A Legally Sound Oil and Gas Phase-Out

The report argues that while phasing out oil and gas is essential to meet the 1.5C Paris Agreement goals, the threat of investor-state arbitration often creates a 'regulatory chill' that discourages ambitious climate action. It identifies that legal risks increase as a project progresses through its life cycle, with the highest risks associated with targeting the production phase. To mitigate these risks, the authors propose five principles: stopping the issuance of new licenses, managing investor expectations through long-term frameworks and early notice, grounding policies in legislation and scientific evidence, leveraging existing environmental regulations, and ensuring consistent application across all investors. The report specifically suggests that governments should prioritize a managed phase-out with clear end dates and consider an internationally legally binding instrument to harmonize production deadlines and exclude arbitration rights for fossil fuel investors.

• The risk of investor-state arbitration can lead to 'regulatory chill,' where governments adopt less ambitious fossil fuel phase-out policies than they otherwise would have to avoid billion-dollar awards.
• Legal risks for governments vary by the stage of the oil and gas production cycle; risks are lowest before exploration and increase incrementally as projects move toward the production phase.
• The report proposes five core principles for policy-makers to mitigate arbitration risks: stop creating new licenses, set long-term frameworks with early end-date signals, implement policies via legislation rather than executive orders, use existing environmental/social regulations, and apply policies equally to all investors regardless of nationality.
• To defend against claims of breach of Fair and Equitable Treatment (FET), governments should ensure their measures pass proportionality tests by demonstrating a legitimate public policy aim, legal authority, suitability of the measure, and that it is the least restrictive means available.
• Early notice and the establishment of a clear production end date can reduce legal risks by pre-empting claims regarding a lack of transparency or a stable regulatory framework.
• The report suggests the creation of an internationally legally binding instrument to harmonize production end dates, which could modify existing treaties to exclude investor-state arbitration for fossil fuel investors.
• Current committed emissions from developed oil and gas fields and coal mines exceeded the remaining 1.5C carbon budget by 60% as of 2023, implying that some existing fields must be closed before their economic life ends.

APA

Schaugg, L., Urazova, I., Muttitt, G., & Nikièma, S. (2025). A Legally Sound Oil and Gas Phase-Out. International Institute for Sustainable Development. https://www.iisd.org/system/files/2025-04/legally-sound-oil-gas-phase-out.pdf

Chicago

Schaugg, Lukas, Indira Urazova, Greg Muttitt, and Suzy Nikièma. A Legally Sound Oil and Gas Phase-Out. International Institute for Sustainable Development, 2025. https://www.iisd.org/system/files/2025-04/legally-sound-oil-gas-phase-out.pdf.

Wikipedia

{{cite report |last1=Schaugg |first1=Lukas |last2=Urazova |first2=Indira |last3=Muttitt |first3=Greg |last4=Nikièma |first4=Suzy |title=A Legally Sound Oil and Gas Phase-Out |publisher=International Institute for Sustainable Development |date=April 2025 |url=https://www.iisd.org/system/files/2025-04/legally-sound-oil-gas-phase-out.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{schaugg2025legally, author = {Schaugg, Lukas and Urazova, Indira and Muttitt, Greg and Nikièma, Suzy}, title = {{A Legally Sound Oil and Gas Phase-Out}}, institution = {International Institute for Sustainable Development}, year = {2025}, month = apr, url = {https://www.iisd.org/system/files/2025-04/legally-sound-oil-gas-phase-out.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }