UK fossil fuel company wins over £210m payout from secretive tribunal over oil drilling ban

UK fossil fuel company wins over £210m payout from secretive tribunal over oil drilling ban

Date: 24 August 2022
Campaigns: Climate, Trade

  • UK oil and gas company Rockhopper sued the Italian government after it introduced a ban on offshore oil drilling, and has won over £210m.
  • Rockhopper used the controversial Energy Charter Treaty to sue in a secretive tribunal outside of the national legal system. UN climate scientists have warned that such cases could have a chilling effect on the energy transition.
  • The UK government’s current proposals for dealing with this problem would allow fossil fuel companies to continue suing for ten more years. Campaigners are instead calling for the government to exit the Energy Charter Treaty now.
  • Rockhopper Exploration PLC surged 90% to 16p following the successful arbitration outcome – which ensures their viability to pursue further fossil exploration projects at great cost to the climate.

UK oil and gas company Rockhopper has won over £210m (over €250m consisting of an award of €190m plus interest), after it sued the Italian government following the introduction of a ban on offshore drilling. The ban prevented Rockhopper from opening a new oilfield, Ombrina Mare. The amount is more than 6 times more than Rockhopper’s actual investment in the Ombrina Mare project, which is understood to be around £33m.

Keeping to the 1.5°C climate target requires no new fossil fuel projects, according to the International Energy Agency.1

The case was brought using the little-known and controversial Energy Charter Treaty (ECT). This treaty allows corporations to sue governments in private, closed-door tribunals outside of the national legal system, over policy decisions taken by governments that they perceive to affect their bottom line. The mechanism is formally known as investor state dispute settlement or ISDS.

Fossil fuel companies have increasingly started to use this mechanism, with most using the ECT. The most recent IPCC report warns of “regulatory chill” from ISDS, specifically mentioning the ECT and highlighting the risk of fossil fuel corporations using this to “block” the phase out of fossil fuels by making the transition unaffordable.2 The costs are borne by taxpayers.

The UK government and other member countries of the ECT have been discussing changes to the treaty. However the current proposals would keep fossil fuel projects protected for ten more years. Research has shown that the UK is at high risk of being sued under the ECT.

Cleodie Rickard, trade campaigner at Global Justice Now said:

“It is a travesty that an oil company like Rockhopper can get this massive payout through secretive tribunals in the Energy Charter Treaty. It is far more than the company actually invested. Fossil fuel companies are making obscene profits in the cost of living crisis and now they also want to make more money when governments actually take action to limit something like offshore oil drilling. This case will have a chilling effect on climate action, as climate scientists have warned.

“We need to get rid of this shadowy legal system that poses a threat to the climate – not in ten years time as governments are proposing at the moment, but right now. Our world is burning and we need to be cancelling climate-bomb fossil fuel projects without delay. The UK and countries across Europe should exit the Energy Charter Treaty in a coordinated withdrawal and put an end to the risk of being sued.”

Notes

1. IEA, Net zero by 2050: a roadmap for the global energy sector, 2021

2. IPCC, Climate change 2022: mitigation of climate change, 2022, p14-72 & p14-81

Background

Rockhopper’s Ombrina Mare drilling project had been set to process crude oil off Italy’s Adriatic coast, near Abruzzo, but triggered local outrage about the dangers of impurities and toxic chemicals. It was set to frack and acidise extracted materials using aggressive chemicals that are banned in the UK, where Rockhopper is based.

Local activists highlighted the risks of climate emissions, pollution and the impact on tourism. They also argued that the extraction of hydrocarbons could increase erosion and cause landslides in the ecologically fragile coastal area.

Over the course of a decade Italians demonstrated against the project, culminating in 60,000 people coming to Abruzzo to protest in 2015. As a result of this public pressure, in 2016 the Italian government passed legislation protecting all areas within 12 miles of Italy’s shoreline from oil drilling, stymieing Rockhopper’s project.

Rockhopper, which has a stock market value of £42 million, decided to circumvent the national legal system and sue the Italian state in a private arbitration tribunal under the Energy Charter Treaty. They asked for £236 million, an amount seven times more than what they had invested in the Ombrina Mare project. Campaigners argue that this means the ISDS case itself has become a cash cow for the company. The company is currently seeking to finance a new oil project off the Falklands.

Member countries of the Energy Charter Treaty have been debating proposals to ‘modernise’ the Energy Charter Treaty. The proposed reforms would keep protections for fossil fuel projects for ten more years, allowing fossil fuel investors to sue. The next ten years are crucial for the energy transition, in which projects need to be phased out and cancelled.

Campaigners argue that countries should instead exit the Energy Charter Treaty in coordination. If a country withdraws on its own, a ‘sunset clause’ in the treaty means it can still be sued for another 20 years. However in a coordinated withdrawal, the countries leaving can agree not to apply the sunset clause to each other, and if the UK and European countries did this it would remove almost 100% of the risk.

Photo: Léo Bodelle/Global Justice Now