Research Handbook On Eu Energy Law and Policy

RESEARCH HANDBOOK ON EU ENERGY LAW AND
POLICY
Rafael Leal-Arcas and Jan Wouters - 9781786431042

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RESEARCH HANDBOOKS IN EUROPEAN LAW
This important series presents a comprehensive analysis of the latest thinking, research and
practice across the field of European Law. Organised by theme, the series provides detailed
coverage of major topics whilst also creating a focus on emerging areas deserving special
attention. Each volume is edited by leading experts and includes specially-commissioned chapters
from distinguished academics as well as perspectives from practice, providing a rigorous and
structured analysis of the area in question. With an international outlook, focus on current
issues, and a substantive analysis of the law, these Handbooks are intended to contribute to
current debate as well as providing authoritative and informative coverage.
Forming a definitive reference work, each Handbook will be essential reading for both scholars
in European law as well as for practitioners and policymakers who wish to engage with the latest
thinking and ongoing debates in the field.
Titles in this series include:
Research Handbook on EU Internet Law

Edited by Andrej Savin and Jan Trzaskowski
Research Handbook on EU Private International Law
Edited by Peter Stone and Youseph Farah
Research Handbook on European Social Security Law
Edited by Frans Pennings and Gijsbert Vonk
Research Handbook on EU Agriculture Law
Edited by Joseph A. McMahon and Michael Cardwell
Research Handbook on EU Criminal Law
Edited by Valsamis Mitsilegas, Maria Bergström and Theodore Konstadinides
Research Handbook on EU Public Procurement Law
Edited by Christopher Bovis
Research Handbook on EU Consumer and Contract Law
Edited by Christian Twigg-Flesner
Research Handbook on EU Institutional Law
Edited by Adam Łazowski and Steven Blockmans
Research Handbook on EU Labour Law
Edited by Alan Bogg, Cathryn Costello and A.C.L. Davies
Research Handbook on the Law of the EU’s Internal Market
Edited by Panos Koutrakos and Jukka Snell
Research Handbook on EU Administrative Law
Edited by Carol Harlow, Päivi Leino-Sandberg and Giacinto della Cananea
Research Handbook on EU Health Law and Policy
Edited by Tamara K. Hervey, Calum Alasdair Young and Louise E. Bishop
Research Handbook on EU Law and Human Rights
Edited by Sionaidh Douglas-Scott and Nicholas Hatzis
Research Handbook on EU Tort Law
Edited by Paula Giliker
Research Handbook on EU Energy Law and Policy
Edited by Rafael Leal-Arcas and Jan Wouters

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Research Handbook on EU Energy
Law and Policy
Edited by
Rafael Leal-Arcas
Professor of European and International Economic Law, Jean Monnet
Chaired Professor of EU International Economic Law and Director of
Research, Queen Mary University of London, UK
Jan Wouters
Full Professor of International Law and International Organizations, Jean
Monnet Chair ad personam EU and Global Governance, and Director
of the Leuven Centre for Global Governance Studies and Institute for
International Law, KU Leuven, Belgium
RESEARCH HANDBOOKS IN EUROPEAN LAW
Cheltenham, UK • Northampton, MA, USA

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© The Editors and Contributors Severally 2017
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or
transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or
otherwise without the prior permission of the publisher.
Published by
Edward Elgar Publishing Limited
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Edward Elgar Publishing, Inc.

William Pratt House
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A catalogue record for this book

is available from the British Library
Library of Congress Control Number: 2017939825
This book is available electronically in the

Law subject collection
DOI 10.4337/9781786431059
ISBN 978 1 78643 104 2 (cased)

ISBN 978 1 78643 105 9 (eBook)
Typeset by Servis Filmsetting Ltd, Stockport, Cheshire

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I dedicate this book to my parents and my two grandfathers. All four spent their entire
professional lives as medical doctors curing patients and serving those who were sick,
providing them with a better and healthier future.
Rafael Leal-Arcas
Washington, DC, 23 December 2016
I dedicate this book to my loving wife and our seven children: David, Clara, Bernadette,
Elisabeth, Pia, An-Katrien and Jozef. May our scholarly work be a source of inspiration
and an appeal for a stronger European and international engagement.
Jan Wouters
Antwerp, 23 December 2016

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Contents
List of contributorsx
Acknowledgementsxiii
Table of casesxiv
Table of legislationxvii
1 Introduction 1
Rafael Leal-Arcas and Jan Wouters
PART I INSTITUTIONAL ASPECTS
2 Competences in EU energy policy 15

Kim Talus and Pami Aalto
3 External competences in energy and climate change 30
Ries Kamphof, Thijs Bonenkamp, Joren Selleslaghs and Madeleine O. Hosli
4 EU energy and competition: analysis of current trends and a first assessment
of the new package 48
Leigh Hancher and Francesco Maria Salerno
5 The European Energy Union 67
Thomas Pellerin-Carlin
PART II EXTERNAL ASPECTS
6 The new global landscape and energy politics in the 21st century 105
Klaus Segbers
7 The role of the ECT in EU–Russia energy relations 114
Andrey Konoplyanik
8 Global energy security and EU energy policy 150
Severin Fischer
9 Rule-maker or rule-taker? The EU and the shifting global political economy
of energy 165
Thijs Van de Graaf
10 The International Energy Charter: a new impetus for global
energy governance? 179
Sijbren de Jong
vii
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viii Research handbook on EU energy law and policy
11 The EU energy security strategy in the Caspian Sea region: addressing the
bear in the room 192
Stratos Pourzitakis
12 Russian energy projects and the global climate, geopolitics and
development conundrum 215
Slawomir Raszewski
PART III ECONOMIC, SOCIAL AND LEGAL ASPECTS
13 The dark side of power: corruption and bribery within the energy industry 237
Costantino Grasso
14 Electricity and gas markets 257
Guy Block and Elvira Saitova
15 Energy Justice: a concept to make the Pigouvian tax work 273
Jan Schmitz, Kai Menzel and Fabian Dittrich
16 Energy and the law of the sea 287
Stephen Minas
17 Access to an effective remedy in business-related human rights violations in
the context of oil and gas disputes 309
Youseph Farah and Malakee Makhoul
18 EU energy law in the maritime sector 335
Beatriz Huarte Melgar
19 A (legal) challenge to privacy: on the implementation of smart meters in the
EU and the US 353
Max Baumgart
20 Paris Agreement: the evolution of international law standards in the
post-ontological framework 370
Antonio Morelli
21 Social science as a starting point? 395
Michael Kattirtzi
PART IV ENVIRONMENTAL AND TECHNOLOGICAL ASPECTS
22 EU Emissions Trading Scheme: preventing carbon leakage before and after
the Paris Agreement 417
Kati Kulovesi
23 Energy and environment 432
József Feiler and Peter Vajda
24 Are smart grids the key to EU energy security? 450
Filippos Proedrou

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Contents ix
25 Renewable energy, waste management and the circular economy in the EU:
solar PV and wind power 460
Feja Lesniewska
26 The role of renewable energy law and policy in meeting the EU’s energy
security challenges 469
Penelope Crossley
27 Energy futures: new approaches to energy choices 486
David Elliott
28 EU energy innovation policy: the curious case of energy efficiency 501
Jan Rosenow and Florian Kern
Index519

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Contributors
Pami Aalto, Jean Monnet Professor (International Relations) at the Faculty of

Management, University of Tampere, Finland. He is also the Director of the consortium
‘Transition to a resource efficient and climate neutral electricity system’ (EL-TRAN),
funded by the Strategic Research Council
Max Baumgart, PhD candidate at both the University of Cologne and the University
of Basel, lecturer at the University of Cologne and fellow in energy law at the Institute
of Public Financial Law, Fiscal Law and Law and Economics at the University of St.
Gallen
Guy Block, Member of the Brussels and Paris Bar; Partner and Head of the Energy
Department of the Janson Baugniet law firm
Thijs Bonenkamp, MSc graduate in International Relations & Diplomacy at Leiden
University and research assistant at Leiden University
Penelope Crossley, Senior Lecturer in Energy and Resources Law, Faculty of Law, The
University of Sydney
Sijbren de Jong, Strategic Analyst at the Hague Centre for Strategic Studies (HCSS) and
a Lecturer in Geo-Economics at Leiden University in the Netherlands
Fabian Dittrich, Professor, University of Applied Sciences and Arts (Dortmund)
David Elliott, Emeritus Professor of Technology Policy, The Open University, UK
Youseph Farah, Senior Lecturer in Commercial Law, University of East Anglia, UK
József Feiler, Senior Associate, European Climate Foundation
Severin Fischer, Center for Security Studies (CSS), ETH Zurich, Switzerland
Costantino Grasso, Lecturer in Business Management and Law, University of East
London, UK; Global MBA Module Leader for Corporate Governance and Ethics,
University of London, UK
Leigh Hancher, Of Counsel, Allen & Overy LLP, Amsterdam and Professor of European
Law, University of Tilburg, the Netherlands; Professor of EU Energy Law, EUI/FSR,
Florence
Madeleine O. Hosli, Professor of International Relations at Leiden University and
Director, UNU-CRIS, Bruges, Belgium
Beatriz Huarte Melgar, Lawyer (Managing Partner), Huarte International, and Secretary
General of the International Organization for Fisheries, Aquaculture and other Marine
Proteins (IOFAMP), Spain
x
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Contributors xi
Ries Kamphof, PhD Candidate at Leiden University, Faculty of Governance and Global
Affairs; Associate Research Fellow at the Clingendael Institute, the Netherlands
Michael Kattirtzi, Research Associate in Science, Technology and Innovation Studies,
University of Edinburgh, UK
Florian Kern, Co-Director of the Sussex Energy Group, Senior Lecturer at the Science
Policy Research Unit (SPRU) and Associate Editor of Research Policy, University of
Sussex
Andrey Konoplyanik, Adviser to Director General, Gazprom export LLC; Co-Chair
Work Stream 2 ‘Internal Markets’, Russia-EU Gas Advisory Council; Professor of
International Oil & Gas Business, Russian State Gubkin Oil & Gas University; Honorary
Fellow, Centre for Energy, Petroleum & Mineral Law and Policy (CEPMLP), University
of Dundee, Scotland, UK
Kati Kulovesi, Professor of International Law, University of Eastern Finland
Rafael Leal-Arcas, Jean Monnet Chaired Professor of EU International Economic Law,
Queen Mary University of London, UK
Feja Lesniewska, Senior Teaching Fellow, School of Law, School of Oriental and African
Studies, University of London and Visiting Research Fellow, Centre for Commercial Law
Studies, Queen Mary University of London, UK
Malakee Makhoul, Lecturer in Law, University of Essex, and Advocate (Member of the
Israeli Bar Association)
Kai Menzel, Senior Lecturer, Federal University of Applied Administrative Sciences
(Bruehl)
Stephen Minas, Assistant Professor, School of Transnational Law, Peking University;
Senior Research Fellow, Transnational Law Institute, King’s College London, UK
Antonio Morelli, SJD candidate, American University Washington College of Law,
Washington, DC, USA
Thomas Pellerin-Carlin, Research Fellow, Jacques Delors Institute, France
Stratos Pourzitakis, PhD Candidate, Hong Kong Baptist University, Department of
Government and International Studies, EU Academic Program in Hong Kong
Filippos Proedrou, Research Fellow in Social Policy (International Affairs), University of
South Wales, UK
Slawomir Raszewski, Department of War Studies, King’s College London, UK
Jan Rosenow, Senior Research Fellow at the Centre on Innovation and Energy Demand,
SPRU, University of Sussex; Honorary Research Associate at Environmental Change
Institute, University of Oxford; Senior Associate at the Regulatory Assistance Project
Elvira Saitova, Member of the Brussels Bar; Associate in the Energy Department of
Janson Baugniet law firm, Belgium

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xii Research handbook on EU energy law and policy
Francesco Maria Salerno, Lawyer, Gianni, Origoni, Grippo, Cappelli & Partners,
Brussels, Belgium
Jan Schmitz, European Commission; Visiting Professor, Queen Mary University London,
UK
Klaus Segbers, Professor for political science and Director of the Center for Global
Politics, Freie Universität of Berlin, Germany
Joren Selleslaghs, PhD candidate at Leiden University, Faculty of Governance and
Global Affairs; EU & Innovation Consultant at PNO Consultants
Kim Talus, Professor of European Energy Law at UEF Law School (University of
Eastern Finland) and University of Helsinki, School of Law; Editor-in-Chief for OGEL
Peter Vajda, Environmental Expert, Energy Community Secretariat
Thijs Van de Graaf, Assistant Professor of International Politics, Ghent University,
Belgium
Jan Wouters, Full Professor of International Law and International Organizations, Jean
Monnet Chair ad personam EU and Global Governance, Director of the Leuven Centre
for Global Governance Studies and Institute for International Law, KU Leuven, Belgium

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Acknowledgements
The financial help from two European Union grants is greatly acknowledged: Jean
Monnet Chair in EU International Economic Law (project number 575061-EPP-1-2016-
1-UK-EPPJMO-CHAIR) and the WiseGRID project (number 731205), funded by the
European Commission’s Horizon 2020. Both grants have been awarded to Prof. Dr.
Rafael Leal-Arcas.
Prof. Dr. Rafael Leal-Arcas
July 2017
xiii
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Table of cases
EUROPEAN
Alands Vindkraft (C-573/12) ECLI:EU:C:2014:2037��15, 60

Almelo (C-393/92) [1994] ECR I-1477�� 15
Borealis Polyolefine GmbH and OMV Refining & Marketing GmbH v Bundesministerfür
Land-, under Forstwirtschaf, Umwelt und Wasserwirtschaft (joined Cases C-191/14 and
C-192/14)��423
DOW Benelux BV and Others v Staatssecretaris van Infrastructur en Milieu and Others (Case
C-295/14)��423
Esso Italiana Srl and Others, Api Raffineria di Ancona SpA, Lucchini in Amministrazione
Straordinaria SpA and Dalmine SpA v Comitato nazionale per la gestione della direttiva
2003/87/CE e per il supporto nella gestione delle attivit. di progetto del protocollo di Kyoto
and Others (Joined Cases C-389/14, C-391/14 to C-393/14 [2016] ECR��423
Commission v Council (Case 22/70) [1971] ECR 263�� 37
Commission v France (C-158/94) [1997] ECR I-5819�� 15
Commission v Germany (Case C-61/84)��291
Commission v Italy (C-159/94) [1997] ECR I-5793�� 15
Commission v Netherlands (C-157/94) [1997] ECR I-5699�� 15
Commission v Sweden (Case C-246/07) [2010] ECR 3317�� 37
Commission decision of April 14, 2010, relating to a proceeding under Article 102 of the Treaty
on the Functioning of the European Union and Article 54 of the EEA Agreement – Case
39351 – Swedish Interconnectors�� 59
Costa v Enel, 6/64, [1964] ECR 585�� 15
ECJ, Decision of 09 November 2010, (joined Cases C-92/09 and C-93/09)
ECLI:EU:C:2010:662��358
ECJ, Decision of 08 April 2014, (joined cases C-293/12 und C-594/12)
ECLI:EU:C:2014:238��359, 360, 361, 362, 364
Eon Ruhrgas and Eon v Commission (T-360/09) T: 2012:332�� 49
Essent Belgium (C‑204/12–C‑208/12) EU:C:2014:2192 (judgment of 11 September 2014)�� 60
Essent Belgium (C‑204/12–C‑208/12) EU:C:2014:2192 (judgment of 29 September 2016)�� 60
Federutility and others (C-265/08) ECR 2010 p. I-3377, ECLI:EU:C:2010:205�� 59
Khodorkovskiy v Russia ECtHR 2011 Case no. 5829/04�� 251, 252
Owusu v Jackson (Case C-281/02) ECR[2005] I-1383��320
Parliament v Council (C-490/10) ECLI:EU:C:2012:525�� 20, 23, 29
Poulsen (Case C-986/90)��292
PreussenElektra v Schleswag [2001] EUECJ C-379/98��476
The Netherlands v European Parliament and Council (Case C-377/98)��291
Vent De Col.re and others (C-262/12) ECLI:EU:C:2013:851�� 60
(judgment of 19 December 2013)�� 60
INTERNATIONAL
Aegean Sea Continental Shelf (Greece/Turkey) (Interim Measures) [1976] ICJ Rep 3��298
Bay of Bengal Arbitration between Bangladesh and India, In the Matter of, Award, PCA, The
Hague, 7 July 2014��298
Corfu Channel Case (Merits, Judgment), 1949 I.C.J. Rep. 46��289
Dispute Concerning Delimitation of the Maritime Boundary between Ghana and Cote
xiv
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Table of cases xv
d’Ivoire in the Atlantic Ocean (Ghana/Cote d’Ivoire, Request for the Prescription of
Provisional Measures), Order of 25 April 2015��299
Guyana/Suriname Case (Arbitral Tribunal) (Award) (2007)�� 29
Hulley Enterprises Ltd (Cyprus) v Russian Federation (International Energy Charter, investment
dispute settlement case, 03.02.2005)��145
Klockner v Cameroon, Ad Hoc Committee Decision, May 3, 1985��330
Lotus, The (Judgment No. 9), 1927, P.C.I.J., Series A, No. 10��289
Maritime Delimitation and Territorial Questions between Qatar and Bahrain Merits, Judgment
of 16 March 2001, ICJ Reports 2001��293
North Sea Continental Shelf Cases (Federal Republic of Germany/Denmark; Federal
Republic of Germany/Netherlands), Judgment of 20 February 1969, ICJ Reports 1969��293
Philippines v China, South China Sea Arbitration, Award, Permanent Court of Arbitration, 12
July 2016��300, 301, 302
Veteran Petroleum Trust (Cyprus) v Russian Federation (International Energy Charter,
investment dispute settlement case, 03.02.2005)��145
Yukos Universal Ltd (UK - Isle of Man) v Russian Federation (International Energy Charter,
investment dispute settlement case, 03.02.2005)��145
NATIONAL
Spain
Tribunal Supremo sentencia no. 1425/2012, de 7 de febrero and sentencia no. 334/2016, de 2 de
noviembre�� 60
The Netherlands
Friday Alfred Akpan et al. v Royal Dutch Shell Plc et al, Court of The Hague, Judgment in
motion contesting jurisdiction of 30 December 2009, Case No 330891/HA ZA 09-57��321
Friday Alfred Akpan et al. v Royal Dutch Shell Plc et al., Case C/09/337050/HA ZA 09-150,
District Court of The Hague, 30 January 2013��320
United Kingdom
Amin Rasheed Shipping Corp v Kuwait Insurance Co [1984] AC 50��331

Bodo Community and others v Shell Petroleum Development Company of Nigeria Ltd [2014]
EWHC 1973 (TCC); [2014] EWHC 2170 (TCC)��322
Chandler v Cape Plc [2012] EWCA (Civ) 525��320
Greenpeace v Secretary of State for Trade and Industry [2007] EWHC 311��405
Guerrero v Monterrico Metal plc [2009] EWHC 2475 [2010] EWHC 3228��322
Motto v Trafigura Ltd [2011] EWCA Civ 1150��323
Porter v Magill [2002] 2 AC 357��333
R v Gough [1993] AC 646��333
Shamil Bank of Bahrain EC v Beximico Pharmaceuticals Ltd [2004] EWCA Civ 19��331
Vava and Ors v Anglo American of South Africa Ltd [2013] EWHC 2131 (QB), [2013] Bus LR
D65��321
Yao Essaie Motto and Others v Trafigura Ltd and Trafigura Beheer BV [2011] EWCA Civ
1150��322
United States of America
Al Shimari v CACI Premier Technology, Inc., 758 F.3d 516 (4th Cir. 2014)��325
Baloco v Drummond Co., 767 F.3d 1229, 1238 (2014)��325
Cardona v Chiquita Brands International, Inc., 760 F.3d 1185 (11th Cir. 2014)�� 325, 332

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xvi Research handbook on EU energy law and policy
Doe v Unocal, 395 F.3d 932 (9 Cir. 2002)��322

Friedman and others v. Public Utilities Commission, Maine Supreme Judicial Court, 12 July
2012��366
Kadic v Karadžić 70 F.3d 232 (2nd Cir. 1995)��323
Khulumani v Barclay Nat’l Bank Ltd., 504 F.3d 254, 2007 U.S. ��324
Kiobel v Royal Dutch Petroleum, 621 F. 3d 111, 2010 U.S.�� 324, 325, 332, 333
Kiobel v Royal Dutch Petroleum 133 U.S. 1659 (2013)�� 311, 323, 324, 333
Kyllo v. United States, Decision of 11 June 2001, 533 U.S. 27��366
Naperville Smart Meter Awareness v. City of Naperville, Decision of 26 September 2016, Case
1:11-cv-09299 (Northern District of Illinois)��366
Presbyterian Church of Sudan v Talisman Energy, Inc., 582 F.3d 244; 2009 U.S. ��324
Smith v. Maryland, Decision of 20 June 1979, 442 U.S., 735��365
Sosa v Alvarez-Machain, 542 U.S. 692�� 323, 324
Wiwa v Royal Dutch Shell, 226 F.3d 88 (2nd Cir. 2000)��322

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Table of legislation
EUROPEAN UNION through grids (OJ L 147, 12.6.1991, pp.

37–40)��259
Commission Decision of 27 April 2011 Council Directive 92/75/EEC of 22
determining transitional Union-wide September 1992 on the indication
rules for harmonized free allocation by labelling and standard product
of emission allowances pursuant to information of the consumption
Article 10a of Directive 2003/87/EC of of energy and other resources by
the European Parliament and of the household appliances (OJ L 297,
Council (OJ L130, 17.5.2011, p. 1)��422 13.10.1992, pp. 16–19)��504
recitals 1, 4��422 Council Directive 96/61/EC of 24 September
Commission Decision of 5 September 2013 1996 concerning integrated pollution
concerning national implementation prevention and control (OJ L257,
measures for the transitional free 10.10.1996, pp. 26–40)��418
allocation of greenhouse gas emission Council Directive 1999/31/EC of 26 April
allowances in accordance with Article 1999 on the landfill of waste (OJ L
11(3) of Directive 2003/87/EC of 182, 16.7.1999, pp. 1–19)��464
the European Parliament and of the art 1��464
Council (2013/448/EU) (OJ L240, Council Directive 2003/96/EC of 27 October
7.9.2013, p. 27)�� 422–423 2003 restructuring the Community
Commission Decision of 27 October 2014 framework for the taxation of energy
determining, pursuant to Directive products and electricity (OJ L 283,
2003/87/EC of the European 31.10.2003, p. 51)��24, 278, 279
Parliament and of the Council, a list recitals 2–7��278
of sectors and subsectors which are recital 11�� 279, 280
deemed to be exposed to a significant recital 28��279
risk of carbon leakage, for the period art 4��279
2015 to 2019 (OJ L308. 27.10.2014, pp. art 19�� 279, 280
114–124)��422 Annex I, II�� 279s
Commission Regulation (EU) 2015/1222 of Council Directive 2004/67/EC of 26 April
24 July 2015 establishing a guideline 2004 concerning measures to safeguard
on capacity allocation and congestion security of natural gas supply (OJ L
management (OJ L 197, 25.7.2015, pp. 127, 29.4.2004, pp. 92–6)�� 22, 159
24–72)�� 64, 263 Council Directive 2009/119/EC of
Council Directive 75/442/EEC of 15 July 14 September 2009 imposing an
1975 on waste (OJ L 194, 25.7.1975, obligation on Member States to
pp. 47–49)��464 maintain minimum stocks of crude oil
Council Directive 90/377/EEC of 29 and/or petroleum products
June 1990 concerning a Community (OJ L 265, 9.10.2009, pp. 9–23)��158
procedure to improve the transparency Decision No 1364/2006/EC of the European
of gas and electricity prices charged Parliament and of the Council
to industrial end-users (OJ L 185, of 6 September 2006 laying down
17.7.1990, pp. 16–24)��258 guidelines for trans-European energy
Council Directive 90/547/EEC of 29 networks (OJ L 262, 22.9.2006, pp.
October 1990 on the transit of 1–23)��342
electricity through transmission grids Decision No 994/2012/EU of the European
(OJ L 313, 13.11.1990, pp. 30–33)��259 Parliament and of the Council of
Council Directive 91/296/EEC of 31 May 25 October 2012 establishing an
1991 on the transit of natural gas information exchange mechanism
xvii
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xviii Research handbook on EU energy law and policy
with regard to intergovernmental Parliament and of the Council of 27

agreements between Member States September 2001 on the promotion
and third countries in the field of of electricity produced from
energy (L299, 27.10.2012, pp. 13–17)��76 renewable energy sources in the
Decision (EU) 2015/1814 of the European internal electricity market (OJ L 283,
Parliament and of the Council of 27.10.2001, pp. 33–40)�� 49, 476
6 October 2015 concerning the art 4��476
establishment and operation of a Directive 2001/80/EC of 23 October 2001
market stability reserve for the Union on the limitation of emissions of
greenhouse gas emission trading scheme certain pollutants into the air from
and amending Directive 2003/87/EC large combustion plants (OJ L 309,
(OJ L264, 9.10.2015, pp. 1–5)�� 420 27.11.2001, pp. 1–21)��440
recital 5��420 Directive 2002/21/EC of the European
Directive 94/22/EC of the European Parliament and of the Council
Parliament and of the Council of of 7 March 2002 on a common
30 May 1994 on the conditions for regulatory framework for electronic
granting and using authorizations communications networks and services
for the prospection, exploration and (OJ L 108, 24.4.2002, p. 33–35)��51
production of hydrocarbons (OJ L Directive 2002/58/EC of the European
164, 30.6.1994, pp. 3–8)��347 Parliament and of the Council
Directive 95/46/EC of the European of 12 July 2002 concerning the
Parliament and of the Council of processing of personal data and the
24 October 1995 on the protection protection of privacy in the electronic
of individuals with regard to the communications sector (OJ L 201,
processing of personal data and on the 31.7. 2002, pp. 37–47)��357
free movement of such data (OJ L 281, Directive 2002/91/EC of the European
23.11.1995, pp. 31–500)��357 Parliament and of the Council of
Directive 96/30/EC of the European 16 December 2002 on the energy
Parliament and the Council of 19 performance of buildings (OJ L 1,
December 1996 concerning common 4.1.2003, pp. 65–71)��502, 505, 507
rules for the internal market in Directive 2002/96/EC of the European
electricity (OJ L 27/10)��259 Parliament and of the Council of
Directive 96/92/EC of the European 27 January 2003 on waste electrical
Parliament and of the Council of 19 and electronic equipment (WEEE)
December 1996 concerning common - Joint declaration of the European
rules for the internal market in Parliament, the Council and the
electricity (OJ 1997, L 27, 30.1.1997, Commission relating to Article 9 (OJ L
pp. 20–29)��16, 48, 49, 53, 78, 79, 37, 13.2.2003, p. 24–39)�� 464, 466
128, 129, 130, 131, 133, 259, 260 Directive 2003/54/EC of the European
Directive 98/30/EC of the European Parliament and of the Council of 26
Parliament and of the Council of 22 June 2003 concerning common rules
June 1998 concerning common rules for the internal market in electricity
for the internal market in natural gas and repealing Directive 96/92/EC (OJ
(OJ L 204, 21.7.1998, pp. 1–12) ��16, L 176, 15.7.2003, p. 37)�� 3, 16, 48,
48, 49, 53, 128, 129, 130, 131, 53, 119, 128, 129, 130, 131,
133, 158, 259, 260 133, 136, 259, 260, 261
Council Directive 1999/32/EC of 26 April art 3(6)��477
1999 relating to a reduction in the Directive 2003/55/EC of the European
sulphur content of certain liquid fuels Parliament and of the Council of 26
(OJ L 121, 11.5.1999, pp. 13–18)��343 June 2003 concerning common rules
Directive 2000/53/EC of the European for the internal market in natural gas
Parliament and of the Council of 18 (OJ L 176/57–78)�� 3, 16, 48, 53, 119,
September 2000 on end-of life vehicles 128, 129, 130, 131, 133, 136,
(OJ L 269, 21.10.2000, pp. 34–43)��464 158, 259, 260, 261
Directive 2001/77/EC of the European arts 21–22��119

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Table of legislation xix
Directive 2003/87/EC of the European 2003/87/EC so as to improve and

Parliament and of the Council of 13 extend the greenhouse gas emission
October 2003 establishing a scheme for allowance trading scheme of the
greenhouse gas emission allowances Community (OJ L140, 5.6.2009, pp.
trading within the Community (OJ L 63–87)��419
275, 25.10.2003, pp. 32–46)�� 339, 418, recital 21��419
421, 422, 440 recital 26��425
art 9��419 art 9��419
art 10a(5)��423 art 10(b)��425
Directive 2005/89/EC of the European Directive 2009/30/EC of the European
Parliament and of the Council of 18 Parliament and of the Council of
January 2006 concerning measures to 23 April 2009 amending Directive
safeguard security of electricity supply 98/70/EC as regards the specification
and infrastructure investment (OJ L of petrol, diesel and gas-oil and
33, 4.2.2006, pp. 22–27)��22, 263, 270 introducing a mechanism to monitor
Directive 2006/32/EC of the European and reduce greenhouse gas emissions
Parliament and of the Council of 5 and amending Council Directive
April 2006 on energy end-use efficiency 1999/32/EC as regards the specification
and energy services and repealing of fuel used by inland waterway vessels
Council Directive 93/76/EEC (OJ L and repealing Directive 93/12/EEC (OJ
114, 27.4.2006, pp. 64–85)��502 L 140, 5.6.2009, p. 88–113)�� 172, 345
Directive 2008/56/EC of the European Directive 2009/72/EC of the European
Parliament and of the Council of 17 Parliament and of the Council of 13
June 2008 establishing a framework July 2009 concerning common rules for
for community action in the field of the internal market in electricity and
marine environmental policy (OJ L repealing Directive 2003/54/EC (OJ L
164, 25.6.2008, pp. 19–40)��341 211, 14.8.2009, pp. 55–93)�� 17, 26,
Directive 2008/98/EC of the European 48, 49, 50, 51, 53–54, 55, 57, 61,
Parliament and of the Council of 62, 76, 128, 129, 130, 131, 133,
19 November 2008 on waste and 171, 173, 176, 216, 261, 262, 263,
repealing certain Directives (OJ L 312, 264, 364, 368
22.11.2008, pp. 3–30)��464 recitals 33, 34��55
arts 5, 8��465 arts 9, 10�� 54, 56
art 15��465 art 22��56
Directive 2009/16/EC of the European art 37��56
Parliament and of the Council of 23 Annex I, para 2��365
April 2009 on port State control (OJ L Annex I, para 2(1)�� 356, 361
131, 28.5.2009, pp. 57–100)�� 337, 338 Annex I, para 2(4)�� 361, 363
Directive 2009/28/EC of the European Annex I, para 2(5)�� 357, 363
Parliament and of the Council of 23 Directive 2009/73/EC of the European
April 2009 on the promotion of the use Parliament and of the Council of 13
of energy from renewable sources and July 2009 concerning common rules for
amending and subsequently repealing the internal market in natural gas and
Directives 2001/77/EC and 2003/30/EC repealing Directive 2003/55/EC (OJ L
(OJ L 140, 5.6.2009, pp. 16–62)��20, 211, 14.8.2009, pp. 94–136)��17,
22, 49, 160, 175, 345, 395, 461, 476, 26, 48, 49, 50, 51, 53–54, 55, 61,
477–479, 483 62, 76, 119, 128, 129, 130, 131,
recital 25��477 133, 158, 171, 173, 176, 216, 261,
art 2(j)��477 262, 263, 264
arts 2–4��461 arts 9, 10�� 54, 56
art 6��478 art 13(4)��56
arts 7–11��478 art 22��56
Directive 2009/29/EC of the European art 34 ��55
Parliament and of the Council of arts 35–36��119
23 April 2009 amending Directive art 41��56

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xx Research handbook on EU energy law and policy
Directive 2009/125/EC of the European art 9(1)�� 356, 357, 361, 362, 364
Parliament and of the Council of art 9(2)(b)��357, 359, 364
21 October 2009 establishing a Directive 2012/33/EU of the European
framework for the setting of ecodesign Parliament and of the Council of
requirements for energy-related 21 November 2012 amending Council
products (OJ L 285, 31.10.2009, pp. Directive 1999/32/EC as regards the
10–35)�� 502, 506–507 sulphur content of marine fuels (OJ L
Directive 2010/30/EU of the European 327, 27.11.2012, pp. 1–13)�� 340, 343
Parliament and of the Council of Directive 2013/30/EU of the European
19 May 2010 on the indication by Parliament and of the Council of 12
labelling and standard product June 2013 on the safety of offshore
information of the consumption of oil and gas operations and amending
energy and other resources by energy- Directive 2004/35/EC (OJ L 178,
related products (OJ L 153, 18.6.2010, 28.6.3013, pp. 66–106)�� 315, 347
pp. 1–12)��504 art 20��315
Directive 2010/31/EU of the European Directive 2013/34/EU of the European
Parliament and of the Council Parliament and of the Council of
of 19 May 2010 on the energy 26 June 2013 on the annual financial
performance of buildings (OJ L 153, statements, consolidated financial
18.6.2010, pp. 13–35)�� 502, 505 statements and related reports of
Directive 2010/65/EU of the European certain types of undertakings (OJ L
Parliament and of the Council 182, 29.6.2013, pp. 19–76)��255
of 20 October 2010 on reporting Directive 2014/89/EU of the European
formalities for ships arriving in and/or Parliament and of the Council, 23 July
departing from ports of the Member 2014, establishing a framework for
States (OJ L 283, 29.10.2010, pp. maritime spatial planning (OJ L 257,
1–100)��342 28.8.2014, pp. 135–145)��289
Directive 2010/75/EU of the European para 1��289
Parliament and of the Council of Directive 2014/94/EU of the European
24 November 2010 on industrial Parliament and of the Council of 22
emissions (integrated pollution October 2014 on the deployment of
prevention and control) (OJ L 334, alternative fuels infrastructure (OJ L
17.12.2010, pp.17–119)�� 438, 441 307, 28.10.2014, pp. 1–20)�� 349, 351
art 8��441 Directive 2014/95/EU of the European
art 30(2)��440 Parliament and of the Council
art 79��441 of 22 October 2014 amending
Directive 2012/19/EU of the European Directive 2013/34/EU as regards
Parliament and of the Council of disclosure of non-financial and
4 July 2012 on waste electrical and diversity information by certain large
electronic equipment (WEEE) (OJ L undertakings and groups (OJ L 330,
197, 24.7.2012, pp. 38–71)��464, 466, 468 15.11.2004, pp.1–9)��316
recital 6��465 Directive (EU) 2015/2193 of the European
art 1��464 Parliament and of the Council of 25
Directive 2012/27/EU of the European November 2015 on the limitation of
Parliament and of the Council of 25 emissions of certain pollutants into the
October 2012 on energy efficiency, air from medium combustion plants
amending Directives 2009/125/EC and (OJ L 313, 28.11.2015, pp. 1–19)�� 440
2010/30/EU and repealing Directives EC Treaty
2004/8/EC and 2006/32/EC (OJ L 315, art 6��278
14.11.2012, pp. 1–56)��29, 175, 368, art 93��278
395, 502, 506 art 95�� 20, 22
art 1��361 art 100��22
arts 3, 5, 6��506 art 175(1)�� 20, 22
art 7��506 Energy Community Treaty 2006�� 129, 130,
arts 812��506 131, 442

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Table of legislation xxi
EU Charter of Fundamental Rights�� 8, 314, Regulators (OJ L 211, 14.8.2009, pp.

318, 319 1–14)�� 17, 26, 48, 49, 50,
art 7�� 8, 354, 357, 358, 359–360, 51, 53–54, 55, 57, 61, 62, 76, 128,
363, 364, 368, 369 129, 130, 131, 133, 136, 158, 159,
art 8�� 358, 359, 368, 369 171, 173, 176, 216, 262, 263, 264
art 47�� 318, 319 art 6(2), (3), (4)��59
art 51��318 art 8��57
art 52(1)��361 art 9(1)��57
European Atomic Energy Community art 16(1)��57
Treaty 1957��15, 39, 73, 148, 257 Regulation (EC) No 714/2009 of the
European Coal and Steel Community Treaty European Parliament and of the
1951��15, 194, 257 Council of 13 July 2009 on conditions
European Convention for the Protection for access to the network for cross-
of Human Rights and Fundamental border exchanges in electricity (OJ L
Freedoms��251, 318, 319 211, 14.8.2009, pp. 15–35)�� 17, 26,
art 3��251 48, 49, 50, 51, 53–54, 55, 58, 61,
art 5(1)(b)��252 62, 76, 128, 129, 130, 131,
art 5(3)��252 133, 136, 171, 173, 176, 216,
art 6��318 261, 262, 263, 264, 269
art 8��358 recital 6��263
art 13��318 recital 17��58
European Parliament and Council Directive art 3��54
94/62/EC of 20 December 1994 on art 4��58
packaging and packaging waste (OJ L art 6��58
365, 31.12.1994, p. 10–23)��464 art 6(2)��263
Regulation (EC) No 1228/2003 of the art 9��59
European Parliament and of the art 9(2)��59
Council of 26 June 2003 on conditions art 17��55
for access to the network for cross- art 17�� 55, 57
border exchanges in electricity (OJ L art 17(5)��57
176, 15.7.2003, p. 1)�� 3, 16, 48, 53, 119, art 17(7)��55
128, 129, 130, 131, 133, 136, 261 art 17(8)��55
Regulation (EC) No 1775/2005 of 28 art 18��58
September 2005 on conditions for Regulation (EC) No 715/2009 of the
access to the natural gas transmission European Parliament and of
networks (OJ L 289, 3.11.2005 pp. the Council of 13 July 2009 on
1–13)��48, 158, 216 conditions for access to the natural
Regulation (EC) No 864/2007 of the gas transmission networks (OJ L 211,
European Parliament and of the 14.8.2009, pp. 36–54)�� 17, 26,
Council of 11 July 2007 on the 48, 49, 50, 51, 53–54, 55, 57, 61,
law applicable to non-contractual 62, 76, 128, 129, 130, 131, 133,
obligations, (OJ L 199, 31.7.2007, pp. 136, 158, 171, 173, 176, 216, 261,
40–49) (Rome II Regulation)�� 321, 331 262, 263, 264
art 4(1)��331 recital 16��58
art 14��332 art 3��54
Regulation (EC) No 593/2008 of the art 4��58
European Parliament and of the art 6��58
Council of 17 June 2008 on the law art 9��59
applicable to contractual obligations art 9(2)��59
(OJ L 177, 4.7.2008, pp. 6–16) (Rome art 18��58
I)��331 art 36��55
Regulation (EC) No 713/2009 of the art 36(4), (5)��57
European Parliament and of the Regulation (EC) No 67/2010 of the
Council of 13 July 2009 establishing an European Parliament and of the
Agency for the Cooperation of Energy Council of 30 November 2009 laying

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xxii Research handbook on EU energy law and policy
down general rules for the granting of No 1906/2006 (OJ L 347, 20.12.2013,
Community financial aid in the field pp. 81–10)��348
of trans-European networks (OJ L 27, Regulation (EU) No 508/2014 of the
30.1.2010, pp. 20–32)��81 European Parliament and of the
Regulation (EU) No 994/2010 of the Council of 15 May 2014 on the
European Parliament and of European Maritime and Fisheries
the Council of 20 October 2010 Fund (OJ L 149, 20.5.2014, pp.
concerning measures to safeguard 1–66)��341
security of gas supply (OJ L 295, arts 41, 48��343
12.11.2010, pp. 1–22)�� 18, 23, 28, 76, 159 Regulation (EU) No 176/2014 of 25
recital 20��18 February 2014 amending the
arts 3, 9–12��18 Regulation (EU) No 1031/2010 in
Regulation (EU) No 1227/2011 of the particular to determine the volumes of
European Parliament and of the greenhouse gas emission allowances to
Council of 25 October 2011 on be auctioned in 2013–2020 (OJ L56,
wholesale energy market integrity and 26.2.2014, pp.11–13)��420
transparency (REMIT) (OJ L 326, Regulation (EU) 2015/757 of the European
8.12.2011, pp. 1–16)��57 Parliament and of the Council of
art 16(1)��57 29 April 2015 on the monitoring,
art 16(4)(c)��57 reporting and verification of carbon
Regulation (EU) No 1255/2011 of the dioxide emissions from maritime
European Parliament and of the transport, and amending Directive
Council of 30 November 2011 2009/16/EC (OJ L 123, 19.5.2015, pp.
establishing a programme to support 55–76)��337
the further development of an Regulation (EU) 2016/679 of the European
integrated maritime policy (OJ L 321, Parliament and of the Council of 27
5.12.2011, pp. 1–10) April 2016 on the protection of natural
reg 2(e)��292 persons with regard to the processing
Regulation (EU) No 1215/2012 of the of personal data and on the free
European Parliament and of the movement of such data, and repealing
Council of 12 December 2012 on Directive 95/46/EC (General Data
jurisdiction and the recognition and Protection Regulation) (OJ L 119,
enforcement of judgments in civil 4.5.2016, pp. 1–88)��357
and commercial matters (OJ L 351, Single European Act 1986��20, 37, 258
20.12.2012, pp. 1–32) (Brussels I)��320, Treaty of Lisbon amending the Treaty
322, 323 on European Union and the Treaty
art 1��320 establishing the European Community,
art 2.1��320 signed at Lisbon, 13 December 2007
art 4�� 320, 321 (OJ C 306, 17.12.2007, pp. 1–271) ��1, 18,
art 62�� 321, 322 19, 20, 28, 31, 36, 40, 45, 139,
art 63.1��320 141, 171, 177, 197, 202, 278, 475, 501
Regulation (EU) No 347/2013 of the Treaty of Rome 1957��20, 121, 128, 129, 257
European Parliament and of Treaty on European Union 2009 (TEU)��314,
the Council of 17 April 2013 on 475
guidelines for trans-European energy art 2��314
infrastructure (OJ L 115, 25.4.2013, pp. art 3�� 361, 363
39–75)��34 art 3(3)��314
Regulation (EU) No 1290/2013 of the art 4��278
European Parliament and of the art 4(3)�� 37, 76
Council of 11 December 2013 laying art 11��276
down the rules for participation art 5(2)��314
and dissemination in “Horizon art 5(3)�� 314, 478
2020 - the Framework Programme art 5(4)��314
for Research and Innovation (2014- art 6��314
2020)” and repealing Regulation (EC) art 15(1)��39

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Table of legislation xxiii
art 17(1)��39 Kingdom of Jordan and the

art 21(3)��39 Government of the Republic of
art 22(1)��39 Singapore (2004)
Treaty on the Functioning of the European art 13��329
Union 2009 (TFEU)��18, 257, 475 Energy Charter Treaty 1994 (ECT)�� 3, 4, 43,
art 2(2)�� 477, 478 114, 126, 130–149, 173, 179, 180, 186, 195
art 4�� 31, 40 art 7�� 127, 137, 138
art 4(1)��314 art 7(5)��186
art 11�� 18, 21 art 18��125
art 21��315 art 24(3)�� 147, 148
art 37��21 art 26�� 141, 144, 145, 188
arts 81, 82��318 art 26(3)��329
art 101�� 50, 51 art 26(8)��145
art 108(3)��60 art 27��148
art 113��278 art 45(1), (2)��187
art 114�� 20, 22 art 47(3)��141
art 122�� 18, 19, 23 Equator Principles III, June 2013�� 329, 330
art 122(1)�� 18, 22 principle 6��330
art 126��65 General Agreement of Trade and Tariffs
art 170��18 1947 (GATT)�� 121, 127, 149, 242
art 191��18, 20, 35, 40 art 5��127
art 192�� 20, 23, 278, 280 International Centre for the Settlement of
art 192(1)��20, 22, 464 Investment Disputes��330
art 192(2)�� 21, 24 art 42��331
art 192(2)(c)��21 International Convention for the Prevention
art 194��1, 18, 19, 20, 21, 22, 23, 28, 29, of Pollution from Ships, London, 2
39, 60, 278, 290, 314, 469, 477 November 1973, amended by the 1978
art 194(1)�� 314, 477 Protocol (London, 1 June 1978) 1340
art 194(1)(a)��18 UNTS 184 (MARPOL)�� 304, 336
art 194(1) (b)�� 18, 28 Annex VI��304, 336, 343
art 194(1)(c)��18, 278, 361 reg 5(4)��304
art 194(1)(d)��18 International Energy Charter (IECT) May
art 194(2)�� 18, 21, 23, 24, 60, 314, 477 2015��5, 179–189
art 194(3)��24, 157, 314 International Maritime Organization, 1974,
art 211��38 SOLAS, International Convention for
art 221��39 the Safety of Life at Sea��350
art 258��50 International Maritime Organization,
art 260(3)��26 1978, International Convention on
Standards of Training, Certification
and Watchkeeping for Seafarers��351
INTERNATIONAL TREATIES AND International Maritime Organization, 2008
CONVENTIONS Guidelines and Standards for the
Removal of Offshore Installations and
Agreement between the Republic of Cyprus Structures on the Continental Shelf
and the Arab Republic of Egypt on and in the EEZ. IMO Resolution
the Delimitation of the Exclusive A.672��304
Economic Zone, 17 February 2003��300 International Maritime Organization,
Agreement between the Government of the 2009, Interim Guidelines on Safety
State of Israel and the Government for Natural Gas-Fuelled Engine
of the Republic of Cyprus on the Installations in Ships��350
delimitation of the exclusive economic art 1.1.3��350
zone, 17 December 2010, UNTS International Maritime Organization, 2017,
2740��300 International code of safety for ships
Bilateral Investment Treaty between the using gases or other low-flash point
Government of the Hashemite fuels��350

LEAL-ARCAS_9781786431042_t.indd 23 08/09/2017 13:02

xxiv Research handbook on EU energy law and policy
International Ship and Port Facility Security UNCITRAL Model Law on International
Code, 2003��351 Commercial Arbitration (1985)��141
Japan and the Republic of Korea, art 12��333
Agreement concerning joint art 27��332
development of the southern part of UN Convention against Corruption,
the continental shelf adjacent to the Resolution 58/4 of 31 October 2003�� 5,
two countries, Seoul, 30 January 238, 239, 244
1974��301 UN Convention on the High Seas, Geneva
Maritime Boundary Agreement between 1958
the Government of the State of Israel art. 24 ��303
and the Government of the Hashemite UN Convention on the Law of the Sea
Kingdom of Jordan, 18 January 1996�� 300 (UNCLOS)�� 6, 7, 287–308, 346, 347
Memorandum on the Regime of the High preamble��287
Seas, UN Doc. A/CN.4/32, 14 July art 1��347
1950��293 art 1(1)��296
MERCOSUR��121 art 1(3)��297
North America Free Trade Agreement art 1(4)��303
(NAFTA)��121 Pt II��290
Organization for Economic Cooperation arts 2, 3��293
and Development (OECD)�� 43, 121, arts 17–19��293
179, 243 art 24��303
OECD Convention on Combating art 33(1), (2)��294
Bribery of Foreign Public Officials in Pt III��290
International Business Transactions Pt IV��290
2009��243 Pt V��290
art 1(1)��243 art 55��294
OECD Guidelines for Multinational art 56��294
Enterprises (OECD Publishing 2011) art 56(2)��295
s I��326 art 58(1)��295
Office of the High Commissioner for art 60(1)��294
Human Rights, ‘Guiding Principles art 74(1), (2)��297
for Business and Human Rights: art 74(3)��298
Implementing the United Nations Pt VI�� 290, 294
“Protect, Respect and Remedy” art 76(1)��295
Framework’ UN New York and art 77 (1), (2)��294
Geneva 2011, HR/PUB/11/04 art 77(3)��295
(UNGPS)�� 7, 309–313, 315, 326, 331 art 77(4)��294
Principles 12, 13��312 art 79(1), (4)��295
Principle 17�� 313, 328 art 81��295
Principle 25��326 art 82��296
Principle 26��318 art 82(1), (2)��295
Principle 29��326 art 82(3)��296
Principle 30��328 art 82(4)��295
Principle 31��327, 328, 330 art 83(1), (2)��297
Paris Agreement on Climate Change 2015, art 83(3) ��298
UNFCCC/CP/2015/L.9/Rev.1�� 5, 8, 9, Pt VII��290
30, 41–42, 84, 88, 94, 95, 113, 164, art 86��296
217, 264, 278, 336, 370–394, 418, art 89��296
424, 428, 430, 434, 446, 463, 483 Pt VIII��290
art 2.1(a)��370 art 121(1)–(3)��297
art 4�� 84, 95 Pt IX��290
art 4.3, .4, .9��427 art 123�� 290, 298
art 6.2��427 PT X��290
art 6.4��428 Pt XI�� 290, 291
Peace of Westphalia 1648��106 art 133(a)��296

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Table of legislation xxv
art 136��296 NATIONAL

art 137(1), (2)��296
art 140��297 Brazil
Pt XII�� 290, 303
art 194(1), (3)��303 Anti-Corruption Act (Federal Law
Pt XIII��290 12,846/2013)��254
Pt XIV��290
Pt XV�� 290, 297 Canada
Annex IX��291
art 1��291 Corruption of Foreign Public Officials Act
art 5(1)��291 (S.C. 1998, c. 34)��253
UN Framework Convention on Climate
Change�� 31, 37, 41–42, 94, 217, 218, Italy
303, 426
UN Framework Convention on Climate Anti-Corruption Law: Law no. 190, 6
Change, Kyoto Protocol 1997�� 69, 175, November 2012��254
217, 278, 373, 389, 418, 421, 424, Decree n. 49/2014 Attuazione della
427, 502 direttiva 2012/19/UE sui rifiuti
UN General Assembly International di apparecchiature elettriche ed
Covenant on Civil and Political Rights, elettronice (RAEE)��466
16 December 1966��318
art 2(3)��317 Mexico
art 14 ��317
UN General Assembly, Resolution 69/292, National Anti-Corruption System 2016��254
A/RES/69/292, 6 July 2015��305
UN General Assembly Resolution No.1803 Spain
of 1962��124
UN General Assembly Universal Real Decreto 110/2015, de 20 de febrero,
Declaration of Human Rights, 10 sobre residuos de aparatos eléctricos y
December 1948��318 electrónicos��466
arts 8, 19��318
UN Human Rights Council, Elaboration The Netherlands
of an International Legally Binding
Instrument on Transnational Code of Civil Procedure
Corporations and other Business art 7��321
Enterprises with Respect to Human
Rights, 25 June 2014, A/HRC/26/L.22/ United Kingdom
Rev.1��313
UN Sub-Commission on the Promotion Bribery Act 2010��254
and Protection of Human Rights, s 7��254
Draft Norms on the Responsibilities of
Transnational Corporations and Other United States of America
Business Enterprises with Regard to
Human Rights, E/CN.4/Sub.2/2003/12/ Alien Tort Claims Act 28 US Code
Rev.2, 26 August 2003 (Draft § 1350�� 311, 323–325
Norms)�� 311–313 Dodd-Frank Act 2010
GP 1��311 s 1504��256
WTO Agreement: Marrakesh Agreement Energy Independence and Security Act
Establishing the World Trade 2007��366
Organization, Apr. 15, 1994, 1867 s 1305��367
U.N.T.S. 154, 33 I.L.M. 1144 Foreign Corrupt Practices Act 1977��243
(1994)�� 108, 117, 126, 127, 130,
340, 346, 418, 424, 425
art 20��88

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LEAL-ARCAS_9781786431042_t.indd 26 08/09/2017 13:02

1. Introduction1
Rafael Leal-Arcas and Jan Wouters
This is the first ever research handbook on the energy law and policy of the European
Union (EU). It is intended to be a reference work of high-quality original contributions,
providing a state-of-the-art snapshot of this rapidly evolving area, situated within the
broader context of international economic law and governance. The coverage of the
handbook has been deliberately made as wide as possible, spanning a breathtaking variety
of topics and developments in the EU’s law and policies regarding energy, fully acknowl-
edging the multi-faceted and multi-layered nature of this vast arena.
In order to make the handbook user friendly, we have divided it into four thematic parts.
Part I (Chapters 2–5) deals with the institutional aspects of EU energy law and policy.
Part II (Chapters 6–12) concerns their external aspects. Economic, social and legal aspects
are covered in Part III (Chapters 13–21). Last, but not least, in Part IV (Chapters 22–28)
environmental and technological aspects are dealt with.
Part I, on institutional aspects, contains four chapters which each deals with intricate
institutional issues of EU energy law and policy.
The first question to start with, as always, is whether and to what extent the EU has a
competence to act in this area. Chapter 2, by Kim Talus and Pami Aalto, answers precisely
that question. It argues that energy has been at the core of the EU project since the begin-
ning. However, only the Lisbon Treaty, which entered into force on 1 December 2009,
created an explicit legal basis for EU action in this area. Article 194 of the Treaty on the
Functioning of the European Union (TFEU) now provides for objectives of EU energy
policy and a framework to enact EU-level regulation in this area. Talus and Aalto examine
the vertical division of competences between the EU and its Member States. While the
primary focus of their chapter is on the interpretation of the TFEU and its Article 194
in particular, it also discusses questions relating to multilevel governance in the context
of EU energy policy.
In Chapter 3, Ries Kamphof, Thijs Bonenkamp, Joren Selleslaghs and Madeleine
O. Hosli make the case that energy and climate change are salient topics in the external
relations of the EU and its Member States. Both energy and climate are policy areas
that fall under the scope of ‘shared competences’, but in their external relations dimen-
sion they generate different effects in practice. This is partly due to substance: climate
action constitutes a global common goods challenge, whereas energy security is more of
a national concern, largely demarcated by EU Member State sovereignty. There are also
important ‘trade-offs’ and linkages between these two areas. Institutionally, differences
exist, since there is a universal (Paris) agreement on climate change mitigation, while such
an agreement is absent in the areas of global energy (security) – barring the reference in
1
What follows draws from a compilation of the abstracts of each chapter in this Research
Handbook.
1
LEAL-ARCAS_9781786431042_t.indd 1 08/09/2017 13:02

2 Research handbook on EU energy law and policy
the UN’s 2015 Sustainable Development Goals to the objective (SDG 7) to ‘ensure access
to affordable, reliable, sustainable and modern energy for all’. The authors also make the
claim that future research should aim to combine the analysis of EU and Member State
external action on energy and climate change, as these agendas are aligned and sometimes
respective policy avenues contradict each other. Furthermore, research could focus on
the effects of other actors, such as the private sector, local authorities, populist parties or
major third parties, such as Russia, on the external policies, institutional framework and
the global scope of action of the EU.
Chapter 4, by Leigh Hancher and Francesco Maria Salerno, analyzes competition
in the context of energy policy. With three waves of internal energy market legislation
already adopted and a fourth just tabled, a key question the authors pose is ‘Do we have
an institutional structure that can effectively deliver the ambitious goals of the EU energy
and climate change policy?’. To answer this question, the chapter employs a benchmark
comparison, using general EU competition law as a point of reference for an effectively
enforced EU policy. It compares the current as well as the emerging institutional structure
of EU energy market regulation with that of EU competition law, to assess the extent to
which there is a ‘competition law-ization’ of energy market institutions. The authors find
that the Third Package of 2009 created an institutional structure that shares a number
of features with competition law, hence laying the grounds for an effective institutional
structure. The new ‘Winter’ package, unveiled in November 2016, builds on the institu-
tional acquis. However, there are also new trends – in particular a shift to relying on tools
that require more EU Member State co-operation with the European Commission. This
trend might limit the effectiveness of competition law-ization, unless such co-operation
concerns aspects that are complementary to the core subject matter of competition law.
Chapter 5, on the European Energy Union, by Thomas Pellerin-Carlin, argues that the
Energy Union is the Commission’s flagship initiative for Europe’s energy future. Building
on existing EU energy policies, the Commission laid out its Energy Union Strategy in
February 2015 to achieve the objective of moving away from an economy driven by fossil
fuels, to provide a new deal for consumers, and to overcome the current fragmentation
of a European energy system currently characterized by uncoordinated national policies.
The author first puts the Energy Union in context and then studies it under each of its five
dimensions: energy security; an integrated European energy market; energy efficiency;
decarbonization; and research, innovation, and competitiveness. The chapter concludes
by saying that the Energy Union project is much more than a slogan, at least in the eyes of
the Commission. It then proposes fields for further research that may bring further light
on the Energy Union in particular and EU energy policy in general.
Part II of this handbook (Chapters 6–12) deals with the external aspects of EU energy
law and policy.
Chapter 6, ‘The new global landscape and energy politics in the 21st century’, by Klaus
Segbers, makes the case that both Europe and Asia are deeply affected by major structural
changes in the global landscapes. After the end of the East-West Conflict, i.e., after 1990,
Europe and Asia were exposed to (but were also shaping) this new configuration. Whether
these major changes will lead to a new structure or to more disorder remains to be seen.
Segbers sketches the main directions of changes in the inter- and trans-national structures,
and then tries to relate these changes to current energy issues. He argues that the world
is undergoing deep changes, probably the most significant since 1945. A world based on

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Introduction 3
rules is possibly being replaced by something as yet unknown. There are more actors and
fewer certainties. States are losing relevance, and global flows are reducing governments’
role. Segbers further argues that carbon-based energy, which has been fueling global
growth for decades and co-deciding the weight of nations, is both deeply embedded in the
new global disorder and contributes to it.
Chapter 7, by Andrey Konoplyanik, argues that the Energy Charter Treaty (ECT;
signed in 1994, entered into force in 1998) occupies an objective (economically justified)
place within the evolving international energy governance system, in particular within
the evolving system of investor-state investment protection mechanisms (i.e., interna-
tional energy producing companies vs resource-owning host states). This system has been
developing since the Middle Ages, starting from the colonies (which, from the beginning
of the industrial revolution, provided security in raw materials supply for the metro-
politan states), through initially territory-oriented ‘traditional’ concessions (from 1901),
which were later modified to project-oriented ‘modernized’ concessions (from 1948) and
risk-service contracts (from the 1960s), and which gave birth to different instruments of
investment protection/stimulation in national law both in the mother countries of the
energy investors and in the resource-owning sovereign host states. The growth of inter-
national trade and investment, including in energy, in the 20th century gave birth to the
development of international (first bilateral, then multilateral) instruments of trade and
investment protection/stimulation. Firstly, the net of bilateral instruments has evolved
(first in trade, then in investment) in the case of bilateral investment treaties since 1959.
The rocketing increase in their numbers due to radical changes in the political map, mostly
in Europe in the 1990s, stimulated the development of multilateral trade and investment
treaties as risk-mitigation instruments for international flows of energy trade and invest-
ments, mostly between West and East in Eurasia and between the dissolving USSR and
the enlarging EU. The ECT has become the first multilateral treaty of its kind to secure
the ongoing cross-border energy flows (with increased importance for its transit compo-
nent) from the East to the West, which are to be balanced by the investment flows – at that
time still to be developed – from the West to the East, to their mutual benefit.
Today the Energy Charter Treaty is still the only energy-specific multilateral instrument
of international law, being a culmination of the development of investment and trade
protection mechanisms in international energy. Within the EU, the ECT has been con-
sidered an external energy policy instrument of the EU. Despite the generally widespread
perception that it was Russia who lost interest in the ECT (especially following the Yukos
case), which culminated in the withdrawal of Russia from its provisional application of
the ECT in 2009 and the accompanying statement of the Russian Government that it
had no intention of ratifying the ECT, the EU has also begun to lose interest in the ECT
since the adoption of the EU Second Energy Package in 2003, triggering a legal conflict
between the ECT and the EU Energy acquis. This conflict has resulted in an increasing
number of investor-state disputes by investors from EU Member States (all of which are
ECT Contracting Parties) against EU governments and finally culminated in the with-
drawal of Italy from the ECT in 2016.
Konoplyanik argues that the ECT has passed through different periods of importance
in Russia-EU energy relations – from a high level in the 1990s, with a peak of mutual
interest in 2002 (when the process towards finalization of the draft multilateral Transit
Protocol to the ECT – which never materialized – began), to diminishing importance since

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then for both parties through the 2000s, despite a growing interest in the ECT by other
participants of the international energy community beyond Russia and the EU, which
culminated in the signing of the International Energy Charter (additional and comple-
mentary to the European Energy Charter) in May 2015, without Russia as a Party to the
Charter.
As a result of (1) the cumulative response of the global economy – on both energy
demand and supply – to the oil price rises since the 1970s and the periods of high oil prices
in the first half of the 1980s and from 2000 through around 2015; (2) COP-21 limitations
on energy demand growth, through the establishment of an upper limit of CO2 emissions;
and (3) growing importance of the international campaign against energy poverty, there
is an expected change of paradigm in international energy development (from a perceived
peak supply to a peak demand vision). The dominant trends in international energy gov-
ernance will most probably be changing from access to non-renewable energy resources
to access to capital, financial resources and innovations, plus the minimization of nega-
tive environmental impacts from energy investments/development. The new role of the
ECT, and its expanded version on the basis of the International Energy Charter and
instruments to follow, might evolve.
The withdrawal of both Russia and Italy from the ECT has devalued and reformed the
latter. It is worth considering this evolving set of multilateral instruments of international
law not as a treaty between the West and the East, as it was treated initially, but as a
North-South – or even South-South – treaty within the expanding community, mostly in
developing countries who have been acceding to the ECT in recent years. This means that
further development of common rules of the game for cross-border energy value chains
from the current paradigm of international energy development (based on the perception
of ‘peak supply’) to a new one (based on the perception of ‘peak demand’) should take
place. This is why the international campaign against energy poverty and joint develop-
ment of a level playing field for such international efforts might become the dominant
trend and driving force behind the further evolution of the ECT and related instruments.
In the view of Konoplyanik, all of this might again, on the new step of evolution of the
international energy markets/economy, attract the attention of the political and business
elites in both the EU and Russia to these energy-specific multilateral instruments of
international law.
Chapter 8, on global energy security and EU energy policy, by Severin Fischer, makes
the point that global energy security challenges have significantly changed over the course
of the last decades. However, market failures remain at the heart of the problems and
governments have to deal with them. This chapter concentrates on energy security chal-
lenges for the EU and on the strategies, as well as how policymakers in the EU have been
dealing with oil- and gas-related supply problems. It ends with an overview of how the
new concept of the ‘Energy Union’ is trying to implement a more coordinated approach.
Chapter 9, by Thijs Van de Graaf, states that the EU’s energy policy does not stand on
its own, but is heavily influenced by the international political economy, that is, the shift-
ing balance between states and markets in the world economy. The chapter begins by sum-
marizing the key historical shifts in the global political energy economy, which provides
the contextual backdrop against which the EU has attempted to develop its own energy
policies and regulations. Next, it describes the key features of the EU’s traditional liberal
approach to energy governance, focusing on the internal energy market, the attempts to

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Introduction 5
export those internal energy market rules to neighboring countries, and the policies to
encourage decarbonization. The following section argues that the EU may be shedding
some of its liberal attitudes in favor of a more mercantilist energy governance strategy.
The final section concludes and raises some suggestions for future research.
Chapter 10, ‘The International Energy Charter: a new impetus for global energy gov-
ernance?’ by Sijbren de Jong, reminds us that on 21 May 2015 the International Energy
Charter (IECT) was signed at a ministerial conference in the Netherlands. In its set-up,
the IECT aims at a wider global engagement and at balancing out the interests of energy
consuming, producing and transit countries, whilst ensuring sovereign equality of states
irrespective of their levels of economic development. Amidst some of the profound shifts
that have taken place in international energy markets over the past decades, the IECT aims
to add an additional layer of governance to the global energy landscape as, in institutional
terms, the Treaty was born out of the idea that international energy markets suffer from
a lack of appropriate governance. At present, an encompassing treaty or institution that
is able to cover the whole spectrum of energy issues, and give a voice to all relevant stake-
holders as such, does not exist. The chapter assesses the question of whether the IECT is
able to fill this void.
Chapter 11, ‘The EU energy security strategy in the Caspian Sea region: addressing
the bear in the room’, by Stratos Pourzitakis, argues that energy security has become a
buzzword in EU politics, topping the agenda of politicians, policymakers and researchers.
The chapter analyzes EU energy security strategy in relation to the Caspian Sea region.
Growing dependence on Russian gas imports has become a major concern among EU
institutions and most EU Member States, especially after the 2006 gas dispute between
Russia and Ukraine. To this end, Brussels has been introducing a multi-faceted strategy
which aims at mitigating Russian gas supply risks. In this context, the Caspian Sea region
can play a pivotal role, offering alternative energy supply sources that bypass Russia.
Chronic inefficiencies in the EU policymaking mechanism and diplomacy, however,
hamper Brussels in its attempts to establish a realistic and effective energy security policy
that will meet the current challenges vis-à-vis an evolving concept of energy security.
Chapter 12, by Slawomir Raszewski, looks at the key existing and planned gas transit
projects to export natural gas from Russia and provides a critical analysis of existing
conceptual debates concerning energy and the EU. Having in mind the changing global
energy and climate policy landscape, the chapter first discusses the energy–environment
nexus to contextualize natural gas within the emerging global climate narrative after the
Paris Agreement on Climate Change of 2015. By doing so, the chapter seeks to present
the ‘bigger picture’ and likely repercussions, should the emerging global climate policy
become widely applied. Drawing on these macroeconomic issues, the chapter then dis-
cusses natural gas from a geopolitical angle and analyzes existing and planned natural gas
projects. Having outlined the projects, the chapter draws on conceptual debates, outlining
the challenges and opportunities that natural gas projects produce within the broad remits
of climate change, geopolitics and development.
Part III of the Research Handbook (Chapters 13–21) deals with the economic, social
and legal aspects of EU energy law and policy.
Chapter 13, by Costantino Grasso, shows that, as recently demonstrated by the
‘Panama Papers’ and ‘Bahamas Leaks’ scandals, corruption is rife in our societies.
Quoting Kofi Annan’s opening statement to the United Nations Convention against

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Corruption of 2004: ‘It undermines democracy and the rule of law, leads to violations of
human rights, distorts markets, erodes the quality of life and allows organized crime, ter-
rorism and other threats to human security to flourish’.2 The origins of this social plague
may be traced back to the beginnings of human civilization. However, it appears that
this kind of unethical behavior is particularly rampant in the energy sector. This chapter
introduces the topic of corruption and analyzes the reasons behind the fact that, almost
unexpectedly, over the course of the last two decades, corruption has gradually moved
from the margins to the center of the international political stage. The chapter then tries
to explain why, in the energy sector, such a criminal phenomenon has traditionally been so
wildly rampant and its effects have proven to be extremely dramatic. Finally, the chapter
offers a vivid depiction of a recent tale of dishonesty, which is emblematic of the way in
which corrupt practices are commonly perpetrated within the energy industry.
Chapter 14, on electricity and gas markets, by Guy Block and Elvira Saitova, analyzes
major changes in EU legislation related to electricity and gas markets. After presenting
the liberalization process of the electricity and gas markets in the EU, the authors examine
recent developments that aim to adapt the current market rules to new market realities
and conclude by outlining the key challenges for the future.
Chapter 15, on Energy Justice, by Jan Schmitz, Kai Menzel and Fabian Dittrich,
makes the case that economists agree that a tax on externalities is one of the most effi-
cient means to internalize the social cost of environmental pollution. However, political
reality in democracies has shown complications in the rate-setting exercise. Without the
willingness of voters to bear their full share of the social costs through taxation, rates are
nearly always too low to fully internalize even the lowest estimates of the social costs of
environmental damage and climate change. Furthermore, in its currently applied versions,
such a tax acts as a regressive form of taxation, since energy expenses relative to dispos-
able income are higher for low-income households than for higher-income households.
The solution the authors propose to these two problems is straightforward: the entire
revenue of energy taxation should be given back to voters. Doing so on a per capita basis,
reimbursing each household with the average amount of the energy tax paid, leaves the
incentive structure of the taxation setting intact. Under such a setting, the payable energy
tax is higher the more energy is consumed, while, after reimbursement, the average house-
hold bears no tax burden at all. Only households with above-average energy consumption
pay net energy taxes, whereas low-energy households would receive a net transfer. Energy
savings continue to pay off individually, because the individual household can save energy
(and enjoy lower tax payments) with the reimbursement remaining untouched. In the
political realm, this should allow for much higher energy tax rates.
Chapter 16, ‘Energy and the law of the sea’ by Stephen Minas, states that the zonal
entitlements and functional rights and obligations of the United Nations Convention on
the Law of the Sea (UNCLOS) govern access to offshore energy resources and transit
of energy resources via international shipping. Ongoing technological developments are
deepening the nexus between the oceans and energy, placing increased pressure on the
law of the sea in the management of overlapping activities and the resolution of disputes.
These developments have led to increasing levels of energy-related pollution in the forms
2
https://www.unodc.org/documents/brussels/UN_Convention_Against_Corruption.pdf, iii.

