Regional and International Perspectives
Energy security, or the 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. Let us begin with two facts: first, the EU imports 53 per cent of its energy;1 and second, six EU countries depend 100 per cent on Russia for their gas.2 Imagine for a moment if any one of the EU’s energy suppliers were cut off. Many of the EU’s energy suppliers are politically and economically fragile. This makes the EU vulnerable, as we saw in the recent Russia–Ukraine gas disputes. In addition, EU companies pay more for energy than their competitors. All of this has consequences for the EU’s economy and quality of life. So, the EU urgently needs to diversify its energy supply.
We are not alone in this belief. In February 2015, the European Commission published a communication on the creation of a European Energy Union.3 This shows the urgency of the energy security problem in the EU. Moreover, the European Innovation Union, the Energy Community, the European Energy Union,4 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, etc. 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 and disjointed, with selective membership and guided by state interests. Moreover, trade in energy covers very different markets: petroleum, coal, liquefied natural gas and electricity. All these markets have different characteristics: the first three are not network bound.
This book aims at developing effective trade policy instruments to enhance EU energy security. The approach is interdisciplinary, bringing together an analysis of trade in energy from the perspective of law, economics and international relations, with an emphasis on methods of legal analysis, which makes the book ground breaking and unconventional. It goes beyond examining the law and governance of international trade in energy and its effects on EU energy security to identify the existing gaps in energy trade governance. Thus it develops a concept of ‘governance by design’ through the interplay of various legal regimes and institutions with the ultimate aim of facilitating the creation of the planned European Energy Union. The aim is to achieve affordable, secure and sustainable energy. The Energy Union is based on five pillars, which are analysed in the book’s final chapter:
1. security, solidarity and trust;
2. the completion of a competitive European internal market;
3. moderation of demand;
4. the decarbonization of the EU energy mix (i.e., greater use of renewable energy); and
5. technologies, research and innovation.5
The EU is the first region in the world to set up the ambitious target of decarbonizing its economy by 2050. All of this could be reproduced in other regions of the world and eventually create a new international energy order.6 This requires a fresh and comprehensive approach to legal instruments. To do that, we will answer some fundamental questions throughout the book:
1. How does current energy trade governance affect EU energy security?
2. How should the international trade in energy system be adapted to ensure EU energy security?
3. How can the EU diversify its energy supply to improve EU energy security?
4. How can the EU’s preferential trade agreements facilitate renewable energy for the EU?
Let us first start with the notion of energy security, which we analyse from the perspective of energy supply.
A. Energy Governance and Energy Security: Definitions7
A valid definition of global energy governance is the fact of ‘making and enforcing rules to avoid the collective action problems related to energy at a scale beyond the nation-state’.8
What we mean by energy security is the satisfaction of humankind’s energy needs to maintain lifestyle levels in the developed world and to promote development and improve the quality of life across the world, including least-developed and developing countries. However, this notion still remains unclear. Depending on subjective factors, such as the distinct policy priorities of each state, this definition may be extended to mean ‘affordable’ and/or ‘sustainable’ energy. What is more, when discussed within the context of energy-producing/net-exporting states, this could be stretched to mean security of demand.9 However, when energy security is discussed in global terms, its content is less precise, and the deployment of the term global energy security can be deceptive.10 So while domestic energy security is a straightforward concept, it is less so at the international level, as it leaves several questions unaddressed, including: what does ‘global’ mean in this context?; is it achievable in the current normative and broader systemic setting?; who/which body is charged with the responsibility of addressing global energy security needs?; what changes would be necessary to achieve this?; and what are the implications for state sovereignty? While this chapter does not attempt to address all of these questions, it proceeds on the following bases: that a global energy security that is truly global should seek to address the universal collective needs of humanity, and that a global energy security strategy ought to be bifurcated in that it should aim to negate all zero-sum approaches to energy security, and to fully explore all non-polluting, non-exhaustible/ renewable energy sources through projects based on the broadest possible international cooperation.11
Although energy security is a concern common to all sovereign actors, it is currently not a collective objective as is, for instance, human security (i.e., the prohibition of aggression) under the UN Charter. What we witness when we examine instances of interstate cooperation in relation to energy security is that most of these are concerned with partial – not universal – energy security needs, namely the needs of the states involved. As discussed above, the furthest states go in terms of global energy governance is to deal with matters that engage energy in a thematically fragmented manner and to the extent that it is politically acceptable to them. The furthest they go in addressing their energy security needs is to the extent that each state deems a collective approach to yield more favourable results than going it alone. In terms of interstate cooperation on energy security, the furthest states go appears to be limited to engaging in bilateral arrangements, to setting up regional arrangements – e.g., the North American Free Trade Agreement (NAFTA) and the European Union/European Economic Area (and their bilaterals with significant producer and transit states such as Russia12 and Ukraine,13 respectively) – or to setting up other types of multilateral sector-specific arrangements – the example par excellence being the Energy Charter Treaty regime. In that respect, current interstate energy security arrangements are far from global. That said, it would be interesting to see whether the combined effect of these different regimes actually enhances global energy security in the sense that, arguably, the proliferation of preferential trade arrangements (PTAs) – e.g., customs unions and free trade areas – has contributed to trade liberalization.
Energy security is a theme relevant to instances of institutionalized energy-related international cooperation. For its part, energy security is an imprecise term in both the domestic and global context.14 What is more, the various themes we have listed above interact. For instance, arguably, an effective trade system and energy transit system enhances energy security for those economies concerned in the relevant instances of international cooperation. That said, energy security is not only about trade. A country that has all of its own energy sources still can have issues about reliability of supply or the price of energy (e.g., Nigeria) and, in turn, supply is affected by measures to manage demand for energy.
At the domestic level, a single agent – e.g., the state – is the authority that adopts measures towards the energy security of the territory/ economy that it controls.15 Such an agent is not omnipotent in its attempts towards energy security, given that the latter often relies on factors – e.g., availability and price of energy commodities – over which such a sovereign actor might have little or no control. At the global level, there is a plurality of actors16 who have influence over the global energy economy. While energy security is a concern of all sovereign actors, this reality unites all such actors to the extent that global energy security becomes a common concern. The plurality of actors and the variety of interests at play – e.g., interests across the national-regional-universal spectrum and the public-private spectrum – mean that, at the global level, the achievement of global energy security becomes less feasible, and that no truly universal regime exists charged with the task of providing governance for the global energy economy or for addressing energy security interests.17
Energy security itself is a nebulous concept, with competing definitions as to its meaning and scope.18 These definitions differ not only in their general conceptual understandings of the term, but also in its application to the different forms of energy resources such as oil and gas.19 One approach emphasizes the continuity of energy supplies,20 while another factors in the absence of price volatility above a given price,21 and a third approach extends this definition to the impacts on ‘the economy and in some cases the environment’.22 The European Commission’s broad definition of the term – which we use for the purposes of this chapter – falls largely into this last category:
The European Union’s long-term strategy for energy supply security must be geared to ensuring, for the well-being of its citizens and the proper functioning of the economy, the uninterrupted physical availability of energy products on the market, at a price which is affordable for all consumers (private and industrial), while respecting environmental concerns and looking towards sustainable development, as enshrined in Articles 2 and 6 of the Treaty on European Union.23
As the European Commission in the same document acknowledged, the path to EU energy security is one that takes into account the undiversified energy dependence of the EU economy and aims at reducing the risks associated with such dependence by diversifying sources of supply, both by product and geography.24 This path to energy security is, however, not as linear as it first seems, with there being a multitude of factors that exert strong influences. Examples include the EU’s own clean energy commitments, the proposed Trans-Adriatic pipeline and the ongoing shale revolution in the US.
