The UK will leave the Energy Charter Treaty (ECT) – a controversial contract that lets fossil fuel companies sue governments over their climate policies – after efforts to modernise it failed.

Proposals put forward by European countries to better align the ECT with international net-zero policies and better support cleaner technologies hit a stalemate after drawn-out talks, the UK Government said in a press statement on Thursday.

The move comes after Energy Security and Net Zero Minister Graham Stuart warned in September last year that the UK would be reviewing its membership of the treaty if plans to update it were not adopted.

The UK joins EU member states including France, Spain and the Netherlands in withdrawing from the treaty. Discussions around reform of the ECT have been ongoing for several years.

After two years of negotiations, in 2022, the UK helped broker an agreement to modernise the ECT. This would have maintained some benefits, while supporting the transition to cleaner energy by extending protections to renewables like carbon capture and hydrogen. However, a stalemate on final agreements on the suggested updates caused nine EU member states – and now the UK – to pull out of the treaty altogether, although some 54 countries remain listed as ECT signatories.

Stuart said of the exit: “The Energy Charter Treaty is outdated and in urgent need of reform but talks have stalled and sensible renewal looks increasingly unlikely… Remaining a member would not support our transition to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… efforts to deliver net zero.”

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The decision has come as welcome news to climate campaign groups. Climate Action Network (CAN) Europe, a climate change NGO coalition, called the news “a victory” and a “huge win” for climate justice campaigners in the UK.

Audrey Changoe, trade policy coordinator at CAN Europe, said: “The UK’s exit is another massive victory to end the Energy Charter Treaty. This sends a clear message to the European Council that it finally needs to give the green light for the EU to leave this climate-wrecking treaty.

“The ECT is a major obstacle to the EU’s energy sovereignty and climate policies, draining tremendous amounts of public resources. This should be a wake-up call for the countries still in the ECT and set off a domino effect for more European states to leave the treaty.”

However, some say the work isn’t done to halt the effects of some of the most harmful elements within the treaty.

“The mechanism in the ECT which made it so deadly – the investor-state dispute settlement (ISDS) provisions – lives on in a number of other treaties, including the pacific trade deal. With ISDS’ legitimacy crumbling, now is the time to scrap all this system,” said the group’s trade campaigns manager Cleodie Rickard.

A UN report published last year said that the ISDS contained risks of bias, conflicts of interest and abuses of power, with “catastrophic consequences” for climate action.

The UK still plans to maintain oil and gas activity in the North Sea despite calls from campaign groups to stop exploration.