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Introduction 7
of oil pollution, inadequate disposal or abandonment of offshore platforms and green-

house gases from international shipping; the deployment of marine renewable energy
installations; the discovery of previously unknown resources in the Exclusive Economic
Zone, continental shelf and ‘Area’; and efforts to exploit the energy resources of the
Arctic. In addition, energy considerations constitute a significant feature of ongoing
disputes over maritime territory, such as in the Eastern Mediterranean. UNCLOS offers
a robust frame for regulating these novel conditions. Minas argues that the EU has an
important role to play as a policy innovator and leading contributor to the development
of international oceans law.
Chapter 17, by Youseph Farah and Malakee Makhoul, argues that EU oil and gas
companies occupy a significant share of the extractive industry and have a significant
global reach. While this can bring benefits for communities by creating wealth and jobs,
adding value and providing services, sometimes corporate activity can have an adverse
effect for people and the environment. When this happens, the people whose human rights
have been affected often seek reparation, and expect the company to be held to account.
Victims have increasingly sought a remedy in the home state of the parent company, either
in relation to its direct act or the unlawful conduct of its subsidiary in the host state. Whilst
there are some isolated success stories, the evidence suggests that victims choosing court
litigation within the EU, or in other home states such as the US, continue to face factual
and legal challenges.
Farah and Makhoul place the debate within the EU’s commitment to business and
human rights. The Commission has endorsed the ‘United Nations Guiding Principles
on Business and Human Rights’ (UNGPs) and has committed to supporting their
implementation, encouraging companies to adhere to internationally recognized
human rights, guidelines and principles. In relation to the oil and gas sector, the
Commission issued a non-legally binding ‘Oil and Gas Sector Guide on Implementing
the UN Guiding Principles on Business and Human Rights’, advising on how to imple-
ment the corporate responsibility to respect human rights in daily business operations.
Farah and Makhoul argue that, for several reasons, the ‘Oil and Gas Sector Guide on
Implementing the UN Guiding Principles on Business and Human Rights’ does not
go far enough in improving access to a remedy. Specifically, they advocate that, due
to the unique legal and business structure of oil and gas companies’ engagement, it is
important for those victims of business-related human rights violations in the oil and
gas sector to be involved in unilaterally binding alternative dispute resolution processes
to complement a state’s duty to offer an effective access to a remedy for victims of
business-related human rights violations, and that this may improve the effectiveness
of the UNGPs.
Chapter 18, by Beatriz Huarte Melgar, argues that environmental targets for reduc-
ing emissions of greenhouse gases (GHG) is particularly relevant in the maritime sector
because about 90 per cent of world trade is transported by sea, with maritime trans-
port responsible for 2.5 per cent of total GHG emissions worldwide. In this regard, the
EU, based on International Maritime Organization conventions, developed a strategy,
applicable from 2013, that involves measures affecting the energy market and which
aims to reduce GHG emissions within the maritime sector. It has also implemented an
integrated maritime policy which covers areas as diverse as fishing, shipping and ports,
and the marine environment, and has promoted the use of liquefied natural gas for ships.

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Accordingly, this chapter aims to explain how the EU implements energy measures to
reduce GHG emissions from the shipping sector.
Chapter 19, by Max Baumgart, argues that smart meters offer a way to address the chal-
lenges created by the growing production and availability of volatile renewable energies,
but that they also create problems with respect to data protection. The implementation
of interoperable smart meters on EU-law grounds creates concerns with regard to its
compatibility with Article 7 of the EU Charter of Fundamental Rights. The EU should
therefore adopt an area-specific protection concept, containing detailed rules to remove
the concerns about the legality of interoperable smart meters. The chapter gives a detailed
analysis of the smart-meter-related EU legislation and, to put the implementation of
smart meters in a more general context, gives an overview of the implementation of smart
meters in the United States.
Chapter 20, by Antonio Morelli, states that if it is too soon to assess the real impact
of the Paris Agreement on Climate Change, it is beyond doubt that the deal adopted
at the COP21 represents a landmark in the evolution of international law standards.
Envisaged within Tom Franck’s post-ontological framework, the analysis in this
chapter illustrates how the Paris Agreement fosters shared universal standards and an
effective solution in addressing universal challenges, such as climate change. The politi-
cal debate as to whether the Paris Agreement consists of only words and promises or
forms an effective commitment enters the legal arena in terms of a dichotomy between
binding and non-binding sources of international law. The provisions of the Agreement
are the result of a heterogeneous combination of both sources, which respectively come
into play depending on the elements that are at stake. Through the harmonization of
those instruments, it is possible to promote the universality of the standards without
weighing down the rising commitment of the major stakeholders involved in solving
climate change. From this perspective, the Paris Agreement combines the action of
both state and non-state actors, either during the phase of negotiation or in the imple-
mentation of the deal. The contribution of those stakeholders is going to be extremely
relevant in their commitment to reducing carbon emissions and energy consumption.
In this context, this chapter demonstrates how the Paris Agreement, letting different
sources coexist and not collide, sets the pace for the evolution of new standards in
international law.
Chapter 21, by Michael Kattirtzi, argues that social science is underrepresented in the
domain of energy policy. This chapter builds on social scientists’ criticisms of policy con-
struction and delivery in the UK by exploring how energy policy that was formed on the
basis of social science evidence might look. Drawing on experiences in the UK but with
relevance to other EU Member States, six perspectives are offered as a starting point for
energy policy debates. The chapter begins with a focus on energy efficiency, considering
three distinct perspectives for achieving reductions in citizens’ energy demand: segmenta-
tion models; behavioral studies; and social practice theory. It then turns our attention to
energy generation, focusing on what social science can tell us about policy development
with regard to energy infrastructures and the placing of infrastructure projects, before
discussing the sociotechnical transitions literature as a perspective through which to
understand the whole energy system. The chapter concludes with some reflections on
the steps that policymakers and researchers can take to ensure energy policy is better
grounded in social science.

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Introduction 9
Part IV of the handbook (Chapters 22–28) deals with the environmental and technologi-
cal aspects of EU energy law and policy.
Chapter 22, by Kati Kulovesi, explains the basic functioning of the EU Emissions
Trading Scheme (ETS). It highlights challenges related to the emissions cap and oversup-
ply of emission allowances and focuses on carbon leakage in the context of the ETS. The
chapter then reviews the debate on border carbon adjustments (BCAs) in the EU over the
past fifteen years, introducing and discussing recent proposals. It analyzes the impact of
the Paris Agreement on Climate Change on the risk of carbon leakage in the EU, examin-
ing the extent to which this new global climate treaty can be expected to level the playing
field for European industries.
The chapter proposes reforms of the ETS for the fourth trading period of 2021–2030,
with a view to implementing the EU’s contribution to reducing greenhouse gas emissions
by at least 40 per cent from 1990 levels by 2030 under the Paris Agreement on Climate
Change. Kulovesi argues that, while the Paris Agreement lays down the basic legal struc-
tures needed to step up global climate policy efforts, it is far from establishing a global
carbon price and levelling the playing field for the manufacturing industry. The chapter
highlights, however, that there is currently no evidence of carbon leakage having taken
place as a result of the EU ETS and takes a critical stance towards proposals to strengthen
carbon leakage protection under the ETS, especially by introducing BCAs. The chapter
concludes that the question of carbon leakage remains relevant in the EU even after the
conclusion of the Paris Agreement.
Chapter 23, ‘Energy and environment’, by József Feiler and Peter Vajda, departs
from an assessment of the ‘energy trilemma’ – that is, energy security, energy equity and
sustainability – and places these issues in the context of environmental economics and the
internalization of external costs. It briefly touches upon the two main approaches in EU
environmental law that address these concerns, namely ‘command and control’ measures
and market-based instruments. It assesses the imperative of an energy transition and puts
forward certain proposals for future research with the aim of realizing the highly needed
mainstreaming of the environmental and climate topic within international energy law
and policy as well as economic law and governance.
Chapter 24, by Filippos Proedrou, argues that the transition to low-carbon energy
systems is the pivotal political economy issue for the EU, as it stands at the nexus of
energy, politics and markets. With power markets developing into dynamic energy system
integrators, smart grids emerge as the all-powerful structures that can help achieve the
EU’s three principal energy security goals, namely sustainability, security of supply and
affordability. Smart grids integrate renewable sources at the upstream level, advance
overall renewable generation, including self-generation, enable energy efficiency and con-
servation, and promise to achieve low-carbon security and hedge against the volatility of
international energy markets.
On the other hand, smart grids call for high upfront investments and the establishment
of functional markets that necessitate large-scale engagement by citizens, incentivization
and education, as well as for bridging the yawning gap between textbook economics and
the economy’s actual workings. Moreover, while realizing that the transition to constantly
balanced power loads by means of demand response management is highly promising, it
may also generate a handful of adverse results. This chapter aims to critically discuss the
trade-offs involved in the roll-out of smart grids and the existent barriers. In doing so,

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it provides a clear overview of the current state of the art and suggests future research
pathways.
Chapter 25, by Feja Lesniewska, argues that renewable energy is perceived as a primary
ingredient in the world’s transition to a green, clean, low-carbon sustainable economy
from a brown, dirty, high-carbon unsustainable one. The global renewable energy installed
capacity, especially for wind and solar power, has increased rapidly in the last decade as
countries have adopted laws and policies to mitigate climate change and air pollution, as
well as to improve energy security. As the sector matures, the focus on renewable energy
needs to turn to considering system infrastructure design to ensure that the take-make-
dispose rationale that contributed to the unsustainable fossil fuel economy is not per-
petuated under the guise of a green low-carbon economy. The EU is a leader in installed
solar photovoltaic (PV) and wind energy capacity. It also has a well-established waste
management legal framework that is based on hierarchy and producer responsibility prin-
ciples. Lesniewska considers how the EU is responding to the future challenges that waste
management from end-of-life cycle solar PV panels and wind turbines pose. It questions
whether steps taken to date are in line with the more advanced agenda laid out in the EU’s
Circular Economy Action Plan of 2015 that calls for a paradigm shift in developing law
and policy which pursues holistic sustainability goals in relation to resource management
throughout the value and supply chains.
Chapter 26, by Penelope Crossley, examines the complex and heterogeneous nature
of the energy security challenges faced by EU Member States. It considers whether col-
lective action at an EU level to increase the deployment of renewable energy may be a
solution to these challenges. The chapter critically analyses the current state of European
energy security and the history of EU interventions into the renewable energy sector. It
then examines whether the recent changes to European energy law and policy are likely to
solve the EU’s energy security concerns by facilitating accelerated deployment of renew-
able energy. It concludes that, given the complex economic and political circumstances
in which the EU currently finds itself, unless there are binding national targets and clear
guidelines for implementing the 2030 target of 27 per cent renewable energy, it may be
difficult to motivate all EU Member States to engage in collective action to accelerate their
uptake of renewable energy. This could have serious implications for the energy security
of the EU, with levels of import dependency predicted to rise by 2030.
Chapter 27, by David Elliott, argues that the EU faces some major energy policy
choices and a need to move away from fossil fuels, with nuclear energy and renewables
often being presented as solutions, but also as polar opposites; in effect defining different
pathways forward. Taking a wide view, Elliott explores this polarity, asking whether these
two options are indeed mutually exclusive. The chapter concludes that, although some
hybrid mixes may be possible, in many ways they are technically incompatible and also
reflect differing views on how society should develop. Those views will shape any specific
prescriptions for energy technology research, development and deployment, although
technological development and practices may influence what is deemed to be possible and
desirable. Given that context, some research issues are outlined at the end of the chapter.
The last chapter, Chapter 28, by Jan Rosenow and Florian Kern, looks at EU energy
innovation policy, which is key to addressing many European policy ambitions. While tra-
ditionally much of EU energy (innovation) policy had been focused on supply-side tech-
nologies, we are now seeing increasing attention paid to innovation for reducing energy

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Introduction 11
demand or increasing energy efficiency. Even though both the ambition and number of
EU policies has been increasing significantly, academic analysis of the role of such EU
policies for innovation and deployment of energy efficiency technologies is scarce. The
authors critically discuss the ways in which EU energy efficiency policy is driving innova-
tion and technology deployment on the basis of a review of the existing literature on the
issue. First, using market transformation theory, Rosenow and Kern position the various
EU policy instruments in energy innovation policy along the different stages of market
transformation. Secondly, the authors identify key research challenges going forward,
which include: the role of EU energy efficiency policy within a multi-level governance
structure; the lack of institutionalization of EU energy efficiency policy; the need for
more comprehensive policy evaluations; the importance of a better understanding real-
world policy mixes; and the potential for applying a socio-technical approach to energy
efficiency in the EU. The authors conclude that the lack of an explicit innovation strategy
for energy demand constitutes a barrier to achieving the ambitious EU energy efficiency
targets. Furthermore, the conventional understanding of market transformation is
unlikely to allow for the transition at the scale and speed required to make a significant
contribution to mitigating climate change across the EU.

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PART I
INSTITUTIONAL ASPECTS

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2. Competences in EU energy policy
Kim Talus and Pami Aalto*
1. EUROPEAN INTEGRATION AND ENERGY
Energy has been a central area of EU law and policy from the very beginning. Two
of the three founding treaties focused on energy: the now extinct European Coal and
Steel Community Treaty and the European Atomic Energy Community Treaty. In
addition, the more general European Economic Community Treaty included energy
within its scope. One of the notorious early judgments from the European Court of
Justice, Costa v Enel,1 from 1964, known by EU law specialists for establishing one
of the most significant general principles of EU law – the supremacy of EU law over
national laws – concerned energy and confirmed the role of the energy sector as part
of the economic activities covered by EU law and policy.2 However, as is always the
case, law only functions within the boundaries set by politics, and in those early days
political sensitivities surrounding the energy sector meant that in practice it was not
subject to the EU market integration project.3 In those early days, the energy sector
was very much a politically loaded sector; energy was perceived as an activity where
the state had a central role. Both the electricity and natural gas markets were organ-
ized under state-owned or licensed monopolies and divided along the borders of EU
Member States. No internal market in energy was in place, nor planned. The 1956
Spaak report had already concluded that electricity and gas were nationally organized
and therefore integration would not make sense. However, while the same report also
excluded the hydrocarbon sector from the area of potential integration, as the sector
was controlled by multinational oil companies, it did propose the atomic energy sector
as a subject suitable for integration, as it would facilitate overcoming the significant
financing requirements.4
For the reasons set out above, energy was consciously excluded from the process of
* Funding in respect of this chapter has been received from the Strategic Research Council,
project no. 293437 (‘Transition to a resource efficient and climate neutral electricity system,
EL-TRAN’).
1 6/64 Costa v Enel [1964] ECR 585.
2 This was later confirmed in a number of cases. For example, C-393/92 Almelo [1994] ECR
I-1477; C-157/94 Commission v Netherlands [1997] ECR I-5699; C-159/94 Commission v Italy [1997]
ECR I-5793; C-158/94 Commission v France [1997] ECR I-5819.
3 Even today, the energy sector continues to be an area where political priorities sometimes
supersede the strict application of EU laws. For an example, see C-573/12 Ålands Vindkraft
(ECLI:EU:C:2014:2037). For a detailed analysis of the case, see S.L. Penttinen; ‘Ålands Vindkraft
AB v Energimyndigheten – The Free Movement Law Perspective’, OGEL 3 (2015), https://www.
ogel.org/.
4 Spaak Report. Available at: http://www.unizar.es/euroconstitucion/library/historic%20docu
ments/Rome/preparation/Spaak%20report%20fr.pdf (accessed 11.9.2016), pp. 126–7.
15
LEAL-ARCAS_9781786431042_t.indd 15 08/09/2017 13:02

European integration.5 For a long time, the energy sector and national energy monopo-
lies were protected from the effects of EU law. In the late 1980s, the EU’s approach to
the energy sector changed. This was largely impacted by the developments in the United
States and United Kingdom and the positive early experiences of these countries. A
state-controlled sector started slowly changing into something more market-oriented.
Faith in market forces was exceptionally strong in the 1980s and 1990s. US companies
were advocating the benefits of free competition and the free market approach in the EU.
These positive examples of successful market liberalization encouraged other European
leaders to begin gradually opening up national markets to competition. The idea was that,
as a result of such competition, the markets would become more efficient and consumers
would benefit both from lower prices and from the freedom to choose from a wider range
of suppliers. Governments could step aside and limit their role to ensuring the proper
functioning of the market.6
In the 1990s, the various directives constituting the so-called First Energy Package7
were adopted. These reflected the political realities of the 1990s and had an unambitious
content. The First Energy Package did, however, lay down a regulatory basis for future
regulation of this area. Negotiated or regulated third party access to electricity and gas
networks and functional unbundling of network and other energy sector activities were
among the key issues covered in the directives. However, it was clear that these first steps
were not in themselves sufficient to create a functioning energy market. At issue was only
the initial phase, moving towards a competitive market.
In 2003, the Second Energy Package8 was adopted. Its aim was to speed up the process
of creating competitive gas and electricity markets.9 The new directives and regulations
contained in it included more detailed sector-specific obligations, which were intended to
achieve further liberalization of the European energy markets. The new legislative instru-
ments included provisions on national energy market authorities, regulated third party
access to networks, and functional and legal unbundling, as well as creating a regulatory
framework for cross-border interconnectors.
5 For an overview of the early years of the EU, see T. Daintith and L. Hancher, ‘The
Management of Diversity: Community Law as an Instrument of Energy and Other Sectorial
Policies’, 4(1) Yearbook of European Law (1984), pp. 123–67. The historical development of EU
energy law is examined in detail in K. Talus, EU Energy Law and Policy: A Critical Account (Oxford
University Press 2013).
6 See A. Belyi and K. Talus (eds), States and Markets in Hydrocarbon Sectors (Palgrave 2015)
and K. Talus, EU Energy Law and Policy: A Critical Account (Oxford University Press 2013).
7 This package included Directive 98/30/EC of the European Parliament and of the Council of
22 June 1998 concerning common rules for the internal market in natural gas (OJ L 204, 21.7.1998,
p. 1) and Directive 96/92/EC of the European Parliament and of the Council of 19 December 1996
concerning common rules for the internal market in electricity (OJ L 27, 30.1.1997, p. 20).
8 This package included Directive 2003/55/EC of the European Parliament and of the
Council of 26 June 2003 concerning common rules for the internal market in natural gas and
repealing Directive 98/30/EC (OJ L 176, 15.7.2003, p. 57); Directive 2003/54/EC of the European
Parliament and of the Council of 26 June 2003 concerning common rules for the internal market in
electricity and repealing Directive 96/92/EC (OJ L 176, 15.7.2003, p. 37); and Regulation (EC) No
1228/2003 of the European Parliament and of the Council of 26 June 2003 on conditions for access
to the network for cross-border exchanges in electricity (OJ L 176, 15.7.2003, p. 1).
9 The 2003 package is also called the ‘acceleration package’.

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Competences in EU energy policy 17
The Third Energy Package was adopted in 2009.10 It introduced a raft of new regu-
lations and included internal market directives for electricity and gas with rules on
ownership unbundling and new powers for national regulators, regulations on access
to electricity and gas networks, and on the establishment of a new, EU-level energy
authority: the Agency for the Cooperation of Energy Regulators (ACER). In addition to
these regulatory instruments, the Third Energy Package created a competence to enact
further legislation in respect of issues relating to the functioning of the energy markets.
This is to be done through a new type of instrument in EU energy law, known as ‘network
codes’. These network codes have already been issued in different sub-sectors of the
energy markets.11
At the time of writing this chapter, a new wave of legislative proposals is in pro-
gress. The newly created Energy Union, one of the flagships of the current Juncker
Commission, is based on the three objectives of the EU energy policy: security, sustain-
ability and competitiveness. It has five ‘guiding dimensions’ that should help in realizing
these objectives: (1) energy security, solidarity and trust; (2) a fully integrated European
energy market; (3) energy efficiency contributing to moderation of demand; (4) decar-
bonizing the economy; and (5) research, innovation and competitiveness. These in turn
are delivered through 15 action points and 43 initiatives.12 The first concrete proposals
under the Energy Union label focused on security-related issues, natural gas and external
elements of EU energy law and policy: gas security, intergovernmental agreements, liq-
uefied natural gas (LNG) (as well as heating and cooling).13 The second wave will come
about six months later with a focus on low-carbon economy.14 Many other proposals are
scheduled to be introduced in the course of 2016 and 2017. If accepted by the Council
and the European Parliament, the Energy Union packages will once again significantly
change the EU legislative framework for energy.
10
Regulation (EC) No 713/2009 of the European Parliament and of the Council of 13 July
2009 establishing an Agency for the Cooperation of Energy Regulators (OJ L 211, 14.8.2009, p. 1);
Regulation (EC) No 714/2009 of the European Parliament and of the Council of 13 July 2009
on conditions for access to the network for cross-border exchanges in electricity and repealing
Regulation (EC) No 1228/2003 (OJ L 211, 14.8.2009, p. 15); Regulation (EC) No 715/2009 of the
European Parliament and of the Council of 13 July 2009 on conditions for access to the natural
gas transmission networks and repealing Regulation (EC) No 1775/2005 (OJ L 211, 14.8.2009, p.
36); Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concern-
ing common rules for the internal market in electricity and repealing Directive 2003/54/EC (OJ L
211, 14.8.2009, p. 55); Directive 2009/73/EC of the European Parliament and of the Council of 13
July 2009 concerning common rules for the internal market in natural gas and repealing Directive
2003/55/EC (OJ L 211, 14.8.2009, p. 94).
11
http://www.acer.europa.eu/en/electricity/fg_and_network_codes/pages/default.aspx (accessed
15.9.2016).
12
Communication from the Commission to the European Parliament, the Council, the
European Economic and Social Committee, the Committee of the Regions and the European
Investment Bank, A Framework Strategy for a Resilient Energy Union with a Forward-Looking
Climate Change Policy (COM/2015/080 final).
13
See Commission press release, Towards Energy Union: The Commission presents sustain-
able energy security package, Brussels, 16 February 2016 (IP/16/307).
14
See Commission press release, Energy Union and Climate Action: Driving Europe’s
transition to a low-carbon economy, Brussels, 20 July 2016 (IP/16/2545).

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2. THE EUROPEAN UNION POLICY ON ENERGY
One of the changes brought about by the Lisbon Treaty was the explicit inclusion of
energy as an area of shared competences under Article 4 of Part I of the TFEU. The more
specific details of the Union competences and their exercise in the area are set out in the
energy specific Article, also a novelty introduced by the Lisbon Treaty.15
The Union policy on energy is based on three basic objectives: a competitive internal
market; security of energy supply; and sustainability. According to Article 194 TFEU, EU
energy policy is to have four elements that to a certain degree are both internally inter-
twined and related to other policy-oriented provisions of the TFEU. These four elements
will now be briefly discussed and contextualized.
First, EU energy policy shall ensure the functioning of the energy market (Article
194(1)(a) TFEU). Through this aim, energy policy is to enhance, in particular, the free
movement of goods, services and capital within the energy sector, and the free movement
of energy between Member States.
This connects to a second aim of the energy policy – it shall promote interconnection
between energy networks (Article 194(1)(d) TFEU). A well-functioning energy infra-
structure is a prerequisite for a well-functioning market. This objective was added as a
separate EU energy policy objective with the Lisbon Treaty. Prior to that, the idea of
interconnecting EU energy markets was based on general internal market objectives, as
well as forming the legal basis for trans-European networks (Article 170 TFEU). This
Article provides that ‘the Union shall contribute to the establishment and development
of trans-European networks in the areas of transport, telecommunications and energy
infrastructures’.
A third objective of EU energy policy is to ensure security of energy supply in the
Union (Article 194(1)(b) TFEU). Security of supply in the EU energy policy entails
the constant availability of affordable energy with minimal social costs, including envi-
ronmental costs. In addition to the energy-specific Treaty Article, energy security is also
covered by Article 122, which relates more generally to ‘severe difficulties [that] arise in
the supply of certain products, notably in the area of energy’.
Finally, the promotion of energy efficiency, energy saving and the development of
new and renewable forms of energy is an objective listed under Article 194(1)(c) TFEU.
This last aim also relates to Article 11 TFEU and sustainable development, as well as the
environmental competences under Article 191 TFEU.
The requirement that energy policy shall be formulated ‘in a spirit of solidarity between
Member States’ accentuates the interdependence of Member States’ energy policies and
actions.
Article 194 TFEU also recognizes Member States’ energy rights in the areas of taxation
and in determining the conditions for exploiting their energy resources, choices between
different energy sources and the general structure of energy supply in each Member State.
The next section will focus on Union competences for energy, and examine both the
15
For the developments towards this new energy specific Treaty Article, see L. Hancher and F.
Salerno, ‘Energy Policy after Lisbon’, in A. Biondi, P. Eeckhout and S. Ripley, EU Law after Lisbon
(OUP 2012), pp. 365–400.

LEAL-ARCAS_9781786431042_t.indd 18 08/09/2017 13:02

interrelations between energy and other competence areas as well as certain specific
questions that arise under Article 194.
2.1 ‘In the Spirit of Solidarity’
One of the new elements under the Lisbon Treaty is that energy solidarity now appears
prominently in the language of the TFEU. This is the case with the new energy-specific
Article 194 TFEU (‘Union policy on energy shall aim, in a spirit of solidarity between
Member States, to: [. . .]’), as well as the more general Article 122 TFEU (‘in a spirit of
solidarity between Member States’ and that these difficulties in supply may be experi-
enced, ‘notably in the area of energy’). Solidarity can be seen as one illustration of the
new interdependencies between previously separate national markets. With an increasing
interconnection of markets, the actions and policies of one country will have effects on the
other Member States. An illustration of this is the sudden increase of renewable energy in
German markets and the negative effects on the country’s neighbors through periodical
surges of power (overflow).
Another way of viewing energy solidarity in the TFEU is to see the introduction of
solidarity references as an attempt to create a corrective mechanism to the failure of the
markets to achieve security of supply. The notion of solidarity was only introduced after
it became increasingly clear that the markets had failed to create security of supply. A
market-based security of supply scheme of the 1980s and 1990s was replaced or comple-
mented by a public-sector-based solidarity scheme. Supply disruptions, like those that
occurred in the flow of natural gas from Russia through Ukraine, were not sufficiently
addressed by market forces. As such, a public-sector-driven response mechanism was
necessary: enter solidarity.16 It has specifically been argued that the reference to the soli-
darity principle in Article 194 TFEU was introduced in response to requests made by
the Polish Government and relates primarily to concerns over the security of gas supply
from Russia (illustrated in the Russian-Ukrainian/Georgian gas disputes).17 In addition
to the new Article 194 TFEU and its solidarity reference, the wording of Article 122(1)
TFEU was also changed to include both the reference to solidarity and to energy. The
new wording is that:
16
In line with this, Regulation (EU) No 994/2010 of the European Parliament and of the
Council of 20 October 2010 concerning measures to safeguard security of gas supply and repeal-
ing Council Directive 2004/67/EC (OJ L 295, 12.11.2010, pp. 1–22), adopted under Article 194(2)
TFEU, builds heavily on the solidarity approach. It reflects a stronger role for the state and public
sector in ensuring security of supply. (See Articles 3 (noting that security of gas supply is shared
between the state and the markets) and 9–12 (placing the responsibility for security of supply on
the state). Also, recital 20 specifically notes that the ultimate responsibility for gas supply security
lies within the state.) The Regulation formalizes the response mechanisms at state, regional and EU
level, all in the spirit of solidarity.
17
J-P. Pielow and B.J. Lewendel, ‘Beyond “Lisbon”: EU Competences in the Field of Energy
Policy’, in B. Delvaux, M. Hunt and K. Talus (eds), EU Energy Law and Policy Issues (Intersentia
2011), p. 300. For the reasons and background behind these disputes, see J. Stern, ‘The Russia-
Ukrainian Gas Crisis of January 2006’, 4(1) OGEL (2006) and S. Pirani, J. Stern and K. Yafimava,
The Russo-Ukrainian Gas Dispute of January 2009: A Comprehensive Assessment, NG 27 (Institute
for Energy Studies, February 2009).

LEAL-ARCAS_9781786431042_t.indd 19 08/09/2017 13:02

Without prejudice to any other procedures provided for in the Treaties, the Council, on a pro-
posal from the Commission, may decide, in a spirit of solidarity between Member States, upon
the measures appropriate to the economic situation, in particular if severe difficulties arise in
the supply of certain products, notably in the area of energy.
2.2 Union Competences in the Field of Energy and the Internal Market
No specific legal base was created for energy in the Treaty of Rome, nor did the Single
European Act or other subsequent Treaty modifications prior to Lisbon Treaty bring this
about. However, the lack of a precise legal basis for energy policy and energy regulation
was not a significant obstacle in the past.18 Instead of a separate legal basis and EU-level
competence for energy, the progress in this area was mainly driven through the compe-
tences for the internal market (Article 95 EC, now 114 TFEU) and for the environment
(Article 175(1) EC, now 192(1) TFEU).19 This has of course meant that regulation has
focused on areas that can be connected with these two policy areas.
Under Article 114, the European Parliament and the Council can, acting in accordance
with the ordinary legislative procedure, adopt the measures for the approximation of the
provisions laid down by law, regulation or administrative action in Member States which
have as their object the establishment and functioning of the internal market. Adopting
legislative Acts regarding energy on this legal basis was possible because energy forms
part of the pursuit of creating a functioning internal market. This concerns, in particular,
the directives on internal electricity and natural gas markets and the regulations targeting
cross-border elements of the internal energy market. This means that all three internal
energy market packages (1990s; 2003 and 2009) were adopted under the general internal
market competence.
With Article 194 TFEU, measures aiming at ensuring the functioning of the energy
market can now be based on the energy competence provided in that Article.20
2.3 Union Competences in the Field of Energy and the Environment
Regulatory measures in relation to the energy sector have also been adopted under the
Treaty provision on competence in environmental matters. This is the case for the renew-
able energy directives, which have been partially based on Article 175(1) EC (now 192(1)
TFEU).21 The legal foundation of EU environmental action is principally to be found in
Articles 191 and 192 TFEU and the general energy Article 194 TFEU with reference to
18
K. Talus, EU Energy Law and Policy: A Critical Account (OUP 2013).
19
In some cases legislative acts have been based on both of these Treaty articles. An example
of such instruments is Directive 2009/28/EC of the European Parliament and of the Council of
23 April 2009 on the promotion of the use of energy from renewable sources and amending and
subsequently repealing Directives 2001/77/EC and 2003/30/EC (OJ L 140, 5.6.2009, p. 16). Most of
the Directive is based on the environmental competence but three Articles are based on the internal
market competence.
20
C-490/10, Parliament v Council (ECLI:EU:C:2012:525).
21
Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on
the promotion of the use of energy from renewable sources, amending and subsequently repealing
Directives 2001/77/EC and 2003/30/EC (OJ L 140, 5.6.2009, p. 16) and its predecessors.

LEAL-ARCAS_9781786431042_t.indd 20 08/09/2017 13:02

new and renewable energies, plus the general reference to the environment and sustainable
development in Article 11 TFEU.
Article 191 TFEU provides that EU policy on the environment is intended to contribute
to the pursuit of the following objectives:
● preserving, protecting, and improving the quality of the environment;

● protecting human health;
● prudent and rational utilization of natural resources; and
● promoting measures at international level to deal with regional or worldwide
environmental problems, and in particular combating climate change.
The European Parliament and the Council, acting in accordance with the ordinary legisla-
tive procedure, decide together what action is to be taken by the EU in order to achieve
these objectives. By way of derogation from this decision-making procedure, the Council,
acting unanimously in accordance with a special legislative procedure, adopts measures
which significantly affect a Member State’s choice between different energy sources and
the general structure of its energy supply. In these cases, the European Parliament is
merely consulted.
Although the requirement for a ‘high level of environmental protection’ in respect of
EU action under Article 37 TFEU is a goal, it is a difficult one to achieve, despite the
increasing number of directives and regulations to the same effect. This difficulty stems
from the use of the principle of subsidiarity, the recognition of national differences and
the exercise of governmental discretion in shaping policies based on often uncertain
assumptions. Constitutional powers are significant here: a directive which is aimed, at
least to a significant extent, at contributing towards the internal market does not require
unanimity, but matters of tax, choice between energy sources (renewables are particularly
noteworthy in this context) and the general structure of a Member State’s energy supply,
do (Articles 192(2) or 194(2) TFEU).
Another energy-specific issue under Article 192(2) is that Member States cannot be
compelled by a majority to give up energy sources which are seen as environmentally more
questionable – for example Polish coal, French nuclear power and so on. Article 194(2)
explicitly states that ‘measures [taken under Article 194 TFEU and majority voting] shall
not affect a Member State’s right to determine the conditions for exploiting its energy
resources, its choice between different energy sources and the general structure of its
energy supply, without prejudice to Article 192(2)(c)’. Article 192(2)(c) TFEU provides
that ‘measures significantly affecting a Member State’s choice between different energy
sources and the general structure of its energy supply’ are subject to a requirement for
unanimity. As such, the new energy title should a priori not restrict Member States’
choices with respect to energy sources. However, the current practice, which pre-dates the
TFEU, suggests that the matter might not be so simple.
In order to reach the EU-wide target of 20% renewable energy production by 2020,
Directive 2009/28/EC on the promotion of the use of energy from renewable sources
sets ‘mandatory’ national targets and requires Members States to prepare and establish
national action plans to reach their respective targets. The national targets that in principle
translate into the overall EU target of 20% of energy production from renewables vary
considerably from Member State to Member State. For example, the UK’s target is 15%

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(from a 2005 level of 1.3%) while Latvia has a target of 40% (from a 2005 level of 32.6%)
and Sweden has a target of 49% (from a 2005 level of 39.8%). Finland’s target is 38%
(from a 2005 level of 28.5%) and the French target is 23% (from a 2005 level of 10.3%).
Looking at the above figures, it is clear that the environmental requirements under the
EU energy acquis requires that countries achieve what in some cases, like Latvia, Finland
and Sweden, are very significant shares of renewable sources in total energy production.
In these cases, the renewables targets clearly restrict the right of the Member States to
decide on their energy mix. Given that Directive 2009/28/EC was adopted under Article
175(1) EC (now 192(1) TFEU) – except for the biofuels-related requirements which were
adopted under the internal market Article 95 EC (now 114 TFEU) – and by a majority
vote, it seems that the Directive 2009/28/EC was adopted under the wrong legal basis,
and is therefore in conflict with the Treaty, provided of course that a requirement that
approximately half the national electricity production be from renewable energy sources
instead of nuclear, coal, natural gas or other options is considered to ‘significantly affect’
the right of a Member State to choose between different sources of energy supply.
2.4 Union Competences in the Field of Energy and Security of Supply
By introducing a specific legal basis for security of energy supply, related EU-level regula-
tion eliminated one of the peculiarities of the energy acquis. While it is possible to make
links between the internal market (objective under Article 114 TFEU) and security of
supply,22 the link between some of the security of supply related instruments and their
legal basis (Article 95 EC) has not always been evident.23
However, Article 194 TFEU is not the only Treaty Article addressing security of energy
supply. A similar reference is also made in Article 122(1) TFEU, which provides that:
Without prejudice to any other procedures provided for in the Treaties, the Council, on a pro-
posal from the Commission, may decide, in a spirit of solidarity between Member States, upon
the measures appropriate to the economic situation, in particular if severe difficulties arise in
the supply of certain products, notably in the area of energy.
The same provision also existed, albeit in a bit more general form and without the solidar-
ity reference, in Article 100 EC. This provision was used as the legal basis for Directive
2004/67/EC concerning measures to safeguard the security of natural gas supply.24
Given that Article 194 TFEU constitutes a lex specialis legal basis for all energy regu-
lation in the EU, save for certain more specific Articles addressing specific situations, it
is Article 194 TFEU that today provides the primary legal basis for regulation aiming at
22
For a detailed discussion on this, see H. Bjornebye, Investing in EU Energy Security:
Exploring the Regulatory Approach to Tomorrow’s Electricity Production (Kluwer 2010), espe-
cially Chapter 8 ‘The Relationship between Security of Supply Objective and the Fundamental
Objectives of TFEU’.
23
An example of this is Directive 2005/89/EC of the European Parliament and of the Council
of 18 January 2006 concerning measures to safeguard security of electricity supply and infrastruc-
ture investment (OJ L 33, 4.2.2006, pp. 22–7), which is based on Article 95 EC.
24
Council Directive 2004/67/EC of 26 April 2004 concerning measures to safeguard security of
natural gas supply (OJ L 127, 29.4.2004, pp. 92–6).

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security of supply. Also the legal basis for security of gas supply instruments has moved
from Article 122 to 194 TFEU, with the more recent Regulation (EU) No 994/2010 (the
‘Gas Security Regulation’) of 2010 being based on Article 194.25 This is also in line with
the case law of the European Court of Justice, which, in case C-490/10, Parliament v
Council,26 provided guidance on the relationship between Article 194 and other Treaty
Articles:
66 Article 194 TFEU, introduced by the Treaty of Lisbon, therefore inserted into the TFEU
an express legal basis for the European Union policy on energy. As is apparent from its
wording, in particular that of Article 194(2) TFEU, that provision constitutes the legal basis for
European Union acts which are ‘necessary’ to achieve the objectives assigned to that policy by
Article 194(1) TFEU.
67 Such a provision constitutes the legal basis intended to apply to all acts adopted by the
European Union in the energy sector which are such as to allow the implementation of those
objectives, subject to, as can be deduced from the terms ‘[w]ithout prejudice to the application
of other provisions of the Treaties’ at the beginning of Article 194(2) TFEU, the more specific
provisions laid down by the TFEU on energy. As the Council noted, Articles 122 TFEU and 170
TFEU are inter alia covered, concerning severe difficulties arising in the supply of energy prod-
ucts and trans-European networks respectively, as well as the competences that the European
Union has under other provisions of the Treaty, even if the measures at issue also pursue one of
the objectives of the energy policy stated in Article 194(1) TFEU.
As such, the role of Article 122 TFEU is to be applied in more restricted and urgent cases
than the more general Article 194 TFEU.
3. EXCEPTIONS FROM THE ORDINARY LEGISLATIVE

PROCEDURE
Article 194 TFEU also includes exceptions to EU competence in energy matters.

According to Article 194(2) TFEU, measures adopted under Article 194(1) TFEU are
not allowed to ‘affect a Member State’s right to determine the conditions for exploiting
its energy resources, its choice between different energy sources and the general structure
of its energy supply, without prejudice to Article 192(2)(c)’. This means that despite the
competence conferred on the EU in energy matters, Member States retain the compe-
tence to determine which energy sources they wish to exploit. They may therefore choose
freely between natural gas, nuclear power, coal, or renewable energy sources. However,
the meaning and scope of this provision are somewhat unclear. For one, Member State
competence is restricted in practice, as was discussed above, due to obligations relating
to the promotion of renewable energy. Here the reference to Article 192 TFEU: ‘without
prejudice to Article 192(2)(c)’ is of interest as it seems to suggest that if an environmen-
tal measure affects the energy rights of Member States, the special legislative procedure
under that Article can be employed without Article 194(2) restricting this in any way. It is
25
Regulation (EU) No 994/2010 of the European Parliament and of the Council of 20 October
2010 concerning measures to safeguard security of gas supply and repealing Council Directive
2004/67/EC (OJ L 295, 12.11.2010, p. 1).
26

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necessary to note here that unlike Article 192(2) TFEU, Article 194(2) does not include
the possibility of using a special legislative procedure in cases where those areas reserved
for Member States are affected.
Second, due to the unclear wording of the exception, there is uncertainty as to what
Article 194(2) really means.27 For example, what is the threshold for ‘affecting’ Member
States rights? This is significant as many EU energy policy measures will affect (directly
or indirectly) those areas left to the Member States’ competence under Article 194(2). It
is noteworthy that under Article 192(2)(c), the threshold is ‘significantly affecting’, which
could explain the legal basis for the Renewable Energy Directive. There is no comparable
‘significance’ threshold under Article 194(2). It is of course possible that the Article could
be interpreted by the Court of Justice of the European Union as to implicitly include
some kind of ‘appreciability test’, as suggested by Johnston and van der Marel.28
Third, it is also unclear what the second part of Article 194(2) implies: does it mean that
the EU has no competence to legislate in areas where the Member States’ energy rights
are affected and every Member State could therefore veto any planned EU energy law
that would have this effect or does it simply mean that the Member State can chose not
to apply an instrument of EU law with this effect? Johnston and Block are in favor of the
latter interpretation and argue that the provision allows a Member State to opt out from
national application of this type of EU measure.29
In a similar manner to the energy mix, all matters of a primary fiscal nature are
accorded special treatment under the TFEU, and under Article 194(3) in particular.
Instead of following the ordinary legislative procedure – which might be described as the
‘default’ legislative procedure – a special legislative procedure is followed in these cases.
This means in practice that instead of the majority voting approach used in the ordinary
legislative procedure, unanimity is required for all matters of a primarily fiscal nature,
and the role of the European Parliament is reduced to that of a consultative body. This
is to ensure that fiscal matters remain under the control of Member States. Furthermore,
because the decision-making process is based on unanimity, all Member States must be in
agreement before any legislative instruments can be adopted. It is obvious that it is very
difficult to achieve unanimity among 28 EU Member States. An illustration is provided
by the failed attempt to re-draft the old Directive 2003/96/EC on energy taxation.30
4. THE PRACTICE OF MULTILEVEL ENERGY GOVERNANCE

IN THE EU
The gradual transfer of competences from the Member States to the EU level and the
remaining ambiguities in this division of competences in practice amounts to multilevel
27
A. Johnston and E. van der Marel, ‘Ad Lucem? Interpreting the New EU Energy Provision
and in Particular the Meaning of Article 194 (2) TFEU’, 22(5) European Energy and Environmental
Law Review (2013), pp. 181–99.
28
Ibid., p. 184.
29
A. Johnston and G. Block, EU Energy Law (Oxford University Press 2012), p. 5.
30
Council Directive 2003/96/EC of 27 October 2003 restructuring the Community framework
for the taxation of energy products and electricity (OJ L 283, 31.10.2003, p. 51).

LEAL-ARCAS_9781786431042_t.indd 24 08/09/2017 13:02

energy governance in the Union. This multilevel governance is part of a wider structure
whereby EU institutions and Member States envision and plan energy policies in inter-
action with consultancies, local authorities, NGOs and external actors, such as supplier
states, while energy companies and infrastructure providers are in charge of the actual
implementation. Financial institutions may be involved as investors.31 The currently
ongoing transition away from oil and coal in Europe towards local renewable resources
highlights the role of electricity, and maintains a role of natural gas as a transition fuel,
but it does not lessen the need for governance. The transition requires cross-border
trade in low carbon technology, equipment and services, as well as strengthened inter-
connections, EU-level and multilateral investment, regulation and administrative best
practice transfer.32 All of this means multiple groups of affected stakeholders as well
as complex bargaining and negotiation between them. For such reasons EU energy
policy is likely to continue developing slowly and gradually, as reported above. Most
of the time this also means, at best, sub-optimal outcomes.33 We will here limit our
attention to the co-governance of the EU and Member States within the scope of their
competences.
Within the EU, the Commission is the main institution in the practical work for
developing markets as this is the policy sector where it enjoys its most powerful compe-
tences. The Commission has acted as the driving force for the gradual liberalization of
the electricity and natural gas markets within the Union. In this work, it has received
support especially from the UK, Denmark and Sweden, which had liberalized their
own markets already before the first energy package. Germany and Italy were initially
reluctant. Alongside Germany, France also had incumbent state-owned or vertically
integrated energy companies to protect. Upon their entry to the EU in 2004, Poland
and the Baltic states preferred a transition period to protect their markets and energy
companies from uninhibited seizure by Russian companies, given their infrastructural
links to Russia dating back to the Soviet era. These links comprise pipeline networks
and electricity grids, combined with Russian investors eyeing investments and acquisi-
tions in the EU area.34 While these are but some examples of the wide variety of path
dependencies and consequent interests vis-à-vis market development on the part of the
28 Member States as of 2016, the result can be nothing more than differentiated integra-
tion including uneven implementation of the EU directives in the Member States. This
led the Commission in 2011 to open 38 infringement procedures against 19 Member
States; 15 of these were later referred to the Court of Justice, leading most of these
31
See e.g. P. Aalto, ‘Institutions in European and Asian Energy Markets: A Methodological
Overview’, 74 Energy Policy (2014), pp. 4–15; P. Aalto and D. Korkmaz Temel, ‘European Energy
Security: Natural Gas and the Integration Process’, 52 Journal of Common Market Studies (2014) 4,
pp. 758–74; A. Prontera, ‘Energy Policy: Concepts, Actors, Instruments and Recent Developments’,
5(1) World Political Science Review (2009), pp. 1–30.
32
K. Szlulecki, ‘European Energy Governance and Decarbonisation Policy: Learning from the
2020 Strategy’, 16(5) Climate Policy (2016), pp. 543–7, here p. 543.
33
P. Aalto, D. Dusseault, M.D. Kennedy and M. Kivinen, ‘Russia’s Energy Relations in the
East and West: Towards a Social Structurationist Approach to Energy Policy Formation’, 17(1)
Journal of International Relations and Development (2014), pp. 1–29, here p. 25.
34
F. Proedrou, EU Energy Security in the Gas Sector: Evolving Dynamics, Policy Dilemmas and
Prospects (Ashgate 2012), pp. 61–3.

LEAL-ARCAS_9781786431042_t.indd 25 08/09/2017 13:02

Member States to adopt the necessary legislative steps to avoid a judgment under Article
260(3) TFEU.35
Although the literature records increasing interventions on the part of the Commission
in market development,36 made in support of liberalization and competition, these
interventions remain selective, especially when it comes to the natural gas markets. For
example, the EU-supported Nabucco natural gas pipeline project received an exemption
to the third party access rule, while the competing South Stream pipeline project driven
by the Russian Gazprom did not. The Commission favored exemption for Nabucco on the
grounds of the security of supplies principle, whereby the pipeline would have enhanced
the flow of non-Russian natural gas to the EU markets, sought mostly from Azerbaijan
and Central Asia, and crucially, without Russian transit. However, the project dissipated
in 2013 as it failed to secure the necessary volumes of gas to make it economically viable.
Both projects featured varying coalitions of supporting Member States, some of which
supported both projects to maximize their potential benefits and serve the interests of
their national champions.37
Security of supply considerations also persuaded the Commission to overlook state
aid suspicions in the case of the LNG terminal in Lithuania’s Klaipeda, which, however,
introduced more competition for the previously dominant Russian natural gas in the
Baltic region. The Gazprom clause in the Commission’s third energy package, for its part,
in practice privileges European companies regarding the ownership of transit infrastruc-
ture. Non-EU companies such as Gazprom are subject to the same unbundling rules as
EU-based companies. This means that Gazprom cannot acquire transit infrastructure
assets in Member States where it acts as a supplier. Were it interested in limiting its pres-
ence to an infrastructure-owner role, the respective Member State must agree with the
Commission on the deal and reserve a right for EU-based companies to make the same
acquisition.38
As part of the process of building the Energy Union, the Member States must
report to the Commission on their national plans regarding the 2030 targets of the
EU for renewable energy (27% share) and energy efficiency (27% improvement). The
Commission acts as a watchdog and policy coordinator by monitoring progress and
reporting further to the other EU institutions. The expectations of the Member States
of the Energy Union vary widely. For example, Germany would prefer the Energy Union
to support the EU’s 2030 targets or at least not to compromise its own targets for a
renewable energy transition by favoring similar policies throughout the EU. Germany
supports any actions developing the internal EU energy market as a back-up to its own
35
The European Commission, ‘Enforcement of the Third Internal Energy Market Package’,
accompanying the document ‘Progress towards completing the Internal Energy Market’,
Brussels, 13.10.2014 SWD(2014) 315 final. Available at: https://ec.europa.eu/energy/sites/ener/
files/documents/2014_iem_communication_annex6_0.pdf (accessed 9.12.2016) pp. 3–4.
36
E.g. K. Talus, EU Energy Law and Policy: A Critical Introduction (Oxford University Press
2013), pp. 173–4.
37
See e.g. A. Goldthau and N. Sitter, A Liberal Actor in a Realist World: The European
Union Regulatory State and the Global Political Economy of Energy (Oxford University Press
2015).
38
Ibid.

LEAL-ARCAS_9781786431042_t.indd 26 08/09/2017 13:02

system, in which wind and solar power accounted for a fifth of electricity generation
in 2015 but which depends upon electricity trade with neighbors when such weather-
dependent generation is low. France is also cautious about the Energy Union. This is
because it has reservations regarding EU-wide governance on renewable energy until
its own domestic energy policy choices vis-à-vis renewables and nuclear power become
more settled and French power companies can compete better with an enhanced cross-
border inflow of subsidized renewably generated electricity. At the other extreme, Poland
initially proposed the Energy Union as an energy security measure, so that it would act
as a vehicle for joint natural gas purchases to counter Gazprom’s market power and to
remove uneven pricing in the supply contracts concluded by different Member States.
Poland furthermore prioritizes a technology-neutral Energy Union owing to its own coal
sector, shale gas projects and ambitions in nuclear energy.39 In short, because of their
divergent interests regarding the sources of energy, some Member States would prefer
the Energy Union to maintain the existing division of competences, while others would
support granting new competences to the Union.
The division of competences between the EU and Member States also affects
regional energy cooperation within the Union. This is evident for example in the North
Sea offshore electricity grid project, initiated by Belgium in 2009. Some more technical
studies point out how building a super-grid into the North Sea would support the secu-
rity of supplies principle by helping to fully utilize marine renewables, balance supply
and demand between North Sea littoral states and their neighbors, and by means of
facilitating experimentation with underwater energy storages. It would also bolster the
markets principle by facilitating trade in electricity. However, the national transmis-
sion system operators (TSOs) in Denmark, Germany, the Netherlands, Norway and
the UK are hesitant to embark on the project. They are reluctant to step beyond their
traditional core business of operating profitable cables and connecting offshore wind
farms to them. Large energy companies in the involved Member States also point
out that, so far, national subsidies for renewable energy cannot be shared, and doubt
whether all participants would benefit equally. The EU funds relevant studies in the
planning phase while the bulk of the available EU infrastructure financing has gone
for individual cable projects. Because eventually the project will need some 30 billion
euros for its financing, the Member States and their interests are most consequential
for the project, despite its relatively clear European dimension. In brief, the interests
of incumbent actors in the Member States are not convergent enough, while the divi-
sion of competences does not fully equip the EU level to decisively push the project
forward.40
In the case of the Nordic regional cooperation, we find a similar pattern whereby
the direct involvement of the EU is somewhat more decisive in the natural gas segment
compared to the electricity segment. The 187.5 million euros funding from the EU’s
39
K. Szulecki, S. Fischer, A.T. Gullberg and O. Sartor, ‘Shaping the “Energy Union”: Between
National Positions and Governance Innovation in EU Energy and Climate Policy’, 16(5) Climate
Policy (2016), pp. 548–67, here pp. 554–8.
40
B. Flynn, ‘Marine Wind Energy and the North Sea Offshore Grid Initiative: A Multi-level
Perspective on a Stalled Technology Transition?’, 22 Energy Research & Social Science (2016), pp.
36–51.

LEAL-ARCAS_9781786431042_t.indd 27 08/09/2017 13:02

Connecting Europe Facility was decisive in financing the Balticconnector project which
links the natural gas infrastructures of Finland and Estonia. The pipeline can offer a
further linkage to Latvia and Lithuania with infrastructure improvements to be finalized
by 2019, and may eventually provide a connection on towards central Europe. However, in
the electricity segment, the Nord Pool electricity market with Denmark, Finland, Norway
and Sweden as its core participants, functions largely independently from the EU. Yet the
EU energy market directives, including the Renewable Energy Directive of 2009, shape
its development, as do the operations of the ACER and the European-wide ENTSO-E,
which has dismantled some of the previous Nordic-level cooperation. Nevertheless,
projects improving national transmission capacity encounter less local resistance than
projects with a clear EU-level dimension.41 In the Nordic context, we find the EU-level
2030 energy transition targets co-existing with joint Nordic 2050 targets for a full decar-
bonization, and national targets defined in each of the Nordic states for 2020, 2030 or
2040, depending on the case.42
These short examples tell us that some crucial features in the division of competences
will likely maintain multilevel governance structures in the EU. Particularly consequential
factors in this regard include nationally evolved path dependencies, including historically
important infrastructures and preferred sources of energy. Although Member States hold
on to the crucial powers over the choice of their favored resources and precise solutions,
the long-term trend is that EU-level governance increasingly shapes those choices, also in
the context of the energy transition.
5. CONCLUSION
The lack of an energy-specific legal basis in the Treaty has never stopped the EU from
enacting energy-sector-specific secondary EU law. Despite this, a specific legal basis
for the energy sector was established in the Treaty of Lisbon under Article 194 TFEU.
Under this provision, the European Parliament and the Council, acting in accordance
with the ordinary legislative procedure, can establish the measures necessary to achieve
the four objectives of EU energy policy. Since the enactment of the TFEU in 2009, new
EU instruments in energy can now be adopted under Article 194. This has also been
done and, because of Article 194(1)(b) relating to energy security, it was possible to
base Regulation (EU) No 994/2010 on security of gas supply of 2010 on Article 194.43
Similarly, due to Article 194(1)(c) on energy efficiency and energy saving and on new and
41
S. Tenggren, J. Wangel, M. Nilsson and B. Nykvist, ‘Transmission Transitions: Barriers,
Drivers, and Institutional Governance Implications of Nordic Transmission Grid Development’,
19 Energy Research & Social Science (2016), pp. 148–57.
42
P. Aalto, I. Jaakkola, P. Järventausta, A.M. Oksa and P. Toivanen, ‘How to De-carbonise
the Electric Energy System? A Comparison of Nordic 2030 Policies’, International Conference on
Energy, Environment and Climate Change (ICEECC 2017).
43
Regulation (EU) No 994/2010 of the European Parliament and of the Council of 20 October
2010 concerning measures to safeguard security of gas supply and repealing Council Directive
2004/67/EC (OJ L 295, 12.11.2010, p. 1).

LEAL-ARCAS_9781786431042_t.indd 28 08/09/2017 13:02

renewable energy, it was possible to base Directive 2012/27/EU on energy efficiency on

the same provision.44 In the same vein, all future EU energy-market regulation should
now be based on Article 194 TFEU.45
44
Directive 2012/27/EU of the European Parliament and of the Council of 25 October 2012
on energy efficiency, amending Directives 2009/125/EC and 2010/30/EU and repealing Directives
2004/8/EC and 2006/32/EC (OJ L 315, 14.11.2012, p. 1).
45

LEAL-ARCAS_9781786431042_t.indd 29 08/09/2017 13:02

3. External competences in energy and climate
change
Ries Kamphof, Thijs Bonenkamp, Joren Selleslaghs and
Madeleine O. Hosli
1. INTRODUCTION
One of the cornerstones of Europe’s modern society is energy. Without energy the
day-to-day needs of lighting, heating and transport would become impossible, leading
to the serious malfunctioning of its businesses. The European Union (EU) and its
Member States are (partly) dependent on external energy sources. The way that – and
the pace at which – the old continent is consuming its energy sources is unsustainable,
as is its high level of energy imports. In parallel, the EU and Member States need to
keep track of their climate mitigation pledges to make their ‘emission pathways consist-
ent with holding the increase in the global average temperature to well below 2°C above
preindustrial levels and pursuing efforts to limit the temperature increase to 1.5°C
above preindustrial levels’, as stipulated in the recent Paris Agreement.1 Without proper
European regional cooperation and harmonization in the strategic fields of energy and
climate change policies, many European households will be left in the dark and cold,
and universal climate agreements may be trampled on by the EU and Member States.
Energy security and climate change are therefore ‘hot topics’ in the external relations of
the EU and its individual Member States. The Paris Climate Change Agreement of 2015
has firmly and urgently established the reduction of greenhouse gas emissions and, hence,
the ‘decarbonization’2 of the world economy as a global policy objective to be achieved
in the next few decades. The EU has been very active in setting a (global) climate agenda
and the Paris Agreement has been hailed as a success of EU climate diplomacy.3 At the
same time, the EU is currently to a large degree dependent on (fossil) energy imports
and faces related challenges in achieving energy security (security of supply) and ensur-
ing affordability of energy in the shorter and longer term. The EU is the biggest energy
customer in the world, depending on ‘a very sparse number of energy suppliers’ who
1
Paris Agreement [2015], https://unfccc.int/files/meetings/paris_nov_2015/application/pdf/pa
ris_agreement_english_.pdf (accessed 13 December 2016).
2
While the word ‘decarbonization’ does not feature in the official text of the Paris
Agreement, many authors believe this strategy is necessary in view of the implementation of
Nationally Determined Contributions (NDCs). See e.g. Jeffrey Sachs, ‘Implementing the Paris
Climate Agreement – Achieving Deep Decarbonization in the Next Half Century’ [2016], http://
www.cirsd.org/en/horizons/horizons-winter-2016--issue-no-6/implementing-the-paris-climate-agr
eement---achieving-deep-decarbonization-in-the-next-half-century (accessed December 2016).
3
Sebastian Oberthür, ‘Where to Go from Paris? The European Union in Climate Geopolitics’
[2016] Global Affairs, pp. 1–12.
30
LEAL-ARCAS_9781786431042_t.indd 30 08/09/2017 13:02

External competences in energy and climate change 31
could use this situation as a ‘political weapon’.4 Both climate and energy policy are areas
of ‘shared competences’ between the EU and its Member States.5 As a result, both the
relevant European institutions and the Member States engage in energy diplomacy and
policy-making externally, that is, on the international stage.
Where the global forum of the United Nations Framework Convention on Climate
Change (UNFCCC) and its annual Conference of the Parties (COP) render external mul-
tilateral action crucial in the area of climate change, the multilateral forums on energy are
much less influential. Energy security is therefore still primarily framed as a topic within
the realm of national sovereignty. Many EU Member States conclude their own bilateral
deals. Some energy experts, however, favour rendering it a Union task to formulate energy
security policy,6 while others emphasize this should be at the discretion of national gov-
ernments and/or a ‘smaller coalitions’ of Member States.7 Some are even of the opinion
that the practice of describing energy as a shared competence under Lisbon Treaty rules in
terms of the Community method, contrasting with intergovernmentalist practices, should
be abandoned.8 Instead, as suggested by German Chancellor Angela Merkel in 2010, we
could explain EU energy policy in terms of a new ‘Union method’, that is, a combina-
tion of the Community method and the intergovernmental method. In the words of the
Federal Chancellor, this would resemble ‘coordinated action in a spirit of solidarity’.9
These external representation and autonomy questions of the EU and its Member
States point to the crucial importance of the institutional context in the EU’s external
relations. The link between the division of competences between the EU and its Member
States have been part of the (legal) research agenda, especially in the phase of the con-
stitutional review preceding the Lisbon Treaty.10 This research agenda, however, may
need to be reviewed after assessing the functioning of the respective provisions of the
Lisbon Treaty in the first years after its entry into force, and especially now that the Paris
Agreement and energy security considerations in the EU have moved the agenda of
climate change and energy security to the forefront.
Our chapter is focused on the institutional context of the EU and its Member States
and its external functioning and effects for the most important EU priorities in energy
and climate policy, namely energy security and climate change mitigation. Conversely,
4
Rafael Leal-Arcas and Juan Alemany Rios, ‘The Creation of a European Energy Union’
[2015] European Energy Journal 5(3), p. 24.
5
Art 4 TFEU, Consolidated Version of the Treaty on European Union [2010] OJ C 83/01, see
also Chapter 2 of this handbook.
6
[2015] European Energy Journal 5(3), p. 24.
7
Simone Tagliapietra, ‘Building Tomorrow’s Europe: The Role of an “EU Energy Union”’
[2014] Review of Environment, Energy and Economics (Re3), pp. 1–10.
8
Jan Frederik Braun, ‘EU Energy Policy under the Treaty of Lisbon Rules: Between a New
Policy and Business as Usual’ [2011] EPIN Working Paper no. 31, p. 8.
9
Speech by Federal Chancellor Angela Merkel at the opening ceremony of the 61st academic
year of the College of Europe in Bruges on 2 November 2010, https://www.coleurope.eu/content/
news/Speeches/Europakolleg%20Brugge%20Mitschrift%20englisch.pdf> (accessed 29 November
2016).
10
Sanam S. Haghighi, ‘Energy Security and the Division of Competences between the
European Community and its Member States’ [2008] European Law Journal 14(4), pp. 461–82.

LEAL-ARCAS_9781786431042_t.indd 31 08/09/2017 13:02

we do not focus on the technical aspects related to these policies. The chapter starts with
the substance of the most important European energy and climate priorities and action
plans. This is followed by a section on the shared (external) competences, based on the
Treaty and on case-law. Thereafter, the most important institutional actors in EU external
action on climate and energy are introduced. This EU institutional and legal context co-
determines external action, which is analysed in section 5. Some challenges and opportu-
nities of the practical workings of shared external competences will be dealt with in the
following section. In the concluding section, a future research agenda on shared external
competences in energy and climate will be sketched.
2. EU PRIORITIES AND ACTION PLANS IN THE AREA OF

ENERGY SECURITY AND MITIGATION OF CLIMATE
CHANGE
Ever since its nascence, European integration has been characterized by continu-
ous efforts among Member States to ensure a secure, stable and affordable supply of
energy on the European continent. During the 1950s, the European Atomic Energy
Community was created, and since then, various energy-related policies and institutions
have followed. Since Spring 2007, when the EU adopted the so-called ‘Energy/Climate
package’, European leaders have also committed to common EU energy (supranational)
governance.11 In doing so, European leaders have responded to the requests from EU
citizens who, as a Eurobarometer Survey (2011) has shown, believe that greater solidar-
ity between EU Member States in an energy crisis and intensified energy policy coor-
dination are needed.12 In 2015, the EU launched the ‘Energy Union’, stating that ‘Our
vision is of an Energy Union where Member States see that they depend on each other
to deliver secure energy to their citizens, based on true solidarity and trust, and of an
Energy Union that speaks with one voice in global affairs’.13 The overall aim of this new
ambitious initiative was to create ‘a resilient Energy Union with an ambitious climate
policy at its core, to provide EU consumers – households and businesses – with secure,
sustainable, competitive and affordable energy’.14 By doing so, the EU has initiated a
series of working programmes and policies to address the two most important challenges
that its external energy policy faces today: energy security and climate change mitigation.
11
Daan Rutten, ‘CIEP Briefing Paper on the Energy Union’ [2016] Clingendael International
Energy Programme, p. 1.
12
European Parliament, ‘The European Union and Energy’ (Eurobarometer, June 2011),
http://www.europarl.europa.eu/pdf/eurobarometre/2011/2011_01_74.3/ReportEB743PARLenergy_
EN.pdf (accessed 16 December 2016).
13
Commission, ‘Towards an Energy Union: a Resilient Energy Union with a Forward-looking
Climate Change Policy’ COM (2015) 80 final. See also Chapter 5 in this handbook, ‘The European
Energy Union’ by Thomas Pellerin-Carlin.
14
Ibid.

LEAL-ARCAS_9781786431042_t.indd 32 08/09/2017 13:02

Table 3.1 EU energy imports (2016)
Commodity Percentage of total Mostly from

energy usage
Energy (overall) 53% Russia, Norway, Libya, Qatar, Saudi Arabia
Natural gas 90% Russia, Norway, Algeria, Qatar
Crude oil 66% Saudi Arabia, Norway, Libya, Nigeria
Coal and other solid fuels 42% Russia, Colombia, US, Australia
Uranium and other 40% Kazakhstan, Canada, Russia, Niger
nuclear fuels
Source: Authors’ own calculations based on Eurostat data.
2.1 Energy Security
In 2016 the EU imported around 50% of its energy needs.15 Whereas oil, natural gas
and coal account for 80% of the energy consumed in the EU, the variation in terms of
origins and sources is limited. Regarding crude oil, the OPEC countries and Russia, in
2015, accounted together for almost 70% of all EU imports, and Russia was by far the
biggest partner for natural gas imports, accounting for no less than one-third of all EU
gas imports (see Table 3.1). As has become clear over the last couple of years, various
problems arise with such a high dependency on energy imports. In addition to the well-
known supply cut-offs due to geopolitical and geo-economic issues, terrorist groups have
also targeted pipelines and production facilities throughout the Middle East and Iran has
threatened several times to cut back oil production if forced to abandon its nuclear power
programme.16
Importing energy from abroad comes at a high price, as it is estimated that the
European states spend over €350 billion every year on importing most notably gas and
(crude) oil from different continents.17 Next to uncertainty regarding a stable and assured
supply, questions are also raised regarding the future availability of global oil and gas
reserves for Europe. According to the International Energy Agency (IEA), global energy
demand will rise by more than one-third by 2035, especially in the Middle East, China
and India.18 This will have repercussions on the energy availability for Europe, as well as
on the price that will be charged.
15
Barring significant changes, the European Commission expects this figure to rise to 65% by
2030. See also http://www.fas.org/sgp/crs/row/RL33636.pdf (accessed 11 December 2016).
16
Paul Belkin and Vince L. Morelli, ‘The European Union’s Energy Security Challenges’ [2007]
Congressional Research Service, RL 33636, Washington DC, http://www.dtic.mil/dtic/tr/fulltext/u2/
a473788.pdf (accessed November 2016).
17
‘Energy Strategy’ (European Commission Energy) https://ec.europa.eu/energy/en/topics/energy-
strategy (accessed 15 December 2016).
18
‘World Energy Outlook 2013’ (International Energy Agency, 2013) https://www.iea.org/
Textbase/npsum/WEO2013SUM.pdf (accessed 16 December 2016).