Some regard energy security as an economic and even a security matter. From the EU perspective, unsurprising given the EU’s energy dependency, energy security is perceived from a supply security point of view. This is the notion we have espoused for the purposes of this chapter.25 In relation to EU energy security, this seems to engender all that could make EU energy policy complex, given that energy security is a matter that relies on several factors for it to be achieved.26
Firstly, however, we must be clear on what we mean by energy security. To answer this, we need to understand to whom the benefits of energy security accrue. For instance, if we were to answer this in connection with the EU, we would claim that energy security means the steady and secure access to energy supplies to meet the energy needs of all 28 EU Member States.27 It is also worth noting early on that the EU’s origins partly lie in matters connected to energy security.28
If we were then to supplement the question of what energy security is within the EU context by asking who might be a responsible or influential agent in fulfilling the objective of EU energy security, we enter the complexity of energy within the EU context. This is because to ask who is responsible engages the question of competences (e.g., who does what and to what extent); and to ask who is influential engages the question of competences plus who possesses the diplomatic clout. The latter becomes even more pronounced when we take into consideration the disparate levels of influence between EU Member States. Furthermore, within the EU context, energy security has come to be heavily conditioned by environmental objectives with the addition of ‘sustainable’ to the notion of EU energy security.29
As stated above, energy security relies on a variety of factors – including efficient infrastructure and consumption, and diversity of primary energy mix and supply – that, again, illustrate how EU energy security may rely on action across the EU policy spectrum and that engages the internal–external cleavage. Much has been done at the intra-EU level to rationalize the energy market to the extent that the Internal Energy Market (IEM) is heading towards coherence.30 Much has been said to make possible more cohesive external energy action. We conclude, however, that so long as the constitutive treaties that spell out EU competence upon which the EU lies are not substantively amended, the furthest the EU could go in relation to EU energy security is to act to the extent that the treaties make possible – that is to say, to the extent that the EU has powers to address some, albeit not all, key factors upon which energy security relies. That said, it is our view that EU institutions appear to be making full and very competent use of the means at their disposal. For instance, the European Commission makes good use of its capacity to make recommendations to the Council and the European Parliament, and to also propose legislation focused on enhancing EU energy relations and ultimately energy security.
In sum, therefore, it is useful to conceptualize EU energy security primarily in relation to the structural challenges – namely the question of vires – that the EU faces when compared to other prominent players on the international plane, e.g., sovereign actors such as China and the US. The energy markets of the 28 EU Member States vary widely in terms of, among other things, infrastructure, investment and pricing. The IEM is not fully integrated; however, it is not far from achieving this in relation to electricity and gas. What is more, the EU has strategically promoted the integration of energy markets and regulatory convergence with bordering third-party states, through the medium of rational markets, to the end of its own energy security. In that respect, perhaps what has so far been achieved in terms of the promotion of EU energy security is optimal, given the circumstances.
B. What Is the Challenge?
1. The governance of international trade in energy
Currently, there is no cohesive governance for global energy trade. On the contrary, governance of energy trade arises by default, rather than design, through the ad hoc interplay of different aspects of the international economic system.31 This has implications for the EU, which relies heavily on the rest of the world for its energy supply32 and, consequently, its energy security.33 The governance regime for energy trade is not conducive to EU energy security because of the fragmentation of the global and European energy trade regimes, the lack of cohesiveness of the global and European energy trade systems, divergent national interests and the diversity of energy sources.34 It is vital that the EU take the right steps and decisions to ensure a more secure, clean, competitive and sustainable energy system. At the global level, a more cohesive global governance system for energy trade would facilitate energy flows, avoid unnecessary legal disputes and provide predictability. Achieving this will require a thorough understanding of the elements, workings and evolution of the current global energy trade governance regime and its consequences for European energy security.
Energy trade is a key component of both the global and EU economies, and international trade in energy spans a number of policy areas, including trade, investment, economic development and environmental protection. The very nature of energy – namely its centrality to almost every field of human endeavour – and the very nature of traditional energy resources – namely finiteness, uneven distribution and high desirability – lead to the politicization of energy and encourage intense competition for control over energy resources between actors.35 While energy supply and consumption are important aspects of the global and EU energy economy,36 they do not exist in an equilibrious relationship. Rather, they are heavily mediated by political considerations and by the very operation of global markets, which dictate the extent to which energy needs are ultimately met.
The dominant opinion is that trade liberalization will increase economic activity and therefore energy consumption. All countries require energy resources, but few possess them, and thus trade in energy (primarily oil and gas) is crucial to fulfil global energy needs.37 Internationally, there is more trade in oil than in anything else. ‘Fully half of world trade in services is intensely energy-dependent.’38 Yet, the General Agreement on Tariffs and Trade (GATT)/World Trade Organization (WTO) has historically not preoccupied itself with energy trade. Very few energy-rich countries saw a need to join the GATT/WTO club, given that the reduction of import restrictions – one of the main goals of the multilateral trading system – is not an issue when it comes to energy. Saudi Arabia, a major energy-producing country in the world, only joined the WTO in 2005 and several energy-producing countries are still not WTO members.
Despite apparent overlaps between institutions and regimes involved in energy trade governance, there are significant gaps in the system. The result is a mixed bag of incidental outcomes arising from an array of disjointed energy-related institutions and processes operating at various scales (bilateral, regional, etc.), often each with its own selective membership. Wholesale change to institutions requires more time than is available, and so the book will focus on the trade aspects of energy governance and on how they could be adjusted to better promote EU energy security interests.
The book will map the complexities of EU competences against its energy policy, in accordance with Articles 4.2 and 194 of the Treaty on the Functioning of the European Union (TFEU), to identify governance gaps. For the EU, improving energy security will involve taking regulatory and policy measures which address its internal–external cleavage.
2. Sovereignty over natural resources
Energy is one of the biggest challenges facing the EU today. With very few energy reserves of its own, the EU currently imports over half its energy, making it extremely reliant on the rest of the world for its energy supply. It is in the EU’s interest to diversify its energy sources and supply channels, and also increase energy efficiency by promoting more sustainable practices and greater energy market integration. In fact, we see efforts in those directions through the promotion of the IEM and the Energy Community.39 Trade policy and regulation can be instrumental in achieving these goals. For example, there is potential to incorporate energy-efficient provisions within regional and multilateral agreements; there are trade incentives to better manage competition and invest in technologies such as up-to-date energy grids; and possibilities for exporting cutting-edge EU technologies through the EU’s trade and bilateral cooperation agreements.
EU energy security depends upon institutionalized energy-related internal as well as international cooperation.40 For instance, arguably, effective systems for energy trade and energy transit enhance energy security for those economies involved in such cooperation. At the domestic level, a single agent – namely the state – is the authority that adopts measures towards the energy security of the territory/economy that it controls.41 Such an agent is not omnipotent in its attempts towards energy security, given that energy security often relies on factors – e.g., energy commodities’ price and availability – over which it has little or no control. At the EU level, there are numerous actors who have influence over the energy economy, including EU and Member State bodies. This plurality of actors and the variety of interests at play – e.g., interests across the national–regional–universal spectrum, the public–private spectrum and across the policy spectrum – mean that achieving EU energy security is a very complex challenge.42 While all sovereign actors/economies have an interest in their respective energy security, global energy security is essentially a concern to none. In that sense, it is not a common concern as is the case for climate change.43
At the international level, the EU is one of a patchwork of institutions that may have implications for cross-border energy trade.44 While the EU lacks the powers of a sovereign actor to diplomatically pursue its energy security in the manner that China or the US may, it does possess a comprehensive energy policy that is multifaceted and that makes good use of the powers that lie within its competences.45 The WTO also provides governance over trade within its scope, including over energy trade. The WTO does not handle energy commodities any differently from other tradable commodities within its scope. In that sense, it provides energy trade governance by default. Another example is the Energy Charter Treaty (ECT), whose principal concerns surround the investment protection and trade aspects of energy between contracting states.46 Many other institutions exist that provide degrees of governance over aspects of trade in energy at the interstate level. This patchwork of institutions and regimes amounts to a sort of ‘accidental’ energy trade governance, and presents some areas of overlap. For instance, both the WTO and the ECT have rules that apply to the trade, investment and environmental protection aspects of energy. These overlaps in no way amount to cohesive governance of energy trade.
