Nicola Sharp explores the shift in investor-state arbitrations in developed economies. As climate policy clashes with pre-agreed projects, what does this mean for the UK’s energy transition?
The UK is facing its first investor-state claim under the International Centre for the Settlement of Investment Disputes (ICSID).
It is significant because it highlights a conflict between the UK’s policy to transition towards greener climate policies, and upholding previously-agreed contracts with investors.
On one hand, if the UK government is serious about pursuing its net zero targets, it may have to renege on contracts that support energy from fossil fuels. On the other hand, the consequence of those recissions could be significant time and cost in taxpayers’ money spent on investor-state arbitrations.
The dispute
The claim was filed in August 2025 under the 1976 UK-Singapore Bilateral Investment Treaty, which contains a Investor-State Dispute Settlement clause.
At the centre of the dispute is a proposed coking mine near Whitehaven, called the Woodhouse Colliery. In 2022, the government granted planning permission for the project to go ahead. However, in 2024, the High Court quashed the approval, due to deficiencies in the government’s assessment of the scope 3 emissions from the project. After that, planning approval was revoked.
The claimants are: (i) Woodhouse Investment Pte Ltd, a Singaporean company and the major investor, and (ii) West Cumbria Mining (Holdings) Ltd.
They say that the revocation of planning approval breaches the UK’s obligations under the Bilateral Investment Treaty.
Climate considerations
The Woodhouse Colliery was controversial and climate activists had spoken out against it when planning approval was first granted. The project planned to extract coking coal from under the Irish Sea for 25 years.
Many people deemed this approval to be in direct conflict with the UK’s policy to move towards greener energy.
Further, the UK has legally binding targets for Net Zero which are enshrined in the Climate Change Act 2008, and it has international commitments under the Paris Agreement.
It was said that the Woodhouse Colliery project would be incompatible with these targets.
Rise in ICSID claims against developed economies
The ICSID has been in existence since 1960, so it is significant that this is the first claim against the UK.
The reason the UK and other developed economies have previously avoided claims against them is that there is generally a robust legal system and rule of law to protect investors in these countries.
The ICSID was set up to encourage investment into less developed nations. It acts as a safety net to give investors confidence that there is legal recourse if their investment projects are revoked by changes or instability within the state.
However, developed nations are under increasing pressure to move towards greener sources of energy and comply with Net Zero targets. That means that investments, especially in energy infrastructure, could be vulnerable to policy changes.
There have been a number of disputes like this, which centre around the energy transition. For example, Spain, Italy, and the Netherland have all faced claims under the Energy Charter Treaty.
While countries move towards greener energy, there may be a rise in these sorts of claims against advanced economies. The main problem with these disputes is the financial burden on states. Investor-state arbitration is notoriously expensive in terms of legal fees, arbitrator fees, and in the level of damages that could be payable. That’s tax-payer money going towards funding these arbitrations.
Is there an option for reform?
With this dispute in mind, the government may face pressure to remove investor-state dispute settlement clauses from its Bilateral Investment Treaties. However, this may be difficult to do retrospectively. It may require renegotiation of the Bilateral Investment Treaty, or withdrawing from multinational treaties like the Energy Charter Treaty.
The EU has considered reforming its investor-state dispute settlement clauses for a number of years. Many of the EU’s trade and investment agreements with international partners now seek to establish Investment Court Systems, rather than the traditional investor-state dispute settlement clauses.
To deal with climate concerns specifically, the EU has pushed to modernise the Energy Charter Treaty to make it compatible with commitments under the Paris Agreement. There is now a flexibility mechanism under the ECT which means that protections for existing investments in fossil fuels would be phased out after 10 years from the entry into force of the updated ECT. Future investments in fossil fuels would no longer be protected. These amendments were approved in December 2024 and are expected to come into force in 2025.