LEAL-ARCAS_9781786431042_t.indd 33 08/09/2017 13:02

2.2 Climate Change Mitigation
Another key priority of the EU’s external energy policy is related to the environment and
more specifically, focused on limiting climate change. With a current global average tem-
perature that is 0.85 degrees higher than it was in the late 19th century, rising sea-levels,
extreme weather patterns, food insecurity and other serious challenges also loom large
for Europe in the near future. The recent emissions of greenhouse gases were the largest
in history; the atmosphere and oceans have warmed; the amounts of snow and ice have
diminished; and the sea level has risen.19 Since CO2 is the greenhouse gas which is most
commonly produced by human activities and is responsible for 64% of man-made global
warming, the EU – together with other actors – will have to decarbonize its economy and
way of living drastically and urgently. As (the use of) energy accounts for almost 80% of all
greenhouse gas emissions worldwide,20 ‘The energy sector has a direct link to the climate
change challenge’.21 It is a key sector in which climate mitigation efforts are required. As
has been demonstrated in more technical contributions, the link between energy security
and climate change is ‘rather tenuous’ as there are ‘many trade-offs’ involved.22
Climate change has been regarded as a ‘saviour issue’ for the EU integration project
more generally.23 The EU has been able to ‘shape global environmental governance’.24
At the heart of the EU’s internal strategy for limiting climate change – the so-called
20-20-20 strategy and the 2030 and 2050 energy roadmaps – is the objective of reducing
greenhouse gas emissions by at least 20% by 2020, 40% by 2030 and 80% by 2050.25 To
limit its greenhouse gases, the EU has to use less energy, but also embark on using cleaner
energy. The latter involves a shift towards more renewable energies such as wind power,
solar and photovoltaic energy, biomass and biofuels, geothermal energy and heat-pump
systems. Increasing the amount of renewable energy within the EU, however, not only
serves the climate; it also helps the EU to become less dependent on (sometimes unstable)
energy imports and reduces the costs associated with it. Nonetheless, as the EU countries
together ‘only’ account for 10% of global greenhouse gas emissions, it is also in this area
19
Rajendra K. Pachauri (ed.), Climate Change 2014 Synthesis Report (The Intergovernmental
Panel on Climate Change 2014), https://www.ipcc.ch/pdf/assessment-report/ar5/syr/SYR_AR5_
FINAL_full_wcover.pdf (accessed 16 December 2016).
20
‘CO2 Emissions from Fuel Combustion: Highlights’ (International Energy Agency, 2015),
https://www.iea.org/publications/freepublications/publication/CO2EmissionsFromFuelCombus
tionHighlights2015.pdf (accessed 16 December 2016).
21
Commission, ‘Staff Working Document Accompanying the Communication on Next Steps
for a Sustainable European Future: European Union Action for Sustainability’ SWD (2016) 390
final.
22
Gal Luft, Anne Korin and Eshita Gupta, ‘Energy Security and Climate Change: A Tenuous
Link’ in Benjamin K. Savocool (ed.), The Routledge Handbook of Energy Security (Routledge
2010).
23
Louise van Schaik and Simon Schunz, ‘Explaining EU Activism and Impact in Global
Climate Politics: Is the Union a Norm- or Interest-Driven Actor?’ [2012] Journal of Common
Market Studies 50(1), p. 169.
24
Tom Delreux, ‘EU Actorness, Cohesiveness and Effectiveness in Environmental Affairs’
[2014] Journal of European Public Policy 21(7), p. 1017.
25
‘Energy Strategy’ (European Commission Energy), https://ec.europa.eu/energy/en/topics/ener
gy-strategy (accessed 15 December 2016).

LEAL-ARCAS_9781786431042_t.indd 34 08/09/2017 13:02

that it might be beneficial for them to collectively develop and implement a shared stance
on global climate change mitigation initiatives, in order to have a meaningful impact.
Action and new stimulus by the EU (in coordination with national, regional and local
governments) is therefore needed, be it through public investment, support plans or any
other measures.
Focusing on the most recent policy strategies and action plans, these two overarching
themes have been at the centre of the EU’s energy/climate change response over the last
decade. In total, more than 400 legal acts have been signed on a European level regarding
energy-related issues.26 With the 2030 Energy and Climate package, targets were created
in three key areas in order to realize the above-mentioned ambitions: (1) a 40% cut in
greenhouse gas emissions compared to 1990 levels; (2) at least a 27% share of renewable
energy consumption; and (3) at least 27% energy savings compared with the business-as-
usual scenario.27 With the Paris Agreement, the European Commission has upgraded its
targets. The recently adopted Energy Winter Package (December 2016) consists of more
than 40 legislative proposals, with accompanying documents, aimed at further completing
the internal market for electricity and implementing the Energy Union, further reducing
the EU’s carbon footprint. The Energy Winter Package complements the Energy Security
Package of February 2016 which essentially focused on security of (gas) supply.28 Also in
the EU Global Strategy (2016) energy and climate change feature in all kinds of external
priorities.29
3. SHARED (EXTERNAL) COMPETENCES ON ENERGY AND

CLIMATE CHANGE POLICY
While climate does not feature literally as an area of ‘shared competence’ in the Treaty, it
is widely considered that the shared competence in ‘environment’ culminates in a shared
competence in ‘climate’, seeing the explicit recognition to ‘combat climate change’ in the
specific environment Treaty article.30 Even when this is questioned, shared competences
26
According to the EURLEX website (http://eur-lex.europa.eu/nl/index.htm), there are cur-
rently five legal acts on statistics, 98 on general principles and programmes, 81 on coal, 23 regarding
electricity; no fewer than 187 have nuclear energy as a subject; 14 are on oil and gas and 10 are on
other energy sources.
27
European Commission, ‘A policy framework for climate and energy in the period from 2020
to 2030’ (Communication) COM (2014) 15 final.
28
‘Commission Proposes New Rules for Consumer Centred Clean Energy Transition’ (European
Commission Energy), https://ec.europa.eu/energy/en/news/commission-proposes-new-rules-consum
er-centred-clean-energy-transition (accessed 15 December 2016). ‘Towards Energy Union: The
Commission Presents Sustainable Energy Security Package’ (European Commission Press Release
Database) http://europa.eu/rapid/press-release_IP-16-307_en.htm (accessed 15 December 2016).
29
‘Energy’ is mentioned 43 times and ‘climate’ 26 times in the EU Global Strategy. European
External Action Service, ‘Shared Vision, Common Action: A Stronger Europe, a Global Strategy
on the European Union’s Foreign and Security Policy’ [2016], http://europa.eu/globalstrategy/sites/
globalstrategy/files/pages/files/eugs_review_web_13.pdf (accessed 16 August 2017).
30
‘Union policy on the environment shall contribute to pursuit of the following objectives [. . .]
promoting measures at international level to deal with regional or worldwide environmental prob-
lems, and in particular combating climate change’, Art 191 TFEU.

LEAL-ARCAS_9781786431042_t.indd 35 08/09/2017 13:02

are seen as the ‘default category of competences’ into which climate as a policy area
would then automatically fall.31 However, how do these shared competences on energy
and climate work externally, both in theory and practice?
3.1 Shared External Competences
While the EU internal division of competences is delineated in the Treaty, the external
(shared) competences are not clearly demarcated by the Lisbon Treaty. As a consequence,
many academics see the external relations arrangements of the Lisbon Treaty as ‘rather
unsatisfactory’32 or ‘fuzzy’.33 Accordingly, decades of pre-Lisbon case-law of the Court
of Justice of the European Union define whether the competences are ‘pre-empted’ by
the Union. The fluidity of competences in external relations has ‘provided a fertile field
for ingenious legal argument’ over the interpretation of the Treaties before and after the
Lisbon Treaty.34 One of these ingenious legal inventions is the concept of ‘shared exter-
nal competences’ coined by Van Vooren and Wessel (2014).35 Although this concept is
not part of the Treaty, it was already mentioned as applicable to policy domains such as
environment in the run-up to the (failed) European Constitution.36 Other terms include,
inter alia, ‘joint responsibility’37 or, as used in the area of energy, ‘coordinated action’.38
The arbitrator of the use of competences in the EU is the Court of Justice of the
European Union. With an absence of the concept of shared external competences in
the Treaty, it is all the more important to see which case-law exists on this topic. The
Court has been a significant, but often disregarded, actor in EU external relations. The
Court of Justice favours the participation of the EU in international organizations as
a way to exercise its competence. Academic authors are even of the opinion that the
Court of Justice could ‘accelerate the process’ of the EU becoming a respected actor
31
Paul Craig, ‘EU Competences’ in Dennis Patterson and Anna Södersten (eds), A Companion
to European Union Law and International Law (Wiley Blackwell 2015) p. 88.
32
Bart van Vooren and Ramses A. Wessel, EU External Relations Law: Text, Cases and
Materials (Cambridge University Press 2014) p. 110.
33
Christophe Hillion and Ramses A. Wessel, ‘Competence Distribution in EU External
Relations after ECOWAS: Clarification or Continued Fuzziness?’ [2009] Common Market Law
Review 46(2), p. 586.
34
Jan Wouters, Jed Odermatt and Thomas Ramopoulos, ‘The EU in the World of International
Organizations: Diplomatic Aspirations, Legal Hurdles and Political Realities’ [2013] Leuven Centre
of Global Governance Studies Working Paper no. 121, p. 4.
35
Bart van Vooren and Ramses A. Wessel, EU External Relations Law: Text, Cases and
Materials (Cambridge University Press 2014).
36
Angelika Hable, ‘The European Constitution: Changes in the Reform of Competences with
a Particular Focus on the External Dimension’ [2005] EI Working Papers/Europainstitut, 67, WU
Vienna University of Economics and Business, Vienna.
37
Andre Nollkaemper, ‘Joint Responsibility between the EU and Member States for Non-
Performance of Obligations under Multilateral Environmental Agreements. The External
Environmental Policy of the European Union’ [2011] Amsterdam Law School Research Paper No.
2011-47, Amsterdam Center for International Law No. 2011-14.
38
Speech by Federal Chancellor Angela Merkel at the opening ceremony of the 61st academic
year of the College of Europe in Bruges on 2 November 2010, https://www.coleurope.eu/content/
news/Speeches/Europakolleg%20Brugge%20Mitschrift%20englisch.pdf (accessed 29 November
2016).

LEAL-ARCAS_9781786431042_t.indd 36 08/09/2017 13:02

in international organizations.39 Especially noteworthy is the ERTA effect of ‘implied

powers’: EU external competences exist because there are internal rules which form the
basis for implying external competence.40 Therefore, when legislation is internally (within
the EU) negotiated, it has external repercussions and the EU can enter into negotiations
and agreements. Thus, these implied powers find their sources in the general competences
the Union enjoys in the different policy areas, as well as in legislation. Even when Member
States are not excluded from acting on their own in international organizations based on
‘implied powers’, they are not entirely free to act, as they still have obligations stemming
from EU law, such as the principle of loyal cooperation.41 The Court of Justice seems to
see this principle of loyalty as very important, not only in terms of results, but also in
terms of the conduct of international negotiations.42
3.2 Application to Energy and Climate External Action
How did this shared (external) competence historically grow in external climate and
energy action by EU and Member State actors? Environmental policy received a basis
in European governance relatively late, with the Single European Act in 1987. It has,
however, ‘quickly developed an external dimension’.43 Even stronger, some argue that the
EU established itself as an international leader on climate change in the mid-1980s and
that it has ‘considerably improved its leadership record’ since then.44 Seeing the nature
of shared competences, Member States are represented in the 1992 United Nations
Framework Convention on Climate Change (UNFCCC) separately alongside the
European Commission, but they ‘largely act jointly’ and are ‘recognized as one unitary
actor’.45
This is different in the area of energy. While the EU has its origins in cooperation on
energy policies such as those focused on coal, the actual external cooperation of EU insti-
tutions and Member States has proven to be weak, partly due to the lack of respective
competences. Energy is even considered to perhaps constitute ‘the only field’ in which the
EU has shifted its common drive towards a lesser extent of integration, never being able
39
Frank Hoffmeister, ‘Outsider or Frontrunner? Recent Developments under International
and European Law on the Status of the European Union in International Organizations and Treaty
Bodies’ [2007] Common Market Law Review 44(1), p. 68.
40
See Case 22/70, Commission v. Council [1971] ECR 263 (‘ERTA’) and Bart van Vooren and
Ramses A. Wessel, EU External Relations Law: Text, Cases and Materials (Cambridge University
Press, 2014), p. 105. Case C-246/07, Commission v. Sweden (PFOS) [2010] ECR 3317. See also
Marise Cremona, ‘Case C-246/07, Commission v. Sweden (PFOS), Judgment of the Court
of Justice (Grand Chamber) of 20 April 2010’ [2011] Common Market Law Review 48(5), pp.
1639–65.
41
Art 4(3) TEU.
42
Case C-246/07, Commission v. Sweden (PFOS) [2010] ECR 3317. See also Marise Cremona,
‘Case C-246/07, Commission v. Sweden (PFOS), Judgment of the Court of Justice (Grand
Chamber) of 20 April 2010’ [2011] Common Market Law Review 48(5), pp. 1639–65.
43
Sandra Lavenex, ‘EU External Governance in “Wider Europe”’ [2004] Journal of European
Public Policy, 11(4), p. 691.
44
Sebastian Oberthür and Claire Roche Kelly, ‘EU Leadership in International Climate Policy:
Achievements and Challenges’ [2008] The International Spectator 43(3), pp. 35–50.
45
Ibid.

LEAL-ARCAS_9781786431042_t.indd 37 08/09/2017 13:02

to regain the shared vision of the 1950s.46 In its 2001 Green Paper on energy security, the
Commission therefore regrets that the ‘Union suffers from having no competence and no
community cohesion in energy matters’.47 As compared to the more unified EU climate
policies, the external energy policies mostly refer to creating more solidarity between the
Member States.48
At the external stage, the EU and Member States ‘shall cooperate with third countries
and with the competent international organizations’, ‘within their relative spheres of
competence’ on climate change and energy.49 Seeing that the EU is neither a state nor a
typical international organization, however, the EU’s role in international affairs has often
been seen as ‘confusing’ for third countries, since the Union is not always perceived as a
unified actor, even on climate policies.50 The external action of the EU in both climate and
energy has historically been Member State-led.51 Therefore, while the initiative has been
mainly with the European Commission, national policies also exist and clearly matter.
Some argue that the shared energy competences can become exclusive competences at the
external stage, as a legal development seen earlier in trade issues.52 This gradual acquisi-
tion of competences is a necessity to some authors, because the shared competences are
often perceived as an ‘obstacle’ to effective external action.53
4. INSTITUTIONAL ACTORS IN EU ENERGY AND CLIMATE

DIPLOMACY AS WELL AS DECISION-MAKING
The creation of external EU energy and climate policy is a complex issue involving many
actors. In addition to formal EU institutions, a wide variety of other key stakeholders
is involved in EU decision-making and external diplomacy. For example, private sector
46
[2015] European Energy Journal 5(3), p. 27 and Sami Andoura, Leigh Hancher and Marc Van der
Woude, ‘Towards a European Energy Community: A Policy Proposal by Jacques Delors’ [2010]
Notre Europe, p. 7.
47
See also Sandra Lavenex, ‘EU External Governance in “Wider Europe”’ [2004] Journal of
European Public Policy 11(4), p. 692.
48
European Commission press release – Towards Energy Union: The Commission presents
sustainable energy security package, 16 February 2016, http://europa.eu/rapid/press-release_IP-16-
307_en.htm (accessed 10 December 2016).
49
Art 211 TFEU.
50
Chad Damro, ‘EU-UN Environmental Relations: Shared Competence and Effective
Multilateralism’ in Katie Verlin Laatikainen and Karen E. Smith (eds), The European Union at the
United Nations: Intersecting Multilateralisms (Palgrave, 2006).
51
Maurizio Carbone, ‘Mission Impossible: The European Union and Policy Coherence for
Development’ [2008] European Integration 30(3), p. 328, citing also Christian Egenhofer (ed.),
Policy Coherence for Development in the EU Council: Strategies for the Way Forward (Centre for
European Policy Studies, Brussels, 2006).
52
[2015] European Energy Journal 5(3), pp. 24–60.
53
Chad Damro, ‘EU-UN Environmental Relations: Shared Competence and Effective
Multilateralism’ in Katie Verlin Laatikainen and Karen E. Smith (eds), The European Union at the
United Nations: Intersecting Multilateralisms (Palgrave, 2006).

LEAL-ARCAS_9781786431042_t.indd 38 08/09/2017 13:02

organizations and companies,54 Civil Society Organizations (CSOs), utility providers,

consumer (protection) organizations, local authorities,55 academics, other international
organizations (e.g. the International Atomic Energy Agency (IAEA)) and third countries
(e.g. Russia) influence European policymaking in the domain of energy (security) and
climate change. Given the complexity of policymaking in view of the variety of actors
involved, the present chapter will constrain itself to an analysis of the role of different EU
institutions and of individual Member States.
The division of responsibilities between the EU and the Member States is primarily
defined by the Treaty of the European Union. Article 17(1) ensures that the European
Commission is responsible for external representation, with the exception of Common
Foreign and Security Policy (CFSP). As stipulated in this article, the Council of the
European Union and the Commission, assisted by the High Representative of the Union
for Foreign Affairs and Security Policy ‘shall ensure the consistency’ of the EU’s foreign
policies and ‘shall cooperate to that effect’.56 The HR/VP also has the possibility to engage
the European External Action Service (EEAS) and its EU delegations.57 Furthermore,
the European Council ‘identifies strategic interests and objectives of the Union’, includ-
ing external policies.58 As regards energy and climate policies, the ‘increased institutional
and political stature’ should however not be overestimated as it ‘relies primarily on the
“unmatched” expertise within the Commission and Council bureaucracy’.59 Apart from
these actors, the European Parliament and the Court of Justice of the European Union
play a role as EU institutions in external (climate and energy) policies. Moreover, various
EU agencies such as the EURATOM Supply Agency play a role in decision-making on
EU external policies. The European Investment Bank may be involved in financing or
executing various energy related projects and programmes, for example in developing
countries.
The Treaty also contains specific titles on shared external action on energy and climate
policy. The ‘energy’ article – Article 194 TFEU – primarily has an internal focus, with the
main aim to ensure energy policy supports functioning energy markets, promoting energy
efficiency and strengthening the interconnection of energy networks. However, ‘ensuring
the security of supply’ in the Union clearly is related to EU external affairs. Some hold
that Article 194 TFEU provides ‘fertile legal ground’ for the development of a fully-
fledged European external energy policy’.60 Nevertheless, the separate energy title since the
54
José Célio Silveira Andrade and José Antônio Puppim de Oliveira, ‘The Role of the Private
Sector in Global Climate and Energy Governance’ [2015] Journal of Business Ethics 130(2), pp.
375–87.
55
Kristine Kern and Harriet Bulkeley, ‘Cities, Europeanization and Multi-level Governance:
Governing Climate Change through Transnational Municipal Networks’ [2009] Journal of Common
Market Studies 47(2), pp. 309–32.
56
Art 21(3) TEU.
57
Art 221 TFEU.
58
Art 15(1) TEU and Art 22(1) TEU.
59
Policy and Business as Usual’ [2011] EPIN Working Paper, no. 31.
60
[2015] European Energy Journal 5(3), p. 28. See also Bart van Vooren and Ramses A. Wessel, EU
External Relations Law: Text, Cases and Materials (Cambridge University Press, 2014).

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Lisbon Treaty has also been coined a ‘double edged-sword’ by officials of the European
Parliament, seeing its respective opportunities and limitations.61 According to the Treaties
(Articles 4 and 191 TFEU), the EU and Member States share competences in the envi-
ronmental (and climate change) fields and therefore also in climate change negotiations.
Finally, and not of the least importance, national governments and parliaments con-
tinue to play a paramount role as the EU can only act in those areas in which it has
received the competence from the Member States; large parts of energy policy are still
governed on the basis of coordinated action by the Member States. The EU Member
States by themselves have ‘some 124 energy-related intergovernmental agreements’ with
other countries of which ‘around one-third’ are not EU-compliant.62 Despite this, the
European Commission has contributed to a shift in political norms, successfully framing
import dependency as a problem requiring an EU-level solution. Whilst Member States
retain a significant extent of sovereignty in this area, since 2006 the Commission has
achieved more competences in the internal and, to a lesser extent, external dimensions of
EU energy policy.63 Furthermore, while there are specific titles in the Treaty, both energy
and climate ‘constitute a horizontal issue’ and are linked with many other external policy
areas, such as development cooperation and trade.64 To enable coherent and consistent
external action on energy and climate, recent initiatives include the successful Climate
Diplomacy Action Plan65 and the Energy Diplomacy Action Plan.66
5. ARE THE EU AND MEMBER STATES SHAPING GLOBAL

CLIMATE AND ENERGY GOVERNANCE?
The EU has had a major stake in developing ‘effective multilateralism’67 and international
commitments, certainly on climate change, and to a lesser extent on energy. With the Paris
Agreement, the success of a universal multilateral agreement on climate change mitiga-
tion can be claimed. The development of multilateral energy governance, however, has
61
Policy and Business as Usual’ [2011] EPIN Working Paper 31, p. 7.
62
EU Observer (2016) ‘EU Commission to Oversee National Energy Deals’, 8 December 2016,
via https://euobserver.com/tickers/136189 (accessed 17 November 2016).
63
Tomas Maltby, ‘European Union Energy Policy Integration: A Case of European Commission
Policy Entrepreneurship and Increasing Supranationalism’ [2013] Energy Policy 55, p. 435.
64
Policy and Business as Usual’ [2011] EPIN Working Paper 31, p. 3. See for a critical overview of
energy and climate policies compared to other EU policies, Robert Falkner, ‘The Political Economy
of “Normative Power” Europe: EU Environmental Leadership in International Biotechnology
Regulation’ [2007] Journal of European Public Policy 14(4), pp. 507–26 and Stavros Afionis and
Lindsay C. Stringer, ‘European Union Leadership in Biofuels Regulation: Europe as a Normative
Power?’ [2012] Journal of Cleaner Production 32, pp. 114–23.
65
‘Foreign Affairs Council calls for continuing European climate diplomacy following landmark
Paris deal’, http://ec.europa.eu/clima/news/articles/news_2016021601_en (accessed December 2016).
66
‘Energy Diplomacy’, https://eeas.europa.eu/topics/energy-diplomacy_en (accessed December
2016).
67
Edith Drieskens and Louise G. Van Schaik (eds), The EU and Effective Multilateralism:
Internal and External Reform Practices (Routledge, 2014).

LEAL-ARCAS_9781786431042_t.indd 40 08/09/2017 13:02

been more difficult. Daniel Yergin and others emphasize the fact that energy sectors and
markets are posited to closely match the national interests of states, so that energy security
becomes part of national security schemes.68 Decreasing GHG emissions globally has
become a challenge in a debate where self-interest and collective goods are contradictory in
terms of Member States’ goals. The main stumbling block, also in climate negotiations, has
been the notion that the richest, most developed economic actors need to bear the heavi-
est economic burden to reduce GHG emissions, as they (have) contribute(d) the biggest
share in worldwide energy consumption and pollution.69 This ‘common but differentiated
responsibilities’ approach has, at least until the 2015 Paris Agreement, clashed with the
agenda of some economic superpowers, notably the US under the Bush Administration.70
Accordingly, for import-dependent blocs and states such as the EU the objective has
long been to prevent energy from endangering national interests and objectives.71 Other
notable geopolitical catalysts during the last 30 years have prompted the EU (and the
US), as with many other states, to safeguard security of supply for themselves, rather than
relying on consultations and international institutions that would determine matters for
them. How did the EU and the Member States nevertheless help shape the global energy
and climate change agenda? Illustrations on this will be provided in the following sections.
5.1 EU Involvement in Global Climate Frameworks
5.1.1 UNFCCC and the Paris Agreement

Since the early 1990s, the EU has been a leading actor in constructing international
climate policy frameworks and creating leading discussions.72 In doing so, it has been
deeply committed to creating a multilateral response to combat climate change. The
1992 United Nations Framework Convention on Climate Change (UNFCCC), adopted
during the 1992 United Nations Conference on Environment and Development (the Rio
Conference), can be considered the principal framework instigating the discussion on
global climate efforts under the umbrella of the UN. Although non-binding in nature,
the Convention listed climate change as a salient matter on the global agenda, while
the parties committed to meeting during the yearly Conference of Parties (COP) to
discuss, and if possible act upon, climate change challenges. The EU, although having a
relatively new institutional structure after the Treaty of Maastricht, was deeply involved
68
Daniel Yergin, The Prize: The Epic Quest for Oil, Money and Power (Free Press, 2008);
Robert Gilpin, Global Political Economy – Understanding the International Economic Order
(Princeton University Press, 2001), p. 38.
69
Bruce Podobnik, ‘Global Energy Inequalities: Exploring the Long-Term Implications’ [2002]
Journal of World-Systems Research, p. 252.
70
Jeffrey McGee and Jens Steffek, ‘The Copenhagen Turn in Global Climate Governance and
the Contentious History of Differentiation in International Law’ [2016] Journal of Environmental
Law, p. 37; Guri Bang, ‘The United States: Obama’s Push for Climate Policy Change’ in Guri
Bang et al. (eds), The Domestic Politics of Climate Change: Key Actors in International Climate
Cooperation (Edward Elgar, 2015), pp. 160–81.
71
Daniel Yergin, ‘Energy Security in the 1990s’ [1988] Foreign Affairs, pp. 110–32.
72
Jürgen Lefevere, Artur Runge-Metzger and Jake Werksman, ‘The EU and international
climate change policy’ in Jos Delbeke and Peter Vis (eds), EU Climate Policy Explained (Routledge,
2015), p. 109.

LEAL-ARCAS_9781786431042_t.indd 41 08/09/2017 13:02

in negotiating the basis for the convention that was adopted in the 1992 Earth Summit
in Rio.73 COP is the supreme decision-making body of the UNFCCC and all of its 195
members are invited to participate in these meetings. The EU is a Party to the UNFCCC
as are all EU Member States in their own right.74
After various rounds of failed negotiations to define a universal climate framework,75
a series of subsequent COPs led to the successful COP21 in Paris in 2015. During this
Conference, the European delegation of EU and Member States built a robust coalition
of both developed and developing nations, which added to the successful international
climate agreement.76
5.2 EU Involvement in Global Energy Frameworks
5.2.1 United Nations 2030 Agenda for Sustainable Development

In the absence of a universal binding energy treaty, the UN 2030 Agenda for Sustainable
Development, a more action-oriented framework falling under the auspices of the UN,
remains the closest thing to a universal energy ‘commitment’ there is.77 As regards the
creation of this agenda, the European Commission maintained that
[. . .] the EU has played an important role in shaping the 2030 Agenda, through public
consultations, dialogue with our partners and in-depth research [. . .] the EU will continue
to play a leading role as we move into the implementation of this ambitious, transforma-
tive and universal Agenda that delivers poverty eradication and sustainable development for
all.78
5.2.2 International Energy Agency

Various researchers in the energy area consider the International Energy Agency (IEA) to
be the core institution in the splintered field of global energy governance.79 The organiza-
tion was created shortly after the 1973 oil crisis, to form an adequate response to physical
73
Alexandra Lindenthal, Leadership im Klimaschutz: Die Rolle der Europäischen Union in der
Internationalen Umweltpolitik (Campus-Verl., 2009), p. 132.
74
https://ec.europa.eu/clima/policies/international/negotiations_en (accessed 8 August 2017).
75
Probably the most outspoken failure in this regard, also for the EU, was the Copenhagen
conference in 2009. See, e.g. Stavros Afionis, ‘The European Union as a Negotiator in the
International Climate Change Regime’ [2011] International Environmental Agreements: Politics,
Law and Economics 11(4), pp. 341–60.
76
Sebastian Oberthür, ‘Where to Go from Paris? The European Union in Climate Geopolitics’
[2016] Global Affairs, pp. 1–12 and ‘How the EU Helped Build the Ambition Coalition’
(EUClimateAction Storify, January 2016), https://storify.com/EUClimateAction/how-the-eu-helped-
build-the-coalition-ambition (accessed 30 November 2016).
77
United Nations, ‘Transforming Our World: The 2030 Agenda for Sustainable Development’
[2015], https://sustainabledevelopment.un.org/post2015/transformingourworld (accessed November
2016).
78
Commission, ‘The 2030 Agenda for Sustainable Development’, http://ec.europa.eu/euro
peaid/policies/european-development-policy/2030-agenda-sustainable-development_en (accessed 1
December 2016).
79
See, e.g., Flynt Leverett, ‘Consuming Energy: Rising Powers, the International Energy
Agency, and the Global Energy Architecture’ in Alan S. Alexandroff and Andrew F. Cooper (eds),
Rising States, Rising Institutions: Challenges for Global Governance (Brookings Institution Press,

LEAL-ARCAS_9781786431042_t.indd 42 08/09/2017 13:02

oil supply disruptions, while providing information and data about the international oil
market and other energy sectors. The IEA falls within the framework of the Organization
for Economic Cooperation and Development (OECD).
Membership of the IEA is limited: the mandate of the organization stipulates that
only OECD Members are eligible to join the IEA. With 20 out of the total of 29 IEA
members, the EU provides the largest number of members of this organization. The EU
holds a collective seat in the IEA as well, thereby having its own external representation
in the primary organization dealing with international energy matters. The EU has been
applauded by the IEA as a global leader considering its ‘unprecedented renewable energy
boom, its action on energy efficiency and [. . .] drop in greenhouse gas emissions’, giving
it an exemplary role in the IEA.80
5.2.3 The Energy Charter, the Energy Community and IRENA

The Energy Charter Treaty is a multilateral energy agreement in which the EU has a sepa-
rate voice. Thus, the EU, having a membership role, provides it with collective external
representation in another main global energy framework.81 The Energy Community, by
comparison, is an international organization focusing on international energy policy. The
Energy Community’s foremost goal is to enhance energy infrastructure between the EU
and South East Europe, and the Black Sea region. Since the Energy Community only
operates in Europe, the role of the EU in this framework is important, necessitating the
EU to provide its own representation. Effectively, the European Commission represents
the EU in this respect.
The International Renewable Energy Agency (IRENA) is based in Dubai. This mul-
tilateral organization promotes the transition from conventional fossil forms of energy
to renewable ones. The Agency has the important function of supporting countries in
their transition to renewable forms of energy. The EU (next to its Member States) is also
represented in IRENA.
6. EU EXTERNAL ACTION ON CLIMATE AND ENERGY:

INSTITUTIONAL CHALLENGES AND OPPORTUNITIES
While the EU often proclaims that ‘sustainability is a European brand’,82 a closer look
reveals a ‘dual agenda’ of both (normative) climate change mitigation as well as a defensive
energy security agenda. The combination of ‘benevolent civilian milieu goals’ and strategic
‘possession goals’ in the EU’s and Member State’s common agenda is certainly not new, but
2010), pp. 240–65. See also Thijs van der Graaf, ‘Obsolete or Resurgent? The International Energy
Agency in a Changing Global Landscape’ [2012] Energy Policy, p. 233.
80
International Energy Agency, ‘Energy Policies of IEA Countries’ (2014) European Union
2014 Review, https://www.iea.org/publications/freepublications/publication/energy-policies-of-iea-
countries---the-european-union-2014-review.html (accessed 1 December 2016).
81
For more information about the International Energy Charter, see Chapter 10 of this hand-
book by Sijbren de Jong.
82
Commission, ‘Next Steps for a Sustainable European Future: European Action for
Sustainability’ SWD(2016) 390 final, p. 17.

LEAL-ARCAS_9781786431042_t.indd 43 08/09/2017 13:02

has become more problematic over time.83 Activities in equally important policy areas where
the EU and Member States also share competences, for example development cooperation,
seem to be conducted in ‘silos’ and are not coherent.84 In this regard, the somewhat ‘double-
standard action’ by the EU in its external climate and energy policies is not really helpful:
while countries such as Colombia work together closely with the EU on climate change
affairs, Colombia remains the single largest exporter of coal to the EU as a whole.85 This
raises questions as to the EU’s full commitment to being a global leader in climate affairs.
Concurrently, the EU may be faced with the problem that it is unable to deliver on
the international energy and climate promises it makes. The capabilities-expectations
gap, introduced by Christopher Hill in 1993, provides a possible concept to describe this
issue.86 Hill’s concept draws on the assumption that the European Communities in 1993
were unable to pursue the actions they promised to deliver due to a lack of capabilities.
Similarly, today there are those who claim that in the post-Lisbon era, the EU’s foreign
policy is still characterized by a ‘capability-expectations gap’.87 To close its ‘foreign policy
gap’, especially in the area of energy, ‘[. . .] the EU’s capabilities would either need to be
increased, or expectations decreased’.88
Additionally, among the Member States there is a clear variation in the understanding
of how to achieve, for example, a secure energy of supply status.89 This is related to the
‘east vs. west paradox’ of underdeveloped, vulnerable energy markets and developed, less
vulnerable ones, as the extent of market ‘maturity’ differs in the East and West. In this
respect, Eastern European states seem more willing to integrate the EU internal market
and develop the external energy policy, in comparison to the Western, more developed
nations, which are less vulnerable to fluctuations in import-fluxes.90 The Energy Union
is not always met with similar enthusiasm by the EU Member States that remain keen
on deciding energy market-related policies for themselves.91 Tariffs, for example, have
remained a strategic domestic affair for some EU energy transit countries.92 Transit tariffs
provide the country with revenue and economic gain, making it unattractive to alleviate
83
Karen E. Smith, ‘Still “Civilian Power EU”?’ [2005] European Foreign Policy Unit Working
Paper Series, p. 1
84
Maurizio Carbone, ‘Mission Impossible: The European Union and Policy Coherence for
Development’ [2008] Journal of European Integration, p. 323.
85
Eva Maas, Louise van Schaik and Ries Kamphof, ‘EU and Colombia: Climate Partnership
Beyond Aid and Trade’ [2015] Clingendael Policy Brief, p. 1.
86
Christopher Hill, ‘The Capability-Expectations Gap, or Conceptualizing Europe’s International
Role’ [1993] Journal of Common Market Studies 31(3), p. 305.
87
Niklas Helwig, ‘EU Foreign Policy and the High Representative’s Capability-Expectations
Gap: A Question of Political Will’ [2013] European Foreign Affairs Review (18), p. 235.
88
Christopher Hill, ‘The Capability-Expectations Gap, or Conceptualizing Europe’s International
Role’ [1993] Journal of Common Market Studies 31(3), p. 305.
89
Ole Gunnar Austvik, ‘The Energy-Union and Security-of-gas Supply’ [2016] Energy Policy,
p. 372.
90
Ibid.
91
Daan Rutten, ‘CIEP Briefing Paper on the Energy Union’ [2016] Clingendael International
Energy Programme, p. 4.
92
Stefan Bouzarovski and Sergio Tirado Herrero, ‘The Energy Divide: Integrating Energy
Transitions, Regional Inequalities and Poverty Trends in the European Union’ [2015] European
Urban and Regional Studies, p. 8; ‘Bringing Gas to the Market: Gas Transit and Transmission

LEAL-ARCAS_9781786431042_t.indd 44 08/09/2017 13:02

them. At the same time, however, tariffs are a key impediment to the development of a
single harmonized market. In this way, EU Member States have to choose between a
common EU voice on energy (trade) policy and own revenues, which constitutes another
trade off.
Of course, there also are opportunities for more cohesive external action in the area of
energy policy. The EU energy diplomacy action plan ‘needs to be backed by a coherent
set of tools to ensure coordination of efforts between EU Member States and European
institutions’.93 In this way, the energy diplomacy action plan could benefit from experi-
ence based on the more successful examples of climate diplomacy. Nevertheless, common
external EU and Member State action on energy security is complicated by the fact that
there is a general lack of international fora operating in this domain. This is all the more
visible when compared with climate change mitigation, where a general and universal
Conference of the Parties (COP) takes place every year.
To close the ‘capabilities-expectations gap’, the EU could pursue less ambitious
energy goals, that is, lowering the international expectation that it is truly able to
speak with one voice in energy-related areas. Alternatively, notably in the energy policy
domain, the EU could aim to enhance its ability to agree on external policies, augment
the resources it has available for this and aim to establish more adequate instruments to
implement its commitments. Hence, there are both institutional challenges and oppor-
tunities as regards the development of coherent and cohesive EU external climate and
energy policies, but hurdles in view of energy policy seem to be more extensive and
would need more efforts and adaptations to close the ‘capabilities-expectations gap’ in
this area.
7. CONCLUSION AND FUTURE RESEARCH AGENDA
The lack of a clear guidance in the Treaties on who represents the EU externally in the case
of shared competences has caused tensions between EU institutions such as the European
Commission, the Council and the European External Action Service. These tensions have
become more visible since the entry into force of the Lisbon Treaty, in general terms, but more
specifically also in the areas of climate and energy policies. Our chapter shows that the insti-
tutional framework, both within the EU and in terms of international institutions, affects
the EU’s capacity to act cohesively. As Tom Delreux stated in 2006, the EU’s external actions
are to a large extent ‘determined by its internal interactions between the different actors’.94
Accordingly, this chapter can be seen as complementing the preceding one in this book.95
Tariffs in Energy Charter Treaty Countries’, Energy Charter Secretariat [2012], http://www.energy-
charter.org/fileadmin/DocumentsMedia/Thematic/Gas_Tariffs_2012_en.pdf.
93
Thomas Raines and Shane Tomlinson, ‘Europe’s Energy Union: Foreign Policy Implications
for Energy Security, Climate and Competitiveness’ [2016] Chatham House Research Paper, March
2016, p. 24.
94
Tom Delreux, ‘The European Union in International Environmental Negotiations: A
Legal Perspective on the Internal Decision-Making Process’ [2006] International Environmental
Agreements (6), p. 232.
95
See Chapter 2 by Kim Talus and Pami Aalto, ‘Competences in EU energy policy’.

LEAL-ARCAS_9781786431042_t.indd 45 08/09/2017 13:02

The ‘shared (external) competences’ make it difficult for the EU to establish coher-
ent external policies. Climate change and energy security policies are increasingly tied
together in the ways they are referred to, creating the impression that there is a direct,
inextricable link between the two areas. As Luft et al. (2011) stated, however, this link ‘is
more tenuous’ than it seems, as there are ‘many trade-offs’ between the two areas, also
in substantive terms.96 Furthermore, in terms of power and competence distribution,
‘energy security’ is a core area of national sovereignty, while to achieve climate change
mitigation, there needs to be global partnerships to attain countries’ respective aims,
demanding a different strategy related to the provision of ‘global public goods’.97 In this
sense, the EU being more eager to ‘speak with one common voice’ in external relations on
climate change issues than in those related to energy security makes sense. The absence
of clear-cut global multilateral fora on energy makes it even more difficult for the EU to
align its own policies and those of its Member States on this issue.
A new research agenda could be beneficial in which shared external competences in
terms of both energy security and climate change mitigation are being addressed in a
combined way. Lessons from the more successful climate diplomacy could then possibly
be transferred to the energy diplomacy domain. Future research could also address ways
in which challenges to the coordination of EU external policies in the climate and energy
areas can be overcome, for example by potential institutional or organizational adapta-
tions, or increased coordination between Member States and EU institutions in such
areas. Next to this, a potential focus could be on the extent to which the ‘securitization’ of
energy and climate change may have an effect on the ‘pendulum’ swinging either towards
the wish to maintain sovereignty or to enhance the EU’s common external representa-
tion. Recently there has been increasing attention on the ‘climate security’ agenda where
military and climate threats are combined.98 However, this ‘securitization’ of the climate
agenda is not automatically linked with energy security.
Another issue worth addressing might be the rise of populism, which has fed the
ongoing ‘existential crisis’ of the EU, which is characterized by, for example, Brexit.
Although little research has been conducted measuring the effect of populism on EU
foreign policymaking, a recently published report by the European Policy Centre provides
an early comprehensive account of this topic. The findings are relatively moderate, as the
report argues that ‘[. . .] contemporary European populists on both the left and right have
so far shown limited transformative power in terms of their ability to determine actual
policy choices’.99 Nevertheless, a future research agenda on this issue is both meaningful
96
Gal Luft, Anne Korin and Eshita Gupta, ‘Energy Security and Climate Change: A Tenuous
Link’ in Benjamin K. Savocool (ed.), The Routledge Handbook of Energy Security (Routledge,
2010).
97
Michèle B. Bättig and Thomas Bernauer, ‘National Institutions and Global Public Goods:
Are Democracies More Cooperative in Climate Change Policy?’ [2009] International Organization
63(2), pp. 281–308.
98
See e.g. the ‘Planetary Security Initiative’, https://www.clingendael.nl/sites/default/files/
PSI_flyer_A5_web_0.pdf (accessed 7 December 2016). Climate change is considered a ‘threat
multiplier that catalyzes water and food scarcity, pandemics and displacement’ according to the
EU Global Strategy.
99
Rosa Balfour et al., ‘Europe’s Troublemakers: The Populist Challenge to Foreign Policy’
[2016] European Policy Centre, p. 49.

LEAL-ARCAS_9781786431042_t.indd 46 08/09/2017 13:02

and essential, as the unfolding of [parliamentary] elections across the European continent
may provide right-wing parties with more transformative power. Finally, there could be a
special focus on how EU populist parties’ support for Russia might affect the EU’s posi-
tion as Russia’s largest importer of conventional energy sources.
Another promising research avenue would be to see how the EU could link agendas
and strategic partnerships. More detailed accounts on the intersection between the EU’s
climate change policy and development programmes could, for example, offer a more
comprehensive understanding of this topic. In what way, for instance, do the negotiations
on a ‘post-Cotonou agreement’ with African, Caribbean and Pacific countries work in
conjunction with the EU goals in terms of energy security and climate change mitiga-
tion? How could this be structured externally to create more efficient, problem-driven
diplomacy in this domain? How can researchers, for example with political-institutional
background research, help to demonstrate how contradictions in the EU’s external policy
could be prevented? Another challenge is the relative strength of the carbon-intensive
industry as a major deterrent to the adoption of climate change mitigation policies.100
This nexus could also be addressed.
It would also be worthwhile to come up with a research agenda that explicitly incorpo-
rates the positions and interests of other global actors, including large energy-producing
countries such as Russia, Nigeria and Algeria and explore how the private sector, which
is increasingly involved in ‘de-risking’ the political process, and local authorities could
play a role in terms of finding innovative climate and energy solutions from which the
EU’s external policies could also benefit. Science diplomacy may, especially in the areas
of climate and energy, prove effective in depoliticizing issues that are, for example, closely
intertwined with national interests. Such knowledge exchange might again decrease
the ‘information deficit’ the EU has as compared to the energy security schemes of its
Member States, which would probably make it easier to ‘speak with one voice’ externally.
More institutional issues could be part of this research agenda. All in all, a clearer descrip-
tion of the role of the competences of the EU and its Member States would not only be
‘highly pertinent towards understanding energy within the EU context’,101 but also in the
external institutional context. Studying the activities of EU actors in conjunction with
those of external (third) parties is therefore of crucial importance.
100
Franklin Steves and Alexander Teytelboym, ‘Political Economy of Climate Change Policy’
[2013] Smith School Working Paper Series, Working Paper 13/06, p. 25.
101
Rafael Leal-Arcas and Andrew Filis, ‘Conceptualizing EU Energy Security through a
Constitutional Law Perspective’ [2013] Fordham International Law Journal (36), p. 1225.

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4. EU energy and competition: analysis of current
trends and a first assessment of the new package
Leigh Hancher and Francesco Maria Salerno
1. INTRODUCTION
Since 1996 the EU has put in place legislation to enable the transition from electricity
and gas systems traditionally dominated by vertically integrated national incumbents that
owned and operated generation and network assets and were often the only importers and
exporters of electricity or gas, to competitive well-functioning and integrated markets.
Three packages of legislation were adopted between 1996 and 2009. The 1996–1998
measures1 constituted a first somewhat tentative step towards market liberalization by
removing exclusive rights enjoyed by incumbents to produce, supply and transport gas
and electricity and requiring them to negotiate with new entrants on the terms of access
to their networks. These Directives were subsequently replaced and repealed by the second
package in 2003.2 This package required full market opening, national sector regula-
tors, regulated third-party network access, regulated or negotiated access to storage and
further unbundling of integrated companies.3
In 2009 the EU adopted what was then called the ‘Third Package’ of energy legislation.4
1
Directive 96/92/EC of the European Parliament and of the Council of 19 December 1996
concerning common rules for the internal market in electricity, OJ 1997, L 27/20. Directive 98/30/
EC of the European Parliament and of the Council of 22 June 1998 concerning common rules for
the internal market in natural gas, OJ 1998, L 204/1.
2
Directive 2003/54/EC of the European Parliament and of the Council of 26 June 2003 con-
cerning common rules for the internal market in electricity, OJ 2003 L 176/37. Directive 2003/55/
EC of the European Parliament and of the Council of 26 June 2003 concerning common rules for
the internal market in natural gas, OJ 2003 L 176/57.
3
The Gas Directive was complemented by the Gas Regulation (Regulation (EC) No 1775/2005
of 28 September 2005 on conditions for access to the natural gas transmission networks (OJ 2005
L 289/1), which expanded on several of the provisions in the Directive. It introduces qualitative
obligatory minimum requirements for access to transmission systems (network tariffs, third-party
access services, capacity allocation, transparency, balancing and trading of capacity rights).
4
Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 con-
cerning common rules for the internal market in electricity (‘Electricity Directive’ or ‘ED’), OJ
2009 L 211/55. Directive 2009/73/EC of the European Parliament and of the Council of 13 July
2009 concerning common rules for the internal market in natural gas (‘Gas Directive’ or ‘GD’),
OJ 2009 L 211/94. Regulation (EC) No. 713/2009 of the European Parliament and the Council of
July 2009 establishing an Agency for the Cooperation of Energy Regulators (‘ACER Regulation’),
OJ 2009 L 211/1. Regulation (EC) No 714/2009 of the European Parliament and of the Council
of 13 July 2009 on conditions for access to the network for cross-border exchanges in electric-
ity (‘Electricity Regulation’), OJ 2009 L 211/15. Regulation (EC) No 715/2009 of the European
Parliament and of the Council of 13 July 2009 on conditions for access to the natural gas transmis-
sion networks (‘Gas Regulation’), OJ 2009 L 211/36.
48
LEAL-ARCAS_9781786431042_t.indd 48 08/09/2017 13:02

EU energy and competition 49
The Third Package crystallized the following key aspects of energy regulation or Sector
Specific Regulation (‘SSR’): (1) unbundling of vertically integrated undertakings; (2)
third-party network access; (3) cross-border trade; and (4) a network of regulatory and
supervisory institutions.
Prior to the launch of the first package of internal energy market measures in 1996–
1998 there was very little competition in either the electricity or the gas markets. National
markets were reserved for national vertically integrated incumbents. The application of
the Treaty competition rules were therefore of limited relevance before that date. As the
General Court held in case T-360/09 Eon Ruhrgas and Eon v Commission, competition
could not be affected when the two national operators were granted monopoly in gas
supply in their national territories by national law at the relevant time.5
The launch of energy market liberalization, albeit limited in scope, changed this situ-
ation rapidly and irreversibly as the Commission began a series of investigations as well
as a sector-wide inquiry. In time, the drive to create well-functioning, integrated markets
through common legislative rules has been strengthened by a rigorous and systematic
enforcement of the Treaty rules on competition and more recently, state aid.
Since the adoption of the so-called Third Package in 2009 there has been a move away
from conventional generation towards the deployment of capital-intensive low margin
cost, variable and often decentralized electricity from renewable energy sources (RES E)
that is expected to become more pronounced by 2030 and certainly by 2050 if the EU’s
low-carbon ambitions are to be realized.
The Renewable Energy Directive 2001/776 as amended by the 2009/28 Directive,7 has
established a European framework for the promotion of RES, setting mandatory targets
for achieving a 20% EU share of renewable energy in final energy consumption (and
a 10%) share in transport) by 2020. In the future, electricity demand will progressively
reflect the increasing electrification of transport and heating.
At the time the Third Package was launched, this paradigm shift was hardly foreseen
and certainly not anticipated. As a consequence, in February 2015 the Commission
adopted the Communication on ‘A Framework Strategy for a Resilient Energy Union
with a Forward-Looking Climate Change’,8 heralding upcoming changes in the legisla-
tion. In the same year the Commission’s Directorate-General in charge of energy (DG
ENER) started to engage in an extensive analysis of the policy options for a possible
revision of the main framework governing electricity markets and security of electricity
5
T: 2012:332., at para. 155. The General Court went on to partially annul the Commission
decision finding that the agreement of 18 July 1975, between GDF and Ruhrgas to construct and
operate the gas pipeline MEGAL together was in breach of Article 101 TFEU.
6
OJ 2001. As of 1 January 2012, Directive 2009/28/EC on the promotion of the use of energy
from renewable sources (OJ 2009 L 140/16) repealed and replaced the earlier Directive 2001/77/EC
(OJ 2001 L283/33) and imposed binding national targets.
7
OJ 2009 L 140/16.
8
The challenges electricity systems face are reflected in the European Commission
Communication of February 2015, ‘A Framework Strategy for a Resilient Energy Union with a
Forward-Looking Climate Change Policy’ COM(2015) 80 final, where the Commission announced
a new electricity market design linking wholesale and retail markets. As part of the legislative
reform process needed to establish the Energy Union, it also announced new legislation on security
of electricity supply.

LEAL-ARCAS_9781786431042_t.indd 49 08/09/2017 13:02

supply in Europe.9 On 30 November 2016, the Commission unveiled its proposals for new
rules in the Communication ‘Clean Energy for all Europeans’.10
With three waves of legislation already adopted and a fourth just tabled, from
an institutional perspective one of the key questions is ‘do we have an institutional
structure that can effectively deliver the goals of the EU energy policy?’ The question
is salient because the recurrent waves of legislation are partly a response to the para-
digm shift discussed above, but it could also be put down to an ineffective institutional
structure.
To answer this question this chapter uses a method of benchmark comparison, taking
competition law as the benchmark of an effectively enforced EU policy, and compares the
institutional structure of EU energy regulation with that of EU competition law, to assess
the extent to which there is a ‘competition law-ization’ in the latter institutions.11
The use of competition law as a model of effective enforcement is warranted because
competition law is commonly regarded as a successfully enforced EU policy. In addition,
the import of competition law institutions into fields of EU regulatory policies has been
pioneered by telecommunication regulation starting in 2000.
Thus, ‘competition law-ization’ is a useful short-hand to review the institutional struc-
ture emerging from the Third Package and its effectiveness, and to provide a first assess-
ment of the proposed changes in the new Package.
The chapter is structured as follows: section 2 outlines ‘competition law-ization’;
section 3 makes an assessment of ‘competition law-ization’ of the energy sector in the
period in which the Third Package was in force (2009–2016); section 4 then discusses
the new package from the perspective of ‘competition law-ization’; section 5 provides
concluding remarks.
2. COMPETITION LAW-IZATION AS A TOOL TO ANALYSE

THE EFFECTIVENESS OF INSTITUTIONAL STRUCTURES
IN DELIVERING EU POLICIES
From a legal-institutional perspective, the ‘classic’ architecture of enforcement in the EU

has relied on a system where rules are made in Brussels and enforcement is handed down
to the Member States, the chief example of this approach being the Directive. If Member
States fail to implement the relevant rules, the Commission can bring legal action before
the Court under Article 258 TFEU.
Competition law enforcement is premised on a different architecture, which to a large
9
See European Commission (2015) Consultation on a new Energy Market Design COM(2015)
340 final, available at https://ec.europa.eu/energy/en/consultations/public-consultation-new-ener
gy-market-design.
10
See Commission press release ‘Commission proposes new rules for consumer centred clean
energy transition’, and the links to the various proposals at https://ec.europa.eu/energy/en/news/
commission-proposes-new-rules-consumer-centred-clean-energy-transition.
11
See F.M. Salerno, ‘The Competition Law-ization of Enforcement: The Way Forward for
Making the Energy Market Work?’ EUI Working Paper 2008/7, available at http://cadmus.eui.eu/
handle/1814/8108.

LEAL-ARCAS_9781786431042_t.indd 50 08/09/2017 13:02

extent explains its effective enforcement. Three features stand out in the institutional
design of competition law:12
1.
Direct access to regulatees. First of all, competition law benefits from direct enforce-
ment. The Commission is able to adopt decisions which are directly binding on
regulatees. It does not need an intermediation by Member States.
2.
Networked enforcement. Second, as part of the so-called ‘modernization’ of competi-
tion law in 2003, the Commission has managed to push a successful decentralization
of enforcement, while retaining control of the network of enforcers. The result has
been a multiplication of its enforcement reach.
3.
Private enforcement. Third, competition law vests in private entities’ rights (and
obligations) that can be enforced in (national) courts. As a consequence, private
enforcement complements public enforcement in a common effort to ensure effective-
ness. Through the years private enforcement has become more and more prominent
(especially as regards Article 101 TFEU). This is a very strong weapon to complete
the armoury of enforcement tools which make competition policy an effectively
enforced policy.
Competition law-ization of the structures of enforcement impacted the telecommuni-

cations sector when, in 2002, the Commission adopted the so-called ‘new regulatory
framework’,13 which borrows heavily from competition law. This approach has remained
unchanged in EU telecommunications regulation throughout the years.
When the Third Package of legislation was approved, competition law-ization in the
energy sector was scant. The next section sketches an account of competition law-ization
in the period 2009–2016.
3. INSTITUTIONAL TRENDS IN THE ENERGY SECTOR

2009–2016
3.1 An Overview of the Legislative Framework
3.1.1 The 2006 Sector Inquiry14

The legislative process was preceded by a sector inquiry. In the Commission’s final report,
it reiterated and confirmed the five areas of concern identified in both the EU gas and
electricity markets in its interim report: (i) market concentration; (ii) vertical foreclosure;
(iii) lack of market integration; (iv) lack of transparency; and (v) price formation.15
12
For an institutional analysis of competition law enforcement, see L. Laudati, ‘The European
Commission as a Regulator: The Uncertain Pursuit of the Competitive Market’ in G. Majone (ed.),
Regulating Europe (Routledge, 1996).
13
See Directive 2002/21/EC.
14
Commission Communication COM(2006)851 and the more detailed Commission Staff
Working Paper (SEC(2006)1724).
15
The Preliminary Report is available on the DG Competition website at http://ec.europa.eu/
competition/sectors/energy/2005_inquiry/index_en.html.

LEAL-ARCAS_9781786431042_t.indd 51 08/09/2017 13:02

BOX 4.1 FINDINGS OF THE SECTOR INQUIRY FOR THE GAS SECTOR
Incumbents’ long-term supply contracts act as a barrier to entry. Despite the third-party access regime,
there is insufficient effective access. The incumbent operators of the pipelines and storage infrastruc-
ture may favour their own affiliates and this suggests that current levels of unbundling are not sufficient.
Cross-border competition is very limited and new entrants have difficulty securing transit capac-
ity, due, in particular, to legacy contracts and ineffective congestion management mechanisms on
transit pipelines.
Infrastructure users need more reliable, timely and transparent information on access to networks
and to transit and storage capacity so that all users are on an equal footing.
Finally, pricing is not market-based as gas wholesale prices are mostly determined by oil prices
rather than gas supply/demand dynamics.
BOX 4.2 FINDINGS OF THE SECTOR INQUIRY FOR THE ELECTRICITY

SECTOR
The generation markets remain national in scope and concentrated. The analysis of trading has
suggested that generators have the scope to raise prices and to withdraw available capacity. Thus
incumbents still enjoy market power.
Despite the requirements of the liberalization directives, new entrants again face problems of
access to infrastructure, due to lack of liquidity, arising from the high level of integration of genera-
tion and supply, which means incumbents have the incentive and ability to favour their affiliates as
opposed to competing suppliers.
As in the gas market, the lack of cross-border trade prevents new entrants from challenging the
position of the incumbents. Here also, the establishment of an integrated single EU electricity market
is being hindered by insufficient interconnector capacity, long-term legacy capacity reservations and
lack of incentives for investing in long-term capacities.
As for transparency, more than 80% of users are not content with the current level of transpar-
ency with respect to information on availability of interconnectors and transmission networks, on
generation, on balancing and reserve power and on load. National differences in market conduct
regulations and supervision add to users’ difficulties.
Price setting is complex. The Commission expressed concern that electricity prices may not be
the result of fair competition – although even specialists cannot agree on the extent of the influence
of fuel price increases and the EU Emissions Trading Scheme on electricity prices.
The shortcomings identified in these key areas called for urgent action and priority
was to be given to four areas: (1) achieving effective unbundling of network and supply
activities; (2) removing the regulatory gaps (in particular for cross-border issues); (3)
addressing market concentration and barriers to entry; and (4) increasing transparency
in market operations.16 The Commission acknowledged that ‘only a strengthened regula-
tory framework can provide the transparent, stable and non-discriminatory framework
that the sector needs for competition to develop and for future investments to be made’.17
16
See also E. Wäktare, K. Kovács and A. Gee, ‘The Energy Sector Inquiry: Conclusions and
Way Forward’, Competition Policy Newsletter, Number 1 – Spring 2007.
17
Communication from the Commission, ‘Inquiry pursuant to Article 17 of Regulation 1/2003
into the European gas and electricity sectors’, at p. 13.

LEAL-ARCAS_9781786431042_t.indd 52 08/09/2017 13:02

BOX 4.3 ISSUES TO BE ADDRESSED BY PROPOSED REGULATORY

MEASURES
●● Structural conflicts of interest: a systemic conflict of interest caused by insufficient unbun-

dling of networks from the competitive parts of the sector;
●● Gaps in the regulatory environment: a persistent regulatory gap particularly for cross-border
issues. The regulatory systems in place have loose ends, which do not meet;
●● A chronic lack of liquidity, both in electricity and gas wholesale markets: the lifeblood of our
markets is lacking and the market power of pre-liberalization monopolies persists;
●● A general lack of transparency in market operations in the sector.
The Commission’s intentions concerning regulatory proposals to be made in this regard

were set out in its Communication on ‘Prospects for the internal gas and electricity
market’, which was presented in parallel to the Final Report.18 The Sector Inquiry
had identified four main fundamental deficiencies in the competitive structure of
current electricity and gas markets which would have to be addressed by regulatory
measures:
3.1.2 The main objectives of the Third Package

The main objectives of the two directives and three regulations that constitute the Third
Package adopted in 2009 aimed to deal with the shortcomings identified in the Sector
Inquiry and the Commission’s assessment of the First and Second Packages, and can be
summarized as follows:
● Improving competition through better regulation, unbundling and reducing asym-

metric information;
● Improving security of supply by strengthening the incentives for sufficient
investment in transmission and distribution capacities; and
● Improving consumer protection and preventing energy poverty.
Importantly for the perspective of this chapter, the Third Energy Package considerably
modifies the regulatory landscape as it was the first attempt to coordinate and unify
energy regulatory oversight at the European level.
It should however be emphasized that although its launch followed closely on the heels
of the Commission’s so-called ‘20-20-20 Climate Change’ package in 2007,19 coordination
between two policies was far from optimal. The convenient fiction that the three objectives
of competition, carbon reductions and security are mutually reinforcing turned out to be
just that – a fiction.
Nevertheless in 2011, the European Union committed to reducing greenhouse
18
COM(2006) 841, Communication from the Commission, Prospects for the internal gas and
electricity market.
19
That is, 20% carbon reduction by 2020; 20% RES E production target by 2020 and
an energy efficiency aspiration of 20% by 2020. For a detailed description see, COM(2008) 30
final.

LEAL-ARCAS_9781786431042_t.indd 53 08/09/2017 13:02

gas emissions to 80–95% below 1990 levels by 2050. For this purpose, the European
Commission adopted an Energy Roadmap20 and a roadmap for moving to a competitive
low carbon economy.21
The Third Package mainly focused on improving conditions for competition by
strengthening the so-called level playing field. The most important root cause for the
absence of competition was perceived at that time, and as confirmed by the sector
report, to be the existence of Vertically Integrated Undertakings (VIUs), which not only
controlled essential facilities (such as electricity transmissions systems) but also enjoyed
significant market power in the wholesale and often retail markets. Ex post competition
control, although potentially far-reaching, was not considered to be sufficient.
As a result, a large number of ex ante regulatory measures adopted under the Third
Package sought to directly or indirectly address this issue, for example by strengthening
the unbundling regime,22 improving the conditions for cross-border market integration
and lowering entry barriers by improving market transparency. Stricter sector-specific
regulatory oversight was also considered a prerequisite to enhancing competition.
3.2 An Assessment of the Institutional Structures from the Point of View of Competition
Law-ization
3.2.1 Direct access to regulatees: certification procedure and third-party access

exemption decisions
To address the issue of unbundling, the Third Package created a system of certification
of Transmission System Operators (TSOs), which provides the Commission with a form
of direct access to regulatees. More specifically:
● A candidate TSO can start to operate only if it has been approved following the cer-
tification procedure (laid down in Article 10 of the Electricity and Gas Directives in
combination with the provisions of Article 3 of the Electricity and Gas Regulations).
● A candidate TSO must apply to its National Regulatory Authority (NRA), which
is under an obligation to open a certification procedure upon notification by a
potential TSO – or upon a reasoned request from the Commission.
The Third Package provides that the Commission must provide a prior opinion on the
certification and that the NRA, when adopting its final decision on the certification, must
take the utmost account of this Commission opinion.23 In practice, the NRAs and TSOs
have always conformed to the Commission’s views. When the Commission issues nega-
tive comments, TSOs typically adopt the changes requested by the Commission to avoid
a refusal of certification, and thus an inability to operate.
As a consequence, the certification process has given the Commission a powerful tool to
20
http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri5CELEX:52011DC0885&from5EN.
21
COM (2011) 112; http://eur-lex.europa.eu/legal-content/EN/TXT/?uri5CELEX:52011D
C0112.
22
For a full analysis, see L. Hancher and F.M. Salerno, ‘Energy Policy after Lisbon’ in A.
Biondi et al. (eds), EU Law After Lisbon (OUP, 2012).
23
Article 3 of the Electricity Regulation and the Gas Regulation.

LEAL-ARCAS_9781786431042_t.indd 54 08/09/2017 13:02

dictate regulation at the national level, which is the functional equivalent of direct access
to regulatees in the area of competition law.
Exemption decisions are another example of direct access.
● As a general rule, energy infrastructures are subject to third-party access. However,
major new infrastructure may be exempted in certain circumstances. The exemp-
tion provides incentives, for example, for particularly risky investments such as
cross-border gas pipelines or liquified natural gas terminals which could not be
implemented if the usual rules applied.
● The process for the exemptions is as follows:
● Article 17 of the Electricity Regulation and Article 36 of the Third Gas
Directive grant NRAs the possibility to exempt new infrastructure from
third-party access rules, provided certain conditions are fulfilled.
● Article 17(7) of the Electricity Regulation and Article 36 of the Gas Directive
provide for the Commission to be notified of the decision by the NRA on an
exemption request.
● Article 17(8) of the Electricity Regulation and Article 36 of the Gas Directive
provide for the Commission to approve the exemption or to take a decision
requesting the notifying bodies to amend or withdraw the decision to grant an
exemption.
Exemption decisions are thus another good illustration of a case of direct access to
regulatees because the Commission has the power to dictate directly the rules by which
ultimately TSOs managing new infrastructures need to abide.
3.2.2 Networked enforcement: ACER, REMIT, ENTSO and competition law

A number of developments in the Third Energy Package point towards a significant level
of ‘networked enforcement’.
ACER The Third Package requires Member States to set up national regulatory
authorities that are independent, not only of the target industries but also of the govern-
ments.24 This strict requirement is highly unusual and is not replicated in other regulated
sectors.25
Nevertheless NRAs remain subject to democratic or judicial control.26 Furthermore
their remit is rather restricted. Their primary functions are to regulate access to gas27 and
24
See Recital 33 of Dir 2009/72.
25
See further P. Larouoche’s study for CERRE, http://www.cerre.eu/sites/cerre/files/120306_
IndependenceAccountabilityPerceivedQualityofNRAs.pdf.
26
Recital 34 of Dir 2009/72 provides: ‘Energy regulators need to be able to take decisions in
relation to all relevant regulatory issues if the internal market in electricity is to function properly,
and to be fully independent from any other public or private interests. This precludes neither
judicial review nor parliamentary supervision in accordance with the constitutional laws of the
Member States. In addition, approval of the budget of the regulator by the national legislator does
not constitute an obstacle to budgetary autonomy. The provisions relating to the autonomy in the
implementation of the allocated budget of the regulatory authority should be implemented in the
framework defined by national budgetary law and rules.’
27
Article 34 GD on upstream pipelines does not require the involvement of an NRA.

LEAL-ARCAS_9781786431042_t.indd 55 08/09/2017 13:02

electricity networks as further detailed in Article 37 of the Electricity Directive,28 as well

as to certify TSOs’ compliance with the relevant set of unbundling rules (see Arts 9–10 in
both the ED and GD), and to approve network plans (Art 22).
Regulatory supervision of important TSO functions need not be delegated: for
example, Article 13(4) of the Third Gas Directives states that: ‘The regulatory authori-
ties where Member States have so provided or Member States may require transmission
system operators to comply with minimum standards for the maintenance and develop-
ment of the transmission system, including interconnection capacity’.
The NRAs find in the newly created ACER (Agency for the Cooperation of Energy
Regulators) a forum for coordination. ACER29 is a ‘network agency’ which must coop-
erate with the Commission and the NRAs to further the completion of the internal
market.30 ACER’s main mission is to support the NRAs and to coordinate their actions
where necessary. ACER is not a regulatory authority as such.
ACER has specific competence for interconnections or cross-border issues, it interacts
with the NRAs and it cooperates with the already existing European regulatory forums,
such as the Council of Energy Regulators (CEER).31 ACER’s most important task is
issuing opinions and recommendations which can be addressed to the TSOs, NRAs,
European Parliament and the Council or the Commission.
A distinction must be made between the advisory and decision-making competencies
of ACER.
advisory competences Articles 5 to 11 of the ACER Regulation define the Agency’s

tasks.32 According to the ACER Regulation, the tasks of the Agency are to complement
and coordinate the work of the NRAs as well as to participate in the c reation of the
European network rules.
Under certain conditions it can take binding individual decisions on the terms and con-
ditions for access and operational security for cross-border infrastructure and give advice
on various energy-related issues to the European institutions. It is also entrusted with
monitoring and reporting developments in the EU energy markets and has to prepare
an annual market monitoring report in cooperation with the European Commission, the
NRAs and other relevant organizations.
ACER delivered its first market monitoring report in November 2012, covering the year
2011, which was prepared jointly with CEER and in close cooperation with the European
28
And Art 41 GD.
29
In fact there are over 40 agencies in the EU that contribute to EU governance by various
executive or regulatory tasks. Eleven of these can be seen to be specifically energy-related – see
EP study on governance, ‘EU Energy Governance for the Future’, a study by the European
Parliament Directorate for Internal Policies (see http://www.europarl.europa.eu/RegData/etudes/
STUD/2015/518776/IPOL_STU(2015)518776_EN.pdf).
30
F. Ermacora, ‘The Agency for the Cooperation of Energy Regulators’ in C. Jones (ed.), EU
Energy Law, Volume I: The Internal Energy Market – The Third Liberalisation Package, 3rd edition
(Claeys & Casteels, 2010).
31
See S. Lavrijssen and L. Hancher, ‘Networks on Track: From European Regulatory Networks
to European Regulatory “Network Agencies”’, 34(1) Legal Issues of Economic Integration (2008),
pp. 23–55.
32
Certain tasks are also defined in the Electricity and Gas Regulations.