II. BACKGROUND TO EU ENERGY POLICY47
In this section, we will attempt to survey the different governance frameworks that address energy trade in an EU context by looking at the various institutions and instruments that operate in the energy trade sector which may have a bearing on EU energy security. The purpose of this section is to provide insights into how disparate energy realities are across the bloc of 28 states. These realities are important, given that considerations specific to a particular EU member might be the driving factors behind the policies that member would want to promote at the EU level. It might be more difficult to persuade EU Member States that rely heavily on energy sources other than gas and oil to support a common EU position aimed at more institutionalized relations with gas and oil behemoths such as Russia, other members of the Commonwealth of Independent States (CIS), and of states across the Middle East and North Africa (MENA) region.
For instance, states that derive a large share of their electricity from coal might be indifferent, or in some cases opposed, to deeper EU–Russia economic integration. In the case of Poland and the Baltic states, for example, this could be compounded by historic animosity towards a state they regard to be the successor to Imperial Russia and the Soviet Union, rather than the most important EU energy partner. On the other hand, it might be in the national interest of those highly reliant on gas imports for their electricity, e.g., Luxembourg and the Netherlands, to promote a more strategic approach.48 All the instances of divergence between EU Member States present a situation that makes cohesive policymaking more difficult than it would be in a fully confederated system charged with the external relations of the whole (e.g., Germany, Switzerland and the US), not simply due to EU structural/vires issues but also due to the highly divergent infrastructural, economic, regulatory and diplomatic climates that exist from EU Member State to Member State.
In this respect, it may be helpful to think of the EU to be:
1. a fully federated entity solely in relation to policy areas in which it has exclusive competence;49
2. a loosely federated entity for shared competence policy fields in which the central authority (the EU institutions) must ensure that it develops policy to the extent acceptable to the constituent elements (i.e., the Member States) of the federated entity (the EU);50
3. an association of states for policy areas that fall outside both exclusive and shared competence EU remits.51
An EU member’s position essentially seeks to capture the interplay of considerations at the national level that arise in relation to each EU member’s economic, political and historical tradition. An EU member’s position, in turn, interplays with those of its peers before, if ever, an EU common position is finally adopted.52 All this makes a cohesive EU energy security policy particularly difficult to achieve.
The EU faces structural limitations in sui juris promulgating a comprehensive energy strategy, quite unlike how a sovereign actor would. This is due to the multifaceted nature of energy that leads to certain aspects of energy falling within the exclusive or shared competence remit of the EU, while other aspects of energy sit squarely with Member States. Even where matters sit with the EU, there are other issues – e.g., how a decision might be adopted – that are capable of complicating or even stalling the adoption of a common position.
A. Allocation of Competences Between the EU and its Member States
The EU is a sui generis interstate organization composed of 28 sovereign states that has certain intergovernmental and – most pertinently, for the purposes of this chapter – supranational/federal-like features. It is worth noting the general parameters of competence allocation between the EU and its Member States.53 Broadly, EU Member States – through the founding treaties – have expressly endowed the EU with exclusive competence (that is to say, to the exclusion of its constituent Member States) to handle such matters that are directly linked to principally the achievement and completion of the customs union and internal market, the competition rules of the internal market, and the administration of the monetary union for those EU Member States that have adopted the euro as their currency.54
Although apt historical precedents do not seem to exist,55 some parallels have been drawn between the EU and Germany, Italy, and the US during, in the case of the first two, their unificatory/nationalist geneses, and in the case of the last one, its secessionist genesis.56 Also, parallels have been drawn to the Canadian model in terms of how EU Member States seem to interact with the overarching EU order.57 What the EU has achieved is to create a core of states that had historically – in their previous configurations – been belligerent towards each other. This core, in turn, attracted the polities of smaller states at the periphery into an economic order within which it is unimaginable for armed conflict to break out. In that respect, this order of sovereign equals – deeply tied together economically through buy-in, rather than military force – has been quite unlike any other historical precedents of empire, and comes the closest to the Kantian ideal of a peaceful universalism.58
What ought to surely set the EU apart from all confederated examples is its limited capacity to represent – though its institutions – its Member States across the entire policy spectrum. In other words, its limited vires – as opposed to institutional – capacity to handle the foreign relations of EU members to their exclusion. That said, the EU is endowed with powers to act in its own right and to the exclusion of EU members – including to contract with third-party states and other international organizations59 – in matters that fall squarely within its exclusive, yet limited, competence remit.60 However, it should be borne in mind that these powers derive from treaties contracted by sovereign actors who, at any time, may potentially withdraw in accordance with international law, and, consequently, re-assume full sovereign control over such aspects of policy that are currently within the EU’s exclusive competence remit.
In relation to certain other matters that, although important, had not been deemed to be indispensable to the achievement of the principal aims of the EU, the original EU Member States involved in drafting the founding treaties of the 1950s have extended a degree of competence to the EU to act alongside Member States. Competence over such matters is therefore shared.61 ‘Energy’, in its broad sense, could be seen as one such matter, although there are aspects of energy, such as customs policy on energy imports into the EU, which are clearly a matter over which the EU is competent to develop policy to the exclusion of Member States.
Equally, there are other features of energy that may sensibly be considered to be within the sovereign preserve of EU Member States. An example would be, for instance, German diplomatic efforts with Russia to promote the interests of German energy downstream companies (over those of other EU Member States’ energy companies) by having EU energy imports from Russia arrive into Germany.62 Generally, it can reasonably be assumed that all other matters over which the treaties are silent (by containing no express provision) remain the sovereign preserve of EU Member States. Fundamental tenets of treaty interpretation would support this view.63 In that sense, assessing the appropriate level of EU action initially requires the identification of the various policy matters implicated in order to subsequently assess what could be done at the EU level without the EU institutions unjustifiably infringing upon whatever prerogatives have been preserved by the 28 sovereign actors that make up the EU.64 It is also important to bear in mind that the challenges the EU faces in developing and promoting a coherent energy policy are not limited to inherent and systemic limitations, but stem from the grossly disparate energy realities among its 28 Member States.65
That said, EU Member States are obligated to refrain from acting in ways that would undermine EU external and security policy action.66 This is a provision with a potentially restrictive effect on Member States’ policy space, given that it is not unusual for their energy policies to contain features that affect EU interests in the EU’s external action. On the other hand, safeguard provisions exist that aim at the containment of EU competences to the limits prescribed in the founding treaties, that promote proportionality in EU action, and that promote efficient use of shared competences.
Additionally, the founding treaties further contemplate the possibility that there may be cases in which, while the EU has no express competence (i.e., neither shared nor exclusive competence) whatsoever to act, it may be appropriate for it to do so, so long as Member States expressly and unanimously consent to this via the appropriate EU deliberative and decision-making bodies.67
The foregoing has been included in order to outline the high-level EU constitutional coordinates within which to understand the question of competences. It is important to bear in mind that, because of energy’s multifaceted nature, different levels of EU competence apply to different energy-related issues. This makes it difficult to identify the relevant EU competence without having first identified which energy-related issues will be engaged.68 Finally, in relation to the aspects of the EU constitutional framework that may affect energy, the advent of the Lisbon Treaty has had certain implications for EU competences over energy. However, importantly, this has not been in a manner that erodes Member State prerogatives. In relation to energy, the Lisbon Treaty provides some degree of streamlining, while boosting the EU’s environmental protection objectives by giving these a more prominent role in EU energy policy development. This has been expressed in legislative backing for renewable energy within EU policy as a means of making good on the EU’s commitment to environmental protection and to achieving a more sustainable energy reality.69
Returning to the question of EU powers to handle external energy relations, it may be helpful to approach this through a series of assessments: first, it would be necessary to assess whether an energy-related proposal in question falls within the exclusive or the shared competence remit of the EU. Should it unequivocally fall within the former category, the EU would enjoy unbridled powers to pursue the external aspects of the energy-related policy proposal in question. Should the energy-related policy fall within the latter category, it would then be necessary to assess how the proposal ought to be decided at the EU level – that is to say, whether it engages such matters that the Council of the European Union70 may have to decide unanimously or by majority in order for an EU policy to be adopted. In broader terms, Article 208 TFEU expressly mentions that the EU and its Member States ‘complement and reinforce’ each other in a framework of shared competence.
