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Energy Security, Trade and the EU

Regional and International Perspectives

Rafael Leal-Arcas, Costantino Grasso and Juan Alemany Ríos

Energy security is a burning issue in a world where 1.4 billion people still have no access to electricity. This book is about finding solutions for energy security through the international trading system. Focusing mainly on the European Union as a case study, this holistic and comprehensive analysis of the existing legal and geopolitical instruments strives to identify the shortcomings of the international and EU energy trade governance systems, concluding with the notion of a European Energy Union and what the EU is politically prepared to accept as part of its unified energy security.
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Rafael Leal-Arcas, Costantino Grasso and Juan Alemany Ríos

Energy security, or access to energy at an affordable price, is one of the main problems that humanity faces today and the European Union (EU) has to rely on energy-rich countries for its energy needs. Chapter 1 offers four ways in which the EU may enhance its energy security through the international trading system. First, since the regulation of energy in international law is fragmented and largely incoherent, it is essential to understand the overall trade in energy system and determine its net effect in terms of EU energy security. Second, all forms of energy should be subject to the same rules. Energy may become part of the World Trade Organization (WTO) agenda in the near future. Given that current WTO rules are far from addressing all the needs of energy trade today, is it necessary to have a WTO agreement on trade in energy? If so, can and should the Energy Charter Treaty be used as a model? Moreover, now that Russia has joined the WTO and that energy is one of its greatest assets in economic terms, would this be the right time to include energy trade as part of the WTO agreements? Those energy-rich Middle Eastern countries that are not yet WTO members but wish to become WTO members will most likely follow Russia. These Middle Eastern countries should prioritize the conclusion of negotiations to enter the WTO in order to integrate fully into the global trading system and protect their growing interests on world markets. WTO membership will certainly help eliminate any discrimination against them in their trade. Third, since the EU is energy dependent, it is necessary to propose models for enhanced governance of energy trade to promote energy security. The aim is to find ways in which this can be encouraged normatively. The expansion of the Energy Charter’s membership to countries in the Middle East and North Africa and to the Economic Community of West African States may be an avenue to enhance EU energy security through the creation of an infrastructure that will enhance international, long-distance trade in energy. Fourth, the aim of the international community is to decarbonize the economy. With renewables, international trade in energy is likely to increase. In turn, the trading system can be a major vehicle towards moving away from fossil fuels to renewable energy. To this end, it can provide fair competition, economies of scale and knowledge transfer. Very little research has been conducted on the impact of preferential trade agreements (PTAs) in addressing climate change mitigation and energy security. It is thus worth exploring the potential of incorporating chapters addressing climate change mitigation and promoting renewable energy within PTAs, for which the EU could make use of its vast network of PTAs. There could well be tangible ways in which the EU can, through its network of PTAs, move towards greater energy independence as renewable energy becomes increasingly economically viable.
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Rafael Leal-Arcas, Costantino Grasso and Juan Alemany Ríos

The current international energy trade governance system is fragmented and multilayered. Streamlining it for greater legal cohesiveness and international political and economic cooperation would promote global energy security. Chapter 2 explores three levels of energy trade governance: multilateral, regional and bilateral. Most energy-rich countries are part of the multilateral trading system, which is institutionalized by the World Trade Organization (WTO). The chapter analyses the multilateral energy trade governance system by focusing on the WTO and energy transportation issues. Regionally, the chapter focuses on five major regional agreements and their energy-related aspects and examines the various causes of the proliferation of regional trade agreements and their compatibility with WTO law, and then provides several examples of regional energy trade governance throughout the world. When it comes to bilateral energy trade governance, this chapter only addresses the European Union’s (EU) bilateral energy trade relations. The chapter explores ways in which gaps could be filled and overlaps eliminated while remaining true to the high-level normative framework, concentrating on those measures that would enhance EU energy security.
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Rafael Leal-Arcas, Costantino Grasso and Juan Alemany Ríos