LEAL-ARCAS_9781786431042_t.indd 56 08/09/2017 13:02

Commission.33 The report includes an assessment of the internal energy market, and suc-
cessive reports have focused inter alia on retail prices, network access and barriers to the
internal energy market.
decision-making competences According to the ACER Regulation, ACER’s decision-

making powers are very limited. ACER is competent to adopt individual decisions on
technical issues where those decisions are stipulated in Directive 2009/72/EC, Directive
2009/73/EC, Regulation 714/2009/EC and Regulation 715/2009/EC. For example, ACER
will be able to decide on the terms and conditions for the access to and operational secu-
rity of a cross-border infrastructure.34
Moreover, ACER may adopt a decision granting exemptions from Third Party Access
(TPA) to new major electricity interconnectors or gas infrastructures if the respective
infrastructure is located on the territory of at least two Member States. However, such
decisions can be taken only as a last resort when the NRAs concerned cannot reach an
agreement or they ask the Agency to make a decision.35 It has six months to make the
decision. ACER must consult the NRAs and applicants concerned.36
ACER and REMIT Regulation 1227/2011 on wholesale market integrity and transpar-
ency (REMIT) entered into force on 28 December 2011.37 REMIT imported the prohibi-
tion against insider trading and market manipulation from the financial regulation into
the energy sector.
REMIT is relevant from an institutional perspective because of the division of
competences between ACER and NRAs.
ACER has been tasked with the collection and screening of the wholesale market trans-
action data across the European Union and an initial assessment of anomalous events
before notifying suspected cases to the NRAs for investigation.
Although the NRAs should carry out their monitoring and enforcement tasks, ACER
is expected to play a central role in the REMIT monitoring framework. A consistent
European approach to market monitoring should avoid the risk of energy market transac-
tions being relocated to jurisdictions where monitoring is considered to be less effective.38
Figure 4.1 (from ACER’s 2016 REMIT Report) illustrates this approach.
Pursuant to Article 16(1) REMIT, ACER should ensure that the NRAs carry out their
tasks under REMIT in a coordinated and consistent way. ACER should also coordinate
the investigation of suspected cases of market abuse by national competent authorities
when they involve more than one jurisdiction.39
Thus, whereas in the financial sector these rules are implemented by NRAs acting
33
ACER/CEER, Annual Report on the Results of the Monitoring the Internal Electricity and
Natural Gas Markets in 2011.
34
ACER Regulation, Articles 8 and 9(1).
35
See ACER Regulation, Article 9(1); Electricity Regulation, Article 17; and Gas Directive,
Article 36(4).
36
Electricity Regulation, Article 17(5) and Gas Directive, Article 36(5).
37
(REMIT), OJ L 326/1-16.
38
ACER, Work Programme 2012, at p. 3.
39
Article 16(4)(c) REMIT.

LEAL-ARCAS_9781786431042_t.indd 57 08/09/2017 13:02

Coordination
Data Collection
of NRAs
Trade Data (if needed)
Fundamental Data
Automatic Screening Notification of

to identify ‘Suspicious Events’
‘Anomalous Events’ to NRA(s)
Monitoring
Methodology
Preliminary analysis of
‘Anomalous Events’ ‘Anomalous Events’
definition
Source: ACER, REMIT Annual Report 2016, fig. 6, p. 24.
Figure 4.1 ACER’s market surveillance approach
alone, in energy the institutional design is such that national trading platforms collect all
the trading data and send it to ACER, the agency of energy regulators. ACER has the
capability to analyse and process the trading data and then it alerts a national authority
competent for a given trading platform about suspicious patterns of trade, and then that
NRA conducts the enforcement process.
REMIT enforcement is thus an example of networked enforcement because the
enforcement competence is really divided between the supranational level (in this case
ACER), and the national one, and this creates a powerful network of enforcers.
ENTSOs As regards ENTSOs, the Electricity Regulation stipulates that ‘to ensure
optimal management of the electricity transmission network and to allow trading
and supplying electricity across borders in the Community, a European Network of
Transmission System Operators for Electricity (the ENTSO for Electricity), should
be established’ (Recital 17), in which all TSOs should participate (Article 4). The Gas
Regulation has identical provisions on the establishment of an ENTSO for gas TSOs
(Recital 16 and Article 4).
One of the ENTSO’s key tasks is to develop the network codes (NCs) as provided for
in Article 6 Electricity Regulation (with an equivalent in Gas Regulation). These NCs
specify technical rules on the operation of EU electricity and gas markets. They are
designed to flesh out non-essential and technical rules and can only be adopted in areas
listed in the relevant Articles.40
40
NCs should not be confused with the guidelines provided for in Art 18 of Electricity
Regulation 712/2009 and Gas Regulation equivalent.

LEAL-ARCAS_9781786431042_t.indd 58 08/09/2017 13:02

In order to ensure their cooperation, ACER has to monitor the execution of the
ENTSOs’ tasks,41 and provide its opinion on the ENTSOs’ network codes, the annual draft
work programme and the 10-year EU network development plan. When giving its opinion,
ACER has to keep in mind the principles of non-discrimination, effective competition and
the efficient and secure functioning of the European internal energy markets.42
ACER has to ensure that these 10-year plans will bring a sufficient level of cross-border
interconnection open to third-party access. If this cannot be ensured, ACER has to prepare
a duly reasoned opinion, together with recommendations, and present it to the ENTSOs. It
also has to send it to the Commission, the Council and the European Parliament.43
Competition law Finally, the period 2009–2016 saw unprecedented competition law
enforcement in the energy field, especially through the use of commitment decisions.44
This enforcement has been very clearly aimed at supplementing the goals of energy regula-
tion, especially unbundling.
Sometimes the enforcement of competition law has gone even beyond supplementing
SSR or the traditional ‘can opener’ role for energy market liberalization,45 by elevating
regulatory goals to the level of competition law offences. The Swedish interconnectors
case is a case in point where the theory of harm was essentially that the use of a re-
dispatching technique which penalized exports was an abuse of dominance.46
The systematic use of competition law to pursue the goals of the Third Package auto-
matically coincides with a high degree of competition law-ization, given that competition
law enforcement and SSR enforcement have become almost indistinguishable.
3.2.3 Private enforcement: preliminary rulings on public service obligations, internal

market and state aid
The significant number of preliminary rulings in the period 2009–2016 is a good indicator
of a significant level of private enforcement in the EU energy regulation.
In particular, the cases dealing with public service obligation, starting with
Federutility,47 show that European regulation has empowered private parties to police
41
See ACER Regulation, Article 6(2); Regulation (EC) No 714/2009 of the European
Parliament and of the Council of 13 July 2009 on conditions for access to the network for cross-
border exchanges in electricity (‘Electricity Regulation’), OJ L 211/15, Article 9; and Regulation
(EC) No 715/2009 of the European Parliament and of the Council of 13 July 2009 on conditions
for access to the natural gas transmission networks (‘Gas Regulation’), OJ L 211/36, Article 9.
42
ACER Regulation, Article 6(3) and (4).
43
ACER Regulation, Article 6(4); Electricity Regulation, Article 9(2); and Gas Regulation,
Article 9(2).
44
See C. Jones et al., EU Competition Law and Energy Markets (Claeys & Casteels, 2016),
ch. 4.
45
P. Lowe et al., ‘Effective Unbundling of Energy Transmission Networks: Lessons from the
Energy Sector Inquiry’, Competition Policy Newsletter (2007).
46
See Commission decision of 14 April 2010, relating to a proceeding under Article 102 of the
Treaty on the Functioning of the European Union and Article 54 of the EEA Agreement – Case
39351 – Swedish Interconnectors, available at http://ec.europa.eu/competition/antitrust/cases/
dec_docs/39351/39351_1223_2.pdf.
47
See Judgment of 20 April 2010, Federutility and others (C-265/08[2010] ECR I-3377)
ECLI:EU:C:2010:205.

LEAL-ARCAS_9781786431042_t.indd 59 08/09/2017 13:02

the national legal order for measures which run contrary to EU law. These cases are a
strong signal of how much private parties have taken EU law into their hands and use
it to counter national rules that they thought were incompatible with the European law.
This is very close to an example of what we see as private enforcement in the competi-
tion law area.
Another string of preliminary rulings in the energy sector concerns the rules on support
for renewables. These cases too show that private parties have questioned internal market
aspects of national rules. Cases like Essent I,48 Alands49 and Essent II,50 show the extent
to which private parties have used European law to question the compartmentalization
of the system of support for renewables.
A third trend which is still related to renewables but from a state aid perspective is also
relevant to gauge private enforcement. In cases like Vent de Colère51 private parties have
used European law to challenge aid in respect of which Member States have not notified
the Commission for prior approval ex Article 108(3) TFEU.
Interestingly, these preliminary rulings are likely only the tip of an iceberg. Potentially
there are many more cases of private parties going to national courts using European
energy law to keep in check national regulations which they thought actually incompatible
with European law. For instance, in 2012 and 2016 the Spanish Tribunal Supremo handed
down two important judgments on public service obligations as regards the supply of
energy to vulnerable customers by making an admirable analysis of the national provi-
sions in the light of EU law.52
In sum, the string of preliminary rulings in the energy sector in the relevant period is
also a powerful signal of how much this field has been ‘competition law-ized’.
4. A FIRST ASSESSMENT OF THE NEW PACKAGE
4.1 Background to the Proposed Rules
Despite the panoply of measures, as well the large number of competition actions brought
by the Directorate-General for Competition (DG Comp) against most of the major
incumbents, a recent Technical Report by the European Commission on ‘the economic
impact of enforcement of competition policies on the function of EU energy markets’,
published in late 2015, concluded that between 2005 and 2012 the intensity of competition
in both wholesale and retail markets had declined.53
The goal of completing the internal market has also proved elusive. In February 2011
the European Council set the objective of completing the internal energy market ‘by
48
See judgment of 11 September 2014, Essent Belgium, C‑204/12 to C‑208/12, EU:C:2014:2192.
49
See judgment of 1 July 2014, Ålands Vindkraft, C‑573/12, EU:C:2014:2037.
50
See Judgment of 29 September 2016, Essent Belgium, C-492/14, ECLI:EU:C:2016:732.
51
See Judgment of 19 December 2013, Vent De Colère and others, C-262/12, ECLI:EU:C:2013:851.
52
Tribunal Supremo sentencia no. 1425/2012, de 7 de febrero and sentencia no. 2334/2016, de
2 de noviembre.
53
Published on 16 November 2015, at http://ec.europa.eu/competition/publications/reports/
kd0216007enn.pdf.

LEAL-ARCAS_9781786431042_t.indd 60 08/09/2017 13:02

2014’ but by June 2016 the European Council called for ‘Single Market strategies includ-
ing energy, and actions plans to be proposed by the Commission and to be completed by
2018’.
Indeed, full and timely transposition of the complex provisions of the Third Package
had been a challenge for most Member States, and in fact none of them had achieved
full transposition by the deadline of March 2011. This resulted in the Commission
opening a large number of EU pilot cases as well as infringement procedures for failure
to implement the Directives and/or for contravention of the requirements of these
measures.54 Other measures, such as the Security of Supply Directive on electricity,
have been fully implemented but are considered inadequate in themselves to deal with
security issues.55
The failure of the Third Package to deliver more intensive competition in a fully
integrated energy market is to be explained by a number of factors. On closer inspec-
tion it is evident that its three objectives are in fact pursued by different actors with
different powers and duties, subject to various legal constraints. The mismatch between
the internal energy market and 20-20-20 goals only exacerbates this. The Third Package
takes the wholesale market as its core vehicle through which competition takes place
and where costs and prices are established, whereas the climate change agenda pro-
motes technologies outside the wholesale market (and which are often zero marginal
cost).
Moreover, the new Article on energy in the TFEU – Article 194 TFEU – added com-
plexity to the issues. According to Article 194, the main aims of the EU’s energy policy
are to ensure the functioning of the energy market, ensure security of energy supply in
the Union, promote energy efficiency and energy saving and the development of new
and renewable forms of energy, and promote the interconnection of energy networks.
However, as noted, these goals are sometimes difficult to reconcile.
As regards competences, Article 194 states that energy policy is a shared competence
between the EU institutions and the Member States, albeit that the Commission enjoys
exclusive competence in relation, for example, to the enforcement of the EU state aid
rules. At the same time, Member States are entitled to determine their own ‘energy
mix’ (Art 194(2)) although the extent of their freedom to do so in derogation from
the Treaty provisions on free movement, state aid and competition is by no means
certain.56
Against this backdrop, in November 2016 the Commission proposed a set of new
measures which aim at improving the current framework. The next section attempts a first
assessment of the proposed rules from the institutional perspective.
In particular, using the competition law-ization tool, the next section discusses the
proposed institutional changes and whether they confirm the previous institutional
trend or depart from it. This is not just an academic exercise but is important in order
54
See further, http://ec.europa.eu/energy/sites/ener/files/documents/2014_iem_communication_
annex6.pdf.
55
See Report on progress concerning the SoS electricity Directive, COM(2010) 330 final.
56
See further Angus Johnston and Eva van der Marel, ‘Ad Lucem? Interpreting the New EU
Energy Provision, and in particular the Meaning of Article 194 (2) TFEU’, 22(5) European Energy
and Environmental Law Review (2013), p. 181.

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Table 4.1 Summary of interim conclusion
Direct access to regulatees Networked enforcement Private enforcement

TSO Certification ACER Preliminary rulings on public
Decisions on exemption from REMIT service obligations, internal
third-party access ENTSO market and state aid
Competition law
to understand what has to be dealt with and why from an institutional perspective in the
context of the Commission’s proposed ‘new market design initiative’.57
4.2 First Assessment of the New Rules from an Institutional Perspective
4.2.1 Overview
The previous section showed that in the period between 2009 and 2016, the period in
which the Third Package came into force, there was a significant level of competition
law-ization. Table 4.1 summarizes this finding.
The following sections take stock of the new package, which was unveiled on 30
November 2016, from an institutional perspective. A word of caution is in order both
because the new package is new and because it is large, involving several pieces of draft
legislation. As a consequence, the assessment below is by necessity tentative.
In general, the new package builds on the acquis, aiming at improving rather than elimi-
nating the current framework. From an institutional perspective the question is whether
the new package continues the trend of competition law-ization and to what extent.
Direct access to regulatees: certification and exemption continued and the new emphasis on
competition law The new package maintains the procedure for certification and exemp-
tion from third-party access, which will thus remain a feature of direct access.
As regards competition law, the emphasis on state aid as a tool to complement EU
energy regulation more than antitrust may have an ambiguous impact on competition
law-ization, which deserves to be treated under the heading of direct access (rather than
networked enforcement, given that state aid approval is an exclusive competence of the
Commission).
This is because, in formal terms, state aid is a type of instrument which brings together
the Commission and Member States only; private parties are only considered as a source
of information. But in practice, state aid is also a powerful tool to address regulatees
directly, precisely because, even if the EU state aid rules target, by definition, state
measures, the aid measures have a beneficiary and the beneficiary is always a private
party. Through state aid the Commission thus may enjoy a form of quasi-direct access
to regulatees.
57
International Energy Agency, ‘Re-powering Markets’, suggests: ‘A market design with a high
temporal and geographical resolution is therefore needed’ (see https://www.iea.org/publications/
freepublications/publication/REPOWERINGMARKETS.pdf).

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Networked enforcement: new powers and a trend towards regionalization A few elements
confirm a trend towards more networked enforcement:
● First, ACER will have (i) more responsibility in elaborating and submitting the final
proposal for a network code to the Commission (Article 5 of the draft Regulation
establishing a European Union Agency for the Cooperation of Energy Regulators
(recast) – the ‘Draft ACER Regulation’); (ii) a new role as regards regulatory
matters left to a group of regulators only (Article 7 of the Draft ACER Regulation);
(iii) a new supervisory role as regards the Regional Operational Centres for elec-
tricity– ‘ROCs’ (on which see below) (Article 8 of the Draft ACER Regulation);
(iv) a new supervisory power over power exchanges in the context of the market
coupling process (Article 9 of the Draft ACER Regulation); and (v) a new power
to approve the EU-wide methodology for assessing generation adequacy, which will
then unlock Member States’ ability to set up capacity remuneration mechanisms
(Article 10 of the Draft ACER Regulation).
● Second, the expanded role of the ENTSOs. In particular, the ENTSO for e lectricity
– ENTSO-E – will have new responsibilities in connection with (i) the EU-wide
resource adequacy assessment; (ii) technical specifications for cross-border par-
ticipation in capacity remuneration mechanisms (Article 27(1), lett. c) of the draft
Regulation on the internal market for electricity (recast) – the ‘Draft Electricity
Regulation’); and (iii) the cooperation within the ROCs (Article 27(1), lett. e) and
f) of the Draft Electricity Regulation).
● Third, the addition of a new element in the institutional architecture, that is the
creation of the ROCs between TSOs. All TSOs within a region designated by
ACER under its new tasks will have to set up a ROC (in the territory of one of
the Member States within the region). According to Article 32(3) of the Draft
Electricity Regulation: ‘Regional operational centres shall complement the role of
transmission system operators by performing functions of regional relevance. They
shall establish operational arrangements in order to ensure the efficient, secure
and reliable operation of the interconnected transmission system’. A list of the
ROCs’ tasks is set out in Article 34 of the Draft Electricity Regulation. These tasks
include ‘coordinated capacity calculation’, ‘facilitate the regional procurement of
balancing capacity’, ‘regional week ahead to intraday system adequacy forecasts
and preparation of risk reducing actions’, and a number of tasks related to coordi-
nated management of crisis situations. ROCs have the power to adopt decisions that
are binding on the member TSOs (Article 38 of the Draft Electricity Regulation).
ROCs report to ACER as well as to the relevant NRAs.
The creation of the ROCs signals a move which is specific to the energy sector. While
there are a number of cornerstones which are valid across the EU (e.g., that energy prices
should be the product of demand and supply), certain significant aspects of regulation
(e.g., the borders of bidding zones) will be left to a new institutional instance that is this
regional aggregation of TSOs.
This is a new approach and is unique to energy (in telecommunications there is a strong
drive towards a single approach across the EU). It shows that EU regulation in the energy
sector follows a specific trajectory marked by a mix of ‘single-ness’ of the internal market

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and regionalization that is to have common concepts where possible, but then a number
of aspects are at a level – the regional level – which is intermediate between the Union
and the single Member State.
This development marks a step towards a different sort of competition law-ization.
From an institutional perspective, competition law enforcement is highly ‘standardized’,
in the sense that the Commission has the power to maintain a consistent approach across
the network, steering all NCAs in one direction. By contrast, in the case of energy, the
Commission seems ready to relinquish power to a sort of intermediate body which is the
aggregation of TSOs.
Private enforcement Perhaps one of the most remarkable features of the new package
is the extent to which it re-regulates markets, thus impacting directly on operators’ rights
and obligations.
First of all, one should consider the rules about market design, for example the prin-
ciple that prices should be the result of supply and demand. This is a significant novelty.
In the past, the use of pool markets or power exchanges was the result of spontaneous
convergence but it was not part of EU law. Thus, the institutional landscape of electric-
ity trading was left entirely to national dynamics. EU law colonized this field, initially
by introducing rules on market coupling which provide for a number of obligations on
power exchanges and subject them to regulatory oversight (Regulation 2015/1222 of 24
July 2015 establishing a guideline on capacity allocation and congestion management).
Now the new package sets out provisions on how the market should be designed, which
in turn gives operators clear rights and obligations. These operators may thus be able to
invoke EU law against national implementing measures which they may deem contrary
to EU law – just as was the case in the past with, for example public service obligations.
A similar dynamic may impact the new rules on retail tariffs and their progressive aboli-
tion. As noted, this is an aspect which enjoyed centre stage in preliminary rulings in the
past. The new package lays down clear rules, and operators can be expected to follow up
in national fora to enforce their rights. The same applies to the new rules on consumer
protection, including the obligation to provide information to customers, the rules that
facilitate switching between suppliers, etc. These developments can be seen as part of a
trend towards ‘private enforcement’ of EU energy regulation.
A tentative conclusion on the institutional direction of the new package The foregoing
suggests a trend towards more competition law-ization. However, this conclusion must be
nuanced by taking into account the main aspect of the draft regulation on the Governance
of the Energy Union (the ‘Draft Governance Regulation’).
At its core, the Draft Governance Regulation has the Integrated National Energy and
Climate Plans (Article 3). These plans are the key instrument to ensure that Member
States comply with the general direction of EU energy policy. The main enforcement tool
in the hands of the Commission is a recommendation (Articles 26 and 28). This calls for
two comments:
● First of all, elevating the plans and the follow-up recommendation to the main
institutional tool to elicit compliance is not exactly in line with competition law-
ization, which is built on the Commission’s ability to steer a policy by directly

LEAL-ARCAS_9781786431042_t.indd 64 08/09/2017 13:02

accessing regulatees, without Member State intermediation. As a consequence, a

trend towards competition law-ization is married with the introduction of a tool
that requires cooperation between the Commission and Member States.
● Second, the choice of a recommendation as the legal instrument begs the question
as to its effectiveness. Perhaps, a parallel can be instructive with another field of EU
law where recently recommendations have been adopted as a tool to elicit compli-
ance, that is, the Excessive Deficit Procedure (Article 126 TFEU). The Excessive
Deficit Procedure operationalizes the limits on the budget deficit and public debt
given by the thresholds of 3% of deficit to GDP and 60% of debt to GDP not
diminishing at a satisfactory pace.
If a Member State is going beyond the 3% threshold, the Commission has the power to
issue a recommendation with corrective measures. However the recommendation is only
the start of a very elaborate process – also provided in the legislation – to cajole a Member
State into complying with its duties, a process which also may involve sanctions.
The effectiveness of recommendations in the field of Article 126 TFEU is at best
unclear. Often Member States manage to use all possible formal and informal avenues
to obtain additional leeway. Thus, the experience of the excess deficit procedure casts
a shadow on the proposed use of recommendations to steer EU energy policy, also
because – unlike the excessive deficit procedure – the current proposal does not envisage
any sanction.
Perhaps this negative assessment could be mitigated if one could assume that failure to
comply with a recommendation triggered a fast recourse to the infringement procedure.
However, even if this assumption proved correct, infringement procedures have limited
ability to coerce compliance, not least because of the time-lag between starting and court
judgment.
All in all, on a preliminary basis, the new package seems to continue the trend towards
competition law-ization. However, the use of the Integrated National Energy and Climate
Plans as the core vehicle of compliance with EU energy law in the Draft Governance
Regulation also shows a powerful trend towards a ‘classic’ model of cooperation with
Member States, rather than direct Commission intervention.
Only time will tell if these two trends will be mutually reinforcing, for example because
the plans concern aspects which are complementary to the areas at the core of the compe-
tition law-ization, or whether the effectiveness of competition law-ization will be limited
by Member States instrumentalizing the plans.
5. CONCLUDING REMARKS
The Third Package brought about an institutional structure that shares a number of
features with competition law. In a number of respects SSR provides for direct access to
regulatees and a network of enforcement, as well as empowering private operators to act
as SSR enforcers alongside NRAs. This process can be described as a ‘competition law-
ization’ of the institutional structures of EU energy regulation.
The new package unveiled in November 2016 builds on the acquis, reinforcing
the network aspects and the role of private operators. However, there is also a shift

LEAL-ARCAS_9781786431042_t.indd 65 08/09/2017 13:02

to more Member State involvement through the adoption of Integrated National

Energy and Climate Plans and a related Commission Recommendation to Member
States as key institutional devices. Competition law-ization and cooperation with
Member States have nonetheless the potential to be complementary – rather than
contrasting – trends.

LEAL-ARCAS_9781786431042_t.indd 66 08/09/2017 13:02

5. The European Energy Union
Thomas Pellerin-Carlin
We have to move away from an economy driven by fossil fuels . . . where energy is based on
a centralised, supplied-side approach and . . . relies on old technologies and outdated busi-
ness models . . . we have to empower consumers . . . we have to move away from a fragmented
system characterised by uncoordinated national policies. (European Commission, Energy
Union Framework Strategy, 25 February 2015)
The Energy Union is the European Commission’s flagship initiative for Europe’s energy
future. Building on an EU energy policy that significantly developed during the decade
2005–2015, Jean-Claude Juncker seized on the slogan of ‘Energy Union’ and made it one
of the top 10 priorities1 of his Commission for the years 2014–2019 that he presented has
being the European Commission’s ‘last chance’2 to save the European project.
The European Commission defined its Energy Union concept in its 25 February 2015
Energy Union Framework Strategy,3 and the bulk of its Energy Union policy proposals
were proposed on 30 November 2016.
While academic literature on energy is abundant, at the time of writing this chapter, the
Energy Union is too young a project to have yet benefited from significant enlightening
academic work. This explains why this chapter’s sources are mainly primary sources and
grey literature.
This chapter is divided into seven sections. The first one puts the Energy Union in
its context. The five following ones explore each of the five dimensions of the Energy
Union: energy security, solidarity and trust; a fully integrated European energy market;
energy efficiency contributing to moderation of demand; decarbonising the economy;
and research, innovation and competitiveness. Conclusions are offered in the final section.
1. THE ENERGY UNION IN CONTEXT
Anyone who wishes to change the world needs energy. Each action we undertake requires
energy: to grow our food, heat our homes, power our phones and move ourselves. Energy
is so omnipresent that we often paradoxically tend to forget its importance in our daily
life. The November 2016 European Commission Communication4 is willing to highlight
energy’s central role in human activities as it puts it at the centre of the key drivers of what
it calls the ‘modernisation of the economy’ (see Figure 5.1).
1
European Commission, Prioritäten, 2017.
2
Jean Quatremer, ‘La Commission de la dernière chance’, Coulisses de Bruxelles, October
2014.
3
European Commission, Energy Union Framework Strategy, 25 February 2015.
4
European Commission, Clean Energy for All Europeans, Communication, 30 November
2016, COM(2016) 860 final.
67
LEAL-ARCAS_9781786431042_t.indd 67 08/09/2017 13:02

Energy Union and
Climate Action
LEAL-ARCAS_9781786431042_t.indd 68
Investment Plan
Attracting additional Skills Agenda

investments
Adapting the
workforce
Digital Single
Market
68
Empowering citizens
and consumers
Capital Markets
Union
Circular Economy
Triggering sustainable
finance for the Achieving a resource efficient,
clean economy low-carbon economy
Innovation
Bringing new technologies

from research to market
Source: European Commission, Clean Energy for All Europeans, Communication, 30 November 2016, COM(2016) 860 final, p. 2.
Figure 5.1 Role of the Energy Union in the modernisation of the EU economy, according to the European Commission

08/09/2017 13:02
The European Energy Union 69
Energy also plays a critical political role. Coal miners’ struggles in the 19th and 20th
centuries laid the foundation of modern democracy and welfare states.5 In 1944–1945, oil
scarcity was a key driver of Nazi defeat.6 In 1950, western-European leaders who looked
for an economic sector where European integration would make war between Europeans
‘not merely unthinkable, but materially impossible’7 thus turned to the big energy source
and energy use of their time: coal and steel, and built the European Coal and Steel
Community, the ancestor of today’s European Union.8
Fifty-five years later, the 2005 Hampton Court European Council set three targets to be
reached by 2020: reducing greenhouse emissions by 20%, ensuring that renewables would
represent at least 20% of the EU energy mix, and ensuring that energy efficiency would
reduce Europe’s energy demand by 20%.
Even if the EU energy mix still largely relies on fossil fuels, as they account for 75% of
its primary energy mix (see Figure 5.2), the EU reached its first and third targets six years
ahead of schedule, while the renewables target is within its grasp (see Table 5.1).
1.1 The Genesis of the Energy Union
The Energy Union builds on the existing EU energy policy. Its recent history has seen
the addition of three layered objectives: liberalisation and completion of an EU energy
market (as of 1996), ensuring energy security (as of 1957 for uranium, 1973 for oil and
2009 for gas), and fighting climate change (following the 1997 Kyoto Protocol). All these
three objectives are still key objectives of the Energy Union.
As a concept, the ‘Energy Union’ originates from a 2010 proposal put forward by
Jacques Delors and Jerzy Buzek9 under the title ‘European Energy Community’ as a
reference to the 60th anniversary of the Schuman declaration (see Annex).
This idea was taken up again under the name ‘Energy Union’ in 2014 by then Polish
Prime Minister Donald Tusk, with a strong focus on the energy security dimension of the
project. This came at a moment when EU jargon favoured the use of the suffix ‘Union’:
after the 1990s’ ‘Economic and Monetary Union’ came the 2012 ‘Banking Union’ and
later the ‘Digital Union’, ‘Energy Union’ and now the ‘Security Union’. Given the popu-
larity of the term ‘Energy Union’ ahead of the May 2014 European Parliament Election,
the then right-wing candidate for President of the European Commission, Jean-Claude
Juncker, made the Energy Union his number 2 priority.10 A priority that is still within the
10 priorities of his European Commission mandate that should run until 2019.
Once elected, Jean-Claude Juncker had to lay down the kind of Energy Union he
had in mind. He largely delegated this task to two of the commissioners he appointed,
European Commission Vice-President for the Energy Union and former Slovak diplomat
5
Timothy Mitchell, Carbon Democracy: Political Power in the Age of Oil. London: Verso,
2013.
6
David Edgerton, Britain’s War Machine. London: Penguin Books, 2011.
7
Robert Schuman, The Schuman Declaration, 9 May 1950.
8
Sami Andoura, Leigh Hancher and Marc Van der Woude, ‘Towards a European Energy
Community: A Policy Proposal’, Studies & Research, No. 70, Notre Europe, March 2010.
9
Jerzy Buzek and Jacques Delors, ‘Towards a new European Energy Community’, May 2010.
10
Jean Claude Juncker, My Priorities, 2014.

LEAL-ARCAS_9781786431042_t.indd 69 08/09/2017 13:02

EU new renewables consumption

8%
EU hydroelectric
consumption EU oil
5% consumption
37%
EU nuclear
consumption
12%
EU coal
consumption EU gas
16% consumption
22%
Sources: Thomas Pellerin-Carlin, Jacques Delors Institute, with data from BP Statistical Review 2016.
Figure 5.2 EU energy mix in % of primary energy consumption by energy sources

(excluding biomass)
Maroš Šefčovič, and European Commission for Energy and Climate Action member and
Spanish national politician Miguel Arias Canete. In the meantime, think tanks, intellectu-
als and politicians voiced what they thought the Energy Union should be about.11
1.1.1 What is the Energy Union ?

On 25 February 2015, the European Commission published the Energy Union Framework
Strategy.12 Its objectives show path-dependency with EU objectives laid out in the 1990s
and 2000s, such as liberalising the energy sector, building an EU-wide electricity and
gas market, ensuring energy security, and making energy ‘competitive’.13 Yet, it also
11
Sami Andoura and Jean-Arnold Vinois, ‘From the European Energy Community to the
Energy Union: A Policy Proposal for the Short And The Long Term’, Jacques Delors Institute,
Report, January 2015.
12
13
See section 6 for a discussion on the definition of competitiveness in the framework of the
energy transition and the energy union.

LEAL-ARCAS_9781786431042_t.indd 70 08/09/2017 13:02

Table 5.1 EU 2020 energy-climate targets
Targets to be Metric Where are we

reached by 2020
EU 20% reduction EU level: GHGs emitted on EU GHG emissions 5
territorial compared to 1990 the EU territory should be 4419.2 MtCO2eq in 2014
GHG levels less than 4588.1 MtCO2eq (–23% compared to 1990
emissions by 2020 levels)
Each Member State has a
legally binding national
target to be reached
Renewable 20% of energy EU-level target is 20% 16% RES of gross final
energy consumed from Each Member State has a energy consumption in
generation RES in the gross legally binding national 2014
final energy target to be reached
consumption
Energy Compared to a EU primary energy 1505 Mtoe of primary
efficiency baseline scenario, consumption below 1483 energy consumption in
saving 20% of Mtoe and EU final energy 2014 (–19% compared to
the EU’s primary consumption below 1086 baseline scenario)
and final energy Mtoe by 2020 1061 Mtoe of final energy
consumption, by Member States can choose consumption in 2014
2020 to set national targets for (–22% compared to
themselves baseline scenario)
Sources: Thomas Pellerin-Carlin, Jacques Delors Institute, data for greenhouse gas emissions from
Eurostat (Eurostat data excludes emissions linked to land use, land-use change and forestry. This addition
would however not significantly change the figure, http://ec.europa.eu/eurostat/statistics-explained/
index.php/Greenhouse_gas_emission_statistics), data for renewable energy production from Eurostat
(http://ec.europa.eu/eurostat/statistics-explained/index.php/Renewable_energy_statistics), data for energy
efficiency from JRC 2016 Report on energy consumption in EU-28 (Paolo Bertoldi, Javier Lopez Lorente
and Nicola Labanca, Energy Consumption and Energy Efficiency Trends in the EU-28, Joint Research
Center, 2016).
shows changes by layering,14 with the addition of new elements. The Energy Union’s ‘big
novelty’15 is the wish to put energy consumers (i.e. households and energy-consuming
businesses) at the centre. The European Commission has often legitimised its positions
by stating that they are in the best interests of consumers; this line of argumentation has
been, for instance, a key driver for EU internal market policies. This is, however, new for
energy policy, as it goes beyond seeing the consumers as mere passive actors that should
be guaranteed low prices: it sees them as active players to whom the EU should provide
a ‘New Deal’.16
14
For a definition of change by layering, see Wolfgang Streeck and Kathleen Thelen, Beyond
Continuity. Oxford: Oxford University Press, 2005.
15
Thomas Pellerin-Carlin, ‘Putting the Consumer at the Centre of the European Energy
System’, Jacques Delors Institute, September 2016.
16
European Commission, Delivering a new deal for energy consumers, 15 July 2015.

LEAL-ARCAS_9781786431042_t.indd 71 08/09/2017 13:02

One year after the publication of the Energy Union Framework Strategy, Vice-President
Šefčovič gave a keynote speech17 for a conference at the Jacques Delors Institute, in which
he presented his vision based on his ‘5Ds model’:
1. Decarbonisation of our economies;

2. Democratisation in energy production and consumption;
3. Digitisation to optimise energy use and efficiency;
4. Diversification of our energy supplies and helping our innovators to deliver on new
technologies to speed up the process;
5. Disruption of traditional energy cycles.
Those 5Ds were later completed by a 6th one: ‘the decentralisation of our energy genera-
tion from large-scale energy generation to small inter-connected generation, with a rising
role given to smart cities in the energy transition’.18
Maroš Šefčovič’s vision highlights two objectives: decarbonisation and democratisa-
tion, the latter being a new term for EU energy policy. At least for the past decades,
demoi have been put aside in terms of energy decisions – with the notable exception of
popular expressions regarding nuclear energy in a few EU Member States. It is however
worth noting that these objectives are not homogenously shared within the European
Commission itself, and even less by the Council or the Parliament.
This chapter now turns to analysing the Energy Union according to its five dimen-
sions and looks at the legislative and non-legislative proposals the Juncker European
Commission put forward in 2015 and 2016.
The Energy Union officially has five dimensions:19
● Energy security, solidarity and trust;

● A fully integrated European energy market;
● Energy efficiency contributing to moderation of demand;
● Decarbonising the economy;
● Research, innovation and competitiveness.
17
European Commission, Speech by Vice-President for Energy Union Maroš Šefčovič on
‘Energy Union – 1 Year On’ at the conference organised by the Jacques Delors Institute, February
2016.
18
European Commission, Speech by Vice-President for Energy Union Maroš Šefčovič at the
Energy Fest (Start Up Event) in Amsterdam, May 2016.
19
The February 2015 Energy Union Framework Strategy presents them in that specific order,
while the November 2015 state of the Energy Union keeps those five dimensions but changes the
order: 1. decarbonisation; 2. energy efficiency; 3. energy market; 4. energy security; 5. research,
innovation and competitiveness. These five dimensions mix objectives (e.g. energy security, decar-
bonisation), means (energy efficiency) and notions that are poorly or divergently defined by actors
(e.g. competitiveness).

LEAL-ARCAS_9781786431042_t.indd 72 08/09/2017 13:02

2. ENERGY SECURITY, SOLIDARITY AND TRUST
Energy security has been a key rationale for state intervention in the energy sector.20
The EU imports around half of the energy it consumes, which is a security concern only
to the extent that the exporting country may use its energy exports as a tool to pressure
Europeans.
After World War II, the issue of energy security rose to the top of the political agenda
in 1973 when Arab oil-exporting countries used oil to condemn what they saw as western
support for Israel. EU oil cooperation thus began as a sub-set of the wider western-world
reaction embodied by the creation of the so-called International Energy Agency that
represents developed oil-importing countries.
Today, the EU produces around 12% of the oil it consumes, and Norway21 10% (see
Figure 5.3).
EU dependence on foreign oil is a matter of energy security, but is currently not high
on the political agenda for two main reasons:
1. Oil is a fully globalised, easily transported liquid commodity;

2. Europeans free-ride on the US oil security policy, considering that the US has the
same interests in this field and has ‘bigger warships than ours’ 22 to implement their
policy. Donald Trump’s presidency may challenge this perception.
These elements however undermine the fact that continued consumption of oil in Europe
fosters the economic and geopolitical power of two powers: Russia and Saudi Arabia, who
both use oil money to finance their armies and political/religious anti-EU propaganda.23
The bulk of EU energy security concerns are about gas.24 After the 2004 Ukrainian
20
For an illustration of British oil policy during World War II, see David Edgerton, Britain’s
War Machine. London: Penguin Books, 2011, pp. 181–94.
21
When tackling energy security, one may consider Norway as a de facto EU Member State as
Norway is a member of both NATO and the European Economic Area.
22
Interview with two top EU officials, Brussels, June 2014.
23
For a recent study on the links between oil, Saudi Arabia and radical Islam, see Pierre
Conesa, Dr Saoud and Mr Djihad: La diplomatie religieuse de l’Arabie Saoudite. Robert Laffont,
2016.
24
Energy security also concerns to a much lesser extent other energy sources: coal, uranium,
renewables.
Coal burnt in the EU is largely imported from third countries, but it is – like oil – a globalised
commodity so no foreign power can threaten Europe’s sovereignty through threats of cutting coal
supplies. The EU moreover has large coal reserves that it could exploit again if needs be.
Security of uranium supply has been a long-term EU policy since the 1957 Euratom Treaty.
Uranium is an extremely dense source of energy and can be easily stored. It is moreover also pro-
duced by countries that are EU allies, such as Canada or Australia, or countries where the presence
of the EU and/or its Member States is strong, such as Niger.
Renewables use domestic EU natural resources: sun, wind, waves, rain, mountains, forests, etc.
The main energy security concern is about electricity generated from solar PV or wind, as their
production varies according to the availability of sun and wind, which can pose a threat to the sta-
bility of the power grid – an issue that we will deal with later when talking about the fully integrated
European electricity market.

LEAL-ARCAS_9781786431042_t.indd 73 08/09/2017 13:02

Mexico Others
Angola
2% 8%
2%
Algeria Russia
3% 28%
Azerbaijan
4%
Iraq
4%
Kazakhstan
5%
Nigeria
7%
EU
12%
Libya
7%
Saudi Arabia Norway
8% 10%
Sources: Thomas Pellerin-Carlin, Jacques Delors Institute, with data from European Commission and BP
Statistical Review 2015, for the year 2012.
Figure 5.3 Estimated origin of oil consumed in the EU in 2012
‘Orange Revolution’ Gazprom opted for sharp price increases and supply cuts during
the winter cold snaps of 2006 and 2009 – the latter affected 12 EU Member States and
left millions of Europeans without heating in early January 2009. The situation is still
controversial today, as, for instance, Gazprom ships gas directly to rebellious zones in
Eastern-Ukraine while billing the Ukrainian government for it.
When looking at the origin of EU-consumed gas (see Figure 5.4), one notices that the
first supplier of gas for EU consumers is the EU itself (32%). In second position comes
Russia (27%) then Norway (24%). Moreover, since 2006, energy consumption has been
decreasing in Europe. Gas consumption has also been on a downward trend since 2010.25
In 2014, the European Commission adopted the first European Energy Security
Strategy26 in the context of rising tensions between Ukraine and Russia. It was supported
by the European Council meetings of June and October 2014, embedded into the
25
Jonathan Gaventa, Manon Dufour and Luca Bergamaschi, ‘More Security, Lower Cost – a
Smarter Approach to Gas Infrastructure in Europe’, Energy Union Insight Series n°1, E3G, March
2016.
26
European Commission, European Energy Security Strategy, Brussels, 28 May 2014, SWD(2014)
final.

LEAL-ARCAS_9781786431042_t.indd 74 08/09/2017 13:02

LNG Algeria LNG other Libya

3% 2% 1.5%
LNG Qatar
5%
Algeria EU
5% 32%
Norway
24%
Russia
27%
Sources: Thomas Pellerin-Carlin, Jacques Delors Institute, with data from BP Statistical Review 2015 for the
year 2014.
Figure 5.4 Estimated origin of gas consumed in the EU in 2014
February 2015 Energy Union communication, assessed in November 2015,27 and led to a
European Commission proposal in February 2016.28
To achieve energy security, the EU aims at storing oil and gas in quantities signifi-
cant enough to avoid short-term problems, while developing ways to diminish Europe’s
reliance on foreign energy imports and strengthening EU cohesion when it comes to
energy diplomacy.
Short-term security is achieved through storage. Directive 2009/119/EC requires
Member States to store quantities of oil/petroleum products equivalent to 90 days of net
imports or 61 days of consumption. Similar measures also exist for gas.29
Another way to ensure energy security is to diminish Europe’s reliance on energy
27
European Commission, State of the Energy Union 2015 – Staff Working Document on the
European Energy Security Strategy. November 2015.
28
European Commission, Commission proposal on new rules for EU gas supply secu-
rity COM(2016) 52; European Commission, Commission proposal on new rules for energy agree-
ments between EU and non-EU countries, COM(2016) 53.
29
European Commission, The role of gas storage in internal market and in ensuring security
of supply, 2015.

LEAL-ARCAS_9781786431042_t.indd 75 08/09/2017 13:02

imports by reducing energy consumption through energy efficiency30 and/or boosting

domestic energy production.31
Article 4.3 TEU enshrines the duty of cooperation between the Union and its Members
States.32 It can be applied to external relations33 and can thus be a sound legal and political
basis to ensure that when it comes to energy, Europe can ‘speak with one voice’ or at least
deliver a single message, albeit through multiple voices (e.g. EU and key Member States).
Council conclusions on energy diplomacy of July 201534 fall short of making the EU a
united entity when it comes to energy diplomacy. So does Decision 994/2012/EU that
establishes an information mechanism on energy intergovernmental agreements between
Member States and third countries, and Regulation 994/2010 that is being reviewed.35
Currently, EU powers are limited to ensuring that, once the intergovernmental energy deal
is signed, it respects EU law (especially elements from the 2009 Third Energy Package).36
Gas security talks should always be approached in their broader context, in which
energy is only one segment of a broader EU-third country discussion, for instance within
the framework of the European Neighbourhood Policy (ENP)37 or in a bilateral context
(see Box 5.1 for the example of Nordstream). A more proactive EU policy would look at
ways to ensure long-term partnership with countries that could positively impact the EU
energy security. For instance, energy security talks with Algeria could focus on develop-
ing energy efficiency and renewable electricity production in Algeria itself, as this would
reduce Algerian gas consumption and allow it to export more towards the EU.38 Similarly,
30
European Commission, European Energy Security Strategy, Brussels, 28 May 2014,
SWD(2014) final; Ingrid Holmes et al., ‘Energy Efficiency as Europe’s First Response to Energy
Security’, E3G Briefing, 2014; Jonathan Gaventa, Manon Dufour and Luca Bergamaschi, ‘More
Security, Lower Cost – a Smarter Approach to Gas Infrastructure in Europe’, Energy Union
Insight Series n°1, E3G, March 2016.
31
See section 4 for energy efficiency, section 3 for boosting domestic renewable energy
production.
32
Rafael Leal-Arcas, The European Energy Union. Leuven: Claeys & Casteels, 2016.
33
Hillion, C, ‘Mixity and coherence in EU external relations: the significance of the duty of
cooperation’, CLEER working papers 2009/1, pp. 19–21, 2009.
34
Council conclusions on energy diplomacy of July 2015.
35
Brussels, 16.2.2016 COM(2016) 52 final 2016/0030 (COD) Proposal for a Regulation of the
European Parliament and of the Council concerning measures to safeguard the security of gas
supply and repealing Regulation (EU) No 994/2010 (Text with EEA relevance) (SWD(2016) 25
final) (SWD(2016) 26 final).
36
Those EU powers are very easy to circumvent for two main reasons:
As the assessment is ex-post, it can only work after years of legal procedures that are depend-
ent on the European Commission political willingness to proceed. Taking stock of the political
choices made in the past not to enforce Eurozone legislation on powerful Eurozone states and/
or states where such decisions may fuel rising populism/nationalism/Euroscepticism, it remains
to be seen whether the European Commission would go far enough to effectively lead to the
condemnation of a State that failed to respect EU law regarding energy agreements with third
countries.
As key elements of those pieces of EU legislation only concern intergovernmental agreements,
one can find another legal vehicle.
37
Philipp Offenberg, ‘The European Neighbourhood and the EU’s Security of Supply with
Natural Gas’, Jacques Delors Institute, 2016.
38
Jekaterina Grigorjeva, ‘Starting a New Chapter in EU-Algeria Energy Relations’, Jacques
Delors Institute, 2016.

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BOX 5.1 EU ENERGY DIPLOMACY AND NORDSTREAM: THE CANARY IN

THE COALMINE
For EU energy diplomacy, the canary in the coalmine is the project Nordstream 2 (NS2),39 which
aims to double the current capacity of 55bcm of Nordstream 1, a pipeline that has been operational
since 2011 and ships Russian gas, directly from Russia to Germany, via an offshore route crossing
through the Baltic Sea and the Finnish, Danish, Swedish and German Exclusive Economic Zones
(EEZs). Legally, this is a purely commercial project. Politically, it is actively supported by Russian
President Vladimir Putin and German Vice-Chancellor Sigmar Gabriel. Nordstream’s consortium is
chaired by former German Chancellor Gerhard Schröder and Nordstream CEO, Matthias Warnig,
a former Stasi agent.40 NS2 timing is moreover dubious as there is little political rationale for the
EU to implement its economic sanctions, which target the Russian economy, while launching the
€8 billion project that diverts Russian gas transfer through Ukraine, to avoid paying transit fees to
Ukraine while enhancing Russian capacity to use gas as a political tool over a country it has partially
annexed and continues to destabilise.
European Commission Vice-President Maroš Šefčovič criticised Nordstream 2,41 but it is as yet
unclear whether EU law can be interpreted as also applying to Nordstream 2. According to the
European Commission’s legal service, it does not; according to the European Commission DG
Energy, it does.42 The very least the EU could try to achieve is to ensure third party access to
the pipeline that is currently planned to be used only to ship Gazprom’s gas. Third party access
would allow Gazprom’s Russian competitors, most notably Rosneft and Novatek, to also propose
their gas to the German/EU market. In such an instance, Nordstream 2 may become a double-
edged sword. First aimed at dividing Europeans for the benefit of Gazprom and Russia, it may
become a way to divide the three Russian gas providers to the benefit of Germany/Europe. In
such a sensitive dossier, legal scholars have a key role to play to see to what extent EU law can
be interpreted in a way that promotes EU interests while still remaining within the boundaries of
the rule of law.43
Ukraine has the potential to become a net exporter of gas, provided it completes massive
reforms. 3940414243
As for the US, much has been written about the potential for the US to export oil and
gas massively to Europe, within or outside the framework of the Transatlantic Trade
and Investment Partnership (TTIP).44 Yet, the US is and will most likely remain a net
importer of oil as it produced 567Mto but consumed 851Mto in 2015, making the US the
world’s third biggest importer of oil, after the EU and China.45 As for gas, the US was
39
Jean-Arnold Vinois, Thomas Pellerin-Carlin, and ‘Nordstream 2: a decisive test for EU
energy diplomacy’, Natural Gas World, December 2015.
40
https://www.theguardian.com/world/2014/aug/13/russia-putin-german-right-hand-man-
matthias-warnig.
41
http://europa.eu/rapid/press-release_SPEECH-16-1283_en.htm.
42
http://www.politico.eu/pro/nord-stream-gazprom-russia-pipelines-gas/.
43
For more information on NS2, see in particular: Alan Riley, ‘Nordstream 2: a legal and
policy analysis’, CEPS, November 2016 and Jean-Arnold Vinois and Thomas Pellerin-Carlin,
‘Nordstream 2: a decisive test for EU energy diplomacy’, Natural Gas World, December 2015.
44
Rafael Leal-Arcas, The European Energy Union. Leuven: Claeys & Casteels, 2016, especially
footnotes 116, 125–9, 133–5, 143, 149.
45
According to BP Statistical Review 2016 data, the gap between US production and consump-
tion of oil represents 284Mto while China’s represents around 345Mto.

LEAL-ARCAS_9781786431042_t.indd 77 08/09/2017 13:02

still a net importer of gas in 2015 – but having a net import need of only 11bcm, smaller
than the gas consumption of Belgium. The US may likely become a gas net exporter in
the years to come, but the question is threefold: How much gas will the US be able to
export? Especially under President Trump, why would this gas go to Europe while other
net importing countries are easier to access (e.g. Mexico) or currently have higher LNG
gas prices (e.g. Japan)? And, for how long would the US remain able to increase its gas
exporting capacity in the face of a still constantly rising US gas domestic consump-
tion46 and a production that will decline at some point due to economic, political and/or
geological constrains?
In any case, to ensure their energy security, Europeans need to wonder whether they are
stronger together. Currently, energy security negotiations happening within the Council
tend to suggest that most countries have opted for an approach defending short-sighted
interests that chose some companies’ profits over their people’s and businesses’ energy
security. In this context, academics may be helpful in allowing a better and more publi-
cally visible understanding of the drivers of national choices regarding energy security.47
Shedding light on what is too often the black box of the construction of national interests
will be key to helping national elites and peoples define their national interests in a more
enlightened way. This would help in preventing Europe from falling back into a past that,
as the 1973 Copenhagen Declaration puts it, was characterised by European States ‘self-
ishly defending misjudged interests’.48
Ensuring energy security in the short and long term also requires fully integrating
Europe’s energy market, and boosting energy efficiency. Those two topics constitute the
two dimensions we now turn to.
3. A FULLY INTEGRATED EUROPEAN ENERGY MARKET
The rationale for a fully integrated European energy market is simple: fostering econo-
mies of scale and helping to provide more sustainable, secure and cheaper energy to all
Europeans.
When (then) European Commission President Jacques Delors launched the Single
Market plan, he put aside the energy market as it was deemed to be too politically sen-
sitive.49 After he left office, the EU agreed in December 1996 on the first liberalisation
directive for the electricity sector,50 followed by its gas equivalent in 1998. This started
a continuous European Commission push for genuine liberalisation, moderated by
46
US gas consumption increased by 37% between 2006 and 2015, according to BP data.
47
Claire Dupont and Sebastian Oberthür (eds), Decarbonisation in the European Union –
Internal Policies and External Strategies. Houndmills: Palgrave Macmillan, 2015. See especially
Tom Casier’s Chapter 8 on ‘The Geopolitics of the EU’s Decarbonisation Strategy’.
48
European Summit, Declaration on European Identity, Copenhagen, 14 December
1973.
49
Interview with former top official of Delors’ cabinet, Paris, 15 March 2016.
50
European Union, Directive 96/92/EC.

LEAL-ARCAS_9781786431042_t.indd 78 08/09/2017 13:02

some key Member States that wanted to preserve, to a large extent, their existing energy
system.51
Although the 1996 electricity liberalisation directive already embedded some environ-
mental concerns,52 its main rationale mirrored 1980s/1990s’ pro-liberalisation Zeitgeist
that was already applied to aviation, rail or telecommunications, with the idea that
increased competition would drive prices down. This narrative was later completed with
two more components: energy security53 and decarbonisation.54 As other sections of this
chapter are dedicated to those two topics, we now cover the dimension of integration of
renewables in a cost-effective and secure way.
When looking at the best way to integrate massive amounts of variable renewable
energy production (VRES) in Europe, the EU’s official moto of ‘united in diversity’ makes
specific sense. Integrating VRES at the EU-level, rather than at the national or regional
level, is easier and cheaper for three main reasons:
1. On supply, variability of VRES generation in general, and wind power55 in particular,

can be managed through the EU-wide transport of electricity. For instance, if there
is no wind in a particular region, there may be wind in another one, thus mitigating
VRES’s generation variability. As Figure 5.5 shows, wind generation can vary from
0% to 60% of its full capacity when looking at one single region – in this case, Bavaria.
When looking at a multinational group like the Pentalateral Forum countries (PLEF)
or Europe as a whole, this ranges from 10% to 30%.
2. On demand, VRES integration begs the question of how to ensure that electricity
is available when demand peaks and wind/sun is scarce. This concern is much more
manageable at the EU-wide level as the more diverse the patterns of the consump-
tion, the less important the electricity peak. To illustrate, Spain’s seasonal electricity
peak happens in the summer for cooling purposes, while a daily peak happens when
Spaniards cook dinner around 9 or 10 pm; France’s seasonal peak happens in the
winter as a result of France’s choice for electric heating, while its daily peak happens
when the French cook dinner around 7 or 8 pm. When looking at these countries
in isolation, peak demand is higher (in percentage of baseline demand) than when
looking at these two countries as if they were a single, fully integrated electricity area.
3. On storage, VRES integration is eased by the ability to store electricity that can
be put on the grid when needed, as well as shifting demand through demand-side
51
See for instance the role played by France, Germany and other Member States on the
modalities to ensure the unbundling between energy suppliers and Transport System Operators.
52
See in particular art. 8.3 and 11.3 of Directive 96/92/EC. It allowed Member States to require
that Transmission System Operators and Distribution System Operators may be obliged to give
priority access to renewable energy sources, waste or combined heat and power.
53
D. Buchan, ‘Europe’s Misshapen Market – Why Progress Towards a Single Energy Market is
Proving Uneven’, Oxford Institute for Energy Studies, 2014.
54
Claire Dupont and Sebastian Oberthür (eds), Decarbonisation in the European Union –
Internal Policies and External Strategies. Houndmills: Palgrave Macmillan, 2015. See especially
Radostina Primova’s Chapter 2 on ‘The EU Internal Energy Market and Decarbonization’.
55
The quantity of electricity that a windmill can generate depends mostly on the speed of the
wind. The relation between those two elements is a cubic one, meaning that, as an order of magni-
tude, the wind’s speed is multiplied by 3, the windmill’s generation is multiplied by 27 (533).

LEAL-ARCAS_9781786431042_t.indd 79 08/09/2017 13:02

100
% of installed capacity
80
60
40
20
0
Pixel
Bavaria
Germany
31 May
PLEF
16 May
Europe
1 May
Source: Fraunhofer IWES 2015.
Figure 5.5 Feed-in of wind power in 2030 in several territorial aggregates
anagement (DSM) measures that can increase demand when VRES generation is
m
massive while decreasing demand when VRES generation is low. Having an EU-wide
electricity market allows already existing and future storage and DSM capacities to
be used to deal with peaks happening in each EU Member State. In an EU-wide
electricity market, dams in the Alps and Scandinavia can act as the cheap green bat-
teries of the entire European continent, and so can specific economic sectors that can
heavily curtail their own electricity consumption.56
A fully integrated EU electricity market is thus the conditio sine qua non for achieving an
energy transition that provides clean, cheap57, 58 and secure electricity to all Europeans. To
achieve such a fully integrated EU electricity market, the EU needs an adequate hardware
and software:
56
Such as the aluminium factory of Dunkirk, in northern France, that can stop consuming for
two hours an amount of electricity similar to that consumed by a city of roughly 1 million inhabit-
ants. See Thomas Pellerin-Carlin, ‘Putting the Consumer at the Centre of the European Energy
System’, Jacques Delors Institute, September 2016.
57
One estimate is that a fully integrated EU energy market might bring about efficiency
gains of 250 billion euros a year: Joseph Dunne, ‘Mapping the Costs of non-Europe, 2014–2019’,
European Parliament Research Service, Third Edition, April 2015.
58
Smoother integration of VRES should ensure that less public and private money is
spent on capacity mechanisms as they would become less necessary – or even useless – with
a smart EU-wide integration of VRES. For a discussion on capacity mechanisms, with 11
country case studies, see in particular, Leigh Hancher, Adrien de Hauteclocque and Malgorzata
Sadowska (eds), Capacity Mechanisms in the EU Energy Market. Oxford: Oxford University
Press, 2015.

LEAL-ARCAS_9781786431042_t.indd 80 08/09/2017 13:02

● The hardware are the interconnections that physically allow for electrons and gas
to flow all over Europe. While EU policies have focused on inter-state intercon-
nections, through regulatory measures,59 regulatory incentives60 and budgetary
incentive,61 intra-state interconnections may be currently lacking.62 Yet, all in all,
this hardware issue is currently being dealt with and is likely to be entirely solved in
the upcoming 10–20 years.
● The software is the legislative framework ensuring that the hardware is effectively
used. The key piece of legislation currently being discussed at the EU level is the
European Commission November 2016 proposal for a new electricity market
design.63
While there is a rising consensus, repeatedly supported by European Council conclusions, on

the idea that a fully-fledged EU single energy market ought to be built, concrete decisions to
make it a reality have been lacking. The European Commission is now turning to building
several multinational macro-regional markets grouping neighbouring countries, as a first
step to allowing countries to interiorise the modern meaning of pooled energy sovereignty.64
4. ENERGY EFFICIENCY CONTRIBUTING TO MODERATION

OF DEMAND
European energy demand peaked in 2006 (see Figure 5.6), and European electricity
demand peaked in 2008 (see Figure 5.7). This is a genuinely historical element that fun-
damentally changed Europe’s energy landscape. Past business models of energy suppliers
were based on the assumption of ever-rising energy demand; this assumption is now dead,
and so are their old business models.65
59
See for instance the EU’s interconnection targets.
60
Especially through granting the status of ‘Projects of Common Interest’ (PCIs) to specific
interconnection projects. For a policy brief on PCIs, see in particular L. Meeus and N. Kayaerts
(2015) ‘First Series of Cross-border Cost Allocation Decisions for Projects of Common Interest:
Main Lessons Learned’ (Policy Brief). Florence School of Regulation.
61
See for instance Regulation (EC) No 67/2010 and the EU budget that allocates €5.85 billion
to the energy portion of the ‘Connecting Europe Facility’ over seven years (2014–2020).
62
For instance, there is still a lack of electricity connections linking northern to southern
Germany, especially at a time when Germany is shutting down (nuclear) power plants in its south
while opening (wind) power plants in its north, with this problem creating German loopflows and
free-riding on their neighbours’ electricity grids (especially in Poland, the Czech Republic and the
Netherlands). So does France lack gas interconnection between its south-western part and the rest
of the country, making it difficult for Spanish gas to flow to Europe through France.
63
For an introduction, see the European Commission memo: European Commission, New
Electricity Market Design: A Fair Deal For Consumers, Memo, 30 November 2016.
64
Angelique Palle, ‘Regional Dimensions to Europe’s Energy Integration’, The Oxford
Institute for Energy Studies, 2013; Jacques De Jong, Thomas Pellerin-Carlin and Jean-Arnold
Vinois, ‘Governing The Differences in the European Energy Union – EU, Regional, and National
Energy Policies’, Jacques Delors Institute, Policy paper n°144, October 2015.
65
To quote the Energy Union Framework Strategy of February 2015, those are ‘outdated
business models’. Some energy suppliers’ boards still fail to adapt, but others have taken drastic

LEAL-ARCAS_9781786431042_t.indd 81 08/09/2017 13:02

1.8
Primary Energy Consumption (Gtoe)
1.6
1.4
1.2
0.8
0.6
0.4
0.2
0
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Sources: Thomas Pellerin-Carlin and Pierre Serkine, Jacques Delors Institute, with data from BP Statistical
Review 2015.
Figure 5.6 Evolution of EU primary energy consumption and its growth rate between
1965 and 2014
This decline in EU energy demand is driven by several factors, such as the ‘natural’
progresses in energy efficiency made by some new technologies and processes that are
created, invented and diffused at various times, or the sluggish GDP growth that has
affected Europe since 2007 – and may be the beginning of a ‘secular stagnation’ rather
than a temporary ‘crisis’.66 Another key factor has been the continuous push for energy
efficiency67 in public actors in general and the EU in particular.
A key novelty of the energy union is the so-called ‘Energy efficiency first’68 principle. It
entails considering energy efficiency as being the first best possible option for any energy
measures such as E.ON. E.ON decided to create two distinct entities to keep only activities related
to networks, renewables and customer solutions in the entity E.ON, while the remaining activities
(conventional power generation, energy trading, and exploration and production) are in a new
entity named Uniper (sometimes informally nicknamed ‘E.OFF’).
66
For a reference on the debate on secular stagnation, see in particular Coen Teulings and
Richard Baldwin (eds), Secular Stagnation: Facts, Causes and Cures. London: CEPR Press eBook,
2014. See also Carl Benedikt Frey, ‘How to Prevent the End of Economic Growth: How the Digital
Economy Could Lead to Secular Stagnation’, Scientific American, 2015, 312(1).
67
For a definition of energy efficiency, see Thomas Pellerin-Carlin, ‘How Can the Juncker
Plan Unlock Energy Efficiency Investment in the Short and Long Term?’, in Eulalia Rubio, David
Rinaldi and Thomas Pellerin-Carlin, Investment in Europe: Making the Best of the Juncker Plan,
Studies & Reports No. 109, Jacques Delors Institute, March 2016.
68
European Commission, Clean Energy for All Europeans, Communication, 30 November
2016, COM(2016) 860 final.

LEAL-ARCAS_9781786431042_t.indd 82 08/09/2017 13:02

3500
3000
Electricity consumption (TWh)
2500
2000
1500
1000
500
0
1990 1995 2000 2005 2010 2015
Sources: Thomas Pellerin-Carlin and Pierre Serkine, Jacques Delors Institute, with data from Eurostat.
Figure 5.7 Evolution of EU electricity consumption and its growth rate between 1990
and 2013
problem, and then turning to other tools only if an objective cannot be achieved through
energy efficiency. In practice, this principle may not be thoroughly applied for the time being.
Yet, this principle is meant to enhance the importance of EU energy efficiency regula-
tions that exist and are currently being reviewed69 as part of the European Commission’s
clean energy package – which many nicknamed ‘Winter Package’ as it was presented on
30 November 2016. Key regulations concern buildings70 and appliances.71 As for trans-
port, the EU regulation limiting CO2 emissions of passenger cars is, to some extent, a de
facto energy efficiency regulation, as it largely promotes the development of more energy-
efficient cars, since, the more energy-efficient a car is, the less CO2 it emits (ceteris paribus).
The Energy Union’s challenge is thus also to ensure that the ‘Energy Efficiency First’
principle is indeed systematically applied, not only when making legislation, but also
when making concrete funding decisions on specific projects.72 For instance, should
69
European Commission, proposal for a directive amending directive 2012/27/EU on energy
efficiency, 30 November 2016.
70
European Commission, proposal for a directive amending directive 2010/31/EU on the
energy performance of buildings, 30 November 2016.
71
The legislation on eco-design as well as eco-labelling.
72
Thomas Pellerin-Carlin, ‘How Can the Juncker Plan Unlock Energy Efficiency Investment
in the Short and Long Term?’, in Eulalia Rubio, David Rinaldi and Thomas Pellerin-Carlin,
Investment in Europe: Making the Best of the Juncker Plan, Studies & Reports, No. 109, Jacques
Delors Institute, March 2016.

LEAL-ARCAS_9781786431042_t.indd 83 08/09/2017 13:02

the EU financially support (through the European Investment Bank for instance) the
development of an additional gas pipeline able to ship 1bcm of gas every year to Italy, or
financially support energy efficiency measures that allow Italy to save 1bcm of gas con-
sumption every year? The ability of EU actors (esp. European Commission, European
Investment Bank and Member States) to effectively apply the ‘Energy Efficiency First’
(EE1st) principle will be one of the test cases for understanding to what extent the Energy
Union is more than a slogan.
5. DECARBONISING THE ECONOMY

Taking urgent action to combat climate change and its impacts is the 13th of the 17 UN
sustainable development goals.73 Climate change is indeed a global catastrophic risk74 that
may lead to civilisational collapse.75, 76 While the academic debate, especially in economics,
has tackled the issue of finding the right mix between climate change mitigation and climate
change adaptation,77 this section only looks at one key segment of the climate change mitiga-
tion debate: decarbonisation, i.e. making EU and global energy production CO2-free. This
objective is in line with the Paris Agreement,78 signed in December 2015 and entered into
force in November 2016, and which requires79 Europe’s energy system to become net-zero-
carbon at least, or even to have a negative-emissions energy system80 in this century.
Reducing risks arising from climate change is both a global public good, and an
intergenerational one. As for any public good, the market economy tends to lead to a
sub-optimal allocation of funds, making public intervention economically rational to
address this market failure.
73
United Nations, Sustainable Development Goal 13, 2015.
74
Global Challenges Foundation, Global Catastrophic Risks 2016, 2016.
75
Alexandre Magnan et al., ‘Addressing the Risk of Maladaptation to Climate Change’, Wiley
Interdisciplinary Reviews: Climate Change, 2016, 7: 646–65.
76
Cf. Jared Diamond, Collapse: How Societies Choose to Fail or Succeed. London: Penguin,
2005. See in particular the book’s conclusion for the application of Jared Diamond’s study to
climate change in the 21st century. For an analysis of successful adaptation to a changing environ-
ment, see the book’s sections on 17th-century Japan and Renaissance Netherlands.
77
Despite some economists who, like R.S. Tol, argue that ‘mitigation and adaptation should
be kept largely separate’, see: R.S. Tol, ‘Adaptation and Mitigation: Trade-offs in Substance and
Methods’, Environmental Science & Policy, 2005, 18: 572–8. And also, W.D. Nordhaus, ‘A Review
of the Stern Review on the Economics of Climate Change’, Journal of Economic Literature, 2007,
XLV: 686–702.
78
See in particular Article 4 of the Paris Agreement. For an analysis of climate negotia-
tions prior to the Paris Agreement, see: Stefan Aykut and Amy Dahan, ‘Gouverner le climat? 20
ans de négociations internationales’, Presses de Sciences Po, 2015 ; Thomas Pellerin-Carlin and
Jean-Arnold Vinois, ‘2015 Climate Negotiations: Speeding Up or Slowing Down the Energy
Transition?’, Jacques Delors Institute, September 2015.
79
The Paris Agreement is binding for the EU and each one of its Member States alike, and
both are currently discussing concrete legislative, budgetary and non-legislative policies and deci-
sions that can speed up an energy transition compatible with the ambitions of the Paris Agreement.
80
For instance by burning biomass in a carbon capture and storage plant.

LEAL-ARCAS_9781786431042_t.indd 84 08/09/2017 13:02

5.1 The EU-ETS, the Failed Self-proclaimed Cornerstone of the EU

Decarbonisation Strategy
The EU’s self-proclaimed key policy to decarbonise Europe is the EU’s carbon market:
the EU Emissions Trading Scheme (ETS),81 that is currently being reviewed by EU insti-
tutions.82 It is probably the most studied piece of EU energy-climate legislation and has
inspired other countries’ carbon markets,83 such as China’s.84
The ETS however proved unable to foster radical changes and has little potential cur-
rently to significantly impact non-ETS sectors, such as transport or buildings – i.e. two
sectors that, together, account for 70% of EU energy consumption.85
The ETS mostly targets electricity generation and industry. For electricity, the ETS
price is too low to drive renewable generation that is incentivised by other means, such as
feed-in tariffs.86 The ETS failed in increasing the EU’s share of gas power generation in
total power generation87 (see Figure 5.8). As for industry, key industries have benefited
from amounts of free allowances significant enough to hinder any serious CO2-intensity
progress, as the case of clinker can exemplify.88
There is also debate about whether to include currently non-ETS sectors, such as
transport, within the ETS. This is already happening de facto with the development of
electric vehicles, as these modes of transport replace emissions happening in non-ETS
sectors (e.g. purchasing gasoline) by emissions happening in an ETS sector (i.e. power
generation). When approaching this debate, it is worth remembering that, as an order
81
Jos Delbeke, EU Environmental Law: The EU Greenhouse Gas Emissions Trading Scheme.
Deventer, the Netherlands: Claeys & Casteels, 2006.
82
European Commission, Proposal amending Directive 2003/87/EC to enhance cost-effective
emission reductions and low carbon investments, 2015.
83
See for instance A. Denny Ellerman and Paul L. Joskow, ‘The European Union’s Emission
Trading System in Perspective’, Massachusetts Institute of Technology, 2008.
84
See for instance, Yingying Zeng, Stefan E. Weishaar and Oscar Couwenberg, ‘Absolute vs.
Intensity-based Caps for Carbon Emissions Target Setting: An Obstacle to Linking the EU ETS to
a Chinese National ETS?’, CEEPR Working Paper, 2016.
85
According to Eurostat data, EU final energy consumption by sectors in 2012 took place
within buildings (39%), for transport (32%), industry (26%), and the remaining 3% in other sectors
(including agriculture).
86
For a study on renewables support schemes, see DiaCore, ‘The Impact Of Risks In
Renewable Energy Investments And The Role Of Smart Policies’, 2016.
87
The key driver for choosing gas over coal is not the CO2 price, but the price of such com-
modities on the market.
88
EU cement companies have developed ways to produce cement in a significantly less CO2-
intensive way (see e.g., MPA Cement, ‘Novel Cements: Low Energy, Low Carbon Cements’, 2013;
http://cement.mineralproducts.org/documents/FS_12_Novel_cements_low_energy_low_carbon_
cements.pdf), but no market exists for them as they have a sightly higher incremental cost and are
not produced in a volume big enough to provide for economies of scale. To reduce CO2 emissions by
the clinker industry, as well as other ETS-covered industries (such as steel), non-ETS tools may prove
to be far more efficient and politically more easily adopted by decision makers. One such example
would be for regulation of public markets (including the EU State Aid rule) to provide a market for
such products, for instance by requiring that highways built with EU money (e.g. cohesion funds)
use cement the production of which emits less than a specific level of CO2/tclinker, with such a level
being regularly updated by delegated acts so as to remain close to the best tecnologically feasible level.