Article 192.2(c) TFEU refers to the vires of the Council to seek to legislate or take measures that significantly affect a Member State’s choice between different energy sources and the general structure of its energy supply. We witness a high degree of incursion by the supranational into the national sphere. However, Article 192.2 introduces safeguards by making clear that decision making by the Council under Article 192.2(c) must be reached in the Council on the basis of unanimity and not by qualified majority.71
What this might indicate is that, in the final analysis, crucial energy security-related measures with strong diplomatic overtones such as measures that, if taken, affect rather significantly a Member State’s choice between what energy sources it may use, or how the general structure of its energy supply ought to be, remain firmly with Member States given the unanimity requirement in such cases. In effect, this preserves certain sovereign prerogatives of Member States.
If we take as an example Directive 2009/28/EC,72 we note in its preamble that this instrument was adopted in accordance with Articles 95, 175.1 and 251 of the Treaty Establishing the European Community (TEEC).73 Having regard to Articles 175.1 and 251, which are cited in this directive, decisions were adopted within the Council on the qualified majority decision-making procedure. This is interesting, given that Directive 2009/28/EC sets, among other things, mandatory national targets for the overall share of renewables in a Member State’s final consumption,74 which could be interpreted as significantly affecting a Member State’s choice of energy sources. However, it might have been the view of Council members that the interference was not so significant as to invoke the unanimity-based decision-making process.75
As we shall see below, EU energy policy is multifaceted. Its introspective aspects have been adopted to, among other things, integrate the IEM in terms of gas and electricity, and to promote energy efficiency and the use of renewables. There is sufficient legal basis within the treaties – namely the TFEU – for the EU to take action, e.g., by promulgating policy, to handle aspects of the IEM. Conceivably, creating an effective IEM also rests on a degree of regulatory convergence across the EU. Under the TFEU,76 the EU may legislate to such an end. However, whether either the qualified majority vote or the unanimity-based Council decision-making process applies depends on which matters are being considered for convergence. The language of the relevant provisions does not make it an easy task to ascertain which decision-making process applies, given how nuanced it appears to be. To make this clear, let us look at Articles 114 and 115 TFEU. Article 115 states that the Council in unanimity may adopt such measures for the approximation of laws across the EU in relation to matters that directly affect the establishment or functioning of the internal market, while, under Article 114, the Council may decide on the qualified majority basis for measures for the approximation of laws that have as their object the establishment or functioning of the internal market. Here we witness the cleavage in EU law and policy making in relation to Council decision-making procedures. Furthermore, the TFEU contains the legal basis for the integration of energy infrastructure and the development of EU-wide energy infrastructure.77
1. The situation prior to the Lisbon Treaty
Until the entry into force of the long-debated, but finally ratified in 2009, Lisbon Treaty, there was no express provision for the development of a common energy policy at the EU level.78 While numerous false starts were made towards this objective, consensus was elusive.79 As a result, the pre-Lisbon Treaty period was characterized by EU-level energy policy developments being an incidental function of the EU’s ‘environmental protection’, ‘internal market’ and common commercial policy mandates.80 During this period, energy policy was primarily formulated and implemented at national level.81 This position gradually shifted in the new millennium as a number of factors such as the increasing dependence on external energy sources, the lack of EU influence on the energy supply side and the potential failure of the EU to meet its climate change obligations under the Kyoto Protocol led to the recognition of the need for a pan-EU policy aimed at ensuring long-term energy security.82 This recognition first manifested itself in a European Commission Green Paper on the ‘Security of Energy Supply’83 in 2000 and was subsequently followed up in a number of similar documents and accords, all of which were slow but steady steps towards a pan-EU energy policy that ultimately came into force through the Lisbon Treaty.
2. The Lisbon Treaty
The entry into force of the Lisbon Treaty of 2009 represented a turning point in the structure of EU energy policy governance. First, it marked a shift in energy policy from being an exclusive EU Member State subject to one upon which EU Member States and the EU possess ‘shared’ legislative competence.84 This means that both the Union and its Member States can ‘legislate and adopt legally binding acts’ in the area of energy policy.85 However, EU Member State competence is limited to the extent that the Union has not exercised or has decided to cease exercising its competence.86
Secondly, and more crucially, a separate section (Title XXI) on energy was included in the form of Article 194 TFEU. This provided that the Union would act in a ‘spirit of solidarity’ between EU Member States to ‘(a) ensure the functioning of the energy market; (b) ensure security of energy supply in the Union; (c) promote energy efficiency and energy saving and the development of new and renewable forms of energy; and (d) promote the interconnection of energy networks’.87 While the same provision allows EU Member States to retain decision-making autonomy in matters concerning the mix of energy sources, the conditions for exploiting its energy resources and the structure of its energy supply,88 this approach has signified a marked departure from the earlier approach in the pre-Lisbon Treaty era of EU Member States retaining complete control over policy decisions in the energy sector.
In addition, Article 207 TFEU transferred the competence for foreign direct investment protection arrangements from the national to the EU level. This is important in the energy policy context because many of the major investment protection cases so far involve energy-producing companies.
Thus, the Lisbon Treaty is an important stepping-stone for the EU to emerge as an entity with one voice in the international energy setting.89 While questions exist about the method of policy formulation and implementation90 – most notably the unanimity requirement of Article 194.3 TFEU, which effectively allows each EU Member State a veto on decisions – there is no doubt that the Lisbon Treaty is a solid manifestation of not just the recognition of the EU’s precarious energy position, but also of the general agreement that the way forward lies through concerted and unified action by EU Member States. Whether the Lisbon Treaty, with its unanimity requirement for most energy policy decisions, is an effective or even appropriate framework for the fulfilment of this long-standing objective, however, remains to be seen.91
Beyond the energy field, some commentators see the external relations codification of the Lisbon Treaty as rather unsatisfactory92 or fuzzy93 and some even expressed the opinion that the Lisbon Treaty failed when it came to explaining external competences.94
B. EU Energy Policy and Its Complications
A number of authors predict that the wars of the future will not be fought over religion or freedom, but over basic resources and energy.95 While these predictions may seem overly drastic, the fact remains that global energy consumption demands are growing at rates that are far from sustainable over the medium term, given the currently accessible sources of energy. For every country or economic bloc, a crucial component of the equation for its long-term sustainability is the concept of ‘energy security’, which deals with the ability of an economy to sustainably provide for its long-term energy demands.
This section presents the case of the EU – a major economic bloc – in the context of the governance frameworks that contribute to its energy security.96 The discussion is significant, given the weak energy position the EU has traditionally possessed and the steps it has taken to remedy the situation. The journey towards an energy-secure EU requires strong governance mechanisms and structures that ensure not only that internal EU policy is undeterred from its energy security objectives, but that externalities such as the effects of a changing global energy environment are carefully studied and accounted for. It is within such a context that this section seeks to examine the existing EU energy governance framework and the effects that are likely to result from developments in global energy trade.97
The nature of EU energy policy has been examined previously.98 We notice that EU energy policy is comprehensive and multifaceted. Multiple European Commission communications testify to this. EU energy policy extends over a wide range of policy matters that relate to energy, and we note that EU energy policy encompasses inward- and outward-facing aspects. Until now, EU-level energy policy has predominantly been inward looking, however. EU energy policy aims at, among other things:
● the integration of the intra-EU electricity and gas markets through the IEM;99
● the promotion of energy efficiency within the EU;100 and
● the decarbonization of EU economies.
