A Legally Sound Oil and Gas Phase-Out
How to design policies to mitigate investor–state arbitration risks
At the 28th United Nations Climate Change Conference (COP 28), governments agreed to transition away from fossil fuels in a just, orderly, and equitable manner. Some governments are implementing this decision with plans to phase out oil and gas production. One of the barriers to phase-out policies is the threat of investor–state arbitration. This report provides policy-makers with tools to mitigate the legal risks of investor–state arbitration when designing oil and gas phase-out policies.
Recommendations
-
Based on our analysis of the decisions of arbitral tribunals, this report proposes five principles for policy-makers to follow: 1) no new licences, 2) manage expectations, 3) build broad authority, 4) use existing powers, and 5) be consistent.
In the global stocktake at COP 28, governments agreed to transition away from fossil fuels in a just, orderly, and equitable manner. Several governments are taking action with plans to phase out oil and gas production. A managed phase-out is vital to achieve the goals of the Paris Agreement and smooth the transition for oil- and gas-producing economies.
One barrier is the threat of investors suing governments through investor–state arbitration. Some governments have stated that this threat has led them to adopt less ambitious fossil fuel phase-out policies.
As more governments commit to phasing out oil and gas exploration and production, mitigation of the risks of investor–state arbitration becomes a key priority. These risks differ over time and depend on the targeted stage of the production cycle. The sooner governments act, the higher the chances of achieving 1.5°C and, crucially, the lower their legal risks. Conversely, governments that postpone phase-out measures make it harder to align fossil fuel production with the Paris goals and expose themselves to additional legal risks.
This report supports governments committed to the phase-out, particularly in developed countries. It provides policy-makers with tools to mitigate the legal risks of investor–state arbitration when designing and implementing policies to phase out oil and gas production.
You might also be interested in
Financing the Energy Transition: Lower capital costs matter
The global energy transition requires low-interest financing options, debt relief, and an expansion of multilateral lending.
Solar Can Outcompete Grid Power in Rural India With the Right Planning
New research finds solar-based distributed renewable energy systems can generate electricity in rural India at a lower cost than conventional grid supply. Careful planning of local demand, storage, grid conditions, financing, and long-term operations is key to unlock these savings.
Charting the Course
This report assesses three trajectories for Canada's industrial carbon price between 2030 and 2040.
June 2026 | Carbon Minefields Oil and Gas Exploration Monitor
New data on oil and gas exploration from May 2026 finds that five countries awarded 39 new licences. If fully burned these could release an estimated 251 MtCO2.