LEAL-ARCAS_9781786431042_t.indd 85 08/09/2017 13:02

40%
30%
Gas
20%
Coal
10%
0%
2000 2005 2010 2015
Sources: Spencer Thomas et al., ‘State of the Low-carbon Energy Union’, IDDRI Study, November 2016,
based on data from Enerdata, Global Energy and CO2 database.
Figure 5.8 Share of coal and gas in gross electricity generation in the EU
of magnitude,89 if policy makers wish to compensate for the 2014–2015 decline in oil
prices90 by an EU carbon price for oil, they would need to get it at a level of at least €150/
TCO2eq – to be compared to the 2015–2016 ETS price range of €5–7/TCO2.
As for the building sector, economic actors deem the current ETS to be so irrelevant as
a tool to foster energy efficiency that it was not even included among the 100 drivers for
energy efficiency investments studied by the EU-mandated expert group EEFIG.91
5.2 The EU’s Truly Efficient Tools to Decarbonisation
There is an apparent paradox here: the EU achieved its 2020 decarbonisation target way
ahead of schedule, despite having seen its key decarbonisation policy – the EU-ETS –
utterly fail.
Non-energy-policy-driven phenomena, such as the tertiarisation of the EU economy
and sluggish GDP growth, obviously played a role. As did other policies, especially the
ones aiming at developing energy efficiency and the development of renewable energy
sources (RES). As section 4 dealt with energy efficiency, we now turn to RES.
Renewables are the only energy source that was rising in the EU energy mix from 2006
to 2015.92 This rise was fostered by massive public investments in renewables through
89
More accurate calculations could be made but should be adjusted on a daily basis, especially
to take into account the change in the Euro-USD currency exchange rate.
90
A decline that saw prices falling from roughly US$100 in 2012–2014 to less than US$50 in
2015–2016.
91
Energy Efficiency Financial Institutions Group, Final Report, February 2015.
92
Thierry Bross with data from BP Statistical Review 2016, Eurostat, SG Cross Asset.

LEAL-ARCAS_9781786431042_t.indd 86 08/09/2017 13:02

GW
40
30
European Union
EU-ex DE Solar
20
EU-ex Solar
10
0
2000 2005 2010 2015
Source: Spencer Thomas et al., ‘State of the Low-carbon Energy Union’, IDDRI Study, November 2016.
Figure 5.9 Annual addition of renewable electricity generation capacity in the EU-28
diverse public support schemes. Thus, RES (especially solar PV and onshore wind) have
been growing in Europe. If newly installed capacity has been almost halved since 2012, this
evolution is almost entirely explained by the shrinking installation of solar PV (see Figure
5.9). More renewables could have been installed over the past decade in Europe had public
support schemes not been rolled back, sometimes even retroactively. Such roll-backs were
mostly driven by two reasons:
1. Renewables have sometimes been over-subsidised in the past, especially because of

too-high levels of feed-in tariffs. This issue can however be dealt with via the use of
other public support schemes, such as auctioning that obliges renewable energy pro-
viders to compete on costs.
2. EU Member States reacted to the 2008 economic crisis by cutting public spend-
ing, including for renewables support schemes, thus doing the exact opposite of the
Chinese and the US in reaction to the crisis.93
While the EU is on track to achieve its own decarbonisation targets, it is worth

remembering three shortcomings of the EU policy:
93
Under Barack Obama’s administration, the economic crisis was used as an opportunity to
provide a stimulus package for the US economy while preparing for a clean energy future. The US
thus started to fund ARPA-E, the Advanced Research Projects Agency-Energy, modelled on the
US DARPA that financed the creation of the internet, in 2009, when the US public deficit was at
10% of its GDP, amounting to €1.4 trillion (i.e. higher than Russia’s entire GDP). See Mariana
Mazzucato, The Entrepreneurial State: Debunking Public vs. Private Sector Myths. London:
Anthem Press, 2015, especially Chapter 6.

LEAL-ARCAS_9781786431042_t.indd 87 08/09/2017 13:02

1. EU targets are below what would be needed to limit the rise of the global average
temperature to 2°C, and are utterly incoherent with the Paris Agreement objective to
pursue efforts to limit the temperature increase to 1.5°C.94
2. The EU targets only the EU’s territorial emissions: i.e. the ones happening on EU soil.
It thus fails to take into consideration embedded carbon.95 Even though calculating
the quantity of GHG embedded in imported goods is extremely difficult in practice
as reliable data are currently hardly available, the Global Carbon Atlas’s methodol-
ogy suggests that, in 2013, EU territorial emissions had decreased by 18% (compared
to 1990 levels), but that when taking embedded carbon into account this reduction is
only 13.5%.96
3. EU policy tends to focus on EU GHG emissions, even if they now account for a small
and declining portion of global GHG emissions (see Figure 5.10).
These shortcomings thus lead to the following questions:
1. How can the EU and European States enhance their level of ambition to ensure that
EU targets are at least higher than those that would be reached under a business-as-
usual scenario?
2. What tools can the EU use to reduce the EU’s imports of embedded carbon? What
trade tools in particular could be crafted in a way that would be politically acceptable
while being consistent with EU trade policy, WTO rules (especially under Article 20)
and EU climate policy?
3. How can the EU re-focus its action on policies that also impact non-EU GHG
emissions?
A partial answer to the two last questions can be found when looking at the fifth dimen-
sion of the EU Energy Union, as boosting research innovation and competitiveness in
the EU can positively impact the ability of non-EU countries to reduce GHG emissions.
6. RESEARCH, INNOVATION AND COMPETITIVENESS
Public authorities’ support for research and innovation is critical to achieving the
energy transition, just as it has been critical in allowing the digital revolution to emerge.97
The fifth dimension of the Energy Union is ‘research, innovation and c ompetitiveness’.98
94
Thomas Spencer, et al., ‘State of the Low-carbon Energy Union’, IDDRI Study, November
2016.
95
Embedded carbon is the notion that accounts for the GHG emissions that are embedded in
goods produced in a particular country (e.g. China) and consumed in another (e.g. the UK).
96
The author wishes to underline that the calculation of embedded carbon is extremely dif-
ficult and figures can vary drastically depending on the methodology. The reader is thus advised to
take such figures with the most extreme caution.
97
Mariana Mazzucato, The Entrepreneurial State: Debunking Public vs. Private Sector Myths.
London: Anthem Press, 2015.
98
For a more in-depth discussion on energy research and innovation, see Thomas Pellerin-
Carlin and Pierre Serkine, ‘From Distraction to Action – Towards a Bold Energy Union Innovation
Strategy’, Jacques Delors Institute, 2016.

LEAL-ARCAS_9781786431042_t.indd 88 08/09/2017 13:02

a) Total GHG emissions including LULUCF (MtCO2e)

50000
45000
40000 RoW
Japan
GHG emissions (MtCo2e)
35000
Russian Federation
30000
India
25000
United States
20000
China
15000
European Union (28)
10000
5000
0
90
92
94
96
98
00
02
04
06
08
10
12
19
19
19
19
19
20
20
20
20
20
20
20
b) Share of GHG emissions
100%
90%
80% 43.3%
43.4% 45.3% RoW
70% Japan
60% Russian Federation
India
50%
6.1% United States
3.6% 4.4%
40% China
12.2%
16.9% 17.1% European Union (28)
30%
20% 9.5% 12.1% 22.4%
10%
15.1%
12.4% 8.7%
0%
1990 2001 2012
Sources: Thomas Pellerin-Carlin and Pierre Serkine, Jacques Delors Institute, with data from World
Resources Institute.
Figure 5.10 Total GHG emissions including LULUCF between 1990 and 2012 and
corresponding share of global GHG emissions in 1990, 2001 and 2012 for
some major geographical areas

LEAL-ARCAS_9781786431042_t.indd 89 08/09/2017 13:02

Those three terms are not clearly defined in the European Commission’s work but could
be understood as follows:
● Research is the process of creating new ideas, processes, technologies, services or

techniques. It usually distinguishes between basic research (e.g. discovery or inven-
tion99 of a new material/idea) and applied research (e.g. trying to apply this new
material/idea to a specific sector).100
● Innovation is a notion that can be defined in different ways101 by academics.102 In
essence, the idea of innovation can be boiled down to something very simple: any
introduction of something beneficial and new to an organisation.
● Competitiveness is often ill defined103 as a synonym for cost-minimisation,104 a defi-
nition that Paul Krugman assesses to be ‘not only wrong but dangerous’.105 In fact,
one may take a more holistic approach and see innovation as the cornerstone of a
renewed approach to competitiveness in the energy transition.106
99
We should indeed make a clear distinction between invention and innovation. The former
is ‘the generation of newness or novelty, while innovation is the derivation of value from that
novelty’, Niek du Preez, Louis Louw and Heinz Essmann, ‘An Innovation Process Model for
Improving Innovation Capability’, Journal of High Technology Management Research, 2009,
p. 2.
100
According to a 1953 National Science Foundation publication, basic research is the ‘pace-
maker of technological progress’ and a researcher in basic research is someone ‘motivated by a
driving curiosity about the unknown . . . Discovery of truth and understanding of nature are his
objectives. . . . The essential difference between basic and applied research lies in the freedom per-
mitted the scientist. In applied work his problem is defined and he looks for the best possible solu-
tion meeting these conditions. In basic research he is released of such restrictions; he is confined
only by his own imagination and creative ability’.
101
For a deeper discussion on the definitions of innovation, see Anahita Baregheh, Jennifer
Rowley and Sally Sambrook, ‘Towards a Multidisciplinary Definition of Innovation’, Management
Decision, 2009, 47(8): 1323–39.
102
‘Innovation is the process of making changes, large and small, radical and incremental, to
products, processes, and services that results in the introduction of something new for the organi-
zation that adds value to customers and contributes to the knowledge store of the organization’,
David O’Sullivan and Lawrence Dooley, Applying Innovation. Thousand Oaks, CA: Sage 2009,
p. 5. ‘[I]nnovation is the multi-stage process whereby organizations transform ideas into new/
improved products, service or processes, in order to advance, compete and differentiate them-
selves successfully in their marketplace’, Anahita Baregheh, Jennifer Rowley and Sally Sambrook,
‘Towards a Multidisciplinary Definition of Innovation’, Management Decision, 2009, 47(8):
1323–39, p. 1334.
103
The concept of ‘competitiveness’ is criticised by academics. For instance, Robert Reich
considers competitiveness as one of those ‘few terms in public discourse [to] have gone so directly
from obscurity to meaninglessness without any intervening period of coherence’, Robert Reich,
‘American Competitiveness and the President’s New Relationship with American Business’,
21 January 2011. For a critical discussion on the definitions of competitiveness, see Karl
Aiginger, Susanne Bärenthaler-Sieber and Johanna Vogel, ‘Competitiveness of EU versus USA’,
WWWforEurope Policy Paper, n°29, November 2015.
104
European Commission, Energy Union Framework Strategy, 25 February 2015, p. 10.
105
Paul Krugman, ‘Competitiveness: A Dangerous Obsession’, Foreign Affairs, March/April
1994.
106
i24c, ‘Scaling up Innovation in the Energy Union to Meet New Climate, Competitiveness
and Societal Goals’, 2016.

LEAL-ARCAS_9781786431042_t.indd 90 08/09/2017 13:02

Evolution of the FPs’ budget

2014–2020
80
70
per Framework Programme
60
2007–2013
50
40
30
In billion
20 2002–2006
1998–2002
1994–1998
10
1987–1991 1990–1994
1984–1987
0
FP1 FP2 FP3 FP4 FP5 FP6 FP7 H2020
R&D expenditure in the EU by source of funds in 2014 (in B€)
2.3 9.3
Business 65.5
Government
Higher Education
Private Non-profit
34.4 181.6
EU (CSF-RI)
Sources: Thomas Pellerin-Carlin and Pierre Serkine, Jacques Delors Institute, with data from the European
Commission and Eurostat.
Figure 5.11 Evolution of the EU budget dedicated to research and innovation (top)

and 2014 R&D expenditure in the EU by sources of funds (in € billions)
(bottom)

LEAL-ARCAS_9781786431042_t.indd 91 08/09/2017 13:02

In the past decades, European investments in energy R&D were not focusing on renew
ables and energy efficiency, but mostly on nuclear energy. Only in the mid-2000s did
European R&D in renewables and energy efficiency combined represent more important
amounts than R&D in nuclear energy.107
As for the EU, the EU’s budget for Research and Innovation has risen significantly (see
Figure 5.11, graph) but remains a very thin portion of funds invested on R&D in Europe
(see Figure 5.11, pie chart).
In November 2016, the European Commission adopted its ‘Accelerating Clean Energy
Innovation’ communication108 (ACEI). ACEI aims at helping the EU achieve three over-
arching goals: Energy Efficiency First; Europe as the global leader in renewables; and a fair
deal to consumers. In line with non-energy-specific work of the European Commission,109
this communication puts a strong emphasis on open innovation,110 while previous commu-
nications of the European Commission mostly focused on combining technology push111
and market pull112 approaches to innovation.113
ACEI moreover has a strong international dimension and wishes to work closely with
recent initiatives such as Mission Innovation or the Breakthrough Energy Coalition, while
also mentioning, for the first time in an energy policy document, the concept of frugal
innovation developed by scholars like Jaideep Prabhu.114
ACEI contains only four technology focus areas – albeit broad ones – decarbonising
buildings, renewables, storage and electro-mobility. We can notice here what may be dis-
107
Georg Zachmann, ‘Making Low-carbon Technology Support Smarter’, Bruegel Policy
Brief, 2015, based on IEA estimated RD&D budgets by region.
108
European Commission, Accelerating Clean Energy Innovation, Brussels, 30 November
2016, COM(2016) 763 Final.
109
European Commission, Open innovation, open science, open to the world, 2016, ISBN
978-92-79-57346-0. It is worth noting that this communication was first drafted by officials from
DG RTD. This may help explain why elements from non-energy specific EU R&I policy have been
introduced in this communication.
110
For a definition, see Henry Chesbrough, Open Innovation: The New Imperative for Creating
and Profiting from Technology. Boston, MA: Harvard Business Press, 2006.
111
The first model is a simple linear technology-push model, created in the 1950s when
society bought any available product on the market. According to this linear model, the Research
& Development (R&D) department is at the beginning of the innovation process (the idea gen-
eration and the conception of the innovative service or product), followed by the production and
marketing.
112
As market competition grew, it became more important to consider consumer needs. This
led to the market-pull model, which reverses the direction of this still-linear process with the market
informing R&D.
113
For further discussion on innovation processes, see Dirk Meissner and Maxim Kotsemir,
‘Conceptualizing the Innovation Process Towards the “Active Innovation Paradigm” – Trends and
Outlook’, Journal of Innovation and Entrepreneurship, 2016, 5(1).
114
See for instance, Sourindra Banerjee, Jaideep C. Prabhu and Rajesh K. Chandy, ‘Indirect
Learning: how Emerging-market Firms Grow in Developed Markets’, Journal of Marketing, 2016,
79(1): 1–28 (DOI: 10.1509/jm.12.0328); G. George, A.M. McGahan and J. Prabhu, ‘Innovation
for Inclusive Growth: Towards a Theoretical Framework and a Research Agenda’, Journal of
Management Studies, 2012, 49(4): 661–83 (DOI: 10.1111/j.1467-6486.2012.01048.x); Navi Radjou,
Jaideep Prabhu and Simone Ahuja, Jugaad Innovation: Think Frugal, be Flexible, Generate
Breakthrough Growth. San Francisco, CA: Jossey-Bass, 2012.

LEAL-ARCAS_9781786431042_t.indd 92 08/09/2017 13:02

placement115 of the EU energy R&I policy that tacitly deprioritises two elements (carbon
capture and storage, and nuclear) that still were the focus of the September 2015 SET-Plan
communication.116 If this is confirmed in concrete decisions, this would be an interesting
example to study how the EU/European Commission can overcome path-dependency
and change its policy by abandoning the priority-support to two sectors, even when
heavily supported by key Member States (such as Poland and France).
With the February 2015 Energy Union Communication and the November 2016 ACEI,
the European Commission has now clearly set its policy vision for energy R&I. The
European Commission has moreover asked former commissioner Pascal Lamy to head a
High-Level group meant to produce a vision for the entire EU R&I.117 Their work, due
by June 2017, could make climate change or energy transition one of the key components
of such a vision. This may help to ensure that EU R&I policy instruments can be more
than ‘just the results of arbitrary lobbying for partial interests’.118
The European energy R&I landscape already has strong assets. Fundamental research
is well supported by some national budgets and the European Research Council, and
this fundamental research impacts energy, e.g. by developing new solar cells.119 European
academic and industrial players are also very well-ranked in many key energy R&I fields
(see Figure 5.12). Thus, Europe’s main problem may be not about creating new ideas, but
about deploying them on a massive scale.120
In this regard, social sciences, including economics, law, political science, sociology
and anthropology can play a key role. Successfully introducing innovations would be
eased by a good understanding of the drivers behind individual and collective energy
behaviours and choices. Such a comprehensive understanding is currently lacking121 and
the European Commission recently decided to invest 10 million euros to finance three
research projects to help fill this gap.122 Yet, much more academic research in this area
would be needed to feed policy makers with multidisciplinary science-based evidence of
the tools that would be the most effective to drive the energy transition forward – keeping
in mind that eventual policy choices will be driven mostly by drivers other than the
willingness to implement the ‘best possible policy’.
115
For a definition of change by displacement, see Wolfgang Streeck and Kathleen Thelen,
Beyond Continuity. Oxford: Oxford University Press, 2005.
116
European Commission, Towards an Integrated Strategic Energy Technology (SET) Plan, 2015.
117
European Commission, News Alert, 29 November 2016.
118
Matthias Weber, Dan Andrée and Patrick Llerena, A New Role for EU Research and
Innovation in the Benefit of Citizens: Towards an Open and Transformative R&I Policy, European
Commission, 2015, p. 7
119
Aswani Yella et al., ‘Porphyrin-sensitized Solar Cells with Cobalt (II/III)-based Redox
Electrolyte Exceed 12 Percent Efficiency’, Science, November 2011.
120
Nicholas Ashford and Andrea Renda, Aligning Policies for Low-carbon Systemic Innovation
in Europe, CEPS and i24c, 2016.
121
Paul Burger et al., ‘Advances and Understanding Energy Consumption Behaviors and the
Governance of its Change: Outline of an Integrated Framework’, Frontiers in Energy Research,
June 2015, Vol 3, Article 29.
122
Those projects started in late 2016. The first one to start is titled ENABLE.EU, in which this
chapter’s author is taking part. The two others are called ECHOES and ENERGISE.

LEAL-ARCAS_9781786431042_t.indd 93 08/09/2017 13:02

ce rgy
ic
as
or &
nt
lta
en e
e
G
St s
gs ie
ty al
rg En
gy
ag
em o
c r id
in fic
l&
tri rm
st tov
gy
er
tri G
ve le
ild Ef
er
oa
ec he
Sy ho
En
on b
ec rt
En
C wa
Bu t &
ci
C
El r T
El ma
rP
an
an
e
ar
la
d
S
la
en
ce
in
So
Sm
le
So
W
R
O
C
100%
75%
50%
25%
0%
US Europe South Korea China Japan RoW
Sources: Thomas Pellerin-Carlin and Pierre Serkine, Jacques Delors Institute, with data from InnoEnergy.
Figure 5.12 Mapping of the geographical frequency of the appearance of industrial and

academic players in the top 10 rankings for each thematic field
7. CONCLUSION AND FIELDS FOR FURTHER RESEARCH: IS

THE ENERGY UNION MUCH MORE THAN A SLOGAN?
For the European Commission, the Energy Union has proven to be more than a slogan.
It however remains to be seen whether this will translate into significantly different
decisions that will change the EU energy policy for the better, notably by ensuring more
horizontal integration (i.e. coherence between the several policies that impact the energy
transition, such as the capital markets union, the digital union, energy efficiency legisla-
tion, support for research and innovation, ETS reform, etc.), as well as more vertical
integration (i.e. coherence with international decisions such as the UNFCCC and the
Paris Agreement, as well as with sub-EU decisions such as national, regional or city
decisions).
As the Energy Union is a very young process, much academic work is required to better
understand it, its scope and its limits. In this area, academic work can also attempt to
influence decision makers123 to ensure that their decisions are more soundly taken, with
a good enough understanding of the dynamics of energy systems. In that regard, this
chapter ends by suggesting the following fields for further research:
123
For a point of view on the role of think-tankers within academia, see Sven Biscop, ‘Am I an
Academic?’, European Geostrategy, 6 July 2014.

LEAL-ARCAS_9781786431042_t.indd 94 08/09/2017 13:02

● How can the Paris Agreement in general, and its Article 4 on carbon-neutrality in
particular, impact EU and national law?
● From a philosophical, legal and political perspective, what can ‘sovereignty’ mean
in 21st-century European energy policy making?
● Can the Energy Union be a fruitful case study for understanding the broader
European integration process, for instance as a nascent European Federation of
Nation-States124 or a rising demoicracy?125
● From a neo-historical institutionalist perspective,126 how can significant/radical
changes occur in democratic institutions with multiple veto-players in a sector
characterised by long-term investments and policy objectives?
● To what extent can the Energy Union be analysed through the ‘strategic constructiv-
ism’ lens?127
● Are we witnessing a rise of energy autonomy/independence attempts from local
communities?
● Would the future of EU electricity networks include a super grid and/or microgrids?
● What role could Europe’s outermost regions play to develop smart micro-grid and
renewable electricity generation?
● What does ‘Energy Union’ mean for different actors? Is this ambiguity constructive
or not?
● To what extent can legal tools be used for political motives, especially in the case of
Nordstream 2?
● To what extent can sociological background (e.g. economy vs. law studies) explain
EU decision makers’ inclination for market-based mechanisms, such as the
EU-ETS?
● From a political science, sociology, economic and legal perspective, what could be
the best options to balance energy data protection and energy data use?
● How can societal appropriation of energy128 occur? How have other appropriations
of immaterial notions (such as time) been the subject of societal appropriation in
the past?
● To what extent does gender impact energy choices, especially the choice to become a
prosumer? How could such impacts be accounted for in EU energy policy making?
● How can public actors in general and the EU in particular foster the adoption by
private businesses of innovative working practices, such as intrapreneuship?
● What are the legal vehicles and economic rationales for multinational auctioning for
RES production, as opposed to other renewables support schemes, such as national
feed-in-premiums?
124
Gaëtane Ricard-Nihoul, Pour une fédération européenne d’Etats-nations. Larcier, 2012.
125
Kalypso Nicolaidis, ‘European Demoicracy and Its Crisis’, Journal of Common Market
Studies, 2013, 51(2): 351–69.
126
James Mahoney and Kathleen Thelen, Explaining Institutional Change: Ambiguity, Agency,
and Power. New York: Cambridge University Press, 2010.
127
Nicolas Jabko, Playing the Market: A Political Strategy for Uniting Europe: 1985–2005.
Ithaca: Cornell University Press, 2006.
128
For a definition, see Thomas Pellerin-Carlin and Pierre Serkine, ‘From Distraction to
Action – Towards a Bold Energy Union Innovation Strategy’, Jacques Delors Institute, 2016.

LEAL-ARCAS_9781786431042_t.indd 95 08/09/2017 13:02

● What role do EU State Aid and public markets have in fostering the early adoption
of innovative climate-friendly products (e.g. such as lower-carbon cement)?
● How best can EU State Aid ensure that national capacity mechanisms do not dis-
courage low-carbon securitisation of the electricity system?
● Building on the existing literature,129 how can we provide for a better measurement
of the energy innovation performance of EU countries and regions?
● What are the EU industries and regions that are the most likely to benefit from the
energy transition? Do they manage to impact national interests formation in their
home country?
● How can social sciences better contribute to evidence-based debate over the best
policies to foster changes towards ‘greener’ behaviours?
● Do divestment campaigns have a significant impact on economic choices and politi-
cal perceptions?
● What could entail a social dimension to the Energy Union, focusing on promoting
quality jobs and ending energy poverty in Europe?
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ANNEX
Buzek-Delors 2010 Declaration

Lorem ipsum
Text: http://www.institutdelors.eu/media/en_buzek-delors_declaration.pdf ?pdf5ok
Main Megatrends Shaping the Energy Sector
SUSTAINABILITY (decarbonization + energy efficiency) DIGITAL
From To From To
• Over-the-year energy • Near real-time power flows
• Fossil-fuel based economies • Clean energy hegemony management management
• Estimated grid behaviors
• Observed grid behaviors
• Fast growing energy • Optimization of resources • Limited customer interactions • Customer-centric business
• Energy efficient services &
102
consumption models
materials
END-USERS
From To
• Consumers • Prosumers
LOCAL EMPOWERMENT (passive) (active) INTEGRATED SERVICES
• Individual • Collective/
Communities
From To From To
• Increased decentralization of • Dominant energy • Enlarged energy ecosystems
• Centralized governance on including start-ups, tech companies,
energy-related decision making utilities
energy-related topics • Development of a participative cities, equipment providers...
• Streamlined value
• Limited energy democracy democracy • Disrupted value chains
chains
• Centralized energy system • Decentralized energy system • Standardized products • Customized services (smart
(large-scale power plants) (distributed renewable sources) (commodities) home, energy efficiency...)
• Top-down system • Bi-directional system management • Siloed offerings • Integrated multi-service offerings

management • Mono-fluid approach • Integrated multi-fluid strategy
Source: Capgemini Consulting analysis.
08/09/2017 13:02
PART II
EXTERNAL ASPECTS

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6. The new global landscape and energy politics in
the 21st century
Klaus Segbers
Both Europe and Asia are deeply affected by major structural changes in the global land-
scapes. After the end of the East–West Conflict, i.e., after 1990, they were exposed to (but
also shaped by) this new configuration. If these major changes will lead to a new structure,
or, instead, to more disorder, remains to be seen.
This chapter first sketches the main directions of changes in the inter- and transnational
structures, and then tries to relate these changes also to current energy issues.
1. LESS STABILITY
Twenty-five years after the end of the East–West conflict, the international landscape has
changed almost beyond recognition. Globalization was and is driven mainly by hundreds
of millions of agents, looking for their economic and social advantages. The aggregate
results of their actions have weakened the state’s role – and not only of particular states,
but of the state as an institution.
The Cold War system, as it was known between 1948 and 1989, was often, and rightly
so, understood as harboring serious risks in the realm of security. The ongoing arms race
and the inherent and unsolvable security dilemma created a latent feeling of uncertainty.
Since 1989 the level of (real and perceived) stability has decreased, despite the fact that
there are more conflicts (at least when we also accept non state-to-state ones). We have
less governability. And there are less certainties. Rather, the range and number of more
colorful and complex conflicts has increased, including asymmetrical ones between state-
and non-state actors.
The core reason for the growing volatility is that with end of the Cold War, the under-
lying bipolar structure has also disappeared. Bipolar systems are notorious for being
relatively stable, whereas unipolar systems can be either stable (with a ‘benign hegemony’),
or unstable (with a short-sighted hegemony), while multi-polar structures tend to be
unstable. The latter situation has been defining the global structure since 1989. This new
set-up, no matter if you call it multi- or no-polar, is, if anything, much less stable than
anything after the two world wars in the 20th century.
2. MISSING OR FAILING NARRATIVES
Today, many global citizens are no longer able to make sense of what is going on beyond
their immediate local context. It seems that there are too many actors (state and non-
state), too many cleavages, and not enough rules and institutions to effectively manage
105
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this kind of post-Cold War (dis)order. Also, this new constellation is difficult to describe,
even for specialists, let alone for the men and women on the streets and at home. There is
no simple explanatory narrative strong enough to become dominant, and to cover what
is happening worldwide. There are plenty of stereotypes and conspiracies, but these tend
to have a limited reach.
Traces of these new identity-related challenges can also be found on the ground, and in
particular in Global City Regions (GCRs). Diasporas and migrant communities are often
exposed to cultural debates, and, sometimes, clashes. Recent examples from India, China,
Russia, African cities, southern and central France, eastern Germany, and southern Italy
point in this direction. Challenged identities are increasingly a problem for political
stability – both in terms of individuals, and of collective groups. So-called post-factual
discourses and identity politics are on the rise.
Whatever happens to those competing discourses, the reliability, predictability and
relative stability of the second half of the 20th century is gone for good. The task today
is to cope with disorder and fragmentation. One important element emerging from this
fractured picture is the category of global city regions. These cities are both the place for
competing interests and narrative and identities, and also the site for testing new solutions
and coalitions.
3. THE WESTPHALIAN SYSTEM AND ITS

GRADUAL EROSION
Many of the dominant approaches still focus on ‘international politics’, not on ‘global
politics’. Their advocates view the state as the basic political entity. Since 1648, when
the Westphalian Peace put an end to the 30 Year War, the macro-configuration of the
international system was relatively stable. This configuration rested on the existence of
nation states bound to their respective territories. Only these entities were entitled to act
as international players.
Following a realist frame, the core principles of this system were (internal and external)
sovereignty, a monopoly of the power apparatus, and a clear division between domestic
and external affairs, indicated by the existence of visibly delineated borders. Survival was
the core national interest, superseding all other issues. Domestic configurations, struc-
tures and interests were irrelevant. Federal governments were perceived and portrayed as
executing interests of black boxes, whose internal organization was irrelevant.
This way of thinking was challenged after the Second World War by institutionalists
and liberals. The first group argued that cooperation between governments can, and,
actually does, happen (see the European Union), and that domestic structures do matter
a great deal. Liberals and pluralists analyze domestic interests and structures to figure out
how they influence, shape or even capture governments.
The advent of constructivist thinking (the spectrum is too broad and diverse to be
called a ‘school’) introduced non-positivist assumptions, according to which reality is not
exogenously given, but is influenced by actors trying to make sense of it. This means that
observers, including researchers, are not neutral bystanders, but that they actively shape
what they try to understand.
Most of these macro-approaches are in trouble when their main object of research, the

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The new global landscape and energy politics in the 21st century 107
state and its behavior, is weakened or becomes less relevant. This is precisely what we are
facing right now.
In this regard, a disturbing development is the emergence of flows. Flows, by their very
nature, are floating. They neither know, nor care about borders. There are more tradi-
tional flows, like those of goods and services; but even here, both types are today handled
in a completely different way, compared to 100, 50 or 20 years ago – one may think about
revolutions in logistics and transport, the emergence of 3D printing, the virtualization of
homes, and the increasing flexibility of labor markets. Cities, particularly gateway, border
and port cities, play (again) a major role here.
The same goes for flows of people, i.e. migration. Here we are observing the merger
of old and new types of flows, domestic and transnational. They are today less induced
by push and pull factors than by the existence of networks, and by strategic decisions of
families and clans (the new economics of migration). Unregulated immigration is currently
challenging social cohesion in a number of (not only) European countries, and destabiliz-
ing some failing or poor states as well (displaced persons).
Worldwide, there are more refugees than ever. Southern Europe is the target area
for hundreds of thousands of people coming from Africa. The Mediterranean, as
well as the South China Seas, are sites for mass human tragedies organized by human
traffickers. And there is labor migration, from permanent to temporary and unskilled
to skilled, and also a new type of circular permanent migration. All different catego-
ries of migrants are very much moving from and, even more so, toward cities, rather
than nations. More often than not, their destination is not a concrete country, but an
imagined city.
The flows that are probably most crucial today are those of capital and of content.
There are very different categories of capital flows – credits (state to state, international
organizations to state, banks to state and the reverse), portfolio investment, foreign direct
investment (FDI), remittances, and others.
Important actors in this regard are Global City Regions (GCRs), whose relative stand-
ing is very much co-determined by their influence on capital markets. The competition
between major exchanges (like in New York, London, Frankfurt, Bombay, Shanghai, etc.)
drives part of the flows, and also drives their host locations, GCRs, toward global roles.
In Europe, the re-thinking of the value of the UK in the EU is greatly driven by the City
of London’s interests.
The other form of flows is content-related. Here, we have basically two groups. The
first pertains to the provision of information, with the Internet, intranets and databanks
as the prime forms of delivery and storage. The size of these flows today is immense. The
second group of content flows is related to entertainment – including movies, music and
TV productions. These content flows are ever more relevant for transnational politics.
They offer images, visions, patterns of life and consumption, relating to brands and ‘cool
behavior’. They have a major impact on people. They do not make people’s appearance
and behavior uniform, but induce them to digest images against the background of
their respective cultural legacies. This process of adaptation, called indigenization, may
produce major ruptures of identities.
Cities are core sites for originating such flows. Bollywood is a metaphor for gener-
ating movies. The Silicon Valley area, stretching from San Francisco to San Jose, is a
haven for IT innovation, most of that materializing as flows. Old and new financial

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centers, being transformed in nodes and hubs for capital flows, are located in cities as
their material base.
4. EVER MORE ACTORS
The preceding reflections already hint at the fact that many more actors than just states
and governments shape global politics today. In an attempt to structure this widened
actor spectrum, four groups of actors can be singled out: state-related; market-related;
society-related; and international actors. According to another classification, one also
can identify supranational, national and sub-national groups of actors. Cities and GCRs
belong to the latter grouping.
Governments, sub-national administrative entities (states, provinces, regions, districts),
cities (both megacities and globalizing city regions), and sovereign wealth funds, to name
just the most important entities, belong to the category of state-related actors. Be aware
these are not unitary actors either. International organizations (UN, EU, Shanghai
Organization, CIS, WTO, World Bank IMF, G8, G20, Iran 6, Korea 6, etc.) constitute
their own cluster, with different degrees of effectiveness and legitimacy.
In the market-related group, we can locate transnational companies, rating agencies,
law firms, media, legal and illegal entrepreneurs, lobby organizations, etc. who are all
participating in and co-shaping global politics. They tend to locate themselves in GCRs.
GCRs are, by definition, places attracting these other organizations to generate the criti-
cal mass for a place functioning as a node or hub for global flows.
Then, there are societal actors like NGOs, virtual social networks (like Facebook),
terror organizations, churches and religious communities, individuals, the media, and
others, who are actively involved in transnational and global games.
To some extent, cities in general and GCRs in particular can be considered as political
and social units per se – without presenting themselves as unitary actors. They provide
both spaces as places and spaces as scapes, thereby connecting not only flows with actors,
but also various types of territoriality. The concept of scapes tries to offer a conceptual
solution to the fact that multiple places and identities are required for identifying where
some individual, group, or event is ‘located’.
GCRs are indicative here, in particular in connection with headquarters and repre-
sentative offices of transnational companies. GCRs offer a mixture of ‘real’ and virtual
places, of ruptures and disjunctures, of attraction and rejection, of imagineering and
shifting identities.
All these actors are permanently trying to influence each other, to build coalitions, to
shape rules, and to enlarge and protect their constituencies. Governments remain power-
ful actors, but they are now far away from effectively dominating the crowded playgrounds
of global politics.
5. MULTILEVEL GAMES AND RULES
The term ‘multilevel game’ was coined for describing and understanding the political
workings in the EU. Here we can see that governments and other actors pursue their

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interests simultaneously on at least three different levels: (1) the national level, where the
rules of government are set and/or coalitions between parties are formed; (2) the EU level,
where the Council of Ministers, the Commission, and the European Parliament convene
and take decisions; and (3) the sub-national/domestic level, where consensus has to be
built and maintained among domestic actors and (potential) veto players.
No energy policy initiative, nor move on subsidies for agriculture, nor changes of over-
sight over banks, nor new sets of rules on how to address refugees, nor new approaches
to Eurozone problems can be imagined and engineered without having some support on
the domestic front/s, including, and not least, the media.
Politicians have to carefully fine-tune and target their policies to the audiences on
each level. They have to calibrate and re-calibrate their messages accordingly. It goes
without saying that this produces linkages, side-payments, contradictions and opposition.
However, it is unrealistic to assume that voters cast their votes with these policies, layers
and dimensions in mind. Rather, voters tend to withdraw from the increasing degrees of
complexity. They do not reward candidates with complex agendas, but those who express
can-do mentalities, and who frame issues in a black and white way.
6. AD HOCISM – A NEW POLITICAL STYLE
Allegedly, there have been times when politicians enjoyed the luxury of being able to
address just one or two problems at a time. Time horizons were relatively long, the number
of TV stations to take care of was limited, and the number of political parties and other
actors was manageable.
But in the last three or so decades, we see significant shifts and problematic moves
affecting politics, not only on the state level. There are five interrelated reasons why the
traditional, rather sequenced order of doing politics has changed fundamentally: growing
complexities; information overload; growing media involvement; more frequent election
cycles; and uneven acceleration. Taken together, this produces shorter time horizons and
fragmented policy styles. This can be observed at the level of national politics, as well as
on the supra- or subnational levels.
6.1 Growing Complexities
The number of domestic and international issues to be taken care of in a country like
Germany or the US used to be limited. There were one or two ‘big’ issues in a decade to
be taken care of, and about one per month of a lesser magnitude. Decision makers could
address those and, otherwise, try to keep the boat floating.
Today, in a globalizing and, in many regards, already globalized world, there are not
just one or two items on the ‘domestic’ and ‘international’ agenda. To start with, these
formerly rather separate spheres are increasingly merged.
6.2 Information Overload
There never was a time when most people in any given society had such a degree of expo-
sure to a permanent influx of information. Mouth-to-mouth transmissions and printed

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media, then phones, radios and TV, are now embedded into global flows of cell phone
networks, e-mails, text messages, breaking news, blogs, advertisements in and on all of the
mentioned devices, and all of this in general and customized versions.
6.3 Growing Media Involvement
Media are playing an ever more important role in domestic and global politics. Events
that fail to fulfill the criteria for relevant news or entertainment value are simply not
reported. The so-called ‘CNN effect’ can bloat the importance and the global presence of
minor events, or lead to complete ignorance of major events, if they stay unreported. In
addition, social media play an ever more and partly detrimental role. People can ‘publish’
all and every concern, without any responsibility, and often anonymously. Traditional
criteria for journalism do not apply here.
Journalists produce images and put them into frames. Framing, supported by pictures
and images, is crucial for producing imaginations, perceptions and stereotypes. The power
of the media is hard to overestimate. This is not to say that the media have the power to
tell politicians what to do and what decisions to make. The avenue for influence is subtler
but no less powerful: the media set decision makers’ agendas. This role of agenda setter
puts the media – traditional print, electronic, and new virtual ones – in a decisive role
for prioritizing and marginalizing issues and for creating corridors for action by framing
techniques.
6.4 Election Cycles and Veto Players
All this has to be addressed against the background of a notorious over-exposure to elec-
tions, accompanied by increasing election fatigue on the part of the electorate. Especially
in Europe, political elites are caught in an almost permanent election treadmill – people
are called to give their votes on European, federal/parliament, federal/presidential,
regional and municipal levels and issues. Running almost twenty elections (excluding the
local level) over the course of four years is not only a democratic luxury but also a curse
for a country like Germany.
In addition, formal and informal veto players have to be included in policy changes, or
neutralized. This also drags on political processes.
This has significant effects on the time horizons of politicians and other decision
makers. While the problems enumerated above require a rather medium- to long-term
perspective, politicians, bowing to elections, are following ever shorter time horizons.
This correlates to the dramatic shortening of time spans in the commercial sector, where
CEOs and managers have to make ‘positive’ reports to their strategic investors every three
months.
6.5 Acceleration
In addition, we are experiencing a situation in which different sub-systems of societies

transform themselves ever more quickly. This concerns first and foremost capital markets
and financial flows, but also content flows (of information and entertainment) and other
culture-related spheres, life patterns and life cycles, and, to some extent, politics. However,

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there is a significant ‘but’: organizing political decisions and outcomes takes a lot of time,
at least in representative democracies. Processes have to be organized, actors need to be
integrated into processes, compromises negotiated, potential veto players neutralized or
overcome, and procedures need to be observed. Furthermore, one may need to overcome
legal options and obstacles. In other words: democracies are seemingly too slow to catch
up with the problems they face.
Summing up, the political sphere is under pressure from different sides. While electorates
and constituencies harbor expectations vis-à-vis politicians and endow them with some
legitimacy, the political personnel seemingly in charge hunt after ever more complex prob-
lems, bargain for solutions, and lose out in terms of speed against the media. Politics in
general and global politics in particular, are in the process of losing agency. Politics cannot
be masterminded, engineered, implemented, executed, organized and controlled. Politics
in the 21st century is the result of thousands of more or less ad hoc moves by a multitude
of actors on different levels of action. It looks ever more ad hocistic.
7. NEW TECHNOLOGIES
Sometimes government intervention, but more often, business and civil initiatives result
in new technologies (Internet, social networks, GPS, self-driving cars, virtual reality,
artificial intelligence, etc.) and new tools for capital markets (like securitization and high-
frequency trading). Related phenomena are the commodification of ever more assets,
including time and space, accelerated processes and procedures, game-changing financial
assessments of private rating agencies, the increasing flexibility of labor markets, shifting
demographics, and the shortening of time horizons, leading to ever-more inconsistencies
of political actors’ moves. Also, millions of jobs have been transformed or abolished, and
identities irritated. At the same time, millions of opportunities have been created, poverty
reduced and mobility enhanced.
These major shifts of the last 25 years will continue to develop in the foreseeable future.
Given the relative weakening of national governments and eroding state sovereignty, it
may be wise to invest much more effort in exploring non-global and non-nation-state
bound groups of actors, and their interests and game plans. One important feature of
this new landscape of global politics is the enhanced role of city regions, particularly of
those that actively try to connect with major flows of capital and content, of resources
and people.
Against the background of these changes, both Europe and China find themselves in
new and, partly, dire straits.
The EU is experiencing its most serious crisis ever. At least seven partly interrelated
challenges have to be addressed, simultaneously:
● The ongoing, less visible, but not solved Eurocrisis. This comes along with a high
diversity in sovereign debt and a broad spread in dynamism and growth. In addi-
tion, the viability of some EU banks is questionable.
● For the first time, Europeans have had to learn that terrorist attacks can hit any
place and any time. This is the ‘new normal’, and cannot be prevented all the time.

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● The presence of five or six failing or failed states in the Middle East and North
Africa (MENA) area (Afghanistan, Iraq, Syria, Libya, Yemen).
● A still only partially controlled migration into Europe from the MENA area, partly
as refugee movement, partly as a (rather hidden) labor immigration. This process is
often unregulated; it is not accepted by some EU societies, and has led to a populist
surge in others.
● A newly assertive Russia that by now has established itself firmly as a spoiler in
European (Crimea, East Ukraine) and global (Syria) cases. The current leadership
of Russia cannot (and should not) be accommodated.
● A popular Brexit decision that, for the first time, indicates an EU country leaving
the community. The consequences are still not quite clear. But there may be other
countries following, depending on future election results – even France.
● After the elections in the United States in November 2016, there is more uncertainty
than ever about the future relations between the EU and the US. This may concern
first of all trade issues, as well as common security and defense policies.
But the core issue, running across most of the other challenges, is a wave of rising pop-
ulism. A growing number of movements, parties and individuals suggest simple and
simplified answers for complex problems. People who are irritated about economic issues
or, probably more relevantly, identity politics, tend to be beguiled by these populist allure-
ments. Populists are cohabitating in a number of EU governments, and their relevance is
increasing in Austria, France, the Netherlands and Germany.
Populism significantly affects the external room for action by reducing possible win
sets for their respective governments. Making compromises is getting more complicated.
China has its own challenges:
● Significantly decreasing growth rates, and a shift of sources of growth toward the
domestic level.
● Structurally slowing global growth, and demand, leading to the shrinking of a
formerly impressive source of development.
● Huge overcapacities, particularly in state-owned enterprises, and related unemploy-
ment when these factors are addressed decisively.
● Possible bubbles in the stock market and housing sectors, potentially threatening
social stability.
● Recurring uncertainties about the future RMB exchange rates and monetary
policies.
● Ongoing conflicts in the South China Sea about competing sovereignty claims.
● The current Chinese regime is on its way to losing the support of young generations
in Hong Kong and Taiwan, in Tobe and Xinjiang, and also in neighboring countries
(Vietnam).
● The unpredictable rogue behavior of the North Korean leadership.
A common denominator, next to rising populism, in both areas is a high level of

uncertainties.
What, now, are the possible links to the energy questions?
Both the EU and Asia have to import significant amounts of their required energy.

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When there is not a fully secured, guaranteed inflow of energy, this shapes politics in
a significant way: securing sufficient energy flows is a dominant topic, and interest, for
both regions.
But there is also – or should be – an important signpost for external behavior. When
you are dependent on energy (in)flows, this means that both regions – China and the EU –
are highly interested in maintaining stability, at least in their immediate vicinity. This is
crucial. The only alternatives are, or would be, to either reduce consumption, or to shift to
alternative energy sources. The first strategy is not realistic and probably not viable, and
the second one is not easy to implement. Germany, the biggest EU economy, has decided
to realize a major shift in its energy mix, moving away from both coal and nuclear energy,
and trying to reduce the consumption of gas and oil. This is a demanding goal, especially
when fracking is also regarded with suspicion.
Both the EU and China are exposed to energy-related risks – particularly unstable
energy supplies and ongoing climate change, due to the excessive consumption of hydro-
carbon-based energy sources. In recent years, there has been some detectable, though not
sufficient, increase in awareness about the nature of these risks. In China and the EU,
investment in green technologies (especially in Germany, due to the energy turn-around)
is on the rise.
Also, both the EU and China are part of the Paris climate protection accord, signed in
the fall of 2015. Both may be interested in putting pressure on the new US administration
to stick to the signed agreement.
Against this background, energy security and energy cooperation are heavily contextual-
ized and embedded in a whole range of structural changes and current challenges. Actually,
there are so many simultaneous issues to be addressed that an effective and coherent energy
strategy should not be expected any time soon, either in the EU or in China. Furthermore,
the role of non-state actors should and will be stronger than in the past: economic sectors,
NGOs and cities will claim more of a voice in future energy decisions.
8. OUTLOOK
Certainly, the coming years will show us if, and to what extent, energy (demand and
supply, old and, increasingly, new) sources and connections will bring societies closer
together, or put more distance between them. At this moment (the last days of 2016),
there is not too much evidence for optimism. Looking at Ukraine in particular, and at the
strained relations between the EU and Russia, as well as at the tensions in and around
the South China Sea or in the MENA area, energy seems rather to fuel competition and
rivalry, and not so much cooperation.
It does not look like the need for more cooperation between suppliers and consumers
of energy can overcome the tensions produced by a vastly under-regulated globalization
movement, by growing uncertainties, challenged identities and underperforming national
governments. Populism, i.e. the suggestion of simple solutions for complex problems, will
not easily give in to the rational demands of cooperation needs.

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7. The role of the ECT in EU–Russia energy
relations
Andrey Konoplyanik
1. THE ECT’S ROLE IN THE EVOLUTION OF INVESTMENT

AND TRADE PROTECTION INSTRUMENTS IN
INTERNATIONAL ENERGY
1.1 From Colonies to Legal Protection of Access to Mineral Resources
The origination or pre-history of the Energy Charter Treaty (ECT) as a modern invest-
ment and trade protection (or energy security) instrument can be traced back to the
colonies. Colonies constituted the very first instrument, ensuring not so much energy
security as, more widely, raw materials security (protection of their supplies), passing
through two major waves. The first (initial) wave of colonies in the Middle Ages, with
then poor and rare infrastructure connections between metropolitan states and their
overseas territories, referred mostly to supplies of spices for perfumery and food conser-
vation and other luxury goods. The development of railroads, steam navigation and the
telegraph made radical changes in the role of colonies, particularly in terms of improve-
ments in transportation connections. In the 19th century, when industrialization began,
the industrialized countries began to use this instrument to gain access to the mineral
resources of the developing (underdeveloped) states through establishing control over
their territories in order to ensure a reliable supply of raw materials to the metropolitan
state. However, maintaining colonial troops and extensive colonial authorities in order
to exercise administration of the controlled territories became increasingly expensive
over the course of time.
The next and less expensive instruments used to ensure a reliable supply of the scarce
resources included various types of production agreements between foreign firms and
the host states. These agreements provided access rights to mineral resources without the
establishment of direct control over the territories of the host state. Initially, traditional
concessions were designed. According to such concession agreements, the formal control
over a territory belonged to a host state (although in practice the actual control frequently
belonged to a concessionaire), and the title to develop mineral resources belonged to a
foreign company originating in many cases from the former metropolitan state.
The first commercially successful oil concession dates back to 1901 (the D’Arcy
Concession in then Persia), which produced the first oil in 1908. Three years later, in 1911,
Winston Churchill, who was First Lord of the Admiralty of Great Britain at the time,
while taking a decision to convert the Royal Navy Fleet from coal (available in abundance
in the Foggy Albion) to petroleum products (produced from crude oil, the main deposits
of which were located at that time far beyond the metropolitan country, for example, in
Russia, the USA and the Middle East), pronounced his famous phrase: ‘Safety and certainty
114
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The role of the ECT in EU–Russia energy relations 115
in oil [supply], lie in variety and variety alone’, thus putting the notion of ‘diversification’
into the basis of the subsequent models of energy security ( reliable and uninterruptible
energy supply), within the conditions of the constantly changing modern world.
Later, the instruments, which conferred the title to subsoil resources in place to a con-
cessionaire, were replaced by instruments which established only the right of using these
resources – to produce and export them (the host state preserving the sovereignty over
natural resources in place). They included the modernized concessions (starting from
1948) and production sharing agreements and risk service contracts (starting from the
1960s). The granting of the right to subsoil use on a fixed-term and reimbursable basis
currently constitutes the basis for all these systems of subsoil use licensing, which are
based on the public or civil law.
It is the wide range of production agreements (petroleum arrangements) concluded
by companies from energy-import-dependent industrialized countries with (the govern-
ments of) energy-resource-owning developing countries that presents one of the aspects
of the concept of ‘diversification’ for users (consumers) of energy resources, ensuring
the ‘reliability’ (security) of supplies for them, as it offers the energy-importing states
(the companies of these states) various mechanisms of access to the subsoil resources of
the foreign countries owning such resources.1
For a host state, as a sovereign owner of nonrenewable natural resources, the diversi-
fication of investment modes of subsoil use applied by it (the diversification of subsoil
access modes) constitutes an opportunity to maximize the efficiency of the national
subsoil resources development, to choose an optimal and project-specific economic model
of resources development, which would allow this state to maximize the monetized (mar-
keted) resource rent, and an investor to receive a reasonable rate of return, taking into
account the whole range of country-, corporate- and project-related investment risks.
Such an approach (a kind of an investment menu consisting, say, of licenses, conces-
sions, product sharing agreements (PSAs), etc.) is especially relevant for a country that has
a large territory with diverse natural, climatic, mining and geological conditions, implying
a high degree of diversification in respect of investment project economics in the sphere of
subsoil management (for example, Russia).2 But independent of the type of energy project
and the mechanism for energy investment (type of production agreement with the host
state) and/or the mechanism for raising finance for its development (usually debt finance,
especially for large projects), such investments seek protection from non-commercial risks
in such a foreign state, which is the most critical item for a foreign investor.
1
My vision of the rationale in global distribution and evolution within the timeframe of inves-
tor–host country petroleum arrangements can be found in: A. Konoplyanik, Economic Growth
and Investment Regimes in Subsoil Use and its Consequences for Russia (Results of Cross-Country
Comparison) // Oil, Gas & Energy Law (OGEL), July 2015, vol. 13, issue 4 (www.ogel.org).
2
For more details of my vision on this see: A. Konoplyanik, Multiple Investment Regimes
for Russian Subsoil Resources: Work in Progress or Utopia? (Chapter 2, pp. 29–60) in: Foreign
Investment in the Energy Sector: Balancing Private and Public Interests. Edited by Eric De
Brabandere and Tarcisio Gazzini // Brill-Nijhoff, Nijhoff International Investment Law Series,
June 2014; A. Konoplyanik, Alternative Investment Regimes for Direct Foreign and Domestic
Investments in Russian Subsoil // Harriman Institute Occasional Paper 2013, The Harriman Review
Occasional Paper Jan 2013, vol. 19, no. 1 (2013) (http://www.harrimaninstitute.org/research/harri
man_review.html).

LEAL-ARCAS_9781786431042_t.indd 115 08/09/2017 13:02

This is why key provisions of such agreements were later either incorporated in the
internal domestic legislations of the host states as a set of general rules, or such individual
agreements were ratified by the parliaments of the host states, thus receiving the status
of law.
1.2 Following the Evolution of Energy Markets
One of the dominant factors of the development of energy markets is their greater inter-
nationality and eventual transformation into global markets as a result of the increasingly
cross-border nature of energy value chains and the formation of the energy infrastructure
(mostly fixed, immobile infrastructure such as grids, pipelines, terminals). Local markets
of individual countries become integrated by the increasingly developed and diversified
infrastructure, first into international markets and then into global markets. Nowadays,
there is a well-developed and functioning global oil market consisting of two segments:
‘physical’ and ‘paper’ markets.3 The global gas market is still in the making, with regional
pipeline gas markets being increasingly connected (integrated) into a single global gas
market by the liquefied natural gas (LNG) supply infrastructure. In the long run, forma-
tion of a single global energy market can be expected based on the feasible principle of
interchangeability (mutual technical substitution) of energy resources in the end-use.4
With globalization of energy trade and investment flows, and energy markets becoming
more and more international, investor protection/stimulation mechanisms are evolving,
as well being adjusted to the state of development of the energy markets. As a common
trend, we can consider the evolution of such instruments from those related to specific
projects (investments into individual projects are specifically protected) to nation-
wide legal instruments (the same equal rules of the game are established for the whole
economy), and further to supranational cross-border international legal instruments
(the rules of the game are harmonized within a number of countries) – first bilateral,
afterwards multilateral ones (see Figure 7.1).
With a wider variety of energy resources involved in economic circulation, a broader
and more sophisticated range of applied technologies, relocation of the main p roduction
3
Whether it is stable and efficient is an entirely different matter. My critical view on the Anglo-
Saxon model for open, competitive, liquid and, therefore, highly speculative markets can be found
here, for example: A. Конопляник, Кто определяет цену нефти? Ответ на этот вопрос позволяет
прогнозировать будущее рынка «черного золота» // «Нефть России», 2009, № 3, с. 7–12; № 4, с.
7–11; В.В. Бушуев, А.А. Конопляник, Я.М. Миркин, Цены на нефть: анализ, тенденции. Прогноз
// M.: Энергия, 2013.
4
My view on the evolution of the international energy markets, their development trends
from physical energy to paper energy markets, can be found, for instance, here: А. Конопляник,
Мировой рынок нефти: возврат эпохи низких цен? (последствия для России) // ИНП РАН,
Открытый семинар «Экономические проблемы энергетического комплекса», второе заседание,
26 мая 1999 // Москва, изд-во ИНП РАН, 2000; А. Конопляник, Россия на формирующемся
Евроазиатском энергетическом пространстве: проблемы конкурентоспособности // M.: Нестор
Экономик Паблишерз, 2004; В.В. Бушуев, А.А. Конопляник, Я.М. Миркин, Цены на нефть:
анализ, тенденции. Прогноз. – M.: Энергия, 2013; А. Конопляник, Эволюция рынков нефти и
газа: закономерности движения от рынков физической к рынкам бумажной энергии (с.163–78). –
в сб.: Седьмые Мелентьевские чтения. Сборник научных трудов / под ред. А.А. Макарова // М.:
ИНЭИ РАН, 2013. – 214 с., and others.

LEAL-ARCAS_9781786431042_t.indd 116 08/09/2017 13:02

Mechanisms of investment protection / Concessions (traditional,
Energy markets stimulation, incl. enforcement modernized), PSA, risk-service
contracts, etc.
mechanisms
Local
e.g. RF: Concessions,
Enclaves of stability & Free Economic Zones,
investment stimuli in PSA
unstable/non-stimulating
Internationalization legal-economic environment
National e.g. EU: derogation from
+ mandatory TPA (2nd Gas
legislation Increase of general e.g. RF: Tax Directive: Arts 21–22; 3rd Gas
Regional Directive: Arts 35–36)
level of investment Code, subsoil &
attractiveness of investment
+ domestic legislation legislation
BITs, DTTs
Globalization Bilateral
International
+
Oil
01.06.2010:
117
law instruments
World markets Multilateral 2756 BITs
of individual 2927 DTTs
energy resources Energy efficiency
+
Gas
ECT EU Acquis WTO
Investments (52) !? (28+8) (159)
+
Dispute
Global common
settlement
energy market
+
Transit + Trade
ECT (54) = 1431 BITs [partly]
Figure 7.1 Development of international energy markets and mechanisms of investment and trade protection & stimulation

08/09/2017 13:02
sites to the regions with less favorable natural, geologic and climatic conditions, and
further internationalization of energy value chains, the nature and level of required invest-
ment protection and stimulation are also changing. At the previous stages of development
of society, within the earlier social and economic formations, the major instrument of
such protection (and assuring the security of raw material supplies to mother countries)
was the use of pure force, such as the seizure of the colonies to ensure security in terms
of their purely raw-exports role, and thus deploying there considerable military forces to
protect production facilities and raw materials transportation routes.
During the course of time, methods of pure force were succeeded by a combination
of power and diplomatic and legal instruments. With the development of the institution
of private property, the role of legal protector of investor rights for internal markets has
become more important. As the state institutions (and later democratic institutions)
have been developing and strengthening, and the rule of law has been acquiring greater
importance in daily life, including in the economic area, application of such instruments
has become more effective and their role within the above-mentioned combination has
been steadily increasing.
Numerous legal instruments of investment protection and stimulation are developing
in parallel to the evolution of energy markets – from national to international and global
ones. All these instruments together are applied to relations between economic entities
(market participants), between economic entities and individual states (both mother and
host countries), and between individual countries as well. Moreover, every subsequent
legal approach usually supplements earlier approaches rather than substitutes them. Thus,
broader competitive opportunities are assured for states and investors to achieve their
goals – to protect their national and business interests.
At some point, host states as resource owners start to develop investment protection and
stimulation mechanisms on the national level, first within project-oriented legal structures
and, as a rule, on the demand of investors (usually foreign investors). Thus, development of
the economic and legal environment to protect justifiable interests of domestic and foreign
investors normally begins with the appearance of ‘enclaves of stability’ for individual
projects, for example concessions and/or PSAs (production-sharing agreements), which
are often given the power of the law. This usually happens in unstable (or in the absence
of adequate) legal environments, and is required to minimize non-commercial investment
risks. The absence of such an environment may result either from the early stage of devel-
opment of domestic legislation (for example, in developing/underdeveloped economies),
or from a radical change in the political and social development patterns, which predeter-
mines rejection of the previous approach and the need to develop a new legal system (for
example, in transitional economies, like former Soviet Union (FSU) and/or former Council
for Mutual Economic Assistance (COMECON) states in the 1990s). Although, ‘enclaves
of stability’ for individual projects may also be required in the liberalized economies, in
the case that liberalization rules tend to increase investment risks by violating the balance
between demand for competition and demand for investment protection, by, say, introduc-
ing mandatory third party access (MTPA) to energy infrastructure (as in the EU with the
development of its sequent Energy Packages, see below).
Next steps are usually focused on raising the level of protection of the justified inter-
ests of investors by improving the general quality of national legislation. This is achieved
by the improvement of the general principles of the investment protection existing in

LEAL-ARCAS_9781786431042_t.indd 118 08/09/2017 13:02

a country and, further, taking a more balanced approach to particular segments of

legislation directly affecting investment activities: relating to subsoil, tax, equity, invest-
ment, bankruptcy, and so on. At the same time, project-oriented legislation may also be
applied, even on a broader scale, based on the ‘not instead of, but together with’ princi-
ple. Furthermore, such project-oriented legislation may cover entire groups of projects
(either similar or not), implemented within special ring-fenced territories, within which
the projects are given more favorable economic conditions, or ring-fenced group of
similar projects of the same type though in different territories (say, projects referring to
the development of marginal or depleted fields or those located in severe natural envi-
ronments, etc.). This approach is generally also the basis for legislation on special (free)
economic zones. Otherwise, there may be targeted measures for further stimulation of
investments in individual groups of projects of national economic importance located
(usually this refer to upstream projects) in natural conditions that put a considerable strain
on their economics (e.g., in undeveloped or remote regions that in addition to the project
infrastructure require the creation of general economic infrastructure, the cost of which
will nevertheless be included, as a general rule, with the project costs).
As was mentioned above, the creation of ‘enclaves of stability’ or ‘targeted’ investment
stimulation measures can take place not only in developing and/or transitional economies
but also in the countries classified as developed market economies. In my opinion, this
is the way to interpret, for example, derogations from the Second (Arts 21–22) and the
Third (Arts 35–36) EU Gas Directives5 related to protection of economically reasonable
(in view of project financing requirements) interests of investors. These derogations offer
a procedure for temporary (time-limited) exemption from, say, implementation of MTPA
to the infrastructure of new investment gas projects within the EU.
As is known, MTPA has been a legislative obligatory rule in EU energy since 2003.
But this general rule has been de facto discriminating against new investments in increas-
ing gas supplies to the EU, and especially mega-investments from beyond the EU, since
MTPA, inter alia, increases the risk of so-called ‘contractual mismatch’, which questions
investment pay-back (see below). For this reason, such derogations were necessary for
long-term capital-intensive investments in the creation of the EU gas supply infrastructure
within the existing general economic and legal environment of the EU, which is in conflict
with the principles of project financing. This is why almost all new major capital-intensive
infrastructure projects since 2003 in the EU (when the Second EU Energy Package came
into force) – pipelines-interconnectors, LNG terminals, etc., almost 40 in total6 – were
developed not based on the core liberalized rules of EU legislation (Directives, etc.), but
based on derogation from these rules. This adds further bureaucracy but enables invest-
ment stimuli for such projects.
5
Directive 2003/55/EC of the European Parliament and the Council of 26 June 2003 con-
cerning common rules for the internal market in natural gas and repealing Directive 98/30/EC, OJ
2003, L176/57; Directive 2009/73/EC of the European Parliament and the Council of 13 July 2009
concerning common rules for the internal market in natural gas and repealing Directive 2003/55/
EC, OJ 2009, L211/94.
6
D. Khandoga, Exemptions for New Infrastructure in the EU Regulation. Presentation at the
IX International Conference ‘Energy Dialogue Russia-EU: Gas Aspect’, 14 May 2014, Brussels.

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1.3 From Bilateral Treaties to Multilateral Agreements
Within the globalizing energy world, with the growing interdependence of the market
players, their challenges soon become common within the cross-border energy value
chains, and, to be addressed, common challenges require common approaches and rules.
For this reason, further development of legal instruments of investment protection has
inevitably reached the international level. Initially, this took place through advanced
expansion of the system of bilateral agreements: Bilateral Investment Treaties (BITs) and
Double Taxation Treaties (DTTs).7
Since the trade flows always precede the investment flows, DTTs entered into inter-
national practice earlier compared to BITs: the first DTT appeared in the 1920s, while
the first BIT only in 1959. At first, BITs were signed between a developed country and a
developing country, usually at the initiative of the more developed country. The developed
economy (usually a capital exporter) concluded the BIT with a less developed country
(usually a capital importer) to ensure additional higher standards of legal protection and
guarantees for investments made by the companies of the mother country in comparison
to the national legislation of the host country. The developing economy usually entered
into the BIT regarding it as one of the elements of a more favorable investment climate
that would attract foreign investors.
However, the situation changed in the late 1980s and especially during the 1990s, with
an increasing number of BITs signed within the group of developing and transitional
economies. The number of the latter has increased due to the dissolution of the USSR and
the COMECON system. Thus, the clearly marked dividing line that existed previously
between BIT parties (capital exporters and capital importers) no longer exists, since the
countries tend to conclude BITs with a dual goal: to protect domestic investors expand-
ing overseas and to attract foreign investments from the BIT partner country. This has
dramatically increased the number of BITs concluded since the 1990s and made the BIT
practice a ‘two-way street’.
As of 1 June 2010, there were already 2,756 BITs and 2,927 DTTs8 (Figure 7.1).
However, they were concluded at different times and between different countries, and
at first were not very unified. This was emphasized by UNCTAD in one of its annual
investment reports.9
Every country, especially the more economically powerful states, tried to sign bilateral
legal agreements based on their own models of such documents to gain an advantage in
‘partnership’ with a weaker player. Sometimes such a ‘model’ is approved by the national
law. This is the reason why the aggregate body of bilateral agreements is neither highly
homogenous nor balanced with regard to their terms and conditions. At a certain stage,
this required development of model bilateral agreements, which were offered by national
authorities, business associations, and/or international institutions. However, these agree-
ments, even if based on certain model approaches, might not present fully unified (and
far less commonly interpreted) and balanced ‘rules of conduct’ within a broader inter-
7
For the detailed description, see UNCTAD publications.
8
World Investment Report 2010. UNCTAD, 2010, p. 82.
9
World Investment Report 2006. UNCTAD, 2006, p. 29.