Much of this relates to the internal EU reality and applies to intra-EU territory. The EU is close to achieving an internal market for energy101 and has made initial steps to harmonize efforts to use energy more efficiently. However, the advancement of EU energy interests cannot be, and – as we shall see – is clearly not, restricted to introspective EU measures.102
An economic bloc that is largely energy dependent will only be able to secure its energy supply by looking outward. With the EU aiming at decarbonizing, or at least phasing out, the most polluting hydrocarbons such as coal, while at the same time phasing out nuclear energy, as some EU Member States intend to do,103 EU energy security will not be achievable through energy savings alone. Consequently, the EU also directs efforts outward by engaging with third-party states in order to encourage, outside its borders, a range of practices such as promoting open and stable markets for energy resources, more efficient and sustainable energy use, energy sector liberalization and investment protection for its energy-producing companies abroad, and pro-market processes that, arguably, contribute towards the promotion of EU energy interests by enhancing the volume of energy commodities that eventually reach the global and EU markets. We could call such efforts directed outside the EU, and principally concerned with energy, the EU’s external energy policy.
However, notwithstanding the above, the multifaceted nature of energy – and the breadth of policy matters it engages – complicates matters for actors such as the EU when we compare it with sovereign entities such as the US or the People’s Republic of China. This is because the various matters energy may engage at the intra- and extra-EU fields of action – for instance, diplomacy, trade, competition and market regulation, environmental protection and investment protection – in turn engage different levels of EU competence to act, ranging from exclusive104 to shared105 to zero competence.106
Although the EU faces challenges (be they inherent, systemic or incidental) in going about addressing its energy interests in the manner that China, India, Japan or the US may, it makes full and effective use of whatever competences it is afforded. For instance, the EU (or, to be more accurate, its predecessor, i.e., the European Communities (EC)) had been the prime mover behind the ECT. Moreover, the EU played a major role in setting up the Energy Community, which draws in surrounding energy-significant states.107 The ECT, for its part, creates, in addition to investment protection provisions, important energy transit rights for ECT parties,108 which, crucially, also extend to fixed energy-related infrastructure,109 thus enhancing energy trade flows between ECT parties and flows into the EU.
It is also the case that institutions such as the Energy Community allow the EU to maximize its interests in cases where it is perhaps politically challenging (or naïve to expect the EU) to think of energy-significant neighbouring states joining the EU. In the immediate aftermath of the collapse of the communist regimes across Eurasia – in what had been lauded as the end of history110 – it may have been more realistic to think that those economies on the brink of collapse might have been willing to join on whatever terms the developed Western European states may have imposed. This may have changed significantly nowadays with the protracted global economic slump and the increased Russian cloud in Eastern Europe and Central Asia.111 Market failure may have given rise to scepticism towards globalized markets and economic integration as being unquestionably safer paths towards modernization and economic development. The example of Russia’s having stabilized its economy and, to some extent, its society as a whole with the income from ‘black gold’ might have contributed to the idea that the liberalization of energy markets is not always the best way forward for energy-rich economies in Eurasia. Consequently, those states may be less willing to follow the EU in its striving for open energy markets.
Within this context, we could perhaps understand a realization on the part of EU members’ polities that it is best to focus on the core economic relations per se and to draw third-party states, particularly energy-significant states, into EU energy policy-lite arrangements. This might be especially true for states which are relevant for their energy supply because they have important gas pipelines, such as Moldova and Ukraine.112
C. The EU Energy Situation: Dependent and Undiversified
Traditionally, the EU has been strongly dependent on imports to fulfil its internal energy requirements.113 To illustrate, between 2007 and 2011, the EU relied on non-EU Member States to supply around 53.5 per cent of its total energy.114 In fact, in 2011 alone, EU-27 energy import dependency included imports of 41 per cent of its solid fuels, 85 per cent of its petroleum and 67 per cent of its gas supplies.115 Such a high level of energy dependence has resulted in a concerning paradox, where the EU – consuming one-fifth of the world’s energy supply – is the world’s largest importer of energy.116 This positional incongruity is further accentuated by the lack of diversity within the EU’s primary energy suppliers (namely Russia, Norway and Algeria), who account for 85 per cent of the EU’s natural gas imports and almost 50 per cent of its crude oil imports.117
Source: Financial Times graphic, based on the International Energy Agency, Eurostat and US Energy Information Administration data.
Figure 1.1 EU imports from Russia as a percentage of total imports of natural gas, 2012
Such an undiversified reliance on external energy sources places the EU in a position that is vulnerable ‘to energy price shocks or energy supply disruptions, which may translate into significant losses to competitiveness and GDP, inflationary pressures and trade balance deterioration’.118 This was most visible in relation to the energy supply disruptions due to the 2006 and 2009 Russia–Ukraine gas disputes, which had significant deleterious consequences for infrastructure and quality of life in a number of EU Member States.119 Moreover, as can be seen in Figure 1.1, the degree of dependence on Russian gas varies from country to country in the EU.
Given the continuation of this trend of energy dependence in recent times,120 the forecast of its significant increase121 to 70 per cent by 2030,122 the rise of competition for energy supplies from emerging economies,123 and its, at best, scattered common external energy policy, there are important implications for the continued economic stability and security of European energy supplies.
D. EU Energy Consumption vis-à-vis Global Energy Consumption
Even in 2009, in the middle of the financial crisis, EU energy consumption stood at c. 1,703 Million tons of oil equivalent (Mtoe).124 Of this figure, slightly less than half – namely, c. 48 per cent (c. 818 Mtoe) – was sourced within the EU. This means that the EU was energy dependent by 52 per cent of its total consumption.125 The level of EU energy dependency fluctuates depending on the energy resource in question. For instance, the EU imports up to 83.5 per cent of its oil, 64 per cent of its gas and about 38 per cent of its coal.126
The EU’s energy dependency also fluctuates widely depending on the origin of energy imports. For instance, 50 per cent and 80 per cent of EU oil and gas imports, respectively, come from just four non-EU Member States: namely Algeria, Libya, Norway and Russia.127 The fact that at the EU level, the 28 Member States are collectively importing more than half of their energy resources should not mask the EU Member States’ individual energy realities. At the Member State level, the degree of energy dependency varies hugely, as it is contingent upon their particular energy endowments, the form of their energy generation, energy efficiency, respective market access to the energy resources/markets of third-party states, and on whatever their other relevant energy-related particularities might be.