Chapter 3 provides an analysis of relevant Intergovernmental and Host Government Agreements on oil and gas transit pipelines in several parts of the world. The following questions serve as the basis for the analysis: 1. To what extent can common principles and regional specificities be derived from the agreements in question? 2. How does the content of the agreements relate to the Energy Charter Model Agreements on Cross-border Pipelines and the provisions of the draft Transit Protocol (text as of January 2010)? 3. What recommendations can be made in view of the possible agreement on common principles or rules on Transit and Cross-border energy flows in the Energy Charter context? The Energy Charter provides principles for cross-border cooperation in the energy industry among the states of Eurasia. The Energy Charter Secretariat produced a second edition of the Model Intergovernmental Agreement (Model IGA) and Host Government Agreement (Model HGA) for cross-border pipelines (together defined as the Model Agreements), designed to provide ‘a template of prescriptive clauses that are designed to reflect generally accepted practices within a given field’. The Model Agreements aim to assist state–state and investor–state in cross-border oil and gas pipeline matters. The agreements seek to balance all participants’ interests in cross-border pipeline projects and provide a starting point for negotiations between potential partners. These Model Agreements are also available to non-parties to the Energy Charter Treaty (ECT) to use or adopt. The structure of the chapter is as follows: after a brief introduction, Section II deals with the fundamentals of energy transit; Section III provides an analysis of several Intergovernmental Agreements and Host Government Agreements on oil and gas transit pipelines in several parts of the world; and Section IV provides a brief conclusion. The chapter concludes that the Model Agreements, along with the ECT and the Protocol, form a regulatory umbrella in relation to transit issues at the multilateral level. At present, there are 54 members of the Energy Charter, all except five of which have ratified the ECT. There seems to be significant interest of some countries (namely India, Indonesia, Pakistan) in joining the Energy Charter. In this scenario, the regulation of transit issues based on the Energy Charter’s instruments will provide the scope for creating globally accepted and uniform standards on transit issues. The above agreements show that a number of the standards relating to transit issues are found in many international agreements. However, there is no homogeneity regarding a number of issues.
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Rafael Leal-Arcas, Costantino Grasso and Juan Alemany Ríos

Chapter 4 examines the system of law and governance of international trade in unconventional energy sources. Currently, there is no cohesive governance for global energy trade. On the contrary, governance of energy trade mainly arises by default, rather than design, through the ad hoc interplay of different aspects of the international economic and political system. This has implications for the European Union (EU), which relies heavily on the rest of the world for its energy supply, and consequently its energy security. The chapter provides some background to EU energy policy; it then explains the current revolution in unconventional sources of fossil fuel and how it may geopolitically impact the EU. The last section concludes the chapter and provides some policy recommendations.
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Rafael Leal-Arcas, Costantino Grasso and Juan Alemany Ríos

A major aim of the international community is to decarbonize the economy. With renewables, international trade in energy is likely to increase. In turn, the international trading system can be a major vehicle towards moving away from fossil fuels to renewable energy. To this end, it can provide fair competition, economies of scale and knowledge transfer. This chapter analyses the impact of European Union (EU) preferential trade agreements (PTAs) in addressing climate change mitigation and energy security by promoting renewables. Currently, there is a proliferation of PTAs; this trend seems irreversible and is likely to persist, given the current crisis in the multilateral trading system. We argue that the EU can, through its network of PTAs, move towards greater energy independence as renewable energy becomes increasingly economically viable. This chapter provides a thorough review of the renewable energy-related provisions in the EU’s current PTAs and recommends three tangible ways in which the EU could capitalize its vast network of PTAs to boost the renewable energy market.
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Rafael Leal-Arcas, Costantino Grasso and Juan Alemany Ríos

Energy security remains a vital issue for the European Union (EU), even more so in the wake of the events that unfolded in early 2014 in Ukraine. The EU’s already fragile position in the international energy arena in terms of security of supply appears to be more uncertain than ever after its umpteenth fallout with its historic energy supplier, Russia. This situation is untenable and calls for swift and decisive action to adequately tackle the issue once and for all. The chapter looks at the creation of a single EU energy market through integration of energy networks in the EU. It then examines various ways to diversify the EU’s energy supply, whether through increasing the import of liquefied natural gas, through its relations with the Eurasian Union, the promotion of renewable energy or the construction of alternative pipelines and energy routes. The chapter then offers an analysis of the latest developments of the Energy Charter Conference. The chapter concludes that from energy transit, to technology transfer, to investment protection, energy and trade present interplays across various fields. Improvements can be made to the EU trading system to ensure greater energy security and more efficient energy markets.
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Rafael Leal-Arcas, Costantino Grasso and Juan Alemany Ríos

Energy security is one of the main problems that humanity faces today and the European Union (EU) has to rely on energy-rich countries for its energy needs. The European Innovation Union, the Energy Community, and the Europe 2020 initiative address energy security as a priority, but policies seem to be reactive instead of addressing energy security in its complexity. This problem can be solved with appropriate legal tools. Energy governance has links with several policies: trade, investment, environmental protection, energy transit, energy security, finance, et cetera. Of these policies, energy trade has a high impact for European energy security policy. Currently, the international community does not address trade in energy as a cohesive entity and its governance is fragmented. The chapter explores the institutional legal framework for the creation of a European Energy Union, whose aim is to achieve affordable, secure and sustainable energy. This Energy Union is based on five pillars, which are analysed: security, solidarity and trust; the completion of a competitive internal market; moderation of demand; the decarbonization of the EU energy mix (i.e., greater use of renewable energy); and technologies. The EU is the first region in the world to set up the ambitious target of decarbonizing its economy by 2050. The chapter then looks at the energy union in the context of the rule of law. All of this could be reproduced in other regions of the world and eventually create a new international energy order. This requires a fresh and comprehensive approach to legal instruments.
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Rafael Leal-Arcas, Costantino Grasso and Juan Alemany Ríos