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national community. Therefore, at a certain stage, this creates an economic need to form
the respective multilateral international legal instruments that would, on the one hand,
maintain all the advantages of bilateral mechanisms but, on the other hand, possibly be
free of their disadvantages.
Thus, at certain stages of market development (including energy markets develop-
ment), generally when a high level of their internationalization is reached, there appears
an objective need to unify the ‘rules of the game’. This applies to both unification of eco-
nomic deals between enterprises (e.g., contractual relationship and types of international
contracts) and relations between the host country and investors (both domestic and/or
foreign), including investment protection standards.
The most widely known multilateral agreements include the international code of trade
rules GATT/WTO (1947/1995), the Treaty of Rome (1958), which laid the foundation for
the EU, and a number of other multilateral agreements related to investments, such as
the North American Free Trade Agreement (NAFTA), a similar organization of Latin
America countries (MERCOSUR), the Organisation for Economic Cooperation and
Development (OECD), and the Asia-Pacific Economic Cooperation (APEC). The sec-
toral Energy Charter (that covers the energy sector to a large extent), the legally binding
Treaty to the Charter, and other related documents should also be included in the list of
such strategic multilateral agreements in the global economy.
There are other specialized organizations related to the energy sector: the Organization
of Petroleum-Exporting Countries (OPEC), the International Energy Agency (IEA),
the International Energy Forum (IEF), the United Nations Economic Commission
for Europe (UNECE with a broader mandate than the energy sector only) and the
International Atomic Energy Agency (IAEA), plus specialized organizations of regional
cooperation (in the Black Sea and Baltic regions), and so on.10 However, the ECT is the
only multilateral legally binding agreement addressing the broadest range of issues con-
cerning energy investment activities and covering the full investment cycle, as well as the
whole energy value chain in the fuel and energy sector.
The chief advantage of multilateral instruments over bilateral instruments is that
they unify the rules of the game (leveling out the standard of protection), at a lower
cost and in a shorter timeframe. The example of the ECT provides clear evidence of
this: its ‘aggregate force’ within the framework of its 54 signatory states is equivalent to
1,431 BITs combined (see Figure 7.1). Moreover, the negotiations before the ECT was
signed (1992–1994) took only three years, plus 18 months (July 1990 to December 1991)
to negotiate the pre-ECT political declaration known as the European Energy Charter.
10
On the complementarity and actual hierarchy of international energy organizations in the
sphere of investments, see: А. Конопляник, Когда один договор стоит тысячи // «Нефть России»,
2007, № 4, с. 7–10, № 5, с. 10–13; A. Konoplyanik, T. Waelde, Energy Charter Treaty and its Role
in International Energy // Journal of Energy and Natural Resources Law, November 2006, vol.
24, no. 4, pp. 523–58; Т. Вальде, А. Конопляник, Договор к Энергетической Хартии и его роль
в мировой энергетике. // «Нефть, газ и право», 2008, № 6, с. 56–61; 2009, № 1, с. 46–50; № 2, с.
44–9; № 3, pp. 48–55; A. Konoplyanik, Multilateral and Bilateral Energy Investment Treaties: Do
We Need a Global Solution? The Energy Charter Treaty as an Objective Result of the Evolution
of International Energy Markets and Instruments of Investment Protection and Stimulation
(Chapter 4, pp. 79–123) in: Research Handbook on International Energy Law. Edited by Kim Talus
// Cheltenham, UK & Northampton, MA, USA: Edward Elgar, 2014.

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By contrast, it took the international community over 50 years (1959–2010) to conclude

2,756 BITs – only twice as many as the number of BITs equivalent to the ‘aggregate force’
of the ECT. In other words, it took at least ten times longer, and even more labor, intel-
lectual, financial and other resources to prepare a number of bilateral instruments with
the ‘aggregate legal force’ equivalent to a corresponding multilateral tool.
I think it is obvious how many years the ECT has ‘saved’ for the international commu-
nity to create a (minimum standard of a) more favorable investment climate in its member
countries and reduce investment risks and costs of borrowed funds (of raising capital),11
notably in the area of investment stimulation and protection for the projects in the most
capital-intensive and high-risk industries.
Every stage of historical development begins at a historically conditioned time, not
earlier and not later. Such a time for the Charter process and the ECT as its major
instrument came in 1990.12
2. ENERGY SECURITY AND DIVERSIFICATION
Initially, the primary focus in investment and trade protection measures in international
energy was on the issue of ‘security of supply’ (SoS), which is only one aspect of the
more complex concept of (international) energy security. This is understandable, as the
11
On my vision of major types and conditions of the key mechanisms of financing invest-
ment projects in oil and gas, see: А. Конопляник. Основные виды и условия финансирования
инвестиционных проектов в нефтегазодобывающей промышленности (учебное пособие по курсу
«Эволюция международных рынков нефти и газа»). РГУ нефти и газа им.Губкина, 2011 г., 61 с.;
Financing Russian Oil and Gas Sector: The Effects of International Law Instruments // Journal of
World Investment, vol. 4, no. 6, December 2003, pp. 941–62.
12
For a detailed description of my vision of the historical development and critical issues of
the Energy Charter process and its political and legally binding instruments, see my publications
and presentations at www.konoplyanik.ru and in particular: A. Konoplyanik, The Energy Charter
Treaty: A Russian Perspective (pp. 156–78) in: Centre for Petroleum & Mineral Law & Policy,
University of Dundee. European Energy Charter Treaty: An East-West Gateway for Investment &
Trade (International Energy and Resources Law & Policy Series) // London, The Hague, Boston:
Kluwer Law International, 1996; А. Конопляник, Foreword, Chapters 4 and 22 in: Договор к
Энергетической Хартии – путь к инвестициям и торговле для Востока и Запада (под ред Т.Вальде
– англ.изд. и А.Конопляника – рус.изд) // М.: Международные отношения, 2002; А. Конопляник,
Энергетическая Хартия и экономика России: роль процесса Энергетической Хартии в повышении
конкурентоспособности России на мировых рынках энергии и капитала. ИНП РАН, Постоянно
действующий семинар «Экономический рост в России: проблемы и перспективы», Открытый
семинар «Экономические проблемы энергетического комплекса», Совместное заседание от 1
октября 2003 г. // М: Изд-во ИНП РАН, 2003, 63 с.; A. Konoplyanik, A Common Russia-EU
Energy Space (The New EU-Russia Partnership Agreement, Acquis Communautaire, the Energy
Charter and the New Russian initiative) (pp. 45–101) in: EU–Russia Energy Relations, Legal and
Political Issues // Euroconfidentiel, Brussels, Belgium, January 2010; A. Konoplyanik, Russia and
the Energy Charter: Long, Thorny and Winding Way to Each Other (pp. 185–225) in: German
Yearbook of International Law (Jahrbuch Fur Internationales Recht), Volume 56, 2013 // Berlin:
Duncker & Humblot, 2014; А. Конопляник, Россия и Энергетическая Хартия (Учебное пособие
по курсу «Эволюция международных рынков нефти и газа») // РГУ нефти и газа им.Губкина,
2011 г., 80 с.

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very concept emerged in the importer countries (here we should recall the remarks of
Churchill). Today in the world of cross-border energy supplies, international ‘energy
security’ means a triad consisting of ‘security of supply’ (SoS) for the importer, ‘security
of demand’ (SoD) for the exporter, and ‘security of infrastructure’ (SoI) (security of
cross-border/transit flows)13 for both.
2.1 Different Aspects of Energy Diversification
The term ‘security of supply’, via the term ‘diversification’, is usually interpreted as the
multiplicity of (foreign) supply sources, (cross-border) delivery routes and (national and
foreign) suppliers on/to the market of a consumer country.
The most rigorous interpretation of ‘supply diversity’ means the multiplicity of sup-
pliers on each delivery route from each source of supply. For this very reason (i.e., in
virtue of such a rigorous position), the European Union considers, for example, that new
gas pipelines coming from Russia to the EU market, allegedly, do not facilitate (do not
meet the requirements of such an interpretation of the term) ‘diversification’, as they are
related to only one Russian gas exporter – Gazprom, notwithstanding that such a single
pipeline-gas export channel is constituted by the law of the resource-owning sovereign
state within ‘sovereign–agent’ relations.
Energy markets in the course of their development evolve from the stage of intensive
growth to the stage of saturation, to mature markets, and therefore they become more
competitive (due to evolving oversupply) and volatile (due to development of paper
energy markets). Thus the behavior of market prices becomes less predictable. This is
why the producers and exporters need to balance the growing uncertainty in the destined
market’s behavior, on the one hand, and the growing capital intensity and investment risks
related to development of new deposits of conventional energy resources (as the related
geological conditions in producer states worsen, transportation volumes to markets and
related difficulties increase, etc.), on the other hand. Thus the need for instruments ensur-
ing more reliable demand for energy resources – ‘security of demand’ (SoD) – arises.
It is against this background that long-term contracts (LTC) appeared. They contain
‘take-or-pay’ clauses (and are primarily an investment instrument, which provides for debt
financing of capital-intensive long-term investment projects), while their pricing formu-
las are based on the replacement value of competing energy resources,14 which align (a
13
It would be more proper to call it ‘security of deliverability’, but in this case it would be
abbreviated in the same way as ‘security of demand’ – both will be abbreviated as ‘SoD’. This
is why, to distinguish the two when abbreviated, I use the term ‘security of infrastructure’ (SoI).
I decided not to use the term ‘security of transit’ since ‘transit’ means a cross-border flow, but
security of deliverability matters not only in the case of cross-border flows, but also in the case of
internal energy flows within the unbundled domestic markets (when/where the issue and risk of
‘contractual mismatch’ appears), which also can hamper ‘security of deliverability’. This is why I
prefer to use the term ‘security of infrastructure’ which could refer both to domestic supplies within
unbundled energy markets and to cross-border energy supplies.
14
In the periods of under-supply this means the competing of alternative fuels, e.g. gas vs.
petroleum products, as in the basic ‘Groningen formula’ and in standard Russian supply LTC to
the EU; and in the periods of over-supply this means, firstly, competition with alternative suppliers
of the very same fuel, e.g. ‘gas-to-gas’ competition in the current EU.

LEAL-ARCAS_9781786431042_t.indd 123 08/09/2017 13:02

narrow corridor of) price fluctuations, on the one hand, and prevent price collusions, on
the other hand.15
This also implies the diversification of markets as a possibility to choose markets with
higher demand and/or prospects for demand growth, and lower price fluctuations; for
example, to gain entry into a market, which has not yet reached the saturation stage, where
the demand has not started to stagnate, and where an oversupply, which pushes prices
down, has not occurred yet.
Any state being the owner of subsoil and its state-owned companies, the latter acting
as agents of their sovereign in respect of the natural resources development,16 is economi-
cally interested and has a legal (sovereign) right to maximize resource rent collection from
the development of its nonrenewable natural (energy) resources. Hence, producers of
energy resources are interested in entering markets where they would receive the highest
possible marketable resource rent monetized in the long run, taking into account the long
investment cycles of natural resources development projects.17
This is why Russia (sovereign) and Gazprom (agent), for instance, have been interested
in supporting petroleum product indexation formulas in Gazprom’s LTC with Europe
for different reasons in different historical periods: at the very beginning of Russian (then
Soviet) gas supplies to Europe (since the end of the 1960s) it implemented the LTC model
with the ‘Groningen formula’ since gas had been really competing with petroleum prod-
ucts for its competitive niche in the EU economies. Later on, and especially in the 2000s
and up to 2014, when oil prices stood high, oil indexation provided Gazprom with the
opportunity to earn the highest possible marketable resource rent, notwithstanding that
physical competition between gas and petroleum products in terms of end-use (industry,
electricity generation, households) had almost come to an end since the consumption
of petroleum products in these industries had diminished to a minimum. In the period
of gas oversupply in the EU (since 2009), when the role of ‘gas-to-gas’ competition has
increased and spot gas prices have fallen below oil-indexed contractual prices, Gazprom
has managed to stay competitive by, for instance, implementing retroactive settlement of
the price disputes with its EU counterparts.
2.2 Energy Security – a Multilateral Challenge
The sovereignty of states over their natural resources is historically protected by such mul-
tilateral international legal acts as the UN General Assembly Resolution No.1803 of 1962
15
For more details, see: Putting a Price on Energy: International Pricing Mechanisms for Oil
and Gas // Energy Charter Secretariat, Brussels, 2007.
16
Like the Russian Federation and Gazprom which acts as ‘sovereign vs. agent’ in the gas
industry, including the external gas trade.
17
See: Putting a Price on Energy: International Pricing Mechanisms for Oil and Gas // Energy
Charter Secretariat, Brussels, 2007; А. Конопляник, Российский газ в континентальной Европе
и СНГ: эволюция контрактных структур и механизмов ценообразования. ИНП РАН, Открытый
семинар «Экономические проблемы энергетического комплекса», 99-е заседание 25 марта
2009 г. // Москва, Изд-во ИНП РАН, 2010 г., 102 с.; А.Конопляник. Экономическая подоплека
газовых проблем в треугольнике Россия-ЕС-Украина и возможные пути их решения. ИНП РАН,
Открытый семинар «Экономика энергетики (семинар А.С.Некрасова)», 152-е заседание от 21
октября 2014 г. // Москва, Изд-во ИНП РАН, 2014 г., 132 с.

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and Article 18 of the Energy Charter Treaty of 1994 (the ECT entered into force in 1998).
Therefore, the reliability (security) of demand and supply may be simultaneously ensured
only subject to finding an area of coincidence of producers’ and consumers’ interests,
within the limits of only partially coinciding interests within this range.
This predetermines the inevitability of international cooperation between the parties.
Either of them (both exporter and importer) can be interested in diversification, i.e. in
greater opportunities for choosing its counterparts. However, if consumers are inter-
ested in a greater access to resources, i.e. in a greater range of supply sources and routes
of delivery from these sources, a wider number of suppliers and a reduction in import
prices, the producers are interested in a greater market access, i.e. in a greater range of
markets and routes of delivery to these markets, number of buyers and sustainably high,
but competitive prices.
In addition, either of them may be interested in ensuring the reliability of energy
resources delivery to markets (security of deliverability): the reliability and continuity
of long-distance and, as a rule, cross-border (transit) transportation through territories
of other sovereign states. This is what ‘security of infrastructure’ (SoI) means. After all,
points of production of subsoil resources usually are concentrated/located far from the
points of consumption.
Therefore, in 2006, on the eve of the Saint Petersburg G8 Summit held under the
Presidency of Russia, where for the first time the agenda of G8 included the issue of
international energy security, the Energy Charter Secretariat (ECS) put forward an initia-
tive to add this third element – SoI – to the multi-facet concept of ‘international energy
security’ and to consider the latter as an inseparable triad: security (reliability) of supply
(SoS), demand (SoD), and transit or cross-border transportation (SoI). G8 agreed then
with such a proposition. Moreover, many documents of that G8 Summit related to the
issue were prepared based on the ECT.
Since that time, the elements of the said triad of energy security have been further
developed, but they also require solutions on a multilateral basis. For example, the issue
of energy transit received a new dimension in connection with the upsurge of piracy in
international waters starting from the middle of the last decade, when oil prices skyrock-
eted, followed by the value of seized cargo. The level of piracy motivated the largest (since
the Caribbean crisis) navy operation, with the involvement of the naval forces of different
states. Combating piracy in international waters is a task requiring multilateral solutions,
as does energy transit.18 It is necessary to understand whether it has specific energy dimen-
sions, which require specialized discussion and respective multilateral solutions from the
point of view of energy security.
A search for a multilateral optimal solution to ensure international energy security is
an objective reality and a necessity at the current stage of energy markets development,
especially in Eurasia. Producers, consumers and transit countries are interdependent as
they are connected not only by trade and investment relations, but also technologically –
via capital-intensive fixed infrastructure, which predetermines long-term relations of the
parties.
18
У. Руснак, А. Конопляник, Эволюция модели энергобезопасности. Россия и ДЭХ: не
остаться на обочине // «Нефтегазовая Вертикаль», 2015, № 10, с. 4–12.

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Therefore, today it is better to speak not so much about building pair-wise relations
between countries and/or groups of countries (e.g., between Russia and EU) or regional
relations according to the rule of geographical distribution (e.g., within the geographi-
cal Europe), as about the search for a balance of interests within the ‘Broader Energy
Europe’, i.e. within the geographical space consolidated by such fixed infrastructure
(networks of pipelines, transmission lines, etc.)19 (although one does not cancel the
other).
The ‘Broader Energy Europe’ encompasses the whole of geographical Europe (includ-
ing the EU countries), Russia (located in Europe and in Asia), and countries of the
Middle East and North Africa, and tends to expand as the common Eurasian (Euro-
Asian) energy space is created through the development of new capital-intensive fixed
immobile infrastructure, which connects the ‘Broader Energy Europe’ with the Asia-
Pacific and Middle East countries and other parts of Eurasia.
Within this space any optimal solution (including that of providing for a multi-vector
‘international energy security’) may be only multilateral, taking into account the justified
interests of all participants of the community, which expands as a new capital-intensive,
fixed, immobile and long-term infrastructure is being developed.
If the task is a multilateral and long-term one, by definition, then the search for
mechanisms and instruments for its solution may be also only multilateral and oriented
at balancing the long-term interests of the parties. There is only one such instrument
in the energy sector of the modern world. It is the legally binding ECT and the related
documents signed in 1994, which entered into force in 1998; a total of 52 states, including
Russia, have signed them to date.
3. THE EU PERSPECTIVE: WTO, THE EU ACQUIS AND

THE ECT
Among the above-mentioned multilateral international legal instruments which are (or
may be) relevant to the energy sector and can be used to some degree for protecting invest-
ments abroad, there are, in my view, only three which are most visible in the public arena,
are discussed alongside bilateral instruments, and enjoy the highest public awareness: the
WTO, EU legislation (acquis communautaire), and the ECT (Figure 7.1). While these
three instruments are different and not interchangeable, they do have areas of mutual
19
My vision of the ‘Broader Energy Europe’ concept is described in more detail in: A.
Konoplyanik, A Common Russia–EU Energy Space: The New EU–Russia Partnership Agreement,
Acquis Communautaire, the Energy Charter and the New Russian Initiative (pp. 45–101) in:
EU–Russia Energy Relations, Legal and Political Issues // Brussels, Belgium: Euroconfidentiel,
January 2010; A. Konoplyanik, A Common Russia–EU Energy Space: the New EU–Russia
Partnership Agreement, Acquis Communautaire and the Energy Charter // Journal of Energy and
Natural Resources Law, vol. 27, no. 2, May 2009, pp. 258–91; А. Конопляник, «Третий путь» для
России. Москве предстоит выбрать один из трёх вариантов построения общего энергетического
пространства с ЕС // «Нефть России», 2009, № 6, с. 16–21; № 7, с. 14–19; № 8, с. 11–16; № 9,
с. 13–18; А. Конопляник, Европа – больше чем Европа. Третий энергетический пакет ЕС будет
иметь последствия и за пределами Евросоюза //«Нефть России», 2011, № 4, с. 56–61; № 5, c.
60–67; №7, с. 48–51; №8, с. 79–83.

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application and intersection, in which areas they might compete with or complement
each other (sometimes just dependent on the time-frame, as between the EU acquis and
the ECT).
The EU is a full member of the WTO and the ECT (in the latter case in a dual capacity:
as a selection of individual EU Member-States and as the EU as a whole). It applies its
EU legislation not only within the EU territory, but energy and competition EU acquis is
applicable within the Energy Community area.
Russia is a full member of the WTO, does not apply EU legislation in its territory, and
is not a Contracting Party to the ECT (since it has not ratified the ECT and discontinued
its provisional application in 2009), but remains a signatory to the ECT; that is, it has the
same status as ECT member states like Norway and Australia.20
This can sometimes create confusions, as happened, say, in 2003–2004 with the so-
called ‘Lami package’ to Russia, regarding, in particular, the following debate on the
issue: whether it is GATT/WTO Art. 5 ‘Freedom of Transit’ or ECT Art. 7 ‘Transit’ which
should dominate in Russia–EU relations in regard to energy transit via immobile cross-
border fixed energy infrastructure (which had not physically occurred in 1947 when the
GATT was signed).21
3.1 WTO and the ECT
The ECT and the WTO have different targeted application areas and geographical cover-
age. The WTO is broader in its application geography (three times broader: 159 member
states compared to 52) and industry coverage (all industries), but far narrower in its tar-
geted coverage area (trade only). The ECT, however, as an industry-specific treaty (only
covering energy industries and energy-related equipment), is more multifaceted in its
targeted coverage area (see Figure 7.1), covering the full investment reproduction cycle
in the most capital-intensive (energy) industries. Moreover, the ECT’s openness to new
members gives it scope for further geographical expansion: that is, its potential coverage
is as broad as the WTO’s.
The ECT’s trade section is based on GATT/WTO provisions. The WTO, however, lacks
ECT-equivalent investment provisions and therefore also lacks investment dispute resolu-
tion mechanisms. GATT/WTO Article 5 (Freedom of Transit) is far narrower than ECT
Article 7 (Transit), since when GATT was signed back in 1947, there was practically no
cross-border transportation (transit) of energy sources via pipelines happening anywhere
in the world. Hence, ECT Article 7 takes account of stationary cross-border infrastruc-
ture transit risks which did not exist when GATT rules were written (and thus were not
reflected in GATT/WTO Article 5).
Therefore, the WTO and the ECT are not competing or alternative international legal
instruments for protecting investments abroad. Moreover, the WTO is not, in my view,
an instrument for protecting Russian energy investments abroad (and cannot be regarded
20
Among other signatory states which have not long ratified the ECT, Iceland has recently rati-
fied the ECT and Belarus has been applying the ECT on a provisional basis.
21
А. Конопляник, Саммит Россия – ЕС: энергетические итоги. – «Нефтегазовая вертикаль»,
2004, №10, с. 10–12.

LEAL-ARCAS_9781786431042_t.indd 127 08/09/2017 13:02

as such an instrument) – this would be an inaccurate and groundless expectation. So, the
perceptions, at some time, of Russian authorities that the WTO could substitute for the
ECT in addressing the justified concerns of Russia at the international markets, were not
substantiated. But the ECT, should it be ratified by Russia (which I do not see happening
in the foreseeable future, at least not within the current political cycle, no matter how long
it will last), will definitely be such an instrument – protection of foreign investment abroad
is one of the main purposes of the ECT, whether it is Western investment in the East, or
Eastern investments in the West.
3.2 EU Acquis Communautaire Development Logic
To start with, the EU has been, is, and will remain for a very long time to come, Russia’s
main energy market. Russian companies will continue entering the EU market more and
more intensively, despite the turbulence of current political circumstances. Hence, effec-
tive instruments for protecting their operations in this market will be required. So, it is
necessary to understand the logic of how instruments of law (including energy law) take
shape in the EU.
In my view, this logic is rooted in the 1957 Treaty of Rome on the formation of the
EU, which proclaimed freedom of movement within the EU for goods, services, people,
capital, etc. Freedom of movement is to be based on the liberalized EU legislation where
the rules for increasing competition are the key priority. Hence, there are two processes
which started developing in different sectors/industries of the EU economy at different
times, due to the varying capital intensity of those sectors/industries: a rising level of
liberalization within the EU acquis’ application area; and a geographical expansion of
the EU acquis application area as such (see Figure 7.2). Energy is one of the most capital
intensive industries of the economy. And within the energy sector the gas industry and
power generation are much more capital intensive than other energy industries. This
would appear to be why the turn of these sectors for liberalization (i.e. starting practical
application of instruments ensuring the freedoms proclaimed in the Treaty of Rome) did
not arrive until the late 1990s, when the First EU Energy Directives were adopted (in 1996
in electricity and in 1998 in gas), which pushed forward the liberalization process within
the EU energy economy.
These two processes are implemented by means of instruments of ‘hard’ and ‘soft’ law.
The ‘hard’ law instruments in place to ensure higher liberalization levels for EU energy
legislation are a consistent series of EU Energy Packages, each one including several
Directives and Regulations: the EU First Energy Package (1996/1998); Second Energy
Package (2003); and Third Energy Package (2009).
The EU’s policy of expanding the application area for EU energy legislation beyond
the EU’s borders is aimed at ensuring operational standards and protection for European
investments abroad, in line with their operation conditions and protection within the EU.
In effect, this means that the international expansion of EU legislation leads to lower
transaction costs for European investors abroad and makes them more competitive. The
geographical coverage goal for EU legislation’s international expansion is, in my view, all
of the ‘Broader Energy Europe’: that is, the territory of all European, Asian and African
states linked to the EU market by stationary energy infrastructure. The direction of this
expansion runs from the EU (the end consumer market) upstream along the main energy

LEAL-ARCAS_9781786431042_t.indd 128 08/09/2017 13:02

Treaty of Rome, 1957
Increase of liberalization level within the Expansion of the geographical

geographical area of EU acquis application area of EU acquis application
Hard law instruments Hard law instruments Soft law

(domestic) (international) instruments
(international)
EU = one
of ECT
Contracti
1. First EU Energy Package Parties ng 0. EU enlargement (6 =>28)
(1996/1998) 1. Energy Charter Treaty - Neighborhood
2. Second EU Energy (ECT) (1994/1998) Policy (2004)
Package (2003) 2. Energy Community - Eastern
3. Third EU Energy Treaty (ECOMT) (2006) Partnership (2006)
ECOMT = ar
Package (2009) ea 3. … (???) - … (???)
of EU acquis
4. … (???) application
One of the factual aims of international expansion of EU acquis is to

Third EU Energy provide standards of work and investment protection for EU
Package (2009) businesses abroad adequate to such standards at the internal EU
comes from Treaty markets(s) => thus diminishment of transaction costs and increased
of Rome (1957) competitiveness of EU businesses abroad
Figure 7.2 EU acquis’ international expansion instruments (energy industry)
supply chains, towards the well-heads at the end of each chain in the neighbouring geo-
graphical regions.
The EU external economic policy which de facto means the policy of ‘export of the
acquis’, also includes both instruments of ‘hard’ and ‘soft’ law (Figure 7.2). The ‘soft’ law
instruments (various cooperation measures that are not legally binding), may be regarded
as preparatory steps (measures) for the application of EU energy legislation on the ter-
ritory of countries outside the EU. The ‘hard’ law instruments in the EU external energy
policy are different international treaties, to which the EU is a member and in which it
tends to include its legal norms of the consistently liberalized domestic legislation, thus
with the aim of expanding the area of factual application of the EU energy acquis.
It is important to realize that each level of EU energy legislation liberalization has its
own selection of instruments for expansion abroad. Thus, the ECT may be described as
an instrument for exporting the EU energy acquis for the period that the EU First Energy
Package is in action. Yet, one can argue the opposite, given the noticeable gap between the
ECT being negotiated (1992–94) and signed (1994) and the First Energy Package being
adopted (1996/1998): that the ECT was an instrument for ‘evening out’ the level of EU
energy legislation liberalization to the lower standard accepted across a broader environ-
ment (the 50 states, including Russia, which initially signed the ECT) than the then-EU
of 15 member states. That is, standards agreed upon by a broader range of countries were
imported by the EU into its First Energy Package. Nevertheless, there is no contradic-
tion between the ECT and the EU energy acquis based on the provisions of the First EU
Energy Package.

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In the EU’s Second and Third Energy Packages, however, the logic of expanding the
acquis internationally by consistently applying first ‘soft’ then ‘hard’ law instruments is
readily apparent.
First, ‘soft’ law instruments pull and drag non-EU program participants into the orbit
of increasingly close cooperation with the EU. Clearly, even the application of ‘soft’
law instruments for expanding EU legislation abroad requires the consent of potential
recipients.
The EU has made some gaffes in this area, however, apparently due to its unshake-
able faith in the indisputable advantages of the EU’s energy market organization model,
based on the Community acquis, for the whole of ‘Broader Energy Europe’. In 2003,
for example, when announcing the European Neighborhood Policy program – including
gradual unification of legal standards across the program participant states, based on the
application of EU legislation everywhere – the European Commission included Russia
among the program participants without securing Russia’s consent. Following a note sent
out by the Russian Government, the European Commission removed Russia from the list
of program participants.
A ‘hard’ law instrument for the EU Second and Third Energy Packages (more liberal
than the First Energy Package, and thus more liberal than the ECT as well) is the EU’s
Energy Community Treaty (ECOMT) with the states of South-Eastern Europe, signed
in 2006, and with provisions stating that ECOMT member states must apply EU energy
legislation in their territory: initially the standards of the Second Energy Package, and
now the Third Energy Package’s standards as well, with all this legislation’s inherent ‘liber-
alization risks’ for the companies from the countries with different (less liberal) investment
regimes than the standards of the current EU legislation.
From 2003 onwards, naturally, the ECT could no longer be used as an instrument
for the international expansion of EU legislation. Here, in my view, lies the reason
for the EU’s loss of interest in the ECT after 2003. Since then, this has made the ECT
more interesting for Russia – now not so much from a host country’s standpoint
(as an instrument for minimizing non-commercial risks for foreign investment in
the Russian Federation), but rather from the standpoint of a parent country whose
companies are engaged in increasingly broad and active external expansion (as an
instrument for protecting the investments of Russian energy companies abroad) –
but only if Russia were to ratify the ECT. However, it was thought otherwise in
Moscow . . .
Thus, the EU is actively pursuing a policy of protecting the interests of its companies
abroad, using acquis export instruments: that is, by exporting EU companies’ accustomed
trade and investment environment to countries outside the EU, along the value-adding
chains from the end consumer in the EU upstream to production sites beyond the EU’s
borders. And Russia, in my view, has lost a potentially unique opportunity presented to
it by the ECT (if ratified) to protect the interests of Russian companies abroad, primarily
from the EU’s ‘liberalization risks’.
3.3 The ECT and the EU Acquis
Interaction between the ECT and EU legislation is more complicated than the ECT–
WTO relationship. There is a long-established difference of opinion between the Russian

LEAL-ARCAS_9781786431042_t.indd 130 08/09/2017 13:02

and European establishments regarding the ECT’s relationship to European legislation

(acquis communautaire); an explanation of this is attempted below.
First and foremost, the EU is a Contracting Party (CP) to the ECT in two ways: each
EU member state has signed and ratified the ECT, and the EU itself has signed and rati-
fied the ECT as a regional economic integration organization (REIO). By doing so, in my
view, European colleagues fell into a trap which they might not have noticed at the time.
The ECT, as an instrument of international law, now takes priority over EU legisla-
tion (Community acquis), which is part of domestic law for the EU, so its standards take
second place in the event of any conflict with the ECT. Thus, for its CPs and investors
from those CPs (i.e. ECT member states which have ratified the ECT), the ECT is an
instrument of protection from EU ‘liberalization risks’. But no such protection is avail-
able for Russian companies (investors) in the EU, because the Russian Federation never
ratified the ECT, and when it discontinued its ECT provisional application in 2009, it
stated that it had no intention of ratifying the ECT in future.
Unfortunately, the Russian leadership’s long-term stance within the Energy Charter
process has been as follows: the ECT is something like a bilateral treaty (agreement)
between Russia and the EU, to which some other countries have acceded, since most ECT
member states are also EU member states (28 out of 52 countries at present). Besides, the
EU keeps expanding: from 12 member states to 15, then 25, then 27, and now 28 member
states. And there is still a number of non-EU countries willing to join the EU, including
among the ECT member states (Turkey, Ukraine, etc.).
The latter assertion (regarding EU enlargement) is fair: the number of EU member
states is indeed increasing within the community of ECT members. It is also fair to say
that the application area of EU legislation (Community acquis) within the ECT com-
munity is expanding to include the Energy Community Treaty – another eight countries,
which, having signed this treaty with the EU, undertook to apply EU legislation on their
territory.
The ECT (signed in 1994) was based on principles subsequently included in the EU
First Energy Package (signed in 1996–1998); that is, both packages of documents were
negotiated practically in parallel. Both sets of legal documents – the EU First Energy
Package and the broader (in the quantity of member states) ECT – were non-conflicting
in terms of treatment of their key provisions.
The general trend since EU adoption of its First Energy Package has been a subsequent
rise in the level of liberalization of EU legislation (it went higher/beyond the ECT liberali-
zation level) within the expanding community of European states applying the EU acquis
to the energy industry (see Figure 7.3). This increases the gap between the two (ECT and
EU Energy acquis) within the broader geographical area and the ECT membership.
The chief difference marking a watershed between the ECT and the EU First Energy
Package on the one hand, and the EU Second and Third Energy Packages on the other,
lies, in my view, in two parameters: MTPA and the unbundling of the energy markets
(commodity vs. capacity) and of vertically integrated companies. The ECT and the EU
First Energy Package require neither. The EU Second and Third Energy Packages require
both (Figure 7.3).
Russia’s non ratification of the ECT has made it impossible for Russian companies
to apply the Treaty’s protective provisions, which would have protected them on EU
territory from Second and Third Energy Package excessive (prohibitive for investments)

LEAL-ARCAS_9781786431042_t.indd 131 08/09/2017 13:02

Legal norms (key examples) ECT EU Acquis (1st Gas Directives) EU Acquis (2nd & 3rd Gas Directives)
Mandatory TPA No No Yes

Unbundling No No Yes
Level of
‘liberalization’
Level of
EU liberalization trend 3
‘liberalization’
(*) ECT = integral part of EU 2
acquis communautaire ECT ECT(*)
(ECT = minimum standard
1
through stand-still & roll-
back mechanisms)
Domestic legislation of ECT
1 1st EU Gas Directive member states prior to their
(1998)
132
participation in ECT
2 2nd EU Gas Directive
EU acquis
Increase of
(2003)
3 3rd EU Gas Directive EU enlargement (expansion of
liberalization level of
(2009) EU acquis implementation area)

Level of ‘liberalization’ of
EU–15 (prior to 01.05.2004)
energy markets - general
Rest of ECT
tendency EU–25 (after 01.05.2004)
Growing gap between (beyond EU & ECOMT)
EU–27 (after 01.01.2007)
EU acquis & ECT
EFTA = EU-15/25/27+3
ECT enlargement Energy Community Treaty EU+SEE (27+7) (since 01.07.2006)

ECT observer-states (23+) ECT member-states (52 + 2 REIO)
Figure 7.3 ECT & EU acquis in their comparative development
08/09/2017 13:02
liberalization requirements exceeding the ECT framework. But this is not the case for
investors from EU member states in cases where they perceive a violation by EU member
states of their rights as protected by the provisions of international law, including the
ECT (see below).
Russia was one of the active participants in the ECT preparatory works in the 1990s
and the Charter Process in general until 2003. Up to that point, the ECT provisions
coincided with the EU’s energy legislation, based upon the provisions of the EU’s First
Energy Package (1996 in electricity and 1998 in gas). However, after 2003 there was no
coincidence any more.
In 2003, the EU’s Second Energy Package was adopted, which provided for the EU
energy markets being divided into commodity (energy resources) markets and capacity
markets (transportation capacities), the unbundling of the vertically integrated com-
panies (VICs), and mandatory third party access (MTPA) to the capacities of the gas
transportation system (GTS), and which declared the goal of creating the EU common
internal market.
Since that time the perceptions of Russia and the EU have diverged with regard to
the hierarchy of the ECT and its related documents, on the one hand, and the common
supranational law of the EU being developed (acquis communautaire), on the other
hand. The key point of disagreement though is the fact that for the EU as a whole
(and the EU has signed and ratified the ECT in its both capacities – as a set of indi-
vidual EU member states and as the EU as a whole), the supranational energy acquis
becomes a domestic (internal) EU legislation, subordinate to international law such as
the ECT.
On the one hand, as early as 31 December 2004, in the Repertoire of the Acquis
Communautaire: Energy and Transport, the EU recognized the ECT and its related docu-
ments as an integral part of the acquis.22 On the other hand, starting from the Second EU
Energy Package, and particularly as compared to the Third EU Energy Package, the ECT
and the EU’s energy legislation wording of requirements for MTPA, unbundling of VICs,
and other key provisions related to energy markets regulation by sovereign member states
of the ECT and the EU, basically diverge (Figure 7.3).
Indeed, the ECT specifically states that it does not require the provision of third party
access or carrying out unbundling of VICs. On the contrary, the EU’s Second (2003)
and Third (2009) Energy Packages establish MTPA and functional unbundling of VICs.
Therefore, in spite of the above-mentioned 13-year-old statement by the EU that the
ECT and the EU’s acquis are compatible and consistent, in my opinion, a year ahead
of this statement an objective gap between them emerged within the EU and started
widening.
The EU’s persistent proposals to the ECT community (firstly to Russia in the course
of bilateral consultations on draft Transit Protocol) for how to deal with this increasing
legal gap between EU acquis and the ECT, namely, that, in regard to energy transit, the
22
European Commission, DG-TREN, Repertoire of the Acquis Communautaire: Energy
and Transport, 31 December 2004 (Analytical examination of the acquis) Chapter 15 – ENERGY.
Indicative list of related acquis (no longer available at website of the Commission; cited from the
hard copy of Chapter 15 at author’s disposal).

LEAL-ARCAS_9781786431042_t.indd 133 08/09/2017 13:02

ECT rules will not act within the enlarging territory of the EU (and the ECOMT member
countries as well) – the famous ‘REIO clause’ – were not acceptable for Russia. This is
why it is the EU responsibility that Russia’s interest in the ECT began to diminish when
it saw that the EU would like to exclude the enlarging EU and ECOMT territory from
ECT application. This was the ‘point of departure’ for Russia when its interest in the ECT
began to diminish. The ‘Yukos case’ came second, a year later, and it just added (though
significantly) to this downward trend.
3.4 The ECT, EU Acquis and the Issue of Transit
After the dissolution of the COMECON and the USSR, the traditional contractual
structure of Soviet/Russian gas supplies to the EU (based on the long-term supply con-
tracts with oil indexation – a modified Groningen formula – to the delivery points located
at the former East–West border, notably at the Western border of the corresponding
COMECON states with the EU) has faced a new set of risks, the major one being the
transit risk. The technical infrastructure for gas exports from Russia to the EU has stayed
the same, but the political map within the export-oriented gas value chain has changed. A
number of newly independent sovereign states have appeared on the path of Russian gas
to the EU. Thus, contractual structures of gas supplies were to be changed accordingly,
as well due to changes of ownership of energy assets in the new independent states.23 The
objective character of transit risks has nothing to do with this or that specific country
(see Figure 7.4).
In 2004, after the accession of the former COMECON countries to the EU, disagree-
ments between Russia and the EU became aggravated, since significant parts of the export
routes for the Russian gas to delivery points, located historically at the former Western
border of the former COMECON, are now placed deep inside EU territory and thus
fall under EU law, creating additional transit risks for suppliers. One such major risk
is the problem of ‘contractual mismatch’, which results from the application of MTPA
requirement within the unbundled gas market (see Figure 7.5).
During 2004–2007, Russia and the EU, in the process of informal bilateral consulta-
tions of experts from the parties, with the involvement of representatives of the Energy
Charter Secretariat (ECS), tried to solve a few outstanding – all transit-related – issues,
which concerned only these two parties within the Charter constituency: two issues related
to the ECT (both to Art. 7 ‘Transit’) and three issues related to the provisions of the draft
23
The evolution of the contractual structures and pricing mechanisms of Russian gas sup-
plies to the EU has been examined by this author in a number of publications, for instance
in: А. Конопляник, Российский газ для Европы: об эволюции контрактных структур (от
долгосрочных контрактов, продаж на границе и оговорок о пунктах конечного назначения – к
иным формам контрактных отношений?) // «Нефть, газ и право», 2005, № 3, c. 33–44; № 4, с.
3–12; A. Konoplyanik, Russian Gas to Europe: From Long-Term Contracts, On-Border Trade,
Destination Clauses and Major Role of Transit to . . .? // Journal of Energy and Natural Resources
Law, 2005, vol. 23, no. 3, pp. 282–307; A. Konoplyanik, Gas Transit in Eurasia: Transit Issues
between Russia and the European Union and the Role of the Energy Charter // Journal of Energy
and Natural Resources Law, vol. 27, no. 3, August 2009, pp. 445–86; A. Konoplyanik, Russian Gas
in Europe: Why Adaptation is Inevitable // Energy Strategy Reviews, March 2012, vol. 1, issue 1,
pp. 42–56.

LEAL-ARCAS_9781786431042_t.indd 134 08/09/2017 13:02

Direction of Russian gas flow to Europe
Zones of new risks
France Germany Poland Belarus Russia

Switzerland Austria Slovakia Ukraine
Italy Greece Czech R. Moldova
Turkey Hungary
Romania New Risks 1
New Risks 2 zone
Bulgaria
zone
A
RF
EC – 25/27 B
USSR
EC – 15
C COMECON
Non-EU countries: italic; New EU accession states: underlined – since 01.05.2004,

underlined + italic – since 1.01.2007; FSU states/members of ECOMT: bold; A, B, C –
points of change of ownership for Russian gas and/or pipeline on its way to Europe
Figure 7.4 Russian gas supplies to Europe: zones of new risks for existing supplies within
Russia’s area of contractual responsibility
Duration (D)
CP 1 CP 2
Supply contract: D + V Volume (V)
Transit contract: D + V
Contractual
CP 1 or CP 3 mismatch =
Transportation contract: D + V = ΔD + ΔV
Mismatch between duration/volumes (D/V) of long term supply (delivery) contract

& transit/transportation contract as integral to fulfilling delivery contract => risk of
non-renewal of transit/transportation contract at existing capacity or non-creation
of adequate new capacity => risk of non-delivery for existing/new supply contract
(incl. arbitration consequences).
Core issue: to guarantee access to/creation of adequate transportation capacity
for volume/duration of long-term contracts; shipper’s contracts (booking
guarantees) best financial security for debt/project financing
Figure 7.5 ‘Contractual mismatch’ problem

LEAL-ARCAS_9781786431042_t.indd 135 08/09/2017 13:02

Transit Protocol to the ECT.24 It is worth mentioning that when the Russia–EU bilateral
consultations on these five outstanding (all transit-related) issues started in 2002, the
Russian authorities repeatedly stated that without their resolution Russia’s ratification of
the ECT could not be expected.
By 2007, optional technical solutions were found in respect of all these issues, with the
exception of one issue (so-called ‘REIO clause’ which constitutes the internal problem of
the EU); however, they were not politically approved by the parties.
This single outstanding issue (the so-called ‘integration amendment’ or ‘REIO clause’)
related to a requirement of the EU for different application of the ECT and the EU’s
acquis within the EU after adoption of the Second Energy Package, i.e. under the condi-
tions of the unbundled markets and under the EU’s declared intention to create a single
internal market.
The EU delegation argued that the term ‘transit’ was no longer applicable to the EU
territory, as there was an established goal of creating a single internal EU energy (gas)
market, which implied that there may not be such a term as ‘transit’ related to the crossing
of several borders within (inside) such a market. However, subsequent events (the crea-
tion of a single internal gas market of the EU in practice) showed that earlier intentions
as of 2003 (Second Energy Package) resulted in a different effect in 2009 (Third Energy
Package). The EU Gas Target Model (GTM in both its versions – that of 2011 and 2014)
under the Third Energy Package implies a combination of market zones with the need for
cross-border supply to remain unchanged (see Figure 7.6).
Therefore, although the term ‘transit’ was abrogated in the EU in 2005, in practice the
question of transit within EU continues and the conflict of laws between the ECT and
EU acquis, at least in respect of this issue, remains unresolved.
So it was this internal EU legal problem – the conflict of applicable laws which were
both declared by the EU to be part of the EU acquis: the ECT and related documents
and the EU energy acquis per se – which, in my view, has prevented both Russia and the
EU from finding an amicable solution for the Russia–EU open issues regarding transit
and thus to finish in a timely and effective way their bilateral consultations on the Transit
Protocol, which would have paved the way to finalization of this multilateral document.
In this way, the EU found itself facing a substantive problem regarding the ECT
in the post-2003 period which prevented both parties from moving forward, while
Russia has just reacted to the unwillingness of the EU to move forward and has been
slowly but steadily losing interest in the bilateral discussion with no practical effect.
Russian delegation thus began just to skip appearing at the meetings. Such non-
appearances were more visible and thus provided a perception that it was Russia who
24
Detailed description of these Russia–EU outstanding issues and the long, thorny and
winding way forward to their solution is presented in a number of this author’s publications. See,
in particular: A. Konoplyanik, Russia and the Energy Charter: Long, Thorny and Winding Way to
Each Other (pp. 185–225) in: German Yearbook of International Law (Jahrbuch Fur Internationales
Recht), Volume 56, 2013 // Berlin: Duncker & Humblot, 2014; A. Konoplyanik, Russian Gas to EU
Markets – 1: Thorny Issues Impede Progress Toward Final Transit Protocol // Oil & Gas Journal,
October 20, 2003, vol. 101, no. 40, pp. 60–64; Russian Gas to EU Markets – 2: Compromise is Best
Course for Russia, EU in Protocol Negotiations // Oil & Gas Journal, October 27, 2003, vol. 101,
no. 41, pp. 68–75.

LEAL-ARCAS_9781786431042_t.indd 136 08/09/2017 13:02

- No single (homogenous) internal EU gas market in the near future even as

economic model
- All market areas to be organized as entry–exit zones with virtual (aimed to be)
liquid hubs => Uniform capacity allocation (‘bundled products’) & gas pricing (‘spot
& exchange pricing’) mechanisms
Pipelines-
interconnectors
between EU zones
(covered by Third
EU Energy Package)
Hub B
Hub A Supplies to
the EU from
non-EU (not
Hub D directly
Hub C covered by
Third EU
Energy
Package)
Source: 17th Madrid Forum (Jan. 2010), Energy Regulators of EU Member States.
Figure 7.6 Organization of (emerging) internal EU gas market according to the Third

EU Energy Package
was responsible for the non-finalization of the Transit Protocol. Although, in my view,
both parties were guilty.
3.5 Ukrainian Transit Crises 2006 and 2009, the ECT and the EU
In January 2006 and January 2009, the notorious Russian–Ukrainian gas crises took
place,25 in which both parties blamed the other for violation of the transit provisions of
the ECT; however, they did not take advantage of the transit disputes settlement proce-
dure under Article 7 ‘Transit’ of the ECT, which provided a conciliatory procedure for
transit disputes. As a result, at the end of January 2009 the Russian authorities publicly
accused the Energy Charter (as an international organization) of inaction, inability
25
For more details of both crises see: J. Stern, The Russian-Ukrainian Gas Crisis of January
2006, OIES, Jan. 2016; A. Konoplyanik, Russian–Ukrainian Gas Dispute: Prices, Pricing and ECT
// Russian/CIS Energy & Mining Law Journal, 2006, N1 (Volume IV), pp. 15–19; K. Yafimava,
The Transit Dimension of EU Energy Security – Russian Gas Transit Across Ukraine, Belarus and
Moldova // Oxford: OUP, 2011; А. Конопляник, Экономическая подоплека газовых проблем
в треугольнике Россия-ЕС-Украина и возможные пути их решения. – ИНП РАН, Открытый
семинар «Экономика энергетики (семинар А.С.Некрасова)», 152-е заседание от 21 октября 2014
г. – Москва, Изд-во ИНП РАН, 2014 г., 132 с.

LEAL-ARCAS_9781786431042_t.indd 137 08/09/2017 13:02

to prevent the transit crisis and unwillingness to punish the ECT Contracting Party
(Ukraine) which had violated the transit provisions of the ECT.
Nevertheless, Russia has not officially approached the ECS to initiate corresponding
procedures. Neither the EU – as a whole or corresponding EU states touched upon by
this transit crises – did so, although they have a full legal right to do this since they were
directly involved in its consequences. So, this inaction of the official authorities of both
parties within the procedural framework provided by the ECT has shown either their lack
of trust in the ECT already at that time, or lack of interest to use it in such practical cases
due to whatever reasons.
However, Russian criticism of the ECT in its inability to prevent transit crises is fair
only in part, to the effect that during the ECT negotiations at the beginning of the 1990s
none of the more than 50 states could even imagine that transit may be intentionally
interrupted.
During the previous 25 years, from the moment of starting the supply of Soviet gas to
Western Europe (Austria) in 1968, under the conditions of the Cold War, uninterrupted
supplies through the Iron Curtain were carried out. When the Cold War was over and the
Iron Curtain fell, the related risks disappeared and no participant of the ECT negotia-
tions could expect the worsening of conditions for transit, despite the appearance of a
number of new sovereign states in the middle of the energy supply chains from Russia to
the EU (see above).
Therefore, the respective provisions of the ECT (aimed at the prevention of any transit
crisis, the latter expressed as the interruption of transit flows and/or non-sanctioned off-
takes from transit flows) were not introduced: there was neither a perceived need, nor
expectations with regard to potential need in such provisions. Thus any dispute settlement
that might arise in regard to transit were considered by the Contracting Parties to be likely
related to potential disagreements between the parties on the value of transit tariffs only,
while transit flows would stay uninterrupted. So the aim of the conciliatory procedure
designed under ECT Art. 7 ‘Transit’ was to find a quick interim value of transit tariffs
while transit flows continued, before a final solution on transit tariffs was found.26
Therefore, following the results of the transit crisis of January 2009, the development
of an additional multilateral Protocol to the Energy Charter was proposed to prevent
emergency situations related to transit. Instead, Russia and the EU preferred to sign a
bilateral Memorandum on an Early Warning Mechanism in the Energy Sector within
the Framework of the EU–Russia Energy Dialogue. This case would have been a good
opportunity for the EU to (try to) persuade Russia to improve the multilateral solution
for transit issues (in which area there were still open issues between the two) and thus to
reverse Russia’s interest in the ECT. Instead the EU preferred a bilateral solution, thus
demonstrating its low interest in the ECT already at that time.
Nevertheless, at the end of November 2014 the Model Energy Charter Early Warning
Mechanism was approved by the 25th Session of the Energy Charter Conference held in
Astana under the Presidency of Kazakhstan. Unfortunately, the official delegation of the
Russian Federation, for the first time in the history of the Energy Charter, did not take
26
One of Russia’s justified concerns on ECT Art. 7 has related to the particular details of the
conciliatory mechanism for defining the value of interim transit tariffs.

LEAL-ARCAS_9781786431042_t.indd 138 08/09/2017 13:02

part in the work of the governing body of this international organization, while the EU
delegation did.
3.6 Dispute Settlement: ECT vs. Intra-EU Cases
This conflict of law creates an increased number of legal claims from the EU members’
companies against EU states on the ground of violations by these states of the ECT
provisions (see Figure 7.7). In April 2015, the International Centre for the Settlement
of Investment Disputes (ICSID) revealed that more than two-thirds of investor–state
dispute settlement (ISDS) cases in the EU are brought by EU investors against other EU
member states. A quarter of these arbitration proceedings are initiated under the ECT.27
Spain was facing at that time around 15 claims for financial compensation by inves-
tors after it put an early end to its subsidies for solar power in the wake of its dramatic
economic crisis. Italy, until recently not known as a respondent in investor–state cases,
was then facing at least three ECT-related disputes. The number of ECT-based cases is
rising across the EU, which means that investors of EU member states are filing claims
in international arbitration tribunals against EU member states on the basis of the ECT
provisions.
The European Commission is intensifying efforts to root out intra-EU ISDS cases. It
asserts what it considers as the Community’s full competency over investment policy since
the Lisbon Treaty came into force in 2009. It regards intra-EU investor–state arbitration
as incompatible with the EU legal order. In June 2015 the Commission initiated infringe-
ment proceedings for violation of EU law against five EU member states – Austria, the
Netherlands, Romania, Slovakia and Sweden. The Commission blamed these countries
for keeping their mutual ‘intra-EU’ BITs in place. It has requested these five countries
to terminate their mutual intra-EU BITs and has initiated ‘pilot’ proceedings against 21
more.28
Those BITs are the legal basis for arbitration proceedings that have pitted Dutch,
Swedish and Austrian companies against Romania and Slovakia and led to controversial,
from Commission’s view, arbitral awards in recent years. These BITs, like many other
EU BITs between Western European and Eastern European member states, were signed
before Romania and Slovakia became EU member states in 2007 and 2004 respectively –
and they have remained in force since then. The disputes between the Commission and
national governments over whether these BITs should be kept in force were to be resolved
by the Court of Justice of the European Union.29
However, the Commission’s move in stepping up its efforts to root out intra-EU
27
Brussels moves against bilateral investment treaties within EU, undermines the Energy
Charter // http://www.energypost.eu/brussels-moves-intra-eu-investor-state-arbitration-puts-pres
sure-energy-charter/.
28
A. Ross, What Lies Behind Italy’s ECT Exit? // Global Arbitration Review, 29 July 2015, vol.
10, issue 3, http://globalarbitrationreview.com/article/1034608/what-lies-behind-italy%E2%80%9
9s-ect-exit.
29
Brussels Moves Against Bilateral Investment Treaties within EU, Undermines Energy

LEAL-ARCAS_9781786431042_t.indd 139 08/09/2017 13:02

16
For the period from
14 2001 (since the first
‘investor–state’ claim
based on ECT Art.
12 26) to 21.04.2015 –
External cases a total of 67 such
33 34
10 Internal cases claims, with 33
claims from investors
8 of the EU member
states against the
EU member states,
6 notably, within the
EU (internal cases) –
140
4 de facto against EU
‘liberalization’ risks
2
0
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
20 20 20 20 20 20 20 20 20 20 20 20 20 20 20
Source: У. Руснак, А. Конопляник. Эволюция модели энергобезопасности. Россия и ДЭХ: не остаться на обочине. // «Нефтегазовая Вертикаль». 2015, №10,
с.4–12 (7). Based on: http://www.energycharter.org/what-we-do/dispute-settlement/all-investment-dispute-settlement-cases/.
Figure 7.7 Increasing numbers of ‘investor–state’ disputes based on ECT Art. 26 from investors of EU member states against EU

member states
08/09/2017 13:02
i nvestment arbitration cases is also having effects on the EU’s relationships with the ECT.
Brussels feels it should have sole power over EU investment policy. Yet, in this respect,
it is also putting pressure on the ECT, on which many of these cases are based. As a
result, while the Commission wants the ECT to expand internationally, it is undermining
support for it at home. Italy even pulled out of the ECT in 2016.
Italy’s decision seems to be less one of defiance than obedience to the European Union,
which has long held that treaties governing investment between member states clash with
EU law in the wake of the Lisbon Treaty. In its adherence to this view, Italy has been
described by the Investment Arbitration Reporter news and analysis service as a ‘model
citizen’ of the EU (in recent years, Italy has taken steps to terminate all or almost all its
intra-EU bilateral investment treaties).30
Other factors that have been rightly or wrongly mooted as influencing Italy’s decision
include: budgetary considerations and the cost of membership of the treaty; the threat
of pending ECT claims against the state over renewable energy; the general swing of
opinion against investor-protection agreements and arbitration in Europe; and the per-
ception of the weakness and irrelevance of the treaty in light of Russia’s renunciation
of it.
Of course, all of these factors combined to influence the Italian decision. Cost-cutting
was the ‘official’ reason why Italy decided to renounce the treaty: by withdrawing from
the ECT it will save around €400,000 in membership fees annually. But, for me, this is
not the main reason. Much more important for a number of EU/ECT states has been a
mounting number of ECT-based claims brought against European states by investors of
these states; for instance, in the solar power industry over retroactive cuts in EU govern-
ment subsidies in response to the 2008 financial crisis. Bearing in mind that all EU renewa-
bles have been developed as a result of huge state subsidies, the withdrawal of the latter
(especially if in the form of retroactive cuts) will inspire further growth of ‘investor–state’
claims in international arbitration bodies, and the ECT with its Art. 26 in such cases is
one of the best (if not the best) investment-protective measures, being least influenced by
the investor’s domestic state.
In mid-2015, Spain faced some 14 ICSID claims over subsidy cuts worth hundreds
of millions of dollars, as well as claims under Stockholm Chamber of Commerce and
UNCITRAL rules. The Czech Republic faced at least seven such claims, with others
threatened against Bulgaria and Romania. Dozens of claims were threatened against Italy
at that time (when a decision on ECT withdrawal was to be taken by this state).
Of course, as in Russia’s case (whose decision to withdraw was, in my view, based on
or inspired by the ‘Yukos case’), in the case of Italy it also made no rational legal and
economic sense to withdraw from the ECT in the face of such threats. That will not solve
the issue of investment already made, namely the question of any returns on these invest-
ments, which is the main topic of concern for investors due to Government’s (retroactive)
actions. The ‘Sunset provisions’ of ECT Art. 47(3) protected the investor even after host
state withdraws from the ECT – the state will continue to be bound by the Treaty in respect
30
A. Ross, What Lies Behind Italy’s ECT Exit? // Global Arbitration Review, 29 July 2015, vol.
10, issue 3, http://globalarbitrationreview.com/article/1034608/what-lies-behind-italy%E2%80%9
9s-ect-exit.

LEAL-ARCAS_9781786431042_t.indd 141 08/09/2017 13:02

of existing investments for 20 years after withdrawal. So maybe this Italian decision, made
in 2015 and valid from 2016 (as well as Russia’s in 2009?) can be treated rather as an under-
standable political reaction by the Government in trying to foresee possible disaffection
by the electorate (civil society) in the case that Italy faces a surge of claims from foreign
investors, and publicly reacting in advance of this happening.
As already mentioned, Brussels does not want the ECT to rule over intra-EU cases.
‘The legal service of the Commission takes the view that if an investor from one member
state has a problem with another member state then this cannot be done on the basis of
the ECT’, the Commission official added.31 But the Commission as of today cannot stop
ISDS cases under the ECT from being initiated. For intra-EU ISDS cases to end, a politi-
cal agreement among the 28 EU member states would be necessary, for instance under the
form of a declaration invalidating ISDS cases between them. But there is no consensus
among member states to do so. The Commission is believed to have tried to convince the
EU28 to come up with such a declaration ahead of the May 2015 Hague International
Energy Charter Conference but was rebuffed.
A complicating factor is that other ECT members would need to agree to the EU
members’ move, because the deal is multilateral and affects third countries from outside
the EU. Such a declaration could lead other ECT members to question their commitment
to the ECT’s investment provisions – something Brussels would certainly want to avoid
as it tries to promote ECT principles globally. If this mooted intra-EU ISDS declaration
were to happen, it would be the second case in which the EU aimed to distinguish between
the application of universal ECT rules within EU territory (where intra-EU ISDS will
not be applied based on ECT rules) and beyond the EU (where ECT provisions should
continue acting in full, including cases of ISDS). This looks similar to the earlier story
concerning the ‘REIO clause’ in the draft Transit Protocol, in terms of EU policy on dif-
ferent applications of the transit provisions of the ECT within and beyond the EU, which
was the real major reason for Russia and the EU to start losing their interest in the ECT.
The Italian story on ECT withdrawal is a reflection of the European Commission’s
intensified efforts to root out intra-EU ISDS cases from the competence of the interna-
tional bodies beyond the jurisdiction of the EU. So it could be considered as a part of
the Europe-wide backlash against ISDS procedures if the EU Governments saw it as
‘unfairly’ used in favor of investors against governments. This means that the states con-
sider that the balance between the state and investor in investment-treatment is broken
in favor of the investor and, from the state’s view, such ISDS procedures (out of state
control) protect ‘unfair’ (unbalanced) situations. But as is well known from economic
theory and history, there is a cyclical trend in relations between the state and the investor,
which is the case not only in investment area and in natural resource industries. We can
see the same cyclical trend, for instance, in the development of taxation systems.
This cyclical trend in regard to investments is well described by UNCTAD and shown
in its annual ‘World Investment Reports’32 (confirmed by corresponding statistics from its
31
Brussels Moves Against Bilateral Investment Treaties within EU, Undermines Energy
32
For example, see: World Development Report 2010. UNCTAD, 2010, pp. 76–7.

LEAL-ARCAS_9781786431042_t.indd 142 08/09/2017 13:02

‘UNCTAD database and national laws and regulations’). In periods of low markets states
usually provide more national regulatory changes aimed at liberalization for/promotion
of investment activities, notably more favorable for investors and their investments. Thus
the state provides the investors with an opportunity to earn their future profits, stimulate
development of their future (not existing at the moment) investment projects, by sharing
with them bigger portions of the not yet monetized (not yet collected) marketable resource
rent (if energy industries are considered). It is important to clarify: the state is ready to
give to investors a bigger portion of the diminishing (in the period of low markets) future
rent value.
In the period of high markets (which might happen in energy, say, due to growing oil
prices, as in the 2000s) the states, on the contrary, usually introduce national regulatory
changes which involve more regulation and restrictions aimed at the collection of the
extra portion of the resource rent (if natural resource industries are concerned).
Some observers (analysts, politicians) call it ‘resource nationalism’ if natural resource
industries are concerned and if such states belong to the resource-owning, usually
developing, states – not to developed market economies. This cliché is usually used
notwithstanding that the host state would like to redistribute in its favor not the portion
of the entrepreneurial income, but the portion of the price rent (windfall profits) related
to this income (where both ingredients create the value of the resource rent). So if the
host state aims to extract, in part or in whole, the windfall profits which happened to
occur due to externalities, say, due to an oil price increase, and does not aim to extract
part of the entrepreneurial income originated due to the entrepreneurial efforts of the
investor, it would be more appropriate to call this ‘rationalization of “resource rent”
collection’ rather than ‘resource nationalism’, since the latter has a clear negative
connotation.
But in the given case the economic facet of the story is different: the state (namely,
a developed market economy) demonstrates that it is not ready to follow earlier taken
obligations regarding existing investment projects at its territory if state participation
(in the form of continued subsidies) became more costly for whatever reasons. This is
a clear message that under any developments in the state of the market, incremental
non-commercial risks for an investor originated by the host state will be burden on the
investor. But this is just the case that the ECT is aimed at – to protect investors from such
non-commercial risks.
Does this mean that the attitude of the states towards ECT has been changing, depend-
ing on the stage of economic cycle and/or the character of the capital flows (whether it
is in-coming or out-going)? When the state – the ECT Contracting Party – is a capital-
exporter, the ECT is good as an investment-protection instrument since it protects inves-
tors of this given state abroad. But when this state becomes a capital-importer (a host
state) and it needs to behave according to the ECT rules in its own territory – then the
ECT becomes a burden and not an advantage.
Or, as in the case of Italy, if there is a threat of withdrawal of state subsidies for solar
electricity production, which were required to make this industry profitable, the business
will have justified reasons to apply to international arbitration against the state to com-
pensate its losses (since it is illogical to apply against the host state to the arbitration tribu-
nals of the given host state – they are not impartial by definition). Then, does it also sound
more logical for the state to withdraw from the ECT based on purely electoral reasoning

LEAL-ARCAS_9781786431042_t.indd 143 08/09/2017 13:02

rather than to continue applying the ECT, even if in the given case the state might well
lose against the investor? This sounds like a ‘double standard’ approach. But it is clear to
me that the EU institutions will continue to reassess their (already steadily diminishing)
interest in the ECT as an internal EU instrument (a part of the acquis).
It seems to me that currently we see the third major clash between the EU and the ECT.
The first one relates to the finalization of the Transit Protocol and the Russia–EU debate
around the ‘REIO clause’ introduced by the EU (2003–2004). The second one relates to
Russia’s withdrawal from its ECT provisional application (2009). The third one relates to
the current battle within the EU between the Commission and member states in regard
to intra-EU ISDS and Italian withdrawal from the ECT (2016 onwards). Will this be the
last conflict between the EU and ECT?
4. RUSSIA AND THE ECT
Since I have published a great deal on Russia–ECT relations,33 in this section only a few
new issues concerning these relations will be addressed.
4.1 Missed Opportunities
In 2009, from my point of view, the Russian Federation made a major mistake in rela-
tion to the ECT based on systemic misperceptions: Russia withdrew from its provisional
application to the ECT, which it had maintained since signing the ECT in 1994, and as a
consequence deprived itself of many advantages provided by this tool, for example with
regard to the protection of Russian companies against the ‘risks of liberalization’ within
the increasingly liberalized EU market. As was shown above, the practice of recent years
proves that an increasing number of companies of the EU countries, while trying to
protect themselves against the after-effects of such risks related to the forced downward
liberalization in the EU, are filing claims to international arbitration tribunals against the
EU member states under Article 26 of the ECT, which grants such a right to investors.
However, Russia has deprived its companies of such an opportunity, in spite of numerous
statements concerning such violations made by the EU states.
An example of such missed opportunities for Russia is the situation with the trou-
bled OPAL gas pipeline project.34 From my point of view, this falls under Article 13
‘Expropriation’ of the ECT – when the investments made in the construction of the
OPAL and Nordstream-1 gas pipelines have been prevented from being paid back
in full by the pure administrative measures of the host country (the EU) which has
limited access to the throughput capacity of the already-made pipeline for its inves-
33
See my publications and presentations at: www.konoplyanik.ru.
34
OPAL is an onshore segment of the alternative transportation system consisting of the
offshore Nordstream-1 and onshore OPAL and Gazelle pipelines, bypassing the Ukrainian transit
route, which aimed to bring Russian gas supplies to the EU under existing supply contracts to the
same delivery points (at Waidhaus) agreed upon in these supply contracts. This alternative system
is a solution, inter alia, to an above-mentioned ‘contractual mismatch’ problem that refers to any
transit system.

LEAL-ARCAS_9781786431042_t.indd 144 08/09/2017 13:02

tor while there is no other applicant(s) for access to the throughput capacity of this
pipeline.35
In 2004, the former Yukos shareholders filed their claim against Russia – since then
well known internationally as the ‘Yukos case’36 – using the violation of provisions of this
very ECT Article 13 as a ground. An award released on 28 July 2014 and handed down
10 days earlier by the Permanent Court of Arbitration Tribunal in The Hague (the Court
award) regarding three interrelated suits filed by Yukos company shareholders against
the Russian Federation (the Yukos case) was based on Article 26 ‘Settlement of Disputes
Between An Investor and a Contracting Party’ of the Energy Charter Treaty. The Court
award (unanimously not in favor of Russia) states that ‘measures taken by the Respondent
[the Russian Federation] in relation to Yukos . . . had, in the Tribunal’s opinion, an effect
equivalent to nationalization or expropriation’ (paragraph 1580 on p. 497 of the Court
ruling for each suit).37 The Russian Federation immediately announced its intent to chal-
lenge the Court award and file an appeal, even though the ECT has no appeals mecha-
nism, since ‘the awards of arbitration . . . are final and binding upon the parties to the
dispute’ (Article 26(8) of the ECT).38 Later, in April 2016, the Yukos award was set aside
by The Hague District Court on the basis that the Tribunal lacked jurisdiction.39
Nevertheless, the award issued under this claim in The Hague in July 2014 by the
Permanent Court of Arbitration Tribunal constituted under the ECT (decision taken in
substance) notably demonstrates the efficiency of international arbitration procedures
established in the international law (as reflected in the ECT and its related documents) as
35
The latter was well demonstrated by the comparative results of recent Gazprom export gas
auctions (in 2015–16). Gazprom twice tested (in September 2015 and in September 2016) market
interest in transit capacities through Germany to the Czech Republic in order to provide argu-
mentation for getting regulatory approval to use 100% of OPAL capacity. The market showed
no interest (A. Medvedev, Comparative Results of Three Gazprom Export Gas Auctions, 2015–
2016. Presentation at the 21th WS2 GAC meeting, Gazprom export, St Petersburg, 21.10.2016;
http://www.fief.ru/img/files/161021_WS2_AUCTIONS_Medvedev.pdf, slides 3 & 5).
36
The ‘Yukos case’, or more correctly – three cases known as ‘Yukos case’: (i) Yukos
Universal Ltd. (UK – Isle of Man) v. Russian Federation; (ii) Hulley Enterprises Ltd. (Cyprus)
v. Russian Federation; and (iii) Veteran Petroleum Trust (Cyprus) v. Russian Federation. The
awards can be viewed at the Energy Carter Secretariat website at http://www.energycharter.org/
what-we-do/dispute-settlement/all-investment-dispute-settlement-cases/ under items (6), (7) and
(8).
37
http://www.energycharter.org/fileadmin/DocumentsMedia/Disputes/ISDSC-006a.pdf.
38
http://www.energycharter.org/fileadmin/DocumentsMedia/Legal/ECTC-en.pdf.
39
In its 20 April 2016 judgment, The Hague District Court set aside arbitration awards ren-
dered in favor of three shareholders in OAO Yukos Oil Company against the Russian Federation.
The cases had been brought before a Permanent Court of Arbitration Tribunal constituted under
the Energy Charter Treaty. As the place of arbitration was The Hague, The Hague District Court
was the competent forum for Russia’s setting-aside applications. The Court granted the applica-
tions on the basis that the Tribunal lacked jurisdiction. Specifically, the Judgment held that pro-
visional application of the ECT’s investor–state arbitration provision (Article 26) was contrary to
Russian law and therefore not allowable pursuant to the ECT’s provisional application provision
(Article 45). (Client alert: Yukos Awards Set Aside by Dutch court. Comment by Volterra Fietta,
the public international law firm, 29 April 2016, public dissemination.)