In terms of EU energy consumption, the breakdown for the EU-wide figure during 2009 (1,703 Mtoe) is the following: 37 per cent came from oil, 24 per cent from gas, 16 per cent from coal, 14 per cent from nuclear energy, and just 9 per cent came from renewable energy sources.128 This shows that 77 per cent129 of EU energy consumption drew from traditional energy sources,130 that is to say, from the sort of energy sources that are finite and patchily distributed across the world (and, most crucially in relation to climate change mitigation, highly polluting). In that sense, current EU energy supply draws heavily from sources that are highly politicized. In world history, competition for control over these resources has often led to great human suffering and loss. Simply put, the EU is 77 per cent energy dependent on controversial hydrocarbons.131
What is more, given that the proportion of hydrocarbons in the EU’s energy mix is more or less on a par with global figures, the proportion of environmentally friendlier energy sources in the EU’s energy mix is not substantially above the global figure.132 This is particularly alarming, given that the European Commission aspires to raising the share of renewables in its energy mix to 27 per cent by 2030133 and that the EU claims to have taken the need for energy efficiency and climate change mitigation in earnest.134 However, regarding energy efficiency, the European Commission did not provide a specific target. In February 2014, the European Parliament was even more ambitious than the EU Commission and voted (even if the vote is not legally binding) in favour of three binding targets for a 40 per cent greenhouse gas (GHG) emissions reduction, 30 per cent share of the energy market for renewable energy and 40 per cent improvement in energy efficiency by 2030.135
The specific realities of each Member State’s energy dependency are hugely disparate as we see below. What is more, EU energy dependency varies depending on the energy resource in question. For example the EU imports 83.5 per cent of its oil, 64 per cent of its gas and c. 38 per cent of its coal.136 Furthermore, as shown in Table 1.1, about 50 per cent and 80 per cent of EU oil and gas imports, respectively, come from only four countries: namely Algeria, Libya, Norway and Russia.137 One-third of those gas imports – 34 per cent – comes from Russia.138 The fact that at the EU level, the 28 Member States are collectively 52–53 per cent energy dependent should not mask the EU Member States’ individual energy realities. At the Member State level, the degree of energy dependency varies hugely, as it is contingent upon their particular energy endowments, energy efficiency, respective market access to the energy resources/markets of third-party states, and on whatever their other relevant energy-related particularities might be.
Table 1.1 Origin of EU oil and gas imports during 2009
|35% OPEC||34% Russia|
|33% Russia||31% Norway|
|15% Norway||14% Algeria|
|17% others (including Kazakhstan 5%, Azerbaijan 4%)||21% others (including Qatar 5%, Libya 3%)|
Source: European Commission, ‘Key Figures’, Market Observatory for Energy, June 2011, p. 7.
To further contextualize EU energy needs, the EU’s share of global energy consumption is about 14 per cent.139 This is close to the 1,700 Mtoe annual mark and it has remained steady over the last two decades.140 By 2035, though, the EU’s share of global energy consumption is projected to drop to about 10 per cent,141 while global demand is projected to rise substantially over the next two decades, as can be seen in Figure 1.2, which provides a snapshot of the growing demand for energy in the world.142 This will happen as a result of more efficient use of energy within the EU over the next two decades, alongside the fact that future increases in global energy consumption are likely to be attributable to countries such as China and India (rather than those of the Organisation for Economic Co-operation and Development (OECD)).143 Based on these figures, by 2035, all other things being equal, the EU and the rest of its OECD peers are likely, collectively, to account for about 30 per cent of global energy demand, while China and the rest of the world are likely to account for about 70 per cent.144
Source: IEA; FT research.
Figure 1.2 A growing demand for energy in the world
While overall EU energy dependency across its primary energy mix stands at around 52 per cent, the situation varies widely in relation to each EU Member State. For instance, Denmark is entirely energy import independent while Malta is entirely energy import dependent.145 In terms of oil, Denmark is entirely oil independent, given that it is the only EU Member State that is a net oil exporter. The next comparatively better off EU member is the United Kingdom (UK) as it is 9 per cent oil dependent, followed by a very distant third, Romania, which is circa 50 per cent oil dependent. All other EU members’ oil dependency ranges from circa 63 per cent to 100 per cent.146 Predictably, such acute disparities, along with other differences between EU Member States, have implications for cohesive EU action.
In terms of how total EU energy consumption is broken down, roughly, 33 per cent goes on transport, 27 per cent on households, 24 per cent on industry, 12 per cent on services, and 2 per cent on agriculture.147 From this breakdown we can deduce that energy price volatility coupled with weather-induced increased energy consumption could have considerable implications for the economy and human welfare. For instance, higher energy prices add to industry costs that, in turn, may lead to EU-produced services and goods becoming less competitive in relation to like products produced in economies where energy costs are lower.148 Furthermore, as households account for 27 per cent of EU energy consumption, price increases would eat into household disposable income, which, in turn, could potentially depress consumption rates and thus affect the entire EU economy.149 In that respect, setting aside the environmental imperatives, promoting a paradigm shift from hydrocarbons – on which the EU is hugely externally dependent – to renewables could potentially immunize the EU considerably from such shocks.
It is interesting to read the above breakdown of EU energy consumption against the backdrop of overall EU CO2 emissions. The energy industries produce 35 per cent of EU CO2 emissions, closely followed by transport at 30 per cent, industry and construction at 18 per cent, and residential use at 11 per cent of EU CO2 emissions.150 In that respect, one could argue that action be largely targeted at the most polluting sectors. However, as we shall see below, given that the situation is disparate between EU Member States, a more variegated approach would be necessary when, for instance, we look at the energy industries across the EU. Electricity is produced in a more environmentally damaging way in Malta, Cyprus, Estonia and Poland than it is, say, in Sweden and the Netherlands.
E. Energy Production in the EU
During 2009 the EU met 48 per cent of its energy needs from its own energy production. That is 818 Mtoe out of the 1,703 consumed that year. Sixty-six per cent of EU energy production comes from just five EU Member States: namely the UK, France, Germany, Poland and the Netherlands.151 The breakdown in relation to the 818 Mtoe figure, which represents the amount of EU-produced energy during 2009, is the following: 28 per cent from nuclear power, 19 per cent from gas, 13 per cent from oil, 20 per cent from coal, and 18 per cent from renewables. When comparing these figures to those of 1990, we witness that the share of coal in EU energy production dropped from 39 per cent to 20 per cent, the share of nuclear power increased from 22 per cent to 28 per cent, and reliance on renewables also increased from 7 per cent to 18 per cent.152 However, this should be understood against the fact that EU energy production in 1990 was higher – namely 943 Mtoe – largely due to greater use of coal back then.153 This illustrates the current trade-off between, on the one hand, environmental protection objectives and, on the other, the pursuit of energy security, which, for the most part, relies on hydrocarbons.
The situation between EU members is disparate not least in relation to their reliance on renewable energy. For instance, the most exemplary are Austria, Latvia and Sweden in that 68 per cent, 65 per cent and 58 per cent of their respective electricity needs in 2009 came from renewables at a time when the EU average was circa 18 per cent.154
When it comes to nuclear power – which, while less polluting than hydrocarbons in terms of CO2 and other GHG emissions, is also harmful to the ecosystem – the situation is also disparate between EU members. France leads with 76 per cent of its electricity derived from nuclear power, followed by Lithuania and Slovakia at 70 per cent and 55 per cent respectively, while the Netherlands derives less than 4 per cent of its electricity from nuclear power.155
Several EU states derive more than 50 per cent of their electricity production from gas. For instance, Luxembourg produces 74 per cent of its electricity from gas, the Netherlands about 63 per cent, Ireland about 57 per cent, and Italy about 53 per cent, while Sweden, Slovenia and Poland produce about 2 per cent, 3 per cent and 4 per cent, respectively.156
At the most polluting end of the spectrum is electricity generated by coal and oil. Poland and Estonia derive about 87 per cent and 86 per cent, respectively, of their electricity from coal. The Czech Republic, Greece, Bulgaria and Denmark derive approximately 57 per cent, 56 per cent, 48 per cent, and 47 per cent, of their respective electricity production from coal.157 In terms of electricity produced by oil, Malta and Cyprus derive almost 100 per cent of their electricity from oil, while the rest of the EU members derive between c. 17 per cent and 1 per cent of their electricity needs from this energy source.158
F. Energy Pricing in the EU
In terms of energy prices and taxation, again, the situation is quite uneven.159 For instance, pricing and taxation may vary along several cleavages – e.g., according to energy source and from sector to sector within a national economy, and across the EU membership. For example, during the second semester of 2010 the highest electricity prices for households were in Austria, Belgium, Cyprus, the Czech Republic, Denmark, Germany, Italy, Luxembourg, the Netherlands, Spain and Sweden, while the highest electricity prices for industry were in Denmark, Germany, Ireland, Italy, Spain and Sweden.160 In terms of taxation for household-destined electricity, it is around the 15 per cent mark in Ireland, Malta and the UK, while it is around the 35 per cent mark in Denmark, Germany and Portugal. Taxation for industry-destined electricity is around the 15 per cent mark in Ireland, Luxembourg, Malta and Portugal, while it is around the 35 per cent mark in Denmark and Germany.161
III. OBJECTIVES, SCOPE AND ORIGINALITY
A. Objectives and Scope
This book is about finding solutions for energy security through the international trading system. Energy security is a burning issue in a world where 1.4 billion people still have no access to electricity.162 A solution for energy security is better governance of energy trade. The fact that governance of energy trade is fragmented, disjointed, with selective membership and guided by state interests hinders transnational energy flows and predictability. It also leads to unnecessary legal disputes. We focus mainly on the EU as a case study.
