A Legally Sound Oil and Gas Phase-Out

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.