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a mechanism of protection of investors’ interests in the energy sector, and not only that
Russia initially lost the arbitration case.
It is a pity that Russian investors abroad are deprived of such an opportunity.
4.2 Energy Charter Adaptation Process
If the sovereign states consider that the time has come to adapt international legal
documents/instruments to new realities and new stages of the energy market develop-
ment, there are no means to do it, except for initiating a process of such adaptation and
taking an active part in it, and/or possibly trying to lead the process (claiming intellectual
leadership and professing the ‘force of an argument’), if this does not cause a rejection
reaction on the part of other actors of the international community. Although, it is
difficult to reject solid arguments . . .

However, when the Russian initiative for the Energy Charter adaptation process was
not followed in particular practical steps by the Energy Charter community, the country
in fact withdrew from this adaptation process. The country eventually suspended its par-
ticipation in the process, including participation in the newly organized Strategy Group,
which was of key importance since the time when the Yukos award was issued in July 2014
by the Permanent Court of Arbitration Tribunal in The Hague.
The situation first came to a head when Russia did not participate in the Energy
Charter Conference in Astana (Kazakhstan) in November 2014 (an unprecedented
situation). Then the Russian delegation did not participate in signing the updated
political declaration, the International Energy Charter, at the Ministerial Conference
in May 2015 in The Hague. The non-participation of Russia in The Hague Conference
may become the country’s point of no return as far as the Energy Charter Process is
concerned.
The Energy Charter Process, undoubtedly, will not only survive, but it will develop
further without Russia, as it has already received a new impulse to its development;
increasingly transformed from the initial Euro-Atlantic initiative of the EU into a
Eurasian process, originally dominated by the discussion agenda of Russia and the EU,
it has recently turned into a real global process.
For Russia non-participation in the activities of the Charter constituency means a
gradual shift to the margins with regard to its integration into the global energy sector,
together with the loss of its potential competitive advantages in connection with the new
stage of the Charter Process development and its geographical dimension. Or, simply the
deprivation of opportunities to use protection instruments to improve its own energy
security, for example, protection against sanctions.
In 2004, the Energy Charter Conference (the supreme authority of the Charter con-
stituency), with the active participation of Russia, made a decision on the continuous
adaptation of the Charter Process to new realities in the energy markets. In 2009, with-
drawing from the provisional application of the ECT (without providing any grounds
for this withdrawal), Russia put forward a proposal on the process reform and suggested
developing (instead of the ECT) a Convention on international energy security; i.e. it sug-
gested not improving the existing process and the existing set of legally binding interna-
tional law documents, but actually the endorsement in advance of some future document,
which must replace the ECT and which had yet to be developed.

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The Charter constituency, however, did not accept the idea of rewriting the ECT and/or
endorsing any future document, which was still unclear. Moreover, such a line of action
was considered counter-productive given that 46 states had already ratified the ECT by
that time. Therefore, the Russian document was not adopted as a basis for joint work,
particularly as it replicated the existing ECT in many aspects. The Energy Charter con-
stituency has chosen a different way of adapting and moving forward the Energy Charter
process.
At first, the ECT countries focused on the development of a new mutually accept-
able set of political principles summarized in the updated political declaration, the
International Energy Charter, which complements the European Energy Charter adopted
in December 1991 and used as the basis for the ECT. Since 2012, during the negotiation
process, the Russian delegation has also taken an active part in it – from the development
of a mandate to negotiations in extended format.
Based on this updated political declaration (in areas where a multilateral consensus
is reached), in future it would be possible to add, extend and adjust the existing set of
legally binding instruments – the ECT and its related documents, developed according
to a package module principle, which implies that the existing set of documents may and
should be added and extended, but not re-written. But Russian authorities decided finally
not to sign the new political declaration, and thus the Russian delegation unfortunately
did not participate in the International Energy Charter signing ceremony and conference
in The Hague in May 2015. Russia thus stays out of the community of 91 signatories40 of
the International Energy Charter.
4.3 Russia, Sanctions and the ECT
Article 24.3(a)(i) of the ECT allows Contracting Parties to take any measures which they
consider necessary in time of war, armed conflict or other emergency in international
relations. However, these measures shall not have an effect equivalent to expropriation
and shall not affect transit. This understanding was confirmed at the ad hoc meeting of
the Legal Group of the Energy Charter further to the Russian delegation’s request during
the plenary session of the ECT negotiations in March 1994.41
Eventually, the parties agreed that the sanctions introduced following the decision of
the UN Security Council at all times prevail over the ECT provisions, including the provi-
sions on expropriation. Any other sanctions introduced by a Contracting Party to the ECT
shall not have an effect equivalent to expropriation (full or partial loss of the market value
of investments). In this case, conflicts with the ECT may arise if sanctions are applied to
companies or persons being shareholders of such companies and if such measures affect
transit. All international cooperation projects of the Russian companies with Western
partners, which were wound down because of sanctions, from my point of view, clearly
demonstrate the occurrence of such losses. And these losses are not virtual, but quite real.42
40
http://www.energycharter.org/process/international-energy-charter-2015/overview/.
41
У. Руснак, А. Конопляник, Эволюция модели энергобезопасности. Россия и ДЭХ: не
остаться на обочине. – «Нефтегазовая Вертикаль», 2015, № 10, с. 4–12.
42
In regard to Western sanctions’ effects on Russian Arctic offshore oil and gas develop-
ment, see: А. Конопляник, В. Бузовский, Ю. Попова, Н. Трошина, Влияние антироссийских

LEAL-ARCAS_9781786431042_t.indd 147 08/09/2017 13:02

In the event the provisions of Article 24.3(a)(i) of the ECT are violated, a party to the ECT
affected by sanctions may file a claim to the international arbitration according to the provi-
sions of the ECT Article 27, including a claim against the EU, in the case of sanctions intro-
duced by the EU, which has ratified the ECT. In such a case it will be possible to request that
the tribunal apply urgent protection measures, which would terminate sanctions introduced
in violation of the ECT. But this implies a requirement to be a Contracting Party to the ECT
(a country which signed and ratified the Treaty). However, Russia is not such a country –
being a Signatory to the Treaty (especially given the declaration of intent not to ratify the
ECT when withdrawing from the provisional application of the ECT) is not enough.
Another lost opportunity for Russia from not being an ECT Contracting Party. . .
5. NEW PROSPECTS FOR THE ECT
In my view, new prospects for the ECT are opened within the broadening international
campaign against ‘energy poverty’, which could be considered as the fourth element of
the ‘international energy security’ concept and act as a trigger for the further expansion
of the ECT, especially in the South-South dimension.
In 1990, when the EU put forward the idea of the European Energy Space (known also
as the ‘Lubbers Plan’), which was subsequently transformed into the European Energy
Charter (a political declaration) and the legally binding ECT, this European initiative had
a clear Euro-Atlantic dimension similar to the Helsinki Accords of 1975 on security and
cooperation in Europe.
To date (as of January 2017) the ECT has been signed by 52 countries (48 countries rati-
fied the Treaty), as well as by the EU and Euratom. In addition, there is a marked increase
in the number of Observers (currently 28), which are potential candidates for accession
to the ECT, represented predominantly by the Asian, African and Latin American states.
This means that there is an active transformation of the initial European (Euro-Atlantic)
dimension of the Charter into a Euro-Asian (Eurasian) dimension and, more widely, into
a global dimension by virtue of the universal nature of its international law protection
mechanisms aimed at mitigation of non-commercial risks and uncertainty in the trade-
investment activity in the energy sector.
In the process of geographical expansion and adaptation to the new realities of the
energy markets, the ECS put forward a new initiative: to add a new fourth element to
the concept of the ‘international energy security’ – the fight against energy poverty. This
problem is of primary importance for many participants of the Charter Process and
future members of the Charter from Asia, Africa and Latin America, as they are in the
early stages of energy market development in their countries.
Many of these states will not overcome energy poverty according to the model of the
industrialized countries, i.e. not through successive stages of industrialization and post-
industrialization, which suggests a model of large-scale energy industry development,
concentration of energy production and consumption, and subsequent distribution and
санкций на освоение нефтегазового потенциала российского арктического шельфа – и развилки

энергетической политики России // Москва, «Восток Капитал», ноябрь 2015, 106 c.

LEAL-ARCAS_9781786431042_t.indd 148 08/09/2017 13:02

long-distance transportation of the energy produced. The modern stage of technological

development allows these mostly agrarian states, which are predominantly non-urban-
ized, an opportunity to develop their energy sector on the basis of mostly decentralized
energy supplies and based to a greater extent on renewable energy sources (RES).
For this reason the increase in energy intensity as the basis for upgrading living stand-
ards and the liquidation of energy poverty in these countries requires new approaches in
terms of international governance, with increasingly more countries being involved in the
process. Moreover, it is technologies that will start playing a more important role in energy
sector development, rather than nonrenewable natural resources.
Therefore, within the agenda on international energy governance, an increasingly
important role is assigned not only to issues of access to natural energy resources (which
have dominated in this agenda for many decades) and respective mechanisms for imple-
mentation of this access, but also to issues of access to technologies and capital markets,
to innovations, the responsibility for ecological damage (‘polluter pays’) and other ques-
tions, which are specified in the ECT but require a more detailed elaboration (as previ-
ously did the issues of ensuring uninterruptible transit).
In staying on the sidelines of these discussions and the practical work within the Charter
Process in these areas and sticking to the policy of ‘counteraction through inaction’, Russia
may miss potential competitive advantages in these areas and on future markets of the said
countries, and repeat the negative experience of interaction with the GATT/WTO.
In 1947, when the GATT was established, the USSR was invited to participate in the
process. The Government rejected the invitation since its leader at that time understood
that the USSR would not be able to dominate in this international process. For this reason,
instead of creating a level playing field in international trade, two different mechanisms
were developed within two systems: the GATT rules – for the global capitalist system –
and the COMECON rules – for the global socialist system. The result is well known.
The GATT rules were developed without the participation of the USSR and the
socialist countries, and thus not taking their interests into account. In 1993, when Russia
applied for accession to the GATT (and its successor, the WTO), it took the country 19
long years to pass the test for compliance with the rules adopted by others. I do hope
that in the case of the relationship between Russia and the Energy Charter, the USSR’s
experience with GATT/WTO will not be repeated.
Regarding the EU, there are two options for the further development of the Energy
Charter and the ECT. Either the ECT will die as an intra-EU legal instrument which has
lost its role as the bridge for trade and investment between East and West with the Russian
withdrawal from its ECT provisional application. Moreover, other ECT states will not
agree (as Russia has always disagreed) with the two different modes (double standards) of
ECT application – within and beyond the EU – put forward by the EU. This means that
the ECT will find its new dimension beyond the EU, this time within the developing coun-
tries, and increase its role as a bridge between North and South in the fight/international
campaign against ‘energy poverty’. This will be another challenge for Russia, since by not
being a Contracting Party to the ECT and staying aside from the International Energy
Charter, the country faces a risk of falling outside this international process.

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8. Global energy security and EU energy policy
Severin Fischer
Energy issues have been extensively discussed in international security policies for decades.
Since the first oil crisis of 1973, researchers have tried to grasp energy security as a field of
international relations studies. With the most recent changes in global demand and supply
patterns around the two most security-relevant fossil fuels – oil and natural gas – some of
the traditional views on challenges and possible policy reactions have shifted. The debate
about an international reaction to global warming and the trend towards putting more
emphasis on decarbonization policies has also influenced views on global energy security
lately.
In this chapter, we first take a conceptualizing look at global energy security from a
public policy perspective, taking account of Andreas Goldthau’s approach of viewing
global energy security challenges mainly as the results of market failure on a transnational
scale.1 This is followed by a look at the main trends in global energy security and their
effects on the EU as an import-dependent community of industrialized countries. Finally,
we analyze the EU’s policies on energy security and identify shifts in perspective during
the course of the last decade. We conclude with some aspects that could serve as future
fields of research.
1. GLOBAL ENERGY SECURITY CHALLENGES AS

MARKET FAILURES
Although global energy security has become a common feature in international rela-
tions and global governance studies, there has been little work done so far on the
conceptualization of the issue at stake. Neither is there a common definition of ‘energy
security’ nor a shared view about ‘global energy security’.2 Since we want to connect
the issue of international energy security and respective EU policy reactions in this
chapter, it seems reasonable to approach the topic from a public policy perspective,
as this is regarded as most adequate for analyzing EU policies. So we start with the
basic notion that the most important energy carriers by volumes – oil, natural gas and
coal – can be viewed as commercial goods that are traded globally or at least on a
regional scale. Since coal is largely abundant and its supply structures have not caused
significant security debates so far, we can concentrate on the more politicized goods
of oil and natural gas.
1
Andreas Goldthau, ‘A Public Policy Perspective on Global Energy Security’, International
Studies Perspectives (2012) 13, pp. 65–84.
2
Tim Boersma, Energy Security and Natural Gas Markets in Europe: Lessons from the EU and
the United States, Routledge Studies in Energy Policy, London/New York, 2015.
150
LEAL-ARCAS_9781786431042_t.indd 150 08/09/2017 13:02

Global energy security and EU energy policy 151
By looking at the energy resources oil and gas as normal commodities, we start with
the basic assumption that demand and supply would regulate prices and would guarantee
access for consumers, with a high level of flexibility on both the demand and the supply
side. However, as experience of the past has indicated, energy markets do sometimes show
difficulties in delivering commodities at the quantity or price that is demanded. Therefore,
we will assess these market failures according to Andreas Goldthau’s conceptualization
of market failure in global energy.3 He identifies four different characteristics of market
failures: imperfect competition; existence of externalities; incomplete information; and
public good characteristics.
1.1 Imperfect Competition
Imperfect competition can be understood as the concentration of market power on the

supply or demand side that influences prices arbitrarily. Reasons can usually be found in
the existence of monopolies, monopsonies, oligopolies or cartels.
1.2 Externalities
Events that are not necessarily related with the commodity market or the individual
market actors, influencing prices, can be regarded as externalities. This implies the over-
reaction of market players to certain situations, directly impacting prices, but not the
fundamental real demand and supply situation. One could also imagine indirect exter-
nalities influencing market functioning. This would be the case of a lack of investments,
for example due to a non-energy-related economic recession, that would under normal
circumstances make sense in a perfect market environment. Externalities can also be seen
as infrastructural limitations that result in market failures.
1.3 Public Goods
Although commodities are mostly seen as private goods, public actors sometimes
introduce public good characteristics in the market and therefore disturb markets by
sending out wrong price signals. Examples are strategic stocks on the consumer side or
artificially spare capacity on the supplier side. These measures can influence markets
and send out misleading messages to market actors. Finally, also safety and security
issues around transportation can be regarded as public goods that are usually not
covered by all consumers and suppliers but rather by a limited number of actors, with
others free-riding.
1.4 Lack of Information
Adequate information of supply and demand for all actors is a precondition for an ade-
quate price setting in functioning commodity markets. However, states often tend to keep
knowledge about their reserves to themselves, creating speculation about future supply
3
Cf. Goldthau 2012 (n 1).

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patterns. Also, opaque bilateral deals between states can distort an efficient functioning
of the market.
Different market failures can be identified in nearly every commodity market, depend-
ing on regional conditions and market integration. In the global oil market and in regional
natural gas markets, market failures have dominated the debates over the last decades.
2. ENERGY SECURITY IN OIL
For many years, discussions about energy security have been closely connected to develop-
ments in the oil sector. With the first oil crisis in 1973/74, the challenges surrounding oil
supplies and the role of the oil suppliers’ cartel OPEC became obvious. Due to Western
support for Israel’s engagement in the Yom-Kippur war, OPEC artificially reduced
oil output, leading to a subsequent massive price increase. The unpreparedness of the
Western world was the starting point for several initiatives that were supposed to prevent
or ease the economic effects of similar events in the future. Among domestic measures
to increase oil production in the West, the establishment of the International Energy
Agency (IEA) and the development of its strategic stock-piling mechanism was the most
prominent one. The market failure of artificially reducing output by OPEC was answered
with another market-distorting measure: the creation of a system of public goods in the
form of oil stocks.
During the years 2000–2010 discussions about energy security in the oil sector changed.
On the one hand, worries about natural limitations of global reserves gained greater atten-
tion under the term ‘peak oil’. Especially the growing demand in Asia’s emerging econo-
mies and the limitations to the conventional oil reserves underlined fears about strong
competition for the last barrels. On the other hand, political turmoil and military conflicts
such as the second Iraq war led to price peaks and more volatile prices in general. The $140
price peak in 2008 and the subsequent drop to $50 in the same year created a high level
of uncertainty among politicians, consumers and market players in the sector (see Figure
8.1). A lack of information about supply and demand as well as political externalities can
be seen as the main causes for these more recent market failures.
A new chapter in the debate about energy security in oil was opened around 2014. With
the massive increase of oil production in the United States, market fundamentals have
changed significantly and put prices under pressure. When the spot market price for crude
oil hit the $30 threshold in early 2016, many of the assumptions about market develop-
ments of the last decades were proved to be wrong. The main reasons for this price drop
can be found on the supply side: with an increase of 10 percent to global oil production,
the US shale oil industry had a significant impact on global markets. At the same time,
traditional suppliers have increased their output as well, in order to compensate for losses.
Both developments taken together are leading to the present oil glut.4
A slow growth on the demand side, mainly due to lower growth expectations in Asia,
has added to a general picture of global oversupply. An estimate of 3 billion barrels of
4
Severin Fischer, ‘An Energy World Order in Flux’ in: Oliver Thränert and Martin Zapfe
(eds), Strategic Trends 2016, Center for Security Studies, Zurich, 2016, pp. 83–100.

LEAL-ARCAS_9781786431042_t.indd 152 08/09/2017 13:02

150
Nominal oil price, monthly
120 Real oil price (in 2014 prices), annually
90
60
30
0
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
Sources: EIA, BP Statistical Review, World Bank Strategic Trends 2016 (Centre for Security Studies, ETH
Zurich).
Figure 8.1 Evolution of the oil price (in US$ per barrel; 1970–1983 Arabian Light,
1984–2015 Brent)
oil stocks supports the assumption that a relatively low price level is to be expected in the
years to come. In this new market environment, even political crises like the rivalry between
Iran and Saudi Arabia or the ongoing war in Syria are leaving oil prices unimpressed.
In the short and medium term, these developments are pushing security risks more
and more to the supply side of oil. While in the past, it was mainly a question of physical
access to oil supplies by consumers or economically damaging price increases, low prices
are right now creating domestic trouble for the producers. Especially those countries with
high oil production costs are struggling to keep their state budgets under control. But
even a low-cost producer like Saudi Arabia has to start cutting back on public spending.
Attempts of producer states in OPEC to exert influence on the price developments have
had limited effects so far. OPEC’s function as a producer cartel seems to be tremendously
weakened.5 The November 2016 deal between OPEC and some of the non-OPEC produc-
ers might have been a last attempt at artificially restraining production. On the one hand,
because there is no commonly shared strategy on how to react to the current situation –
even if there could be a formal agreement on production cuts, there seems to be no internal
control mechanism that would guarantee compliance with any sort of a greement – this
has the characteristics of a ‘game of chicken’ in which those producers that cut produc-
tion first lose. On the other hand, with the rise of the US shale oil industry, the cartel is
being confronted with a stronger and more flexible market force. If prices are increasing,
the production level of US shale oil is likely to increase as well. If prices are falling, US
oil output is also likely to fall. This is a new development in a market, where long-term
investments have been the dominating theme over decades.
5
Khalid M. Kisswani, ‘Does OPEC Act as a Cartel? Empirical Investigation of Coordination
Behavior’, Energy Policy (2016) 97, pp. 171–80.

LEAL-ARCAS_9781786431042_t.indd 153 08/09/2017 13:02

While the energy security risks have been shifting more to the supply side recently, in
the long run, the present situation also poses risks to consumer countries. In a low price
environment, international oil companies are reluctant to invest in expensive long-term
projects. This process, called ‘Dutch disease’ could hit the oil market after 2020 again, if
the present oversupply situation is ending and additional demand is not met by adequate
supply.
In a nutshell, the functioning of the oil market has improved over the last years with
additional suppliers creating a more liquid and competitive market environment. The
influence of imperfect competition has been reduced lately. The effect of externalities on
the market seems to be lower than ever before. However, the aspects of missing informa-
tion and the public good aspects to the oil market seem to be of high relevance – the
former, when it comes to the mid-term outlook for supply and investments; the latter,
when looking at the United States still securing most of the supply routes with their mili-
tary presence. Whether other actors, such as the EU, will continue free-riding or whether
they have to take up their burden in securing the physical functioning of global oil markets
is an issue worth debating in the future. A similar level of uncertainty surrounds the effects
of the recent deal between OPEC and some non-OPEC states such as Russia on produc-
tion cuts in order to stabilize price levels. It is unclear whether this anticompetitive action
can have a long-term effect on the price of oil.6
3. ENERGY SECURITY IN NATURAL GAS
While most analysts would agree with the description of the oil market as a global
commodity market with some functional deficits, natural gas has always been seen as a
regionally traded commodity. In the past, three different regional markets have emerged: a
Eurasian market, mainly fed by Russia and Norway; an American market, supplied by US
and Canadian production; and a recently developing Asian-Pacific market, with Japan
as the largest importer. The reason for this structure can be mainly found in the physics
of natural gas as an energy source. In the beginning, natural gas was only seen as a waste
by-product of oil recovery and hardly used at all. Later, after understanding its value for
energy supply, the issue of transporting natural gas became crucial. Pipelines were seen as
the only adequate option for years. This also explains the strong infrastructure depend-
ence of natural gas markets. Only in the 1980s did the first commercial large-scale trade
with liquefied natural gas (LNG) start to emerge. The externality of high investment needs
for infrastructure and inflexible trade with natural gas can be seen as the most influential
market failure that stopped a real global natural gas market from taking shape.
During the 1990s, the EU Commission started its first attempt to bring competition
to the natural gas markets in Europe. This implied solving two problems: first, the exten-
sion of the existing infrastructure, in order to give companies access to different import
pipelines; second, breaking up supply monopolies and traditional ties between European
energy companies and their suppliers in Russia, Norway or Northern Africa. While the
6
David Sheppard, ‘Oil Futures Raises Doubts over OPEC Deal Rally’, in Financial Times, 9
December 2016, p. 24.

LEAL-ARCAS_9781786431042_t.indd 154 08/09/2017 13:02

%
40 400
35 350
30 300
25 250
20 200
15 150
10 100
5 50
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Share of LNG import capacity as % of total gas import capacity
Share of LNG imports as % of total gas imports
LNG import capacity in Europe, in billion cubic metres per year
Sources: European Commission, Eurogas, EON Strategic Trends 2016 (Center for Security Studies, ETH
Zurich).
Figure 8.2 LNG in Europe
Commission was supported by the more liberal, market-oriented and smaller member
states, it met fierce resistance in Germany and France. After several legislative attempts,
the EU Commission managed to settle a liberal market order with the Third Internal
Market Package from 2009, guaranteeing free choice of supplier, establishing regulatory
authorities and strengthening market oversight.
Not only were regulatory changes within the several regional markets crucial, but so
was the emergence of LNG supply as an alternative to classical deliveries by pipeline.
With impressive efficiency gains in the process of liquefaction, transport and regasifica-
tion, LNG became a competitor to pipeline gas over the last two decades. In 2011, LNG
reached a level of more than 20 percent of EU imports. In 2015, LNG terminals already
covered a third of EU gas import capacity (see Figure 8.2).7
However, not only the means of importing gas, but also the ways of pricing natural gas
and the general structure of markets have changed fundamentally. While for many years,
natural gas was traded under opaque long-term contracts between companies in EU
member states and their counterparts in producer countries, alternative pricing models
and a growing trade on spot markets has emerged. In addition to that, the strong link
to oil prices is slowly disappearing. This was another aspect in why natural gas markets
7
Cf. Fischer 2016 (n 4).

LEAL-ARCAS_9781786431042_t.indd 155 08/09/2017 13:02

were far from functioning, since their price-building did not correspond to the supply and
demand of natural gas, but to the supply and demand patterns of oil – a mechanism that
had historical reasons in investment security and the desire for price stability, but became
largely outdated in the market realities of the 21st century.
Beside the changes to pricing mechanisms, also the functioning of gas markets changed
fundamentally. More and more gas is traded on spot markets today. Even Russia’s
Gazprom has started auctions for gas deliveries. This has created a more liquid and com-
petitive EU gas market over the course of the last couple of years.
Overall, market failures in natural gas markets have been reducing over the years.
Especially the externality of pipeline infrastructure dependence has become less domi-
nant. Also the supply monopolies – at least on EU markets – have been reduced, since
nearly every member state nowadays has access to different supply sources. The market
has become much more sensitive to supply and demand changes over the short and
medium term.
Looking at energy security in the gas sector, parameters have changed significantly
over the years, especially in Europe. Today, gas supply relations are more market-oriented
than ever. Gas security in general can be regarded as relatively high. However, there are
exceptions to this. Among these exceptions is the existence of infrastructural islands, low-
connected regional markets with a single supplier. This used to be the case for the Baltic
states and is still the case in large parts of south-east Europe, where Russia is still the
single supplier. What has become more problematic in recent years is the role of transit
states for pipeline gas. While generally supplier and consumer have a mutual interest in
identifying an adequate price level for the delivery of gas, transit countries have a pure
rent-seeking interest after a pipeline infrastructure project is finished. Therefore, the use
of transit pipelines for political reasons or as a means to earn higher revenues seems to be
an issue of growing concern. In this case, transit countries turn out to be an externality
that could lead to a market failure.
The more regional gas markets become liquid and in that way turn out to be global
commodity markets of their own, the more market failures of oil and gas markets are
turning out to be similar. Keeping markets open and securing global sea lanes for LNG
transports, and developing storage facilities and crisis response mechanisms turn out to
be decisive factors for resilient supply structures.
4. EU POLICY ON ENERGY SECURITY
Although energy policy played a crucial role in the beginning of Europe’s post-war inte-
gration story with the European Coal and Steel Community (ECSC) and Euratom, real
steps towards integration took another 50 years to materialize.8 Not even the oil crisis
in the 1970s led to an integration of energy policies, but rather to different domestic
adjustments in national policies and an overreliance on transatlantic relations, especially
in securing oil supplies. It might also be important to mention that, at least from 2000
8
David Buchan, Energy and Climate Change: Europe at the Crossroads, Oxford University
Press, 2009.

LEAL-ARCAS_9781786431042_t.indd 156 08/09/2017 13:02

onwards, energy security was more related to the secure supplies of natural gas than the
stability of global oil supplies. This turned out to be quite contrary to the US, where
energy security was traditionally connected to government policies in the field of oil
supply security.
One of the major obstacles to the development of a common EU policy on energy
policy in general has always been the national prerogative on the structure of the national
energy supply and the energy mix, as stated in Art. 194, paragraph 3 of the Treaty on the
Functioning of the European Union (TFEU). In the past decades, initiatives were mainly
blocked by the more resource-rich states such as the United Kingdom, the Netherlands
or Denmark, due to their fear of losing national control over their domestic oil and gas
reserves.
Consequently, energy security policy on EU level started from the basis of existing EU
legal competence, namely from the construction of a common EU energy market. The
EU Commission’s approach during the 1990s to develop the two markets, one for natural
gas and one for electricity, was also framed as strengthening the EU’s policy on energy
security. It comes as no surprise in this context that the EU has viewed energy security
issues mainly as a regulatory question of how to fix market failures.
In the following two sections, we will first look at EU domestic policies on oil and gas
security as well as the impact of the more pronounced decarbonization policies. In the
second part, the EU’s emerging external policy on energy security will be analyzed.
4.1 EU Domestic Policy Reactions on Energy Security Challenges
While the EU’s external energy policy dimension is a relatively new area of common
action, the regulatory approach on developing markets and crisis reaction mechanisms
has already been in place for some time. EU policies on natural gas are, however, further
developed than those on oil. In addition to fuel specific policies, the EU has connected
its climate, renewable energy and energy efficiency closely to its energy security policy.
Consequently, substituting oil and gas as well as reducing consumption would deliver on
an increase of supply security. Without elaborating in more detail on specific policies in
this regard, we will have a closer look at this in the last part.
4.1.1 Oil
In 2015, crude oil and petroleum products constituted 34 percent of the EU’s overall
energy consumption, while, at the same time, around 90 percent of oil supplies were being
imported from abroad.9 For decades, reactions to global challenges to the security of oil
supplies were left to the United States and the crisis reaction mechanisms developed by the
International Energy Agency (IEA) after the first oil crisis in the 1970s. Since all member
states of the European Community were also members of the IEA, this transatlantic
system proved to be sufficient to address short-term regional supply cuts and global price
peaks over the course of some decades.
Although the European Economic Community had already agreed in 1968 on a direc-
tive for oil stocks and adapted its policy in 1972, the focus remained on the structure of the
9
European Commission, EU Energy in Figures, Statistical Pocketbook 2016, Brussels 2016.

LEAL-ARCAS_9781786431042_t.indd 157 08/09/2017 13:02

IEA oil stock mechanism. The Commission’s attempt in 2002 to widen the EU’s oil stocks
directive to keeping reserves for 120 days failed due to the resistance of member states in
the Council. When Central-Eastern European states joined the EU in 2004 and 2007, only
19 out of 27 member states were also members of the IEA. Therefore, another attempt to
develop a coherent EU policy on oil stocks, as proposed by the EU Commission in 2008,
did turn out to be successful. With the decision on EU Directive 2009/119/EC, the EU
developed an individual crisis response mechanism for oil stocks, giving member states the
choice between keeping reserves for 90 days of imports or 61 days of average consump-
tion. In addition, the ‘Coordination Group Oil’ was tasked with developing an emergency
reaction mechanism and a transparent monthly oversight on the individual oil stocks of
member states was introduced.
On the domestic level, the EU only reacts to short-term market failures, such as exter-
nalities due to regional supply disruptions or short-term price peaks. As discussed later,
the external dimension seems to be more crucial for the long-term security of oil supplies,
although the EU’s role in this context is also of limited impact.
4.1.2 Natural gas

EU policies on energy security in the natural gas market have been more comprehensive
and extensive than in the area of oil. Policies on natural gas can be separated into two
categories – the market-making policies and the crisis-response policies – with both
addressing crucial questions around energy security.
The creation of a functioning internal gas market has been the prime instrument on the
side of the EU Commission to improve the overall energy security situation in Europe. The
idea behind this step was that enlarging the size of the market from individual national
to one large EU-wide market would stop single suppliers from blackmailing individual
states and setting artificially high prices. This, however, required strong intervention on
the side of the Commission. With a first directive passed in 1998, the Commission intro-
duced initial measures to guarantee third-party access (TPA) to the gas infrastructure in
Europe, challenging incumbents in the member states.10 After several improvements in the
legislation in 2003,11 the Third Internal Market Package from 2009 was the latest and most
important step in developing rules for the functioning of the internal gas market.12 With
this package, the independence of national regulators was increased, the unbundling of
transmission and import was improved, the EU-Agency for the cooperation of national
10
European Parliament and Council of the European Union, Directive 98/30/EC Concerning
Common Rules for the Internal Market in Natural Gas, 22 June 1998, Brussels.
11
European Parliament and Council of the European Union, Directive 2003/55/EC Concerning
Common Rules for the Internal Market in Natural Gas and Repealing Directive 98/30/EC, 26 June
2003, Brussels.
12
The Third Internal Market package consists of five legislative acts, of which two apply for
natural gas only and one for electricity and gas. The respective three are: European Parliament and
Council of the European Union, Directive 2009/73/EC Concerning Common Rules for the Internal
Market in Natural Gas and Repealing Directive 2003/55/EC, 13 July 2009, Brussels; European
Parliament and Council of the European Union, Regulation EC/715/2009 on conditions for access
to the natural gas transmission networks and repealing Regulation EC/1775/2005, 13 July 2009,
Brussels; European Parliament and the Council of the European Union, Regulation EC/713/2009
on establishing an Agency for the Cooperation of Energy Regulators, 13 July 2009, Brussels.

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regulators (ACER) was founded, and the planning of infrastructure development was
transferred to ENTSO-G.
The development of a specific infrastructure policy for gas was a second important
aspect within the market-creation agenda of the Commission. While in the first years of
its gas infrastructure policy, the Commission was only able to finance feasibility studies in
the range of a couple of million Euros per year, the financial contribution increased mas-
sively after the gas crisis in 2009, following a dispute between Russia and the Ukraine on
gas deliveries. With the European Economic Recovery Plan (EEPR) and its energy infra-
structure program, financial support for gas infrastructure projects increased remarkably
to 2.4 billion Euros for electricity and gas combined.13 With the new budget for 2014–2020
the co-financing options for energy infrastructure were massively widened again. With
this instrument, the EU is now able to co-finance new LNG-Terminals, reverse-flow
options in pipelines and new interconnectors. Overall, the emergence of spot-market trade
and the competition between gas from different sources (pipeline vs. LNG; Eastern vs.
Southern) cannot be explained without taking the Commission’s infrastructure develop-
ment efforts into account.
While the policy for creating a functioning gas market with sufficient infrastructure
mainly addresses issues around imperfect competition and externalities, in 2010 the EU
also developed its first legal instrument for crisis reaction and preparation with real impact
on gas security. Although, already in 2004, the EU had agreed on a directive establishing
the ‘Coordination Group on Gas’ and an information exchange, this can be regarded
as a rather informal measure looking at its real effects.14 Regulation 994/2010 however
constructs a system of safeguards in the case of national or regional supply disruptions.
It asks member states to develop Preventive Crisis Action Plans and forces member states
to undertake non-market-driven investments, following the N-1-principle.15 When Russia
decided to stop delivering gas to the Ukraine in winter 2014 after a conflict about open
debts escalated, the assessment of Europe’s gas supply situation showed that the situ-
ation had improved massively compared to the situation of the last gas crisis in 2009.
This however, had been the result of both market building and crisis response measures
together.
4.1.3 Renewables and energy efficiency

Although the primary measures addressing energy security in the natural gas and oil
sectors were fuel-specific policies, from 2007 onwards the EU’s decarbonization poli-
cies became more and more linked to Europe’s security of supply situation. The idea
behind this paradigm shift was that reducing and compensating the use of fossil fuels
would increase the resilience of the EU’s energy system against outside shocks. With
the European Council’s decision of 2007 on achieving the 20-20-20-strategy by 2020,
13
For an overview of the projects financed by the EEPR see: http://ec.europa.eu/energy/eepr/
projects/ (last accessed 06.01.2017).
14
Council of the European Union: Directive 2004/67/EC concerning measures to safeguard
security of natural gas supply, 26 April 2004, Luxemburg.
15
Tim Boersma, Energy Security and Natural Gas Markets in Europe: Lessons from the
EU and the United States, Routledge Studies in Energy Policy, London/New York, 2015, pp.
61–70.

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the guidelines were set to reduce GHG emissions, increase the share of renewables and
improve energy efficiency at large.16
The decision on the Renewable Energies Directive 2009/28/EC with binding national
targets to achieve the EU-wide 20 percent target by 2020 and a specific target for trans-
portation of 10 percent by 2020 was the EU’s major piece of legislation in this context. It
also meant a substitution of natural gas in the overall energy mix and especially of oil in
the transport sector. Also, a whole range of energy efficiency measures have been agreed,
targeting transport, via emission limits for passenger cars and larger vehicles, buildings
or energy efficiency in end-use.
4.2 The EU’s Foreign Policy on Energy Security
The development of an explicit external energy policy is one of the most recent develop-
ments in the field of energy policy. This late arrival aligns with the relatively weak position
the EU had (and partially still has) on foreign and security policy in general. It comes as
no surprise therefore that the EU framed its approach over many years as the ‘external
dimension’ to its energy policy – a term that seemed to be much more suitable to describe
the Commission’s actions in this field than a specific energy foreign policy. The main
element of this external dimension approach was the creation of markets along and in
accordance with the EU’s internal energy market.
With the fall of the Berlin Wall and the transformation in Eastern Europe starting in
the years 1989/90, also the conditions for member states in dealing with energy supplies
from Eastern Europe were set to change. A new rationale and legal framework had to be
developed. European actors put an early emphasis on the development of the Energy
Charter Treaty that would guarantee reciprocal investment conditions. It was also sup-
posed to develop rules for the transit of energy sources through the territory of contract-
ing parties. This was mainly directed at creating a common framework for Russia and the
former Commonwealth of Independent States (CIS) countries. It was also in accordance
with the emerging European domestic market structures. Although Russia signed the
treaty, it never ratified it, because of the lack of a Transit Protocol, important for Russia’s
exports to Europe.
In a similar way, the EU tried to introduce market principles along the evolving struc-
ture of its internal market into the bilateral relationships with individual states in its
neighborhood. The prime example here is the Strategic Partnership with Russia, under
which the Working Group on Energy mainly focused on developing market principles for
the Russian domestic market and trade conditions with the EU. Similar approaches were
chosen in the context of the EU’s neighborhood policy, under which the development of
functioning energy markets always played an important role.
The institutional manifestation of the EU’s external energy policy certainly is the
creation of the ‘Energy Community’ that was rightly called the ‘Energy Community for
South-East Europe’ in the beginning. Although the aim of the Energy Community is
stated as the development of common rules for a functioning market, in fact, it is the
16
European Council, Presidency Conclusions of the European Council meeting of 8/9 March
2007, 7224/1/07 Rev 1, Brussels.

LEAL-ARCAS_9781786431042_t.indd 160 08/09/2017 13:02

enlargement of the EU’s domestic market to neighboring countries with an accession

perspective. This strategy has proven successful in many cases, especially in the Western
Balkans, where most states have adapted their national legislation to the EU’s Energy
Acquis Communautaire.
When it comes to issues that go beyond the market enlargement perspective, the EU’s
energy foreign policy is showing clear deficits. As Susanne Rompel has shown in her
remarkable work on the EU’s energy foreign policy, diverging interests among member
states and a lack of the financial and legal means to support EU approaches stand contrary
to the often mentioned ambition of developing a coherent energy foreign policy.17 In the
case of the Nord Stream pipeline, for example, bilateral arrangements between individual
companies managed the realization of the infrastructure project, without asking for the
consent of or even financial assistance from the EU as an actor. Financing was secured
privately and EU regulation did not apply. Conversely, one of the EU’s most favored infra-
structure projects, the Nabucco pipeline, bringing gas from Central Asia and the Caucasus
via Turkey to Europe, was planned for more than a decade, and although it was offered
financial assistance and political support, it was never realized. Both examples show quite
impressively that the EU has not been the central player in the context of ‘pipeline politics’
for some years. It might be asked, however, how far this kind of EU foreign energy policy
is needed at all, following the regulatory state approach. The main success of Europe’s
natural gas policy so far clearly lies in the creation and stabilization of markets. Although,
speaking with a ‘single’ voice in international energy policy was already an objective in the
EU’s 2007 energy action plan, little has happened that went beyond informal exchange
and partnership agreements with other consumer, producer or transit states. An exception
might be the creation of the EU-US energy council, which also started elaborating on
including energy issues into the envisioned free trade agreement TTIP.18
5. THE ‘ENERGY UNION’ AND THE ATTEMPT TO ADJUST

THE EU’S REACTION TO GLOBAL ENERGY SECURITY
CHALLENGES
Starting with the gas crisis in winter 2009 and certainly enforced by disputes between
Russia and Ukraine on gas deliveries in 2014, a shift in the perception of energy security
has appeared on the side of the EU Commission. This strategic shift encompasses a
clearer addressing of the single major energy security problem the EU is facing in the view
of many stakeholders in Brussels: gas deliveries from Russia.
For the first time, the ‘European Energy Security Strategy’ of May 2014 clearly states
that Russian gas supply is the single most important energy security challenge for EU
member states.19 The central aspect of the strategy paper is a scenario analysis of p
ossible
17
Susanne Rompel, Eine Energieaussenpolitik für die Europäische Union. Anspruch und
Wirklichkeit, Institut für Europäische Politik, Europäische Schriften 95, Baden-Baden, 2015.
18
Rafael Leal-Arcas, The European Energy Union: The Quest for Secure, Affordable and
Sustainable Energy, Claeys & Casteels, Deventer/Leuven, 2016, pp. 35–55.
19
European Commission, Communication from the Commission to the European Parliament
and the Council: European Energy Security Strategy, COM(2014) 330, 28 May 2014, Brussels.

LEAL-ARCAS_9781786431042_t.indd 161 08/09/2017 13:02

supply disruptions in the context of EU–Russia natural gas trade in the winter of 2014/15.
The set of instruments, however, has not changed fundamentally compared to earlier
documents: improving the internal market; the use of crisis response mechanisms; and
the lowering of domestic demand. Strengthening the domestic production of fossil fuels
can be seen as one aspect that received more attention following the experience with
the US shale gas revolution and the hope of initiating similar developments in the EU.
Under the headline of ‘diversification’, the Commission also emphasizes the potential of
growing LNG supply and interestingly mentions possibilities of increasing supplies from
the second and third biggest suppliers Norway and Northern Africa, not from Russia
however. The clear support for this can also be seen as a deviation from the classical
approach of market-driven alternatives.
This shift towards a more pronounced mentioning of a perceived energy security
challenge cannot be explained without taking into account changing EU politics. From
March 2007 onwards, when the European Council endorsed the plan for an ‘integrated
energy and climate policy’, a balance between the three strategic aims of sustainability,
competitiveness and security of supply was promised by the Commission. In the notion
of Central-Eastern European member states, however, EU action in this policy field
drifted strongly towards decarbonization and environmental sustainability, while the
other two parts of the triangle were not as prominently mentioned as before. Especially
Polish resistance against further climate policy measures, as proposed by the Commission
and supported by North-Western European member states around Germany, France
and the United Kingdom, can be explained by having this in mind. With Jean-Claude
Juncker taking office as President of the Commission in late 2014, his project of creating
an ‘Energy Union’ was meant to address this issue and create a new narrative around the
EU’s energy policy.
When the Commission presented its proposal for the ‘Energy Union’, ‘energy secu-
rity, solidarity and trust’ ranked number one in the listing of the five dimensions to the
strategy,20 separate from the chapter on the functioning of the internal energy market.
The ‘Energy Union’ strategy was endorsed by the European Council a few weeks later.
Having this shift in priorities in mind, the proposed aims and instruments for improving
the EU’s energy security policy are also impressive. While they do not break fundamen-
tally with the traditional view of creating a market as the best means to improving energy
security, they add a couple of new perspectives to it. The clear message to take political
action to diversify away from one single supplier can be read clearly as non-market-driven
action to reduce the share of Russian gas imports. This goes hand in hand with the
important role that is granted to LNG in this context. Even the European Council took
up a Polish proposal to assess whether demand aggregation (in gas) could be an option to
move forward for securing supplies.21 This would in fact create an artificial and probably
ineffective demand-side cartel among EU gas consumers.
20
European Commission, Communication from the Commission to the European Parliament
and the Council: A framework strategy for a resilient Energy Union with a forward-looking climate
change policy, COM(2015) 80, 25 February 2015, Brussels.
21
European Council: Conclusions of the European Council on the Energy Union, 19 March
2015, online: http://www.consilium.europa.eu/en/press/press-releases/2015/03/conclusions-energy-
european-council-march-2015/ (last accessed 06.01.2017).

LEAL-ARCAS_9781786431042_t.indd 162 08/09/2017 13:02

Another important aspect is the Commission’s plan to improve the Gas Security
Regulation, giving Brussels more influence on crisis-response mechanisms and forcing
member states to create a common preventive action plan.
Finally, the Commission proposed to take a more active role in international energy
policies:
Energy policy is often used as a foreign policy tool, in particular in major energy producing and
transit countries. This reality has to be taken into account when discussing Europe’s external
energy policy. Therefore, the European Union has to improve its ability to project its weight on
global energy markets. Together with its major partners, the European Union will work towards
an improved global governance system for energy, leading to more competitive and transparent
global energy markets.22
For the first time, in this document the Commission is clearly trying to form a foreign
policy in the field of energy that notably goes beyond pure market enlargement and bilat-
eral cooperation offers. As a consequence, the EU Council of Foreign Ministers adopted
a position paper on ‘Energy Diplomacy’ – the first ever comprehensive energy foreign
policy paper agreed upon by all EU member states.23 It also focuses on diversification
efforts and mentions strong EU involvement in building global governance systems for
energy.
6. CONCLUSION AND RESEARCH AGENDA
This chapter started with a view on global energy security challenges from a public policy
perspective, identifying different dimensions of market failures. By categorizing market
failures into four groups, we looked at cases in the global oil market and changes in the
structure of gas markets. It became clear that energy security challenges have changed
remarkably over the years in both markets. In the section on EU energy policy reactions,
we emphasized the process of market building as the main policy response developed by
the EU over recent decades. While infrastructure development and regulation were at
the core of this process, the creation of crisis response mechanisms added a non-market
perspective to the overall picture. With the Russian–Ukrainian gas crisis in 2009 and
political changes on the EU level, the focus of the EU’s energy policy has slightly shifted
away from a pure market perspective towards a stronger politicization of energy relation-
ships, especially in the context of EU–Russia relations. The development of the concept
for a ‘Energy Union’ in 2014/15 has brought a more political perspective to the question
of energy security as well. So far, only a few decisions on additional instruments and
measures in the context of the ‘Energy Union’ have been taken. Over the coming years
it will become clearer, whether and how the Commission’s strategy is also accepted and
implemented by the member states.
The relation of global energy security challenges and the EU’s energy (security) policy
22
Cf. European Commission 2015, p. 6.
23
Council of the European Union: Council Conclusions on Energy Diplomacy, 10995/15, 20
July 2015, Brussels.

LEAL-ARCAS_9781786431042_t.indd 163 08/09/2017 13:02

provides a whole set of new questions for scholars, especially in political science. Among
these questions, the effects of changing global circumstances, the temporary age of abun-
dance, on EU energy policy could be an interesting topic for research. In this context,
the EU’s dealings with big suppliers might be relevant too. How far is the EU’s energy
security discourse still dominated by a lack of access to resources? Or are foreign policy
and geopolitics more influential than market developments?
Finally, the Paris Agreement on climate change from November 2015 might also influ-
ence the global economy of fossil fuels. Despite its own transformations strategy, to what
extent does the EU deal with the effects of global decarbonization and does it have an
understanding and adequate instruments for dealing with transformation processes in
resource-rich nations?

LEAL-ARCAS_9781786431042_t.indd 164 08/09/2017 13:02

9. Rule-maker or rule-taker? The EU and the shifting
global political economy of energy
Thijs Van de Graaf
1. INTRODUCTION
The energy policy of the European Union (EU) does not stand on its own, operating
in a political or economic vacuum. Instead, it is heavily influenced by the international
political economy (IPE), that is, the shifting balance between states and markets in the
world economy. In spite of its strategic character, which makes governments want to vigi-
lantly guard their sovereign prerogatives over energy, the energy sector has not escaped
the marked swings in the state–market pendulum that have characterized the global
political economy throughout modern history. The shape and substance of energy policy
has varied over time in response to price developments, changing perceptions of exter-
nalities associated with the energy sector, and shifting ideological preferences about the
appropriate role for government in the economy.1
In the post-war period, energy policies used to be firmly in state hands, with national
monopolies being common, and energy policy strictly subject to industrial planning
and central steering. In the 1980s, the specter of deregulation and privatization reigned
supreme. The dominant idea was no longer one of central planning, but rather one of
competition and market liberalism. Since the turn of the millennium, and particularly
since the Great Recession of 2008, a new interventionist period has emerged. It is driven
in large part by the rise of new energy-consuming powerhouses such as China, India and
Brazil, which have decidedly statist and strategic energy policies. But it also follows from
efforts to deal with climate change, which implies a greater role of the state in regulating
and governing energy markets.
Developments in EU energy policy and law cannot be decoupled from this broader
international political economy (IPE). The EU itself was designed in the 1950s to enhance
peace, prosperity and democracy in Western Europe through economic integration. Its
principal tool was economic regulation, geared towards making and maintaining markets.
The ‘1992 project’ of completing the Single European Market (SEM) reinforced this
liberal outlook, at a time when the EU also began to make strides on the energy front.
The EU’s liberal energy agenda of the 1990s – with its focus on liberalizing electricity and
natural gas markets – was supported by an extraordinarily benign environment: the end of
1
D. Finon, ‘From Energy Security to Environmental Protection: Understanding Swings in the
Energy Policy Pendulum’ (1994) 6 Energy Studies Review; F. McGowan, ‘Can the European Union’s
Market Liberalism Ensure Energy Security in a Time of “Economic Nationalism”?’ (2008) 4 Journal
of Contemporary European Research 90; A. Goldthau, ‘From the State to the Market and Back:
Policy Implications of Changing Energy Paradigms’ (2012) 3 Global Policy 198; T. Van de Graaf and
others, The Palgrave Handbook of the International Political Economy of Energy (Springer 2016).
165
LEAL-ARCAS_9781786431042_t.indd 165 08/09/2017 13:02

the Cold War, the American unipolar moment, the spread of the neo-liberal Washington
Consensus, and historically low oil prices.2
The EU’s aim to promote markets and institutions for oil, gas, electricity and carbon
has long relied solely on the regulatory tools of the single market, and more specifically
the EU’s competences with regard to competition policy. Even at a time when the EU’s
internal energy market was hardly completed, the EU sought to export its own acquis
communautaire towards neighboring countries. That has worked for candidate member
countries, and some smaller countries in the EU’s periphery, but has run into problems
as the EU tried to extend its reach farther away from its own borders. Confronted with
a resurgent Russia, whose economy and national confidence have thrived in the period
2000–2014 on the back of high oil prices, the EU has gradually adjusted its energy govern-
ance strategy. Several rules and principles of the internal energy market have been applied
in a more strategic manner, pointing to a possible ‘mercantilist’ turn in the EU’s approach
to energy. As Goldthau and Sitter have aptly summarized it, the key challenge for a ‘liberal
actor’ such as the EU is to adapt to an increasingly ‘realist’ energy world.3
This chapter begins by summarizing the key historical shifts in the global political
economy of energy, which provides the contextual backdrop against which the EU has
attempted to develop its own energy policies and regulations. Next it describes the key
features of the EU’s traditional liberal approach to energy governance, focusing on the
internal energy market, the attempts to export those internal energy market rules to
neighboring countries, and the policies to encourage decarbonization. The subsequent
section argues that the EU may be shedding some of its liberal attitudes in favor of a
more mercantilist energy governance strategy. The final section concludes and raises some
suggestions for future research.
2. KEY ERAS IN THE IPE OF ENERGY
The EU faces a set of daunting energy security challenges. The bloc of 28 member states
is the world’s largest energy importer, importing 53% of its energy, at an annual cost of
around €400 billion (in 2013). As the EU’s indigenous production of oil and gas declines,
its import dependency is set to grow.4 This means more reliance on producers in unstable
regions (such as the Middle East) or on countries with which the EU has a troubled rela-
tionship (such as Russia). This growing import dependence comes at a time when trends
such as climate change, the rise of new energy-consuming heavyweights such as China
and India, and a return of state-interventionist policies are all reshaping global energy
relations. As a large importer of fossil fuels, the EU is very exposed to supply security chal-
lenges stemming from market and political shifts in the international oil and gas markets.5
Three major eras are traditionally identified in the IPE of energy, with a fourth currently
2
A. Goldthau and N. Sitter, A Liberal Actor in a Realist World: The European Union
Regulatory State and the Global Political Economy of Energy (Oxford University Press 2015).
3
Ibid.
4
European Commission, European Energy Security Strategy, COM (2014) 330 final, May 28,
2014.
5
Goldthau and Sitter, A Liberal Actor in a Realist World (n 2).

LEAL-ARCAS_9781786431042_t.indd 166 08/09/2017 13:02

Rule-maker or rule-taker? 167
in the making. Each era is characterized by a different power and interest constellation,
as well as a different energy policy agenda.6
2.1 The Era of the Seven Sisters
In a first phase, from roughly the interwar period to the late 1960s, oil was the only energy
commodity traded in large quantities. This international oil trade did not provoke a col-
laborative regulatory response from the major states, however, because they benefited
from the strong position of their domestic oil companies. Indeed, for much of the first
decades of the twentieth century, a handful of Western companies dominated interna-
tional oil trade through formal cartel arrangements.
These so-called ‘Seven Sisters’ were vertically integrated companies, implying that
they owned, produced and transported the bulk of the oil trade. Linked by a series
of formal cartel arrangements they restricted the supply of petroleum and controlled
oil prices on world markets. The two cornerstone agreements supporting this cartel
were the 1914 Red-Line Agreement and the 1928 Achnacarry Agreement. The former
specified that Middle Eastern reserves would be developed through one company, the
Turkish Petroleum Company, which was owned by three international oil companies –
British Petroleum (BP), Royal Dutch-Shell and the Compagnie Française des Pétroles
(CFP). The Achnacarry, or As-Is Agreement, in turn, divided the sale of oil in world
markets between BP, Royal Dutch-Shell and Exxon. During the 1930s, other major
oil companies such as Mobil, Texaco, Socal and Gulf worked themselves into the
agreements.7
Except for petroleum, which was traded internationally in significant quantities,
national energy markets were mostly autarkic. There were nationally segregated industries
in the coal, electricity and nuclear sectors. The vast majority of the energy consumed in
the largest countries was also produced within their borders. This was especially true for
coal, which remained the single most important commercial fuel until 1966.8 Since most
industrialized countries were endowed with large indigenous coal reserves, there was
almost no international trade of coal.
2.2 The OPEC Revolution
After World War II, the Seven Sisters cartel began to break down in parallel with the col-
lapse of colonial power. From the late 1940s onward the oil-exporting countries began
to negotiate increasingly favorable deals. In their effort to capture a larger share of the
oil rents, they forced the oil majors into renegotiations of the royalties, taxation and
cost sharing. The host governments began to successfully pressure the Seven Sisters to
increase their respective production quotas. Eventually, this trend culminated in a series
6
B. Mommer, ‘The Governance of International Oil: The Changing Rules of the Game’
(Oxford Institute for Energy Studies 2000); Goldthau, ‘From to the State to the Market and
Back’ (n 1); R. Dannreuther, ‘Energy Security and Shifting Modes of Governance’ (2015) 52
International Politics 466.
7
A.L. Danielsen, Evolution of OPEC (Harcourt Brace Jovanovich 1982).
8
V. Smil, Energy at the Crossroads: Global Perspectives and Uncertainties (MIT Press 2005).

LEAL-ARCAS_9781786431042_t.indd 167 08/09/2017 13:02

of nationalizations, so that by the mid-1970s, the Middle Eastern governments had taken
control over the oil business within their boundaries.
It is in this context that the birth of the Organization of Petroleum-Exporting
Countries (OPEC) should be situated. OPEC was founded in 1960 at the initiative
of the Venezuelan Oil Minister Pérez Alfonso and the Saudi Oil Minister Abdullah
Tariki. OPEC’s five original members were soon joined by other oil-exporting states,
mainly from the Middle East and North Africa. By 1973, OPEC had 12 members and
was producing 53.9% of total world oil output. More importantly, the oil-exporting
countries had succeeded in slowly wresting control of production and prices from the
oil majors. The lead was taken by Libya where Colonel Qaddafi, after seizing power in
1969, threatened to expropriate any foreign oil company that did not cut production
and pay more taxes. The oil companies reluctantly gave in, and the Libyan example
was followed by other oil-producing states, all claiming a larger share of the companies’
profits. After a while, the companies united in a common front and sought to negotiate
with OPEC as a bloc. This resulted in the 1971 Tehran and Tripoli Agreements, which
increased royalties and prices. Simultaneously, there was a wave of nationalizations in
the oil industry, including Libya (1970), Iraq (1972) and Venezuela (1974), which led
to the present era in which national oil companies control the majority of the world’s
oil reserves. These developments set the stage for OPEC to discover the political utility
of its ‘oil weapon’.
The trigger to the oil crisis was the Yom Kippur War of October 1973. The pro-Israeli
position of the United States and the Netherlands in that conflict prompted some Arab
oil-exporters – not OPEC, as is commonly believed – to impose oil embargoes on those
two countries. Iraq, Iran, Venezuela, Indonesia and other OPEC members did not par-
ticipate in the embargo. The export ban was later extended to Portugal, South Africa and
Rhodesia. As a result, oil supplies fell about 9% on a global scale between October and
December 1973.9 The major oil-consuming countries reacted to this crisis in an uncoor-
dinated and competitive manner. Some pressured their oil companies into giving them a
preferential treatment. Others imposed restrictions on the export of petroleum. Larger
countries’ companies bid up oil prices on the spot market. European countries sought to
distance themselves from the Dutch and appease the Arabs. This scramble for oil supplies
actually aggravated the effect of the oil embargo, and thus undermined the energy security
of the OECD countries.
2.3 The Neoliberal Era
OPEC’s dramatic assertion of market power in the early 1970s would fundamentally
alter the rules of the international oil game. After wrenching control over their national
oil and gas sectors from the oil majors, the OPEC countries were now able to set world
oil prices throughout the 1970s, using Arabian Light as a benchmark and defining refer-
ence prices for member states’ oil exports.10 This OPEC-dominated oil order provoked
9
D. Yergin, The Prize: The Epic Quest for Oil, Money & Power (Simon and Schuster 2011).
10
L. Maugeri, The Age of Oil: The Mythology, History, and Future of the World’s Most
Controversial Resource (Globe Pequot 2007).

LEAL-ARCAS_9781786431042_t.indd 168 08/09/2017 13:02

opposition from the United States, who had long acquiesced in and benefitted from
the company-dominated oligopoly. In response, Washington began advocating a set
of ground rules for the international oil system that competed with those advanced by
OPEC. At the heart of these ground rules, lay the basic principle that the market mecha-
nism should play a dominant role in the oil system.11
The United States pushed through its liberalist oil agenda in two stages. In a first
stage, between 1973 and 1980, it embraced a strategy of ‘circumscribed liberalism’.12
Domestically, the United States clung on to strict regulatory policies designed to
shield its consumers from rising world-market prices and to protect smaller oil firms.
Internationally, the United States emphasized the insurance role of the newly created
International Energy Agency (IEA) as opposed to the market interventionist role – that
is, the IEA’s emergency system was only to be activated when vital national interests were
at stake, not to alleviate prices in an emergency. In a second stage, starting in 1981 when
the Reagan administration took office, the United States turned to a strategy of outright
‘laissez-faire liberalism’. That is, government intervention was to be eradicated from the
domestic and international oil markets altogether.13
An important step down the road of laissez-faire liberalism was President Carter’s deci-
sion, in April 1979, to decontrol domestic oil prices. Following domestic deregulation,
successive United States administrations have sought to steer more of the world’s oil trade
into spot-market pricing systems, rather than the long-term, bilateral supply contracts
favored by OPEC.14 A marginal spot oil market had existed for years, centered mainly in
Rotterdam, but by 1978, it only accounted for a meager 3–4% of the total oil trade. Its
scope was broadening, though, thanks to the behavior of many producer countries. Eager
to exploit the bullish oil market, they began selling oil on the spot markets, which were
then more profitable than the traditional long-term contracts that had been the rule for
decades. Maugeri duly concludes that, ‘by a fateful irony, it had been OPEC itself that let
loose the “monster” – the market – during the 1970s, when it fell victim to its own greed’.15
More than anything else, the launching of the first oil futures contracts – often referred
to as ‘paper oil’ – on the New York Mercantile Stock Exchange (Nymex) in 1983 and on
London’s International Petroleum Exchange (IPE) in 1988 helped to craft a new oil world
no longer depending on bilateral long-term contracts. As the annual volume of contracts
increased year after year, these exchanges began to handle an ever-larger portion of the
world’s oil trade, and they became the principal arenas for price formation on the inter-
national oil markets.16 According to Maugeri, the introduction of futures contracts ‘was a
11
H.J. Bull-Berg, American International Oil Policy: Causal Factors and Effect (St Martin’s
Press 1987).
12
Ibid., p. 170.
13
Ibid.; P. Noël, Production d’un ordre pétrolier libéral: une politique normative américaine dans
les relations internationales entre 1980 et 2000 (Doctoral dissertation, University of Grenoble 2002).
14
F. Leverett, ‘Consuming Energy: Rising Powers, the International Energy Agency, and the
Global Energy Architecture’ in A.S. Alexandroff and A.F. Cooper (eds), Rising States, Rising
Institutions: Challenges for Global Governance (Brookings Institution Press 2010), p. 246.
15
Maugeri, The Age of Oil (n 10), pp. 137–8.
16
Leverett (n 14).

LEAL-ARCAS_9781786431042_t.indd 169 08/09/2017 13:02

historical turnaround for a sector that for many decades had seen the price of oil governed
by more or less successful oligopolies’.17
2.4 The Dawn of State Capitalism
In the 1990s, it was believed that oil would be traded on globalized markets, cleansed of
its nationality. At present, however, three trends are leading to a new equilibrium. The
trends are: the rise of new consumers; new anxieties about energy security; and growing
awareness of the realities of climate change. They bring the state ‘back in’ as the central
authority and locus of power in international energy relations, at the expense of the
unbridled belief in markets and institutions that reigned supreme in the 1990s. The EU’s
energy law and policy has not remained unaffected by this increasing politicization and
even securitization of energy trade.
A first major transition comes from geopolitical change. The two most significant changes
are the collapse of the Soviet Union in the early 1990s and the more recent rise of develop-
ing countries as energy importers. Non-OECD countries have seen their share in worldwide
energy demand rise from less than 30% in 1970 to almost 60% in 2014 (BP, Statistical Review
of World Energy, June 2015). Some of the world’s biggest energy importers (e.g., China,
India) are outside of any meaningful institutional apparatus for global energy governance.18
A second major transition is the increasing volatility in oil and gas markets, creating
new anxieties about energy security. Oil prices have swung markedly over the past few
years. The period 2005–2014 witnessed a cycle of high (and volatile) energy prices, after a
long cycle of low prices in the period 1985–2005. High oil prices in the 2000s spawned an
active debate about ‘peak oil’ and the amount of oil geologically available on the planet.
Although the revolution in shale gas and tight oil production in North America has
largely stymied this debate, it is clear that the cheapest oil reserves are increasingly being
produced from autocratic and sometimes politically unstable regions of the world. Since
oil is traded on a globally integrated market, developments anywhere could provoke ripple
effects throughout the world market.
Arguably the most important transition is linked to the issue of global climate change
and the need to decarbonize the global economy. Energy production and consumption is
the single largest source of greenhouse gas (GHG) emissions, representing almost 70% of
global emissions.19 States and markets have been slow to change, and world carbon emis-
sions continue to rise. Still, to the extent that states take meaningful action to reduce GHG
emissions, this is very likely to create incentives for a significant change in fuel choices
and energy production patterns. Incentives will shift away from consumption based on
heavily emitting sources, such as coal and petroleum, towards low emitting sources such
as wind, solar, geothermal and hydroelectric power. At the climate conference in Paris in
late 2015, for the first time ever, almost all of the world’s countries committed to reducing
or controlling their own greenhouse gas emissions.
17
Maugeri, The Age of Oil (n 10), p. 137.
18
T. Van de Graaf, ‘The IEA, the New Energy Order and the Future of Global Energy
Governance’ in D. Lesage and T. Van de Graaf (eds), Rising Powers and Multilateral Institutions
(Palgrave Macmillan 2015).
19
IEA, Energy and Climate Change: World Energy Outlook Special Report, 2015.

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3. THE EU’S LIBERAL APPROACH TO ENERGY

GOVERNANCE
The EU energy policy is thus guided by three objectives, namely energy security, envi-
ronmental sustainability and economic competitiveness. The preferred way for the EU to
reach those goals has always been the completion of the internal energy market and the
extension of the EU’s regulatory reach abroad. In parallel to this, the EU has the ambi-
tion of establishing itself as the world’s climate champion in international climate talks
and the transition towards a decarbonized economy. The next sections take up these three
tracks in EU energy policy.
3.1 Making Markets at Home
The liberalization of gas and electricity markets has long been the hallmark of the EU’s
energy policy. In the absence of a specific legal basis for the EU to develop a genuine
energy policy, the completion of the internal energy market represented a sort of ‘energy
policy in disguise’. It actually was a classic case of ‘spill-over’ whereby the development of
competences for the European Commission in a generic area makes it impinge upon other
areas as well. The EU’s energy policy has long derived from the internal market compe-
tences, but also competences with regard to transport and environmental policy. While the
Treaty of Lisbon has finally provided a legal basis for the EU to develop a proper energy
policy, the energy mix remains the exclusive prerogative of the member states. In practice,
however, this provision amounts to legal fiction. To be sure, national governments in the
EU have vigilantly guarded their sovereignty over energy policy. Yet, successive EU energy
and climate regulations (e.g., the 20-20-20 goals) have ensured that the space for each
member state to autonomously decide on its energy mix has become smaller over time.
The EU’s drive to build a fully-integrated internal energy market has focused primarily
on the liberalization of natural gas and electricity markets. The underlying goal was not
related to energy security or to climate change, but was to make sure that energy provid-
ers operate in a competitive environment that ensures affordable prices for end users
(industry, businesses, families). Natural gas and electricity are two network industries
characterized by a fixed infrastructure and thus prone to what economists call a ‘natural
monopoly’, much like the railroads and telecommunications sectors, other markets which
the EU sought to liberalize. Breaking down the old state-led monopolies in these network
industries proved a challenge for the EU. For a long time, the European Commission
relied on its traditional market-integrating and anti-trust policies to try and create a
common energy market. The Commission’s key goal was to make transmission operators
independent from supplier interests, with the expectation that this would lead to suffi-
cient cross-border infrastructure and generation capacity. Ownership unbundling was the
major focus of the legislative packages of 1996–1998, 2003 and 2009.20
The so-called Third Energy Package of 2009 was the most comprehensive one. The
package not only comprised the unbundling provisions, but also the creation of more
20
D. Buchan and M. Keay, Europe’s Long Energy Journey: Towards an Energy Union? (Oxford
University Press 2016).

LEAL-ARCAS_9781786431042_t.indd 171 08/09/2017 13:02

powerful networks of European regulators (the Agency for the Cooperation of Energy
Regulators, or ACER) and of transmission operators (the European Network for
Transmission System Operators for electricity and gas, the so-called ENTSO-E and
ENTSO-G). This package laid the foundation of further improvements in market inte-
gration. Even though this legislation was quite effective and forceful, the Commission
soon realized that it needed to intervene more because the imperatives of climate change
needed the EU to add infrastructure faster than markets could provide. Moreover, the
Russia–Ukrainian gas crisis of January 2009, much more severe than the short blip in gas
supplies in 2006, served as a wake-up call for the EU and showed that the Commission had
much more work to do in terms of security of supply measures (ensuring bi-directional
flow of gas pipelines, regulating energy security policies, coordinating strategic stocks of
gas, stress testing the system, etc.).
With the February 2015 launch of the Energy Union, energy market integration was back
on the table – as though it had ever been away. The Commission had quickly come to realize
that insufficient investments were made in infrastructure, and that market concentration
and weak competition kept on fragmenting the EU energy landscape. A political boost had
to be given in order to complete the internal energy market.21 A specific minimum intercon-
nection target was set for electricity at 10% of installed electricity production capacity of
the member states, which should be achieved by 2020 (15% by 2030). Transmission system
operation was also to become much more integrated. In short, the Third Energy Package
was to be updated and to become more robust for the internal market to be fully realized.
3.2 Exporting Rules to the Near Abroad
Just as with the EU’s drive to liberalize gas and electricity markets, the EU’s external
energy policy also largely derives from the EU’s competences with regard to the internal
energy market. Part of the EU’s external influence in energy markets happens indirectly,
as a by-product of domestic regulation. Because of the sheer size of the EU energy
market, the EU’s internal rules and regulations have significant effects beyond the EU
borders. For example, the EU’s Fuel Quality Directive (Directive 2009/30/EC) or its bio-
fuels sustainable standards and certification systems reverberate well beyond the EU’s
borders since they set standards that exporters to the EU market have to follow. Given the
huge size of the EU’s internal energy market, these standards have a far-reaching impact,
affecting the operations of businesses from Canadian tar sand firms to biodiesel produc-
ers in Brazil. The cross-border influence of these domestic regulatory standards derives
purely from the size and hence attractiveness of the EU’s market,22 which corresponds to
Damro’s concept of ‘market power’.23
Yet, the EU also undertakes active efforts to export its own internal energy market
rules abroad. The immediately neighbouring countries are the primary targets for this
attempted rule export, but the EU arguably tries to contribute to global regime building
21
EU Commission, Energy Union Package: A Framework Strategy for a Resilient Energy
Union with a Forward-Looking Climate Change Policy, 25 February 2015, COM(2015) 80 final.
22
A. Goldthau and N. Sitter, ‘Soft Power with a Hard Edge: EU Policy Tools and Energy
Security’ (2015) 22 Review of International Political Economy 941.
23
C. Damro, ‘Market Power Europe’ (2012) 19 Journal of European Public Policy 682.