The book analyses the governance and geopolitics of energy trade, aiming at enhancing EU energy security. To that end, we have conducted a holistic and comprehensive analysis of the existing legal and geopolitical instruments to identify the shortcomings of the international and EU energy trade governance systems.
This book focuses on certain issues of energy trade law in relation to energy security questions, which have not been dealt with in detail so far. It discusses both governance and legal-framework questions, namely energy transit issues as well as multilateral, regional and bilateral trade agreements as tools to secure energy supply, with a clear focus on the EU, although not exclusively. The book also deals with legal security, with a discussion of the Yukos case. However, it is not the purpose of this book to exhaustively dissect all areas of energy; rather, specific aspects of energy such as gas, oil, unconventional sources of fossil fuel, and renewable energy. This book is equally not about fossil fuel and renewable energy subsidies, a subject beyond the scope of this study. Moreover, energy security is not only about trade. For instance, there are countries that have all their own energy sources and yet still have issues about reliability of supply and price. In turn, supply of energy is affected by measures to manage demand of energy, such as energy efficiency. This book, however, is conceived as an inquiry into energy trade.
Existing literature has taken a comparative approach,163 but focuses only on some aspects of the problem. Some have carried out their comparative analyses on the trade aspects of energy;164 others on the external dimension of EU energy law and policy165 or the internal dimension of EU energy policy;166 others on the inter-relationships between trade,167 investment,168 transit169 and/or environmental agendas170 vis-à-vis energy;171 and others, while having carried out thorough cross-policy comparative examinations,172 do not explore the systemic implications of their subject matter for EU energy security per se.173 Moreover, there is literature on the implications of global174 and regional systems on energy security,175 specific to certain structures – e.g., the EU176 and the NAFTA – and to limited memberships. Other research looks at the relationship of regional or sectoral systems for global energy governance,177 but does not focus comprehensively on EU energy security.
The advent of the EU has tried to put an end to the divide between domestic and international law. The interaction of different layers of government, their legitimacy and various sources of law in an ever more fragmented legal system has been examined by other scholars.178 There are several approaches to this multilayered governance: a human-rights-based approach,179 mutual recognition,180 constitutional pluralism,181 global administrative law,182 cosmopolitan political theory,183 and theories advocating inherent fragmentation and pluralism.184
C. Why Is the Problem Worth Researching?
Without a deep understanding of the current systemic aspects of energy trade governance and their implications for EU energy security, it is impossible to achieve effective change. Our world faces two major challenges when it comes to energy. For one thing, one person in five on the planet still lacks access to electricity, and almost three billion people still use wood, coal, charcoal or animal waste for cooking and heating. The other main global energy challenge is that, in places with access to modern energy services, the lion’s share of energy usage stems from fossil fuels. The findings of the book may lead to a fuller understanding of the link between energy trade governance and EU energy security, and thus establish the starting point from which EU and national policymakers as well as the academic community can propose reforms. The findings are also likely to be relevant to other jurisdictions beyond the EU.
Recent developments suggest the timeliness and relevance of this book. EU policymakers are giving priority to enhancing EU energy security. The EU is debating the idea of a European Energy Union (which will be analysed later in the book) to enhance energy security. The aim is to achieve affordable, secure and sustainable energy.
Our book sets the ground for future debates focused on regional and universal views of an emerging field within international economic law, international economic relations, and their interplay. This study seeks to tease out specific issues of EU energy security and the degree to which the various elements of the law and governance of international trade in energy in the wider economic context may systemically work in an integrated manner.
D. Ground-breaking Nature of the Book
This study is unique in that there is no similar comparative study that takes a comprehensive approach over energy trade governance and its implications for EU energy security, thereby bringing together and going beyond many strands that predecessor publications left untied. Previous studies have examined specific micro-aspects of the field, e.g., the effect of trade liberalization on energy transit. However, there has been no overarching, cross-disciplinary study that examines the implications of international governance regimes on energy trade and EU energy security. Due to the lack of similar studies, despite the growing research area of energy security, academic literature is limited to the fields of economics and international relations. However, there is a lack of a similar all-embracing outlook to energy security and trade in the academic literature. In fact, this is the first study to analyse the governance of energy trade comprehensively, from the perspective of law, political economy and geopolitics. Looking at energy solely from the perspective of law would not suffice to understand its complexity.
An ambitious goal for the international community would be the creation of a new international energy order that eventually secures energy for all; a paradigm shift from the current institutional and normative framework of global energy trade governance. This book, however, intends to break new ground in international relations and international and EU law by assisting in the gradual constitutionalization of international and EU energy trade law in its wider economic context.185 It aims to lay the ground for future inquiry and discussion in relation to energy security within the context of international economic law, international economic relations, and their interplay. In fact, this study seeks to show that there is a wide range of institutions that pertains to international energy trade governance; yet, there is a misalignment between their respective purposes and mandates. The book will identify the reasons why this is the case. This in-depth concentration on EU energy security, and how it can be enhanced by changing the relationships through trade actors, is where our book is innovative and ground breaking. The ambition of attempting to answer very large research questions in their entirety and seeking to establish a new interdisciplinary field of study at the juncture of two different but related sectors (i.e., trade and energy) is why our book goes beyond the state of the art.
EU energy security can be fostered if energy trading is subject to governance through greater legal cohesiveness (for instance, through the creation of a General Agreement on Trade in Energy in the WTO context) and international political and economic cooperation. Moreover, we argue that the higher the level of legal harmonization, the easier it is to trade energy and, therefore, the greater the level of energy security. The book explores the following:
1. how the fragmentation of the global and European energy trade regimes affects EU energy security;
2. how national interests of sovereign states impact overall energy trade governance;
3. how diversifying its energy sources would help the EU meet its environmental objectives alongside its energy supply diversification objectives.
IV. METHODOLOGY AND RESEARCH QUESTIONS
The book applies the theories of multilevel governance to EU energy trade governance, which (1) guide the conduct of the EU and its Member States towards a duty of cooperation in the energy field and assist with distinguishing energy security concerns at global, supranational, national, regional or local level; and (2) acknowledge the complexity of multilayered energy trade governance. It explores what is the most appropriate allocation of regulatory powers to the various layers of governance.186
To understand energy trade governance, the book also benefits from the regime theory, which argues that regimes or international institutions affect the conduct of states or other international actors in international cooperation. Regime theory will be analysed in the context of idealism187 and realism188 to explain the knowledge gap in international energy trade law and governance, given that it views regimes as intervening variables such as power, interest and values, on the one hand, and behaviour and outcome, on the other.189 The project will also benefit from the concepts of transnational legal order,190 institutional theory,191 regime complexes,192 theories from the economic analysis of law (e.g., rational choice theory)193 and systems theory.194
Importantly, the project, while benefiting from the above-mentioned theoretical work, will devise an appropriate and encompassing theoretical framework, with the ambition of driving a much-needed paradigm shift. Addressing the roots and ramifications of energy trade governance fragmentation requires advancing existing theoretical groundwork towards a comprehensive understanding that will pave the way for further research.
