of Claire Coutinho MP as the new Secretary of State for Energy Security and Net Zero, a crucial role in a vital department, particularly at this time where security of supply and delivering meaningful action on the transition are at the forefront of energy policy.

“We look forward to working with the new Secretary of State and her team to build on the progress the sector has already made to deliver energy security from the North Sea, underpinned by the North Sea Transition Deal. We also wish The Rt Hon Grant Shapps MP well in his new role as the Secretary of State for Defence – building on his work on energy resilience and security.”

Meanwhile, the UK believes that new artificial intelligence (AI) solutions are set to transform the way industries cut their carbon emissions, accelerating industrial decarbonisation across the country, thanks to a multi-million-pound government investment. With nearly £4 million in government funding for green innovations, twelve green AI initiatives will receive a share of £1 million to decarbonise and boost the generation of renewable energy, contributing to reaching the country’s ambitious net-zero goal by 2050.

Lord Callanan, Minister for Energy Efficiency and Green Finance, highlighted: “We are unquestionably world-leading when it comes to advanced AI and our track record for decarbonisation. This unique position means we must now push the boundaries in how this technology can enhance our rapidly growing clean energy sector.

“It’s projects like those announced today that will take us to the next step on our ambitious journey to becoming net-zero, while boosting our energy security and creating a new wave of skilled jobs for the future.”

According to Britain, the schemes range from solar energy improvements, that use AI to improve the forecasting of when it will best produce energy for the grid, to the decarbonisation of dairy farming through the use of AI robots monitoring crop and soil health. In addition, AI itself could reduce its carbon footprint, with one project developing hardware that will mimic the human brain, so that, a computer can reduce power consumption when performing AI tasks.

Viscount Camrose, Minister for AI and Intellectual Property, said: “AI is delivering transformative change in the UK. These winning projects are yet another example of how we are tapping into our world-class research base and home-grown expertise to tackle one of the most pressing global challenges of our time. Whether backing projects to help us slash emissions or supporting research to revolutionise healthcare for patients, we’re harnessing the enormous potential of AI technologies to improve people’s lives.”

Digital Catapult, which is part of Innovate UK and supports businesses in progressing their ideas, has also received up to £500,000 to launch the UK’s first Centre for Excellence on AI innovation for decarbonisation (ADViCE). This will provide a virtual hub that will bring together businesses, academics and experts to advance research into AI solutions that will help industries cut emissions.

Dr Jeremy Silver, CEO of Digital Catapult, explained: “The ADViCE programme will drive forward AI’s integral role in solving critical decarbonisation challenges. The programme partners sit at the heart of the UK’s dynamic AI ecosystem and are perfectly placed to forge collaborations between the technology community and some of our most carbon-intensive sectors.

“Smart use of AI and data will be fundamental to meeting the UK’s net-zero commitment. ADViCE will support those building the algorithms and those investing in AI solutions in the most impactful way possible.”

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Furthermore, the list of AI projects to receive a total of £1 million to develop new decarbonisation solutions includes four projects. One of these is Secqai Ltd. in London, which will receive £100,000 to support the development of new ultra-low-power AI technology, which mirrors the neural structure of the human brain. This new system will consume a fraction of the power of traditional AI hardware, helping to cut its carbon footprint.

The second project entails £121,500 for London-based Open Climate Fix Ltd. to develop AI that will support the connection of solar electricity to the energy grid. The technology will use satellite and weather data to forecast the amount of solar energy being transferred to the grid, to reduce network congestion and maximise the amount of renewable energy transmitted.

The third project will get £133,932 to support a solar energy project run by the University of Nottingham. In this project, AI will improve the forecasting of solar energy production, using sky images and weather data. The fourth project is expected to get £132,147 to help list.io Ltd. to create a new agriculture robotics that will provide an automated soil and crop health monitoring system, to support decarbonisation in crop management and dairy farms.

Aside from this, the UK government will provide an additional £2.25 million to support further AI innovations, with the aim of cutting emissions specifically in energy sectors, taking the total funding provided to £3.75 million. To apply, energy firms, software developers, and innovators have until 10 October 2023.

The UK government’s energy blueprint envisions a step-up in the deployment of renewables – such as offshore wind and solar – and a scale-up of nuclear power along with a boost in the oil and gas production from the North Sea to power up Britain from within and cinch the fulfilment of its energy security and net-zero aspirations. The UK recently took multiple steps to strengthen its security of supply, including a confirmation from its Prime Minister that hundreds of new oil and gas licences would be granted in the UK, with the government continuing to back the North Sea oil and gas industry.

With climate change taking its toll, the UK is adding renewables to its energy mix at an increased rate, as illustrated by new research from the team at Utility Bidder. This puts Britain amongst the top ten countries, which have recorded the most significant change in renewable energy supply since 2010, as the country’s amount of energy coming from renewables rose from 6.7 per cent in 2010 to 41.5 per cent in 2022 while it cut emissions by 48 per cent between 1990 and 2021.

In a bid to expand its green power, the UK unveiled a £22 million increase in backing for renewables through the government’s flagship Contracts for Difference (CfD) renewables scheme, taking the total budget to £227 million for this auction.

The new funding signifies an increased budget for established technologies such as solar and offshore wind – from £170 million to £190 million; an increase in the budget for emerging technologies such as floating offshore wind – up from £35 million to £37 million; and maintaining £10 million ring-fenced budget for tidal stream projects.

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