The book looks at the dynamics of change in governance and how governance has to be changing. For instance, where are the limits, especially in the context of transnational policy networks, in global (energy trade) governance? World order describes the distribution of power thought to be applicable to the entire world. An international order is the practical application of this concept to a substantial part of the world. Regional orders involve the same concepts applied to a specific geographic area.195 In the context of the EU, how much unity does it need? How much diversity must it preserve to obtain a meaningful unity? State sovereignty is fragmented and there is a multiplicity of actors which drive the management of social systems.196 Although power is dispersed beyond the state, it has not yet disappeared and its role may have been enhanced as a result of the increased complexity.197 We explore these questions by mapping the regulatory and institutional relations of multilevel energy trade governance.
By linking international trade in energy with EU energy security and by using trade policy tools to promote and improve EU energy security, the book addresses the following research questions:
1. How does current energy trade governance affect EU energy security?
Since the regulation of energy in international law is fragmented and largely incoherent, this question is essential to understand the overall trade in energy system and determine its net effect in terms of EU energy security. This question will reveal the normative gaps in the existing fragmented trade in energy regulatory system as well as the main causes and consequences.
2. How should the international trade in energy system be adapted to ensure EU energy security?
This question aims to propose ways in which gaps could be filled and overlaps eliminated while remaining true to the high-level normative framework, concentrating on those measures which would enhance EU energy security. For instance, there could be a benefit for the multilateral trading system in lowering technical barriers to trade in energy-related goods and services, including in relation to technological goods and services that could encourage the proliferation of renewables.
As for using trade policy tools to promote and improve EU energy security, we recognize that from energy transit, to technology transfer, to investment protection and promotion, energy and trade present interplays across various fields. For instance, what improvements can be made to the EU trading system to ensure greater energy security and more efficient energy markets? From an intra-EU perspective, what are areas for possible reforms? Moreover, would a General Agreement on Trade in Energy provide greater EU energy security?198 All forms of energy should be subject to the same rules. Energy may become part of the 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 ECT 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? The two energy-rich Middle Eastern countries (i.e., Iraq and Iran) 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. These general issues can be divided into two precise questions:
3. How can the EU diversify its energy supply to improve EU energy security?
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. Also, the promotion of sustainable energy use abroad may, in the long run, contribute towards EU energy security indirectly by making more efficient use of energy resources globally. This could be achieved through a variety of means that the European Commission has contemplated in successive communications. The book provides normative recommendations on how this could be facilitated.
The book examines current EU trade policy and EU trade agreements with other countries to assess how energy flows from those countries into the EU are being supported or affected by these agreements. This part of the book entails a thorough exploration of energy-rich countries’ energy trade policies with a view to expanding EU energy trade relations to further diversify EU energy supply.
4. How can the EU’s preferential trade agreements (PTAs) facilitate renewable energy for the EU?
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.199 To this end, it can provide fair competition, economies of scale and knowledge transfer. Very little research has been conducted on the impact of PTAs in addressing climate change mitigation and energy security.200 The PTAs trend seems irreversible and is likely to persist, given the current crisis in the multilateral trading system. 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.
V. STRUCTURE OF THE BOOK
The book is divided into seven chapters. After this overview, Chapter 2 sets the scene of the book and provides a snapshot of multilevel energy trade governance. 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. The chapter 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 WTO. The chapter analyses the multilateral energy trade governance system by focusing on the WTO and energy transportation issues. Regionally, the chapter focuses on four major regional agreements (i.e., NAFTA, the EU, Mercosur and ASEAN) and their energy-related aspects and examines the various causes of the proliferation of regional trade agreements and their compatibility with WTO law. It then provides several examples of regional energy trade governance throughout the world. When it comes to bilateral energy trade governance, Chapter 2 addresses only the EU’s bilateral energy trade relations and uses the EU as a point of departure to explain energy security regionally. Chapter 2 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.
Chapters 3–5 analyse specific cases of energy security. Chapter 3 deals with energy transit from the perspective of the ECT as a means to enhance EU energy security. The Energy Charter provides principles for cross-border cooperation in the energy industry, mainly among the states of Eurasia. The Energy Charter Secretariat produced a second edition of the Model Intergovernmental Agreement and Host Government Agreement 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’.201 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 ECT to use or adopt. Chapter 3 provides an analysis of several intergovernmental agreements and host government agreements on oil and gas transit pipelines in several parts of the world as examples of major transit and trade agreements that operate as tools to secure energy supply.
Chapter 4 examines the system of law and governance of international trade in unconventional fossil fuels. Currently, there is no cohesive governance for global energy trade. As discussed, this has implications for the EU, which relies heavily on the rest of the world for its energy supply, and consequently its energy security. The chapter’s argument is that shale gas and shale oil will revolutionize world energy politics and economics. Irrespective of whether environmentally acceptable extraction technologies and political consensus for the extraction of unconventional sources of fossil fuel in Europe can be found, the EU will not be able to avoid its impacts on global energy markets and will have to adapt EU internal and external energy policies accordingly. Chapter 4 explains the current revolution in unconventional sources of fossil fuel and how it may impact the EU geopolitically.
Chapter 5 analyses concerns that arise out of PTAs and renewable energy from the EU’s perspective. It analyses whether the EU’s PTAs include provisions aimed at promoting renewable energy (RE) to enhance EU energy security and explores the potential of incorporating renewables-related chapters in the EU PTAs to boost the RE market across Europe (and beyond) to reduce EU energy dependence. It examines available renewable energies and the most effective way to combine them with PTAs. It considers these two areas in relation to the current environmental and economic climate. In particular, it focuses on the EU as a single entity and considers how it may conclude trade agreements with countries in regions with RE potential such as the Middle East and North Africa. As a result, the EU will aim at reducing its reliance on receiving conventional energy sources such as the natural gas that the EU has been dependent on for years from Russia.
Chapters 6 and 7 explore future projects to enhance energy security. Chapter 6 asks the question how the EU can diversify its energy supply to improve its energy security. Energy security remains a vital issue for the 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 supply security appears to be more uncertain than ever after the umpteenth falling out 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. The chapter then examines various ways to diversify its energy supply, whether through increasing the import of liquefied natural gas (LNG), through its relations with the Eurasian Union, 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 book concludes with a chapter on the notion of creating a European Energy Union, which analyses what the EU is politically prepared to accept as part of its unified energy security. Together with the perception of energy security being a pressing matter, the general disenchantment surrounding the European ideal in the wake of the rugged economic crisis makes the current task to ensure affordable, secure and sustainable energy a formidable challenge. In that vein, the European Energy Union could well be the flagship of this new step towards a more prosperous, energy-secure and unified Europe, bearing in mind that EU Member States wish to guard their sovereignty over national energy systems. The aim is to make it easier to trade energy inside the EU. In the past, there have been divisions between EU Member States when trying to draft a unified energy policy. The European Energy Union tries to rectify this deficiency. This final chapter proposes the emulation of the EU’s common commercial policy to reach a common position in EU energy policy. Chapter 7 analyses the role of the Energy Community and the Euro-Mediterranean Energy Partnership (EMEP) as avenues to further integrate energy markets beyond European borders, especially with the Eastern and Southern neighbours of the EU. It also dwells on the advancements that could arise in terms of pan-European energy infrastructure through the anticipated financial boost resulting from, inter alia, the Investment Plan for Europe, the European Structural and Investment funds and the Connecting Europe Facility (CEF). Finally, it provides an analysis of the importance of decarbonizing the economy.