LEAL-ARCAS_9781786431042_t.indd 172 08/09/2017 13:02

in the areas of energy and climate change. As Javier Solana wrote in one of the first EU
memos on external energy policy, ‘The EU should extend its own energy market to include
its neighbours within a common regulatory area with shared trade, transit and environ-
mental rules’.24 It is interesting to note that exporting the internal energy market rules
was an active policy goal for the EU even before the international energy market has been
completed. A 2014 progress report noted that further steps were needed to complete the
internal energy market, both the hardware component (e.g., investments in cross-border
electricity connections, especially for linking the grids of the Iberian peninsula, the Baltic
region, Ireland and the UK) and the software component (e.g., harmonized rules across
Europe for electricity infrastructure).25
One of the primary vehicles to promote regional market integration and rule export
in the energy sector is to work through regional agreements and institutions. The prime
example is the European Energy Community, established at the initiative of the EU in
2005. It is a binding treaty, supported by a permanent secretariat in Vienna, which basi-
cally extends the EU’s internal market regulation for energy to South-Eastern Europe
and Ukraine. Signatories commit to transposing the past and future EU directives and
regulations into national law, including the comprehensive Third Energy Package from
2009. The Energy Community represents a classic case of neo-functionalist integration,
purposefully modelled after the European Coal and Steel Community.26 In other words,
the treaty is not just about multilateral cooperation but about sectoral, regional integra-
tion. An earlier effort was the Energy Charter Treaty (ECT), created in the early 1990s, the
heydays of post-Cold War euphoria. The ECT is a comprehensive treaty covering energy
trade, transit, investment and dispute settlement. It was the first pan-European exercise at
liberalizing and harmonizing rules for trade and investment in the energy sector. Around
50 states are involved, but the biggest problem is that Russia has never ratified the treaty,
and completely withdrew in 2009.
Other efforts at rule exporting include the European Economic Area (EEA), the Baku
Initiative, the Black Sea Synergy and the Eastern Partnership. Though each focuses on
another region, the common thread running through these initiatives is that they seek to
integrate neighbouring countries into the EU’s internal energy market, liberalize energy
trade, and bring national energy regulations into line with the EU’s rules. The EU has
been very successful in exporting its own regulations to the candidate countries and to the
countries of the EEA (which, importantly, includes Norway, a key oil and gas supplier of
the EU). These countries are now covered by supranational rules. The EU has also made
serious headway in extending its ‘regulatory reach’ into the Balkans and Ukraine (through
the Energy Community), but it has been less successful in exporting its rules to major oil
and gas exporters in Europe’s vicinity, most notably Russia.27
24
J. Solana, ‘Towards an EU External Energy Policy’ (2006), http://www.consilium.europa.eu/
ueDocs/cms_Data/docs/pressdata/EN/discours/91788.pdf.
25
EU Commission, Progress towards completing the Internal Energy Market. COM(2014) 634
final.
26
S. Renner, ‘The Energy Community of Southeast Europe: A Neo-functionalist Project of
Regional Integration’ European Integration online Papers (EIoP).
27
H. Prange-Gstöhl, ‘Enlarging the EU’s Internal Energy Market: Why Would Third Countries
Accept EU Rule Export?’ (2009) 37 Energy Policy 5296; K. Schulze, ‘Exporting the Energy Acquis:

LEAL-ARCAS_9781786431042_t.indd 173 08/09/2017 13:02

3.3 IPE of EU Climate Policy: Green Power Europe?
In February 2015, the EU Commission adopted the ‘Framework Strategy for a Resilient
Energy Union with a Forward-Looking Climate Policy’ as part of one of the ten policy
priorities of the then newly-appointed Juncker Commission.28 As the title suggests, this
framework focused strongly on climate action as a fundamental policy commitment of the
Juncker Commission – along with the other classic ingredients of securing energy supply
and realizing a fully functional internal energy market. Although presented as unique
and a novelty by Juncker, questions may be raised about such claims. Is it not just a path-
dependent decision to incrementally attempt to ensure that Europe has secure, affordable
and climate-friendly energy? In other words, nothing new to report?
Among industrialized states, the EU by then already had one of the world’s most ambi-
tious climate and energy policies (the famous 20-20-20 goals of reduction in greenhouse
gas emissions by 20%, an increase in energy efficiency by 20%, and an increase in the share
of renewables in the final energy mix to 20%, all to be realized by 2020). Furthermore,
the EU has long assumed a leadership role in international climate diplomacy and several
European companies have been early movers in the development of green industries.
However, the EU’s position as a climate frontrunner has received some blows in the past
couple of years.29 In addition, the EU operated the very first and most advanced emission
trading system in the world, the EU Emissions Trading System (ETS).
Building on these prior commitments, the EU member states agreed on a new 2030
Framework for climate and energy in October 2014, targeting a 40% cut in greenhouse
gas emissions compared to 1990 levels; as well as renewable energy and energy efficiency
targets of at least 27%. However progressive these commitments might seem, there are
some significant differences with the previous 2020 strategy. The ‘Renewable Energy
Directive’ of 2009 had established mandatory national targets consistent with a 20% share
of energy from renewable sources and a 10% share of energy from renewable sources
in transport in Community energy consumption by 2020, yet the renewables target
of 2030, along with the efficiency ones, will not be translated into nationally binding
targets. Individual member states are free to set their own higher national targets.30 The
Commission and European Council have been criticized for the apparent letting go of
more rigid climate targets, despite the subsequent ambitious pledges made within the
framework of the Paris Agreement.
Consider first the emission reduction goal (20% by 2020). Here, it is important to
make a distinction between those sectors of the economy that fall under the EU’s ETS
and those that do not. The ETS system is the CO2 emission cap-and-trade system that
the EU set up in 2005. Currently, only certain sectors fall under this system: the power
The External Agenda Shaping Power of the EU’ in J. Tosun, S. Biesenbender and K. Schulze (eds),
Energy Policy Making in the EU (Springer 2015).
28
EU Commission, Energy Union Package (n 21).
29
K. Bäckstrand and O Elgström, ‘The EU’s Role in Climate Change Negotiations: From
Leader to “Leadiator”’ (2013) 20 Journal of European Public Policy 1369; S. Fischer and O.
Geden, ‘The Changing Role of International Negotiations in EU Climate Policy’ (2015) 50 The
International Spectator 1.
30
Buchan and Keay (n 20).

LEAL-ARCAS_9781786431042_t.indd 174 08/09/2017 13:02

sector, industry, and (since early 2012) the aviation sector. Those sectors have to reduce
their emissions by 21% in 2020 compared to 2005 levels and by 43% in 2030. To that end,
the EU puts a ceiling (or a ‘cap’) on the total allowed CO2 emissions. Companies can
then either try to lower their emissions or they can go to the market to buy CO2 emission
permits (called ‘allowances’ in EU parlance). To date, they can also buy limited amounts
of international credits from emission-saving projects around the world, and particu-
larly in developing countries, that fall under the Kyoto Protocol’s Clean Development
Mechanism (CDM) and Joint Implementation Mechanism (JI). The EU does not envis-
age continuing the use of international credits after 2020. However, the Paris Agreement
lays out provisions and a framework to link carbon markets in the future.
Those sectors that do not fall under the ETS system, such as (land) transportation,
buildings, agriculture and waste, only have to reduce their emissions by 10% in 2020 com-
pared to 2005, while in the new framework the aim is emission reduction of 30% in 2030.
The flagship project in the 2020 and 2030 strategies is clearly the EU’s ETS, the world’s
first and still by far the largest cap-and-trade mechanism for CO2, operating in 31 coun-
tries (all 28 EU countries plus Iceland, Liechtenstein and Norway). Currently, the system
covers in excess of some 11,000 installations, which collectively represent almost half of
Europe’s CO2 emitters. As explained previously, this system sets a CO2 emissions ceiling
and puts a price on CO2 emissions. The basic idea of the cap-and-trade system is that
the ceiling of allowed emissions will be lowered each year, so that the price of carbon
goes up, and investments in low-carbon energy are stimulated. This is clearly linked with
another goal, that of promoting renewable energy. Moreover, there is also a close connec-
tion between the renewables and efficiency targets because the renewable energy target
is expressed as a share of final energy demand. Lowering demand through increased
efficiency thus helps to achieve the renewables target.
The system went through a pilot and second phase and entered its third phase as from
January 2013. This phase will finish in 2020. With the crucial last phase, a number of
changes occurred in the whole system. The most important changes relate to the way in
which the permits are allocated: first, there is now an EU-wide cap rather than national
caps; second, permits are sold on the market rather than given for free; and, third, the
plan is that, each year, the number of permits will decrease with the intended effect of
ramping up the low price of carbon, which has been the Achilles heel of the whole process
so far (excess supply tackled through back-loading of auctions in phase 3 and ‘market
stability reserve’).
As an indicator of just how vulnerable the ETS system has become, in late January
2016, the carbon price fell to under 6 euros per metric ton of carbon. This is still obvi-
ously far below the 20 or 30 euro price point that analysts say is needed to spur the type
of clean investment needed by industry to cut carbon emissions. The second binding
element of the 20-20-20 strategy is the target for renewable energy, as set out in the
Renewable Energy Directive of 2009. Surprisingly, this target is no longer binding at
the national level in the new 2030 framework. With regards to the third goal, with the
adoption of the EU Energy Efficiency Directive in October 2012, which came as a rather
belated addition to the EU’s energy and climate package, there are no binding national
targets for energy efficiency.

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4. A MERCANTILIST TURN IN EU ENERGY POLICY?
Even though the EU has traditionally subscribed to the liberal principles of markets and
institutions, in recent years it has also shown a growing willingness to use its regulatory
tools in a more strategic manner. This shift towards a more ‘mercantilist’ stance in EU
energy policy has been most pronounced in the gas sector, and primarily in relations with
the EU’s dominant gas supplier, Russia.
One of the first exceptions to the liberal rule was the so-called ‘Gazprom clause’, which
was included in a weakened form in the Third Energy Package of 2009. The clause goes
against the non-discriminatory norm since it places higher constraints on non-EU firms
compared with their EU peers. Although this clause deviates somewhat from the EU
liberal rules in the internal energy market, it does so in the interests of retaining a com-
petitive market.
More radical are the various Commission proposals to establish a kind of block-
purchasing mechanism, which would allow the EU member states to negotiate jointly
with major gas suppliers about volumes and prices. This proposal was made for
the first time in 2008, when the Commission proposed the creation of the so-called
Caspian Development Corporation, which would amount to nothing less than a
buyers’ cartel in the gas sector. This proposal was defeated, but in the wake of the
Russian–Ukrainian gas war of 2009 and the Crimea crisis, the EU Commission has
successfully carved out a role for itself in the bilateral negotiations with major gas
suppliers. Intergovernmental agreements in the gas sector now need to be vetted by the
European Commission.
In another illustration of the mercantilist turn, the EU has become selective in
exempting pipeline projects from internal market rules, and the third-party access (TPA)
requirement in particular. According to the internal energy market rules, the European
Commission has the authority to grant temporary exemptions to specific projects. The
EU’s pet project, the Nabucco gas pipeline, was exempted from TPA (for half of its capac-
ity) and the normal tariff rules in 2008, and the exemption was renewed in 2013. The
Trans-Adriatic Pipeline (TAP), which replaces part of the trajectory of the failed Nabucco
project, got an exemption in 2013. By contrast, Russian-sponsored pipelines like Nord
Stream and South Stream did not get such exemptions.31
The EU has also selectively turned a blind eye to state aid, particularly when it comes
to projects that are intended to enhance the energy supply security of vulnerable member
states. For example, in 2009, the European Commission set aside €200 million from the
economic stimulus package for the Nabucco project – a privilege that none of the Russian-
backed proposals received. The Commission’s Directorate-General Competition also
approved a total of €448 million in state aid for constructing the ‘Independence’ LNG
terminal in Lithuania, and it rubberstamped the fact that Lithuanian utilities are obliged
to take a certain amount of LNG cargoes. These examples illustrate that the security
agenda sometimes trumps the liberal agenda.
31
Goldthau and Sitter, ‘Soft Power with a Hard Edge’ (n 22).

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5. CONCLUSIONS AND FUTURE RESEARCH AGENDA
EU energy law and policy is riddled with paradoxes and contradictions. First and obvi-
ously, there is the paradox of integration.32 The EU’s integration started off in the energy
sphere – with the European Coal and Steel Community regulating coal, and Euratom regu-
lating nuclear energy – but afterwards the engine sputtered and it was only with the Treaty
of Lisbon that a genuine legal basis was created upon which a European energy policy
could be founded. Curiously, the absence of a legal basis to act on energy did not prevent
the EU from developing an energy policy ‘through the backdoor’, using its authority on
the internal market and competition. Nor did it prevent the EU from exporting its own
(unfinished) ‘acquis communautaire’ to neighboring countries. The EU began to export its
own internal energy market rules long before those rules were consolidated internally – in
fact, one could argue that the internal energy market remains ‘work in progress’ to date.
The hesitance of the member states to transfer authority over energy policy to the
European level gradually gave way to a second paradox, a paradox of sovereignty.33 Due
to the globalization of energy markets and their externalities, the EU member states
found themselves with less control over energy policy, though they remained largely
unwilling to act jointly until around 2005. On the face of it, the EU member states long
kept their sovereign prerogatives over energy policy, but, in practice, this very sovereignty
over energy matters was being hollowed out by the vagaries of increasingly global energy
markets. The oil and gas markets in particular proved to be very reflexive, and the rise
of the BRICs and their interventionist and more mercantilist policies, has influenced the
EU’s attitude in this area as well. It has created a tension between the EU’s traditional
market-based approach towards energy and a world that seems to become more realist
and geopolitically-laden.34
Looking forward, we can identify a number of questions that are relevant for both
researchers and policy-makers. A crucial question concerns the EU’s ‘actorness’ in global
energy politics, a question that has occupied scholars of EU foreign policy for a long time.
To what extent can the EU be considered an actor in the IPE of energy. The question
of actorness raises issues of policy coherence, effectiveness, objectives, instruments and
capacity. It also relates to concepts that are used to describes the EU’s role and identity in
world politics, ranging from a normative power35 over a regulatory power36 to a market
power.37 In energy, the key question is whether the EU can maintain its liberal stance or
whether it will succumb to the pressures of mercantilism, as the world seems to shift more
and more towards economic nationalism.
32
A. Belyi, ‘EU External Energy Policies: A Paradox of Integration’ in J Oorbie (ed.), Europe’s
Global Role: External Policies of the European Union (Ashgate 2008).
33
F. McGowan, ‘International Regimes for Energy: Finding the Right Level for Policy’ in
I. Scrase and G. MacKerron (eds), Energy for the Future (Springer 2009).
34
Goldthau and Sitter, A Liberal Actor in a Realist World (n 2); F. McGowan, ‘Can
the European Union’s Market Liberalism Ensure Energy Security in a Time of “Economic
Nationalism”?’ (2008) 4 Journal of Contemporary European Research 90.
35
I. Manners, ‘Normative Power Europe: A Contradiction in Terms?’ 40 Journal of Common
Market Studies 235.
36
Goldthau and Sitter, A Liberal Actor in a Realist World (n 2).
37
Damro, ‘Market Power Europe’ (n 23).

LEAL-ARCAS_9781786431042_t.indd 177 08/09/2017 13:02

Over the longer term, the decarbonization of the economy has the potential to put the
whole EU energy strategy on its head. Although ‘energy independence’ is an aspirational
goal only, and autarky in the energy sphere is neither feasible nor desirable, the uptake of
energy efficiency measures and the indigenous production of renewable energy can tilt the
balance of power in the EU’s relationship with its main oil and gas suppliers.

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10. The International Energy Charter: a new impetus
for global energy governance?
Sijbren de Jong
1. INTRODUCTION
On 21 May 2015 the International Energy Charter (IECT) was signed at a ministerial con-
ference in the Netherlands. The IECT represents a declaration of political intent aimed
at strengthening energy cooperation between the signatory states. Through the IECT the
signatory parties aim to tackle a broad range of fundamental global energy issues. The
Treaty strives to, inter alia, accommodate for: the greater weight of developing countries
in global energy security; the tensions and trade-offs between energy security, economic
development, and environmental protection; the role of enhanced energy trade in sus-
tainable development; the provision of modern energy services; the reduction of energy
poverty; clean technology and capacity building; diversification of energy sources and
routes; and the regional integration of energy markets.1
In its set-up the IECT aims at a wider global engagement and to balance out the inter-
ests of energy consuming, producing and transit countries, whilst ensuring sovereign
equality of states irrespective of their levels of economic development.2 The reasons for
the desire to reshape the global institutional energy architecture are manifold. First, the
global energy landscape has undergone profound changes since the end of the Cold War.
The world’s thirst for energy is no longer dominated by the countries belonging to the
Organisation for Economic Co-operation and Development (OECD), as was the case in
1991 when the original European Energy Charter (EEC) was launched. Rather, the bulk
of global energy demand nowadays originates from outside the OECD area. Seen from
that perspective, the rise of China has been the single most disruptive development in the
past thirty years. Whereas economic growth in China now appears to have slowed down,
the next big wave in India is only just beginning. With policies in place to modernise the
country and develop its manufacturing base, rapid population growth and an additional
315 million people expected to live in India’s cities by 2040, the country is set for a period
of rapid and sustained growth in energy demand.3
Second, whereas the United States (US) for years was headed towards a period of sus-
tained energy imports, the application of advanced drilling techniques has allowed the
1
‘Overview – International Energy Charter’, June 23, 2016, http://www.energycharter.org/
process/international-energy-charter-2015/overview/.
2
Munir Maniruzzaman, ‘International Energy Charter as a Milestone for Global Energy
Co-Operation in the 21st Century’, Wolters Kluwer – Law & Business, Kluwer Arbitration
Blog (August 2015), http://kluwerarbitrationblog.com/2015/08/30/international-energy-charter-as-
a-milestone-for-global-energy-co-operation-in-the-21st-century/.
3
‘World Energy Outlook 2015 Executive Summary’, International Energy Agency (IEA),
2015, 2.
179
LEAL-ARCAS_9781786431042_t.indd 179 08/09/2017 13:02

country to explore oil and natural gas trapped in so-called shale formations to ignite a
veritable domestic energy revolution. The effects of this ‘shale revolution’ are not limited
to the US alone. By 2015, the US was the world’s largest oil producing country worldwide,
surpassing both Saudi Arabia and Russia.4
Third, changes in energy demand aside, the biggest difference compared to 1991 and
arguably the most pertinent challenge to the global energy landscape today is climate
change. A major milestone in confronting this challenge has been the signing of the Paris
Agreement in December 2015. This accord signifies the world’s first universal, legally
binding global climate deal. Under the terms set out in the agreement, countries commit
themselves to a global action plan that aims to keep global warming to well below 2°C and
to limit the increase to 1.5°C, as doing so would significantly reduce the risks and impacts
of climate change. After 55 countries, representing 55% of global emissions, had ratified
the agreement, it entered into force on 4 November 2016.5 In a further positive sign, the
growth in energy-related CO2 emissions stalled in 2015, mainly due to a 1.8% reduction
in the energy intensity of the global economy. This trend in itself was fed primarily by
gains in energy efficiency, as well as the expanded use of cleaner energy sources worldwide,
mostly renewables. What is more, a growing portion of the approximately US$1.8 trillion
of energy-related investment each year is being poured into the clean energy sector at a
time when investment in fossil fuels, chiefly due to the current low pricing environment,
has fallen sharply. At the same time fossil fuel subsidies dropped from approximately
US$500 billion in 2014 to around US$325 billion in 2015.6
Amidst all these shifts, the IECT aims to add an additional layer of governance to
the global energy landscape as, in institutional terms, the Treaty was born out of the
idea that international energy markets suffer from a lack of appropriate governance.7
Institutions such as the International Energy Agency (IEA), the World Bank, the G7,
G20, the Organization of the Petroleum Exporting Countries (OPEC), the International
Energy Forum (IEF) and also the original Energy Charter Treaty (ECT) – to name but a
few – were all designed to deal with subsets of the global energy market. An encompass-
ing treaty or institution that is able to cover the whole spectrum of energy issues and give
a voice to all relevant stakeholders does not exist, as such. The question of whether the
IECT is able to fill this void is the focus of this chapter. The chapter consists of five sec-
tions. Section 2 briefly outlines the various topics that the IECT intends to cover. Section
3 looks at the degree to which IECT membership covers the most important actors world-
wide. Section 4 takes a critical look at whether the IECT’s institutional set-up represents a
genuine step forward in the realm of global energy governance. Section 5 finally consists
of a few brief concluding remarks.
4
‘International Energy Statistics. Total Petroleum and Other Liquids Production 2014’.
US Energy Information Administration (EIA), 2015, http://www.eia.gov/beta/international/rank
ings/#?prodact553-1&cy52014.
5
Ariel Alexovich, ‘Paris Climate Agreement to Enter into Force on 4 November’, United
Nations Sustainable Development, October 5, 2016, http://www.un.org/sustainabledevelopment/
blog/2016/10/paris-climate-agreement-to-enter-into-force-on-4-november/.
6
‘World Energy Outlook 2016’, International Energy Agency (IEA), 2016, 21.
7
Ann Florini and Benjamin K. Sovacool, ‘Who Governs Energy? The Challenges Facing
Global Energy Governance’, Energy Policy, no. 37 (2009): 5239.

LEAL-ARCAS_9781786431042_t.indd 180 08/09/2017 13:02

The International Energy Charter 181
2. THE IECT’S THEMATIC SCOPE
The IECT sets out a number of key objectives. It aims to support the Charter’s consolida-
tion, expansion and outreach with the goal of expanding its geographic scope, to modern-
ise the EEC and to support active observership within the EEC in order to achieve close
political cooperation and early accession of observer countries to the Energy Charter
Treaty.8
In addition to these broad objectives, the IECT sets out specific action points in a wide
range of issue areas pertaining to global energy governance. The first of such points is
the promotion of access to and development of energy sources. The desire to reduce
energy poverty and facilitate access to national, regional and international markets plays
a key role here.9 Strongly related to these objectives, the IECT aims to reduce barriers to
energy trade and investment, facilitate infrastructure interconnections to connect nearby
markets, further develop market-oriented energy prices, and ensure adequate dispute set-
tlement mechanisms, including national and international arbitration.10
Other specific areas of action include cooperation on technological development and
innovation on energy production, conversion, transport, distribution and the efficient
and clean use of energy, in a manner consistent with nuclear non-proliferation and
cooperation on the implementation of safety principles and standards.11 The mentioning
of non-proliferation and safety standards is an obvious reference to the resurgence of
nuclear energy around the world. With nuclear power plants currently under construction
in several countries and growing concerns over North Korea’s nuclear capabilities, this
emphasis on safety standards and non-proliferation cannot be overstated.
With respect to energy transition, the IECT seeks to stimulate cooperation in the fields
of energy efficiency, and sustainable and clean energy. Important in this regard is the
promotion of access to sustainable, modern, affordable and cleaner energy in developing
countries12 – a reference to the fact that many developing nations still rely on biomass for
their primary energy supply, a source of fuel that carries many health hazards. Finally,
the signatory parties commit themselves to the promotion of vocational education and
training in the energy field and the diversification of energy sources and supply routes for
the benefit of energy security.13
3. THE IECT’S GLOBAL REACH
One of the first things that spring to mind when assessing the ability of an international
agreement to adequately cover the issue areas it intends to look after is the extent to
8
‘International Energy Charter Agreed Text for Adoption in The Hague at the Ministerial
Conference on the International Energy Charter on 20 May 2015’ (Energy Charter Secretariat,
May 20, 2015), 2.
9
Ibid., 9.
10
Ibid., 9–10.
11
Ibid., 11.
12
Ibid., 11–12.
13
Ibid.

LEAL-ARCAS_9781786431042_t.indd 181 08/09/2017 13:02

which the agreement has the world’s most relevant stakeholders on board. The IECT has
72 countries plus the European Union (EU), the European Atomic Energy Community
(EURATOM) and the Economic Community of West African States (ECOWAS) as its
signatory parties, thus spanning industrialised and emerging, as well as developing coun-
tries.14 The core, as with the ECT before it, is formed by the EU and its member states
and countries belonging to the European Economic Area (Norway) and the European
Free Trade Area (Switzerland). In addition, Energy Community members Albania,
Macedonia, Moldova, Serbia and Ukraine signed up. Energy Community candidate state
Georgia and observer states Armenia and Turkey also joined. Other members, linked up
through the EU’s neighbourhood policies, are Jordan, Morocco and Palestine. As with the
ECT, many countries in the former Soviet space are also signatory parties. Arguably the
most prominent state absent from the ECT, but a signatory party to the IECT is China.
The fact that the US, a major energy producer in its own right since the shale revolution,
has signed the agreement should also be seen as an important addition and a commitment
to multilateral governance.15
However, what is immediately clear when looking at the IECT member base is that
many of the world’s major fossil-fuel-producing countries are absent. Notable absentees
include Russia, Australia, Canada, Mexico, Brazil, Argentina, Myanmar, Malaysia,
Brunei, Vietnam and every OPEC member apart from Nigeria and Iran. Notwithstanding
the fact that it is a hopeful sign that Nigeria and Iran have signed up, it is concerning that
so many other producers from OPEC chose not to do so. The absence of these producer
nations is reflected in the IECT’s reach when measured in terms of the extent to which the
IECT covers the world’s share of fossil fuel production (see Source: BP Statistical Review
of World Energy 2015 Figure 10.1)
In 2014 a mere 24% of the world’s oil production was produced in countries that are a
signatory party to the IECT. For natural gas this share stood slightly higher, at 39%. When
looking at consumption statistics, the inverse picture emerges (see Source: BP Statistical
Review of World Energy 2015 Figure 10.2).
In 2014 IECT signatory parties were responsible for 57% of the world’s oil consump-
tion and 51% of global natural gas consumption. The big difference in footprint between
production and consumption statistics of the world’s prime fossil fuels renders the IECT –
much like the ECT and organisations such as the IEA – chiefly a ‘consumers’ club’ that is
not representative of the world’s major energy players.
Fossil fuel production and consumption aside, it is important to also assess the extent
to which the IECT houses the world’s prime stakeholders in the renewable energy field
(see Figures 10.3 and 10.4). In 2014 IECT signatory parties collectively covered as much
as 89% of globally installed photovoltaic capacity and 85% of total installed wind turbine
capacity. The vast majority of the world’s leading players in the field of solar and wind
power are thus signatory parties to the IECT in one way or another.
Finally, looking at geothermal energy, 43% of the world’s installed capacity in 2014 was
14
‘The International Energy Charter’, International Energy Charter, June 23, 2016, http://
www.energycharter.org/process/international-energy-charter-2015/overview/.
15
Pami Aalto, ‘The New International Energy Charter: Instrumental or Incremental Progress
in Governance?’, Energy Research and Social Science 11 (2016): 94.

LEAL-ARCAS_9781786431042_t.indd 182 08/09/2017 13:02

Oil Production in 2014 Gas Production in 2014

(as % share of total) (as % share of total)
24%
IEC 38% IEC
NON-IEC 62% NON-IEC
76%
Source: BP Statistical Review of World Energy 2015.
Figure 10.1 The share of global oil and natural gas production covered by IECT member
states (2014 data)
Oil Consumption in 2014 Gas Consumption in 2014

(as % share of total) (as % share of total)
43% IEC IEC

49%
NON-IEC 51% NON-IEC
57%
Figure 10.2 The share of global oil and natural gas consumption covered by IECT
member states (2014 data)
Cumulative Installed Photovoltaic Power Cumulative Installed Wind Turbine

(Solar Capacity) in 2014 (% of total) Capacity (as % share of total)
11% 15%
IEC IEC
NON-IEC NON-IEC
89% 85%
Figure 10.3 The share of global photovoltaic and wind turbine capacity covered by IECT

LEAL-ARCAS_9781786431042_t.indd 183 08/09/2017 13:02

Cumulative Installed Geothermal Power

Capacity in 2014 (as % share of total)
43% IEC
57% NON-IEC
Figure 10.4 The share of global installed geothermal power capacity covered by IECT
covered by IECT signatory parties. This means that more than half of globally installed
capacity is based in countries currently not a signatory party to the IECT.
Overall, judging from the IECT member base, it is clear that the Treaty falls notably
short in the realm of oil and natural gas production. Its ability to have an impact in this
particular area of global energy governance therefore remains an open question. More
positive is the fact that in terms of renewable energy generation an overwhelming majority
share of the world’s solar and wind power capacity is hosted by IECT signatory parties,
thus giving the Treaty a firm footing in fostering the further growth of wind and solar
power.
That said, it should be pointed out that – in geographical terms – the IECT remains,
despite the signing up of several countries from Latin America, Africa and Asia,
a Europe/Eurasian-centric agreement, much like the ECT before it. In addition to
this geographical blind spot, the Treaty fails to make adequate mention of actors
beyond states. Over the years, organisations such as NGOs, companies and (global)
financial institutions have begun to play a much more prominent role in global energy
governance.16 The limited references made to these actors should be seen as a notable
omission in the ability of the IECT to tackle the manifold issues it aspires to address.
3.1 Inclusion vs. Enforceability
Notwithstanding the reservations in the previous paragraph, the IECT’s institutional

set-up is clearly geared towards generating the greatest level of country participation pos-
sible. The principal thought behind this is that the more countries are on board, especially
those that are particularly relevant for the energy domain such as the US and China, the
greater the chance that the IECT delivers a meaningful contribution to global energy
16
Morgan Bazilian, Smita Nakhooda and Thijs Van de Graaf, ‘Energy Governance and Poverty’,
Energy Research & Social Science 1 (2014): 218, doi:http://dx.doi.org/10.1016/j.erss.2014.03.006;
Aalto, ‘The New International Energy Charter: Instrumental or Incremental Progress in Governance?’,
94.

LEAL-ARCAS_9781786431042_t.indd 184 08/09/2017 13:02

governance. In support of this aim, and in a clear departure from its ‘predecessor’, the
Energy Charter, the IECT does not lay down explicit legal rules on trade in energy mate-
rials, transit flows, investment protection and the international settlement of disputes. In
other words, contrary to the ECT, the IECT is not a legally binding document. Doing
away with the legally binding nature of the agreement lowers the bar, thereby potentially
luring countries into signing up that otherwise would have had reservations against enter-
ing into a legally binding agreement.
An approach whereby the organisation in question somehow aims at wider engagement
is in itself not new. In an attempt to bridge the divide between exclusive consumer clubs
such as the IEA on the one hand, and producer collectives such as OPEC on the other,
increase transparency, reduce transaction costs between producers and consumers and
dampen volatility in the oil market, the International Energy Forum (IEF) was created
in 1991.17 A permanent secretariat notwithstanding, the IEF is a rather loosely operating
forum where discussions take place in a less formalised setting outside an institutionalised
operating structure. As a result, the IEF lacks binding decision-making authority.18 The
most tangible product to have come out of the IEF is the Joint Oil Data Initiative (JODI);
a data sharing initiative launched in 2001 whereby six different organisations share data
on oil stocks with the IEF.19
Although a welcome initiative when launched, given that governments are the main
providers of the data, concerns exist with respect to its reliability.20 What is more, coun-
tries at times withhold the full set of information out of geopolitical considerations.
Chinese national oil companies for example report on their activities within China, but
the activities of their foreign subsidiaries are not always well documented and in some
cases the oil produced makes its way back to China, which is then subsequently not
always adequately included in JODI.21 In the absence of a formal compliance mecha-
nism, the organisation does not have any ways to enforce decisions or recommenda-
tions.22 Although the IEF brings together the most important producer and consumer
17
Andreas Goldthau and Jan Martin Witte, ‘The Role of Rules and Institutions in Global
Energy: An Introduction’, in Global Energy Governance: The New Rules of the Game, edited by
Andreas Goldthau and Jan Martin Witte (Global Public Policy Institute/Brookings Institution,
2010), 8.
18
Enno Harks, ‘The International Energy Forum and the Mitigation of Oil Market Risks’,
in Global Energy Governance: The New Rules of the Game, edited by Andreas Goldthau and
Jan Martin Witte (Global Public Policy Institute/Brookings Institution, 2010), 260; Sijbren
de Jong, ‘Towards Global Energy Governance: How to Patch the Patchwork’, in Energy and
Development, edited by Gilles Carbonnier, International Development Policy (Basingstoke/
Geneva: Palgrave Macmillan/Graduate Institute Geneva, 2011), 38; Andreas Goldthau and Jan
Martin Witte, ‘Assessing OPEC’s Performance in Global Energy’, Global Policy 2 (2011): 37,
doi:10.1111/j.1758-5899.2011.00122.x.
19
The organisations involved are the IEA, the United Nations Statistics Division (UNSD), the
Statistical Office of the European Communities (Eurostat), Asia-Pacific Economic Cooperation
(APEC), OPEC and the Latin American Energy Organization (OLADE).
20
Ann Florini and Saleena Saleem, ‘Information Disclosure in Global Energy Governance’,
Global Policy 2 (2011): 147, doi:10.1111/j.1758-5899.2011.00135.x.
21
Ibid., 148.
22
Sijbren de Jong, ‘Towards Global Energy Governance: How to Patch the Patchwork’, 38;
Gilles Carbonnier and Sijbren de Jong, ‘The Global Governance of Energy and Development’, in

LEAL-ARCAS_9781786431042_t.indd 185 08/09/2017 13:02

nations in global energy, it did not succeed in moving beyond being a mere consultative
forum.23 In light of the non-binding nature of the IECT, it is therefore a legitimate ques-
tion to ask what it could bring to global energy governance that other fora before it such
as the IEF could not.
4. ONE STEP FORWARD, TWO STEPS BACK?
As noted when discussing the IECT’s thematic scope, one of the areas that the Treaty
focuses on is to ensure adequate dispute settlement mechanisms, including national
and international arbitration.24 The fact that this is listed in the Treaty as a goal in
itself is somewhat remarkable. After all, the ECT that preceded the IECT was precisely
designed as a treaty that would act as an investment protection treaty in the field of
energy. In other words, why insert a reference to investor protection into a treaty that
is not legally binding while its predecessor does the same, and carries greater legal
weight?
The reasons for adopting the IECT in its non-binding form on the one hand stem
from the changing global energy landscape, as noted in the introduction, and the need
to get more countries on board. Another important reason however has to do with the
role played by the Russian federation under the ECT. Russia was one of the signatory
parties to the Energy Charter. After signing, the Russian government chose to apply the
Treaty provisionally, linking ratification to negotiations on the ECT’s transit protocol.
On 20 August 2009, the Russian government officially stated that it intended to terminate
its provisional application. One reason for Russia’s refusal to ratify and terminate its
provisional application stems from its opposition to opening up its network to lower-cost
gas from Central Asian countries and the fact that the ECT’s transit protocol would not
apply between individual European countries (the EU being defined as a single economic
space), something to which Russia objected.25
Other factors that played a role in Russia’s decision to terminate its provisional applica-
tion had much to do with changing geopolitical circumstances. In January 2006, as well
as in January 2009, Ukraine and the Russian state-owned gas company Gazprom failed
to agree on the terms for transit arrangements, ultimately leading to a cut-off in the gas
supply. Under Article 7(5) of the ECT, both producing and transit states are under an
obligation to allow for the uninterrupted flow of natural gas from producer to consumer
and to prevent non-transit-related issues (i.e. commercial issues) from having a negative
The Global Community Yearbook of International Law & Jurisprudence 2011, edited by Giuliana
Ziccardi Capaldo, vol. 1 (Oxford: Oxford University Press, 2012), 47.
23
Sijbren de Jong and Jan Wouters, ‘Institutional Actors in International Energy Law’, in
Research Handbook on International Energy Law, edited by Kim Talus (Cheltenham, UK;
Northampton, MA, USA: Edward Elgar Publishing, 2014), 40.
24
‘IEC 2015’, 9–10.
25
Richard Youngs, Energy Security: Europe’s New Foreign Policy Challenge (Taylor & Francis,
2009), 80–81; Sanam S. Haghighi, Energy Security: The External Legal Relations of the European
Union with Major Oil and Gas Supplying Countries, vol. 16, Modern Studies in European Law
(Oxford and Portland, OR: Hart Publishing, 2007), 348.

LEAL-ARCAS_9781786431042_t.indd 186 08/09/2017 13:02

impact on transit volumes.26 Based on this provision and the fact that the termination of
the provisional application happened some seven months after the January 2009 crisis, a
case could be made that Gazprom and Ukraine failed to live up to their Treaty obliga-
tions when gas supplies were interrupted. This reading of the January 2006 and January
2009 incidents is strengthened by Article 45(1) of the ECT, which states that even without
ratification, the Treaty is provisionally applicable, provided that it does not contradict
existing domestic legislation, as well as the fact that upon signing the Treaty, the Russian
government chose not to opt out of the mechanism of provisional application, as made
possible by Article 45(2) of the ECT.27
That said, arguably the biggest liability for Russia in remaining committed to the
ECT should not be sought in its tense relation with Ukraine, but rather in the decision
to expropriate the Russian oil company Yukos in 2003. The Yukos oil company was one
of Russia’s largest and most successful companies until, in October 2003, it was accused
of tax evasion, bankrupted and broken up. Many doubt the Kremlin’s official reading of
the events and suspect Yukos was forcibly broken up with the aim of bringing its assets
under state control. After Yukos was dissolved, its shareholders sued the Russian govern-
ment. In July 2014, the Permanent Court of Arbitration (PCA) ruled that Russia had to
compensate the (former) Yukos shareholders, as represented by GML,28 and awarded
damages of approximately US$50.2 billion. The basis of the Court’s decision was Russia’s
breach of the ECT.29 In that same month, the European Court of Human Rights (ECHR)
ruled that the Kremlin had imposed excessive fees on Yukos and awarded the Yukos
shareholders €1.9 billion in damages.30
Following the PCA’s ruling, Yukos shareholders launched a series of legal proceedings
to seize Russian state assets in several countries, including France, Germany, Belgium,
the UK and the US. Russia, in turn, announced that any such action against the Russian
state assets would lead to retaliatory measures.31 In France, Russia requested a suspen-
sion of seized state assets, but the Paris Court of Appeal denied the request. In Belgium,
the national government ultimately intervened in the Belgian courts’ proceedings owing
to diplomatic concerns about a Russian retaliation.32 As only non-diplomatic assets can
26
Sijbren de Jong, ‘The EU’s External Natural Gas Policy – Caught Between National Priorities
and Supranationalism’, April 16, 2013, 35, https://lirias.kuleuven.be/handle/123456789/393181.
27
See Art 45(1) and (2) ECT.
28
GML is a company that controlled most of Yukos shares. It includes the subsidiaries Hulley
Enterprises Limited and Yukos Universal Limited, as well as its associated company the Veteran
Petroleum Limited.
29
Jake Rudnitsky and Ilya Arkhipov, ‘Russia Wins $50 Billion Ruling in Decade-Old Fight With
Yukos’, Bloomberg.com, April 20, 2016, https://www.bloomberg.com/news/articles/2016-04-20/
dutch-court-overturns-50-billion-yukos-ruling-on-jurisdiction.
30
Megan Davies, Vladimir Soldatkin and Gilbert Reilhac, ‘European Court Rules Russia Must
Pay Yukos Shareholders 1.9 Billion Euros | Reuters’, Reuters, July 31, 2014, http://uk.reuters.com/
article/uk-russia-yukos-echr-idUKKBN0G00QO20140731.
31
‘Russia Warns It Will Retaliate after Assets Seized in Yukos Case’, Agence France Presse,
June 19, 2015, https://www.theguardian.com/business/2015/jun/19/russia-warns-it-will-retaliate-
after-assets-seized-in-yukos-case.
32
Mark Hanrahan, ‘Belgium Unfreezes Russian Assets Seized in Yukos Legal Fight’,
International Business Times, June 21, 2015, http://www.ibtimes.com/belgium-unfreezes-russian-
assets-seized-yukos-legal-fight-1976386; Elizabeth Piper et al., ‘Russia Examines Brussels’ Legal

LEAL-ARCAS_9781786431042_t.indd 187 08/09/2017 13:02

be seized, one strategy of the Russian state has been to retroactively declare seized assets
diplomatic in order to claim them back.33
In a setback to GML, the July 2014 ruling was overturned by a District Court in The
Hague on 20 April 2016. The Court ruled that the PCA had no jurisdiction to argue that
‘the ECT can apply provisionally to a signatory state but only in respect of those provi-
sions that do not violate the laws of that signatory’. It was thus a question of whether
Article 26 of the ECT on the settlement of disputes between an investor and a contracting
party is compatible with Russian law. The court found that it is not; under Russian law,
public law matters cannot be referred to international arbitration.34
In a further setback, in January 2017 the Russian Constitutional Court declared that
Moscow is under no obligation to comply with the ruling by the ECHR that it should pay
€1.9 billion in damages to Yukos’ former shareholders. According to the Constitutional
Court, the rulings by the ECHR cannot overrule the Russian constitution’s priority in the
Russian judicial system. In response, a spokesperson for the Council of Europe reminded
Russia that the Council’s member states, which include Russia, are bound by the European
Convention on Human Rights to implement decisions by the Strasbourg Court.35
In response to the decision by the District Court in The Hague, GML has lodged an
appeal.36 GML disagrees with the Court’s reading of the case that this dispute is in fact a
matter of public law. Moreover, the former Yukos shareholders contend that the burden
of proof in determining whether Russia could be bound by Article 26 ECT should in
fact be on Russia, rather than for GML to prove that Russia was indeed bound by the
said article. The case will be dealt with by the Court of Appeal in The Hague. The appeal
proceedings could drag on for several years however, as the ruling by the Court of Appeal
can be contested in the Dutch Supreme Court.37
Following GML’s decision to appeal, damaging reports have emerged on how the
Russian state has sought to manipulate the courts’ decisions in the Yukos case. An in-
depth investigation led by Dutch daily newspaper NRC Handelsblad uncovered that the
Russian state-owned oil company Rosneft, the company that acquired the bankrupted
Yukos, manipulated a number of court rulings in Armenia in order to strengthen its case
in the West to seize the hundreds of millions of dollars in assets belonging to Yukos.38
Move to Seize State Assets’, Reuters, June 18, 2015, http://www.reuters.com/article/us-russia-yu

kos-idUSKBN0OY1FS20150618.
33
The Economist, ‘The Yukos Affair: Baiting the Bear’, April 16, 2016, http://www.econo
mist.com/news/business/21696960-russia-trying-impede-enforcement-massive-damages-award-ba
iting-bear.
34
DLA Piper, ‘A Case of Winning the Battle and Losing the War: Yukos v Russian Federation’,
June 9, 2016, 2, https://www.dlapiper.com/~/media/Files/Insights/Publications/2016/06/Yukos_vs_
Russian_Federation.ashx.
35
‘Russian Court Says No Need to Comply With $2 Billion Yukos Ruling’, RadioFreeEurope/
RadioLiberty, January 19, 2017, http://www.rferl.org/a/russia-court-rejects-yukos-ruling/28243329.
html.
36
Neil Buckley, ‘Russia Wins Legal Victory over Yukos Damages’, April 20, 2016, https://www.
ft.com/content/2a23a352-06ce-11e6-a70d-4e39ac32c284.
37
DLA Piper, ‘A Case of Winning the Battle and Losing the War: Yukos v Russian Federation’,
2–3.
38
Renée Postma and Joep Dohmen, ‘Rosneft Manipuleerde de Rechtsgang in Nederland –
NRC’, November 24, 2016, https://www.nrc.nl/nieuws/2016/11/24/rosneft-manipuleerde-de-rechts

LEAL-ARCAS_9781786431042_t.indd 188 08/09/2017 13:02

The investigative reports by NRC are likely to strengthen the claim by GML that the
Russian government has sought to pervert justice in the Yukos case. Moreover, and far
more worrying in light of the troublesome relations between Russia and the West, this is
indicative of the lengths to which the Kremlin is willing to go to avoid being held account-
able to international law.
The analysis in this chapter has provided an overview of what the IECT stands for and
hopes to achieve. It has also highlighted the numerous deficiencies that the Treaty suffers
from when it comes to its global reach. Although it is highly encouraging that the bulk of
the world’s installed solar and wind capacity is covered by the IECT, much remains to be
done on the side of fossil fuel production as most of the key-players have not signed up.
This also warrants additional research into the institutional architecture underpinning
global energy governance in order to come up with innovative ways to strike a balance
between producer- and consumer-country concerns and priorities, without duplicating
existing organisations or coming up with ‘talking shops’ that only produce limited results.
It should be stated however that, in doing so, it is tempting to employ a ‘the more the
merrier’ approach, whereby the strategy is simply to lower entry barriers with the aim of
incorporating a greater number of countries in order to arrive at a more adequate repre-
sentation of key stakeholders at the international level. As the Yukos case demonstrates,
not all dossiers of global energy governance are equally suited for this purposes. The
analysis shows that the IECT’s departure from the legally binding nature of its predeces-
sor runs the risk of tacitly rewarding those actors that have violated the rules of the game
in the past. Although a less formalised setting can generate positive results on combating
climate change, as demonstrated in the past by the G7 and G20 in cooperation with insti-
tutions such as the World Bank and the IEA, it is far less suitable for dealing with issues of
investor protection. Doing so risks opening the door to a looser interpretation of the sort
of rules investors sorely need when investing in such capital-intensive industries as energy.
The experience in the Yukos case should continue to act as a case in point in this regard.
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reuters.com/article/us-russia-yukos-idUSKBN0OY1FS20150618.
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11. The EU energy security strategy in the
Caspian Sea region: addressing the bear in the
room
Stratos Pourzitakis
1. INTRODUCTION
Energy security has been high on the agenda of the European Union (EU) especially
vis-à-vis security of gas supply and its relations with Russia. The common denomina-
tor in a set of diverse approaches to energy security among EU agencies is the need to
address the dominant role of Russian gas in the EU energy mix. Hence, the EU energy
security strategy has been focusing on risks due to the EU overdependence on Russian
gas as well as on how to mitigate them. Sitting on vast oil and gas energy resources, the
Caspian Sea region plays a detrimental role in the calculations of the EU and it serves
as one of the basic pillars of the EU energy security strategy because of its potential
to provide a sustainable alternative source of energy supply but also a reliable energy
transportation route.
The purpose of this chapter is to examine the energy security strategy of the EU
towards the Caspian Sea region. Given the emphasis on the security of gas supply which
built into the EU energy security strategy, the chapter will focus on the EU-Caspian Sea
states’ energy relations with respect to the supply of gas, looking in particular at Russia,
Azerbaijan and Turkmenistan. After providing an overview of the notion of energy secu-
rity the chapter will analyze how the EU understands this multifaceted concept and what
are the dimensions of the EU energy security. Next it will examine how its energy relations
with Russia shape the EU’s energy security perceptions. As different EU member states
and agencies face different energy realities and have different understandings around
energy security, it should come as no surprise that they approach EU-Russia energy rela-
tions and the subsequent strategy towards the Caspian Sea from a different perspective.
Furthermore, the chapter will study how the status of EU-Russia energy security relations
determines the dynamics of the energy dialogue between Brussels and the other Caspian
states. The last part of the chapter will examine the evolution of the relations between
the EU and Azerbaijan and Turkmenistan, paying special attention to the establishment
and the prospects of the South Gas Corridor. It will be argued that Brussels engages with
Turkmenistan and Azerbaijan keeping an eye towards Moscow, and that the overall EU
approach is a combination of strategic and market-based considerations.
2. THE CONCEPT OF ENERGY SECURITY
Energy security has become a buzzword, topping the agenda of politicians, policy-makers
and scholars. According to the traditional definition, energy security is the uninterrupted
192
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The EU energy security strategy in the Caspian Sea region 193
availability of energy sources at an affordable price.1 This definition, albeit correct, fails
to depict the complexity of international relations. Therefore, energy security has the
following dimensions:
1. Energy security as part of the domestic policy of a country, which establishes its
energy strategy.
2. The economic dimension of energy security, which deals with energy markets and
their interaction with countries and institutions.
3. The geopolitical dimension of energy security, which refers to the competition for
energy resources among countries.
4. Energy security as a security issue, with regard to threats posed by states and non-
state actors to energy transportation.2
By and large, how an actor pursues its energy security interests depends on the overall
approach of an actor vis-à-vis the notion of energy security and how this can be
better served. Strategically based perspectives adopt a zero sum game approach on
energy security. Under this narrative, energy security falls within the scope of national
security and the need for independence from energy imports is stressed, emphasiz-
ing the importance of an adequate and secure supply of oil. Institutions and energy
markets can play an important role, yet primacy is given to the role of state as well
as to the establishment of bilateral energy partnerships. Actors that subscribe to the
realist school of thought and adopt a strategic approach in terms of energy secu-
rity view these risks as a zero-sum game within the framework of an international
anarchical environment. They focus on relative gains and do not deem cooperation
as a highly viable option. Liberals, on the other hand, prefer to tackle energy security
risks and threats through cooperation and institutes, while they emphasize absolute
gains.3
At the other extreme of this axis we find market-based approaches which can be
better explained by liberalism and liberal economics. Market-based approaches highlight
the importance of cooperation in energy security. Due to increasing interdependence,
absolute energy independence is impossible and not necessarily desirable. Inspired by
the values of liberalism, market-based approaches recognize multiple actors in energy
security while they ascribe a primary role to global energy markets and institutions. One
of the most prominent representatives of this specific approach is the EU, which places
emphasis on cooperation among its member states and the integration of the EU energy
market, as well as on the institutionalization of energy security. Černoch and Jirušek
provide a comprehensive overview of energy security from a strategic and a market based
perspective, shown in Table 11.1.
1
Daniel Yergin, ‘Ensuring Energy Security – Old Questions, New Answers’ (2006) 85(2) FA
70.
2
Florian Bauman, ‘Energy Security as a Multidimensional Concept’ (2008) 1 CAP 4.
3
Andre Månsson, Bengt Johansson and Lars J Nilsson, ‘Assessing Energy Security: An
Overview of Commonly Used Methodologies’ (2014) 73 Energy 4.

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Table 11.1 Approaches to energy security
Issues The strategic approach The market-based

approach
Theoretical basis The realist tradition in IR, The liberal tradition in
classic geopolitics IR, neoclassical and neo-
institutional economics
General approach to energy The need for independence Energy independence is
policy in international from external supplies of impossible – attempts to achieve
relations energy it disrupt inter-state relations
Management of energy Resource nationalism derived Market ensures efficient
resources from resource scarcity allocation
Role of energy policy in Used to influence international Politicization of energy affairs
international relations relations leads to poor allocation and a
less effective system
Definition of energy policy Focus on securing adequate Complex view, looking at all
and secure supply, especially resources, and looking at the
for oil and natural gas functioning and influence of
markets and infrastructure
Nature of international Zero sum game, focus on Non-zero sum game, focus on
relations and distribution relative gains absolute gains
of resources
Regime of international International relations are Cooperation with international
relations founded on bilateral relations organizations, multilateral
relations
Positioning of actors in the States as the main and only Multiple influential actors
international system relevant actors (including firms, international
organizations, interest groups)
Source: F Černoch and M Jirušek, ‘Strategic and Market-oriented Approaches in the Energy Policy of the
European Union’ (2014) ECPR 9.
3. DIMENSIONS AND AGENTS OF ENERGY SECURITY

IN THE EU
Energy has been a founding pillar of the EU integration process since the European Coal
and Steel Community and the European Atomic Energy Community were established
in 1952 and 1957 respectively. Examining energy security in a European context is of
particular interest due to the dual dimension and the different approaches to the specific
concept, the multiple issues at play, and the large number of engaged actors with diverse
agendas. Hence, EU energy security touches upon the different segments of EU politi-
cal and economic life, including EU Common Foreign and Security Policy (EU CFSP),
development and cooperation, competition, industrial policy, environmental policy, etc.
Discussions about the formation of a common energy policy among Western European
states date back to the period prior to the two oil crises. However, in the aftermath of the
two oil shocks, these plans were shelved and energy policy remained an issue of national
sovereignty. During that period, security of oil supply was a primary concern and, moving

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towards this, the security of oil supplies and diversification of energy sources have also
been basic concerns of the European Community. Yet, structural differences between
European countries have led to a limited interest in a more institutional and common
energy policy.4 The demise of the Soviet Union and the triumph of Western liberal democ-
racy encouraged optimism and confidence among EU member states and institutions,
which was reflected in a series of initiatives that can be labeled as the beginning of the EU
energy policy. In the early 1990s, the initiative of the Dutch Prime Minister Ruud Lubbers
led to the establishment of the Energy Charter Treaty (ECT) on the basis of the European
Energy Charter. The ECT provides a framework for energy cooperation and energy trade
among its signatory member, and in the EU calculations it served as an excellent platform
for mutual cooperation between East and West that would help Europe to provide the
former Socialist countries with assistance towards their transition to market economies –
something that was in Europe’s best political, economic and security interests.5 The ECT
provided Europe with useful supply diversification options as it brought the abundant
energy resources of the East closer with Western energy needs.
However, volatility of oil prices, along with instability in the Middle East and the
coming double EU integration, raised concerns on EU security of supply, with most
attention paid to gas as the high fungibility of oil provided a sufficient safety net for
Europe. These concerns were first depicted in the 1996 EU White Paper for Energy Policy
and the 2000 Green Paper for the Security of Energy Supply, which stressed the increas-
ing dependence on energy imports coming largely from Russia, and underscored the need
to mitigate risks that stem from that dependence. Although both documents highlighted
the importance of market mechanisms and demand-side measures they also incorporated
the geopolitical dimension of energy security in tandem with the importance of the diver-
sification of energy supply sources and transportation routes.6,7 The 2006 and the 2009
gas crises between Russia and Ukraine marked a turning point for EU perceptions on
energy security and for EU energy security strategies, and revealed the EU vulnerability
to short-term gas supply shocks, leading to a series of Brussels-led initiatives. In 2006
the joint paper ‘An External Policy to Serve Europe’s Energy Interests’ published by the
Commission and the European Council integrated market-based as well as geopolitical
considerations, recognizing the link between energy security, market sustainability, and
also risks stemming from unstable energy suppliers. The paper highlighted the need for
functioning energy markets but also for a more coherent external energy policy that would
seek diversification of energy supplies and transportation risks.8 The basic principle of the
external energy security strategy was that while EU member states retain their sovereignty
4
Andrei Belyi, ‘New Dimensions of Energy Security of the Enlarging EU and their Impact on
Relations with Russia’ (2003) 25(4) JEI 355.
5
Andrey Konoplyanik and Thomas Wälde, ‘Energy Charter Treaty and its Role in International
Energy’ (2006) 24(4) JENRL 524.
6
European Commission, ‘Green Paper – Towards a European Strategy for the Security of
Energy Supply’ COM (2000) 769 final.
7
Commission of the European Communities, ‘An Energy Policy for the European Union’
COM(95) 682 final 12–37.
8
Council of the European Union, ‘An External Policy to Serve Europe’s Energy Interests:
Paper from Commission/SG/HR for the European Council’ (2006) 9971/06.

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on their basic energy policy choices, EU agencies are mandated to extend the European
liberal values and the principle for a market-governed energy landscape to the neighbor-
ing energy partners such as Russia, Central Asia, South Mediterranean and North Africa
through a series of technical programs.
Traditionally, the EU has been deemed as an actor that approaches energy secu-
rity through the market-based approach. In their paper ‘Energy Supply Security and
Geopolitics: A European Perspective’ Correljé and Van der Linde (2006) approach
energy security from both a geopolitical and a market-based perspective, and they cat-
egorize the EU as a market-based actor, suggesting that Brussels should move closer to
the geopolitical approaches of major energy players such as Russia and China.9 To a
large extent this is true as the backbone of EU energy security has been the establish-
ment of an integrated energy market that would operate under the rules of the free
market. Brussels has initiated numerous legal and policy programs in this direction,
focusing largely on establishing an open and integrated electricity and gas market in
Europe and its periphery. The logic behind this approach rests on the dual dimension
of energy security in the EU, namely the internal and the external dimension; according
to the dominant narrative in Brussels, ensuring energy security in the internal energy
market of the EU will also boost the external dimension of EU energy security through
a spill-over process.10
However, a closer look at the EU energy security strategy will reveal both geopolitical
and economic concerns in the EU energy calculations. Especially after the 2006 and the
2009 Russia-Ukraine gas crises, the EU official documents have been paying increasing
attention to the strategic dimension of energy security. In this context, the biggest energy
security challenges for the EU are the dangers emanating from its high energy dependence
on Russian gas imports, an issue which is closely linked to political and security considera-
tions such as the crisis in the relations between Moscow and Kiev. In 2006, Javier Solana
put EU energy security in the context of the EU CFSP, stating that ‘The time has come
to forge European energy diplomacy based on common interests and shared principles’.11
Similarly, according to the EU Institute of Security Studies, which is an EU agency, the
question of energy security had to be put in the framework of geopolitical tensions and
instability in resource-rich areas including the Middle East, Russia, Central Asia, etc.,
while challenges such as China’s growing appetite for energy had to be met through a
combination of external instruments and CFSP policies.12 More recently in 2015, the
Energy Union energy package underscored the necessity for putting foreign policy tools,
diplomacy and trade agreements in the service of energy security in order to meet the
9
Aad Correljé and Coby van der Linde, ‘Energy Supply Security and Geopolitics: A European
Perspective’ (2006) 34(5) EP 532.
10
Richard Youngs, ‘Europe’s External Energy Policy: Between Geopolitics and the Market’
(2007) 278 CEPS 2.
11
Javier Solana, ‘Why Europe Must Act Collectively on Energy’ Financial Times (8 March
2006), https://www.ft.com/content/76e72606-aed1-11da-b04a-0000779e2340 (accessed 25 October
2016).
12
Giovanni Grevi, ‘CFSP and Energy Security’ (EU Institute for Security Studies, Paris,
23 October 2006), http://www.iss.europa.eu/uploads/media/rep06-12.pdf (accessed 29 October
2016).

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political challenges that undermine energy security, in an implicit reference to the Russia-
Ukraine gas crises.13
In parallel, as in most of the aspects of the EU political and economic life, a wide spec-
trum of actors are engaged, with the most important being the Directorate General (DG)
of Energy, the European Commission, the European Council, the European External
Action Service, and the office of the High Representative (HR) for the EU CFSP. In
parallel, the EU member states retain their sovereign rights to energy decision-making
while the European Parliament often plays a detrimental role in the policy-making
process. Although there is a clear distinction of mandates among EU agencies, the ques-
tions of who has the final say or who leads negotiations with third countries are often
more blurred. At the same time, the 2009 Lisbon Treaty stipulates that the European
Commission is responsible for EU external representation, attributing important roles to
the Council as well as to the European Parliament, especially regarding issues relevant
to the EU CFSP or with respect to big projects such as pipeline networks. Hence, during
a 2010 EU-US Energy Council the EU was represented by the High Representative of
the Union for Foreign Affairs and Security Policy Catherine Ashton, with the European
Commissioner for Energy Günther Oettinger playing a secondary role. The debate as to
who is in charge in EU external energy relations can be described as a power game between
the Commission and the Council of Ministers.14
What is more there is a distinct gap between key players with respect to EU approaches
to energy security. For example, the majority of the European Commission DG Energy
attribute little if any importance to the role of geopolitics in EU energy security, while
geopolitics plays a very influential if not dominant role in the energy calculations of the
European External Action Service (EEAS).15 What is more, tensions between different
compartments of the EU structure regarding working routine and professional practices
on transparency and flow of information hinder the effectiveness of the EU energy
security strategy.16
4. THE X FACTOR IN THE EU ENERGY SECURITY

STRATEGY OR ELSE DEPENDENCE ON RUSSIAN GAS
Undoubtedly, the biggest energy security challenge for Europe has been the high depend-
ence on Russian gas imports, and this has also largely been the driving force behind the
EU energy security strategy towards other Caspian Sea states. For Brussels, diversifying
away from Russia has been at the top of the agenda when it comes to both the supply and
13
European Commission, ‘A Framework Strategy for a Resilient Energy Union with a
Forward-Looking Climate Change Policy’ COM(2015) 80 final, 3–7.
14
Jan Frederik Braun, ‘EU Energy Policy under the Treaty of Lisbon Rules Between a New
Policy and Business as Usual’ (2011) EPIN Working Paper 31, 4–8, https://www.ceps.eu/system/
files/book/2011/02/EPIN%20WP31%20Braun%20on%20EU%20Energy%20Policy%20under%2
0Lisbon.pdf (accessed 25 October 2016).
15
Interviews with senior officials from the DG Energy of the European Commission and the
EEAS Brussels, October 2016.
16
Braun (n 14) 4–6.

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transportation of gas. Again, however, the lack of consensus among EU member states
as well as different opinions among EU agencies reflects on the EU strategy.
Energy relations between Europe and Russia date back to the 1960s when Russian (then
USSR) gas was transported to Austria by pipeline in 1968. From the first shipment of gas
to Austria, energy flows between the two sides remained steady, even during the most dif-
ficult moments of the Cold War, while, starting from 2000, Brussels and the EU have been
developing a formal energy dialogue which covers a wide array of topics including not
only energy trade but also transportation and environmental issues. For many years the
EU strategy was to bring Russia closer by promoting the EU principles on energy policy.
In this context, Brussels tried unsuccessfully to encourage Moscow to join the ECT. After
2006, however, it became apparent in Brussels that the growing energy dependence on
Russia entailed serious supply disruption risks. Later, in 2009, the Russia-Ukraine gas
crisis was a watershed for Brussels, as Moscow cut off supplies to Southeastern Europe
for 13 days. On the eve of the Crimea crisis in 2014, fears that Russia might use energy
as a political weapon soared once again as Russia and Ukraine engaged in a further gas
dispute.
Against this backdrop, the EU response entails balancing engagement with Russia
as well as taking a stand against Russia. To begin with, starting from the early 2000s,
Brussels recognized the need to decrease dependence on Russian gas, while the 2006
Green Paper on energy security outlined the political and economic dangers that
emanate from the large share of Russian gas in the EU energy mix. The common
denominator, however, in the EU positions was the recognition that interdependence
will remain strong in the foreseeable future,17 while the 2000 Green Paper on energy
policy identified Moscow as a reliable energy partner.18 Since the 2009 gas crisis,
however, there has been increasing awareness regarding the need to mitigate short-term
supply risks stemming from Russia.
Under the principle of diversification Brussels has developed a multifaceted strategy
that aims at decreasing the dependence on Russian gas without openly undermining their
energy partnership with Moscow. On the one hand, the EU has recognized the need to
further promote cooperation with Russia, and the bilateral energy dialogue which was
initiated in 2001 has been fostered with the two sides negotiating the New EU-Russia
Agreement that will replace the existing 1997 Partnership and Cooperation Agreement
(PCA). Another important segment of their bilateral cooperation has been the estab-
lishment of the EU-Russia Early Warning Mechanism in 2007 which was activated in
2009 offering valuable information amidst the gas crisis. Most important, during the
2014 Russia-Ukraine gas disputes, the EU, through the Energy Commissioner Guenther
Oettinger, launched trilateral talks in order to ease the tensions and eventually it was
able to broker a deal between Moscow and Kiev.19 The energy dialogue between the two
sides remained intact despite the downturn in EU-Russia relations in the aftermath of
the Russian invasion of Crimea, with the European Commission envisioning a strategic
17
Council of the European Union (n 8).
18
European Commission (n 6).
19
Geir Moulson, ‘EU Proposes Deal to Ensure Ukraine Gas Supplies’, http://www.deseret
news.com/article/765660254/EU-proposes-deal-to-ensure-Ukraine-gas-supplies.html?nm51.

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artnership between the two sides, within a single energy market.20 These initiatives depict
p
the interest of the EU agencies to engage and integrate Russia via bilateral initiatives in
order to reduce the possibilities of future energy trade frictions, tackle technical inefficien-
cies and improve predictability in their relations.
In parallel, a stated goal of the EU is to diversify its gas suppliers as well as the respec-
tive gas transportation routes. This is a strategic choice that targets Moscow as an energy
supplier. In this context, one can identify two kinds of measures, those which are applied
in the internal EU energy market and those which focus on the external dimension of EU
energy security. With respect to the former, EU strategy aims at what can be considered
as internal balancing as they aim at building up the EU capabilities vis-à-vis Russia and
possible supply disruption shocks.
On the other hand, when assessing the EU gas diversification strategy one needs to keep
in mind that the EU-Russia gas trade is based on long-term contracts between Gazprom
and EU companies with a duration ranging between 10 and 35 years and take-or-pay clauses
at the level of 85% until 2008, thereafter reduced to 70%. Therefore, European companies
are already committed to purchasing more than 120bcm of gas in 2020 and approximately
70bcm in 2030, and if they fail to meet their commitments they will face grave economic con-
sequences as they would be subject to arbitration claims that would be equal to tens of bil-
lions of euros.21 Therefore, the EU strategy of diversification of energy supplies refers to the
15–30% of the gas purchases from Russia and consequently it can hardly be considered as a
game changer in the gas market. All in all, it is safe to say that Russia will remain dominant
in the EU gas market, something which is also recognized by the respective EU documents.
Furthermore, a major impediment for EU energy security strategy is the lack of con-
sensus between all EU agencies regarding the credibility of Russia as an energy supplier.
At the one extreme of this wide spectrum of EU perceptions on Russia stands Germany,
which historically has maintained a privileged relationship with Russia. Berlin believes that
despite geopolitical challenges, Russia will remain a credible energy supplier. This belief is
reflected in the German decision to engage in a close energy dialogue with Moscow and
promote the Nord Stream 1 & 2 pipelines. Historically, Germany has not deemed Russia a
geopolitical problem in terms of energy security, while in the past Russian energy was con-
sidered a valuable alternative to oil and gas from the volatile Middle East.22 In a similar
vein, the European Commission appears to be largely indifferent to the risks that stem
from high dependence on Russian gas, with its officials largely rejecting any geopolitical
dimension in the EU strategy and approaching the EU gas diversification strategy as a
choice influenced by economic motivations.23
20
European Commission, ‘Roadmap EU-Russia Energy Cooperation until 2050’ (March
2013), https://ec.europa.eu/energy/sites/ener/files/documents/2013_03_eu_russia_roadmap_2050_
signed.pdf (accessed 26 October 2016).
21
Ralf Dickel et al., ‘Reducing European Dependence of Russian Gas: Distinguishing Natural
Gas Security from Geopolitics’ (OIES, Oxford, October 2014), https://www.oxfordenergy.org/
wpcms/wp-content/uploads/2014/10/NG-92.pdf (accessed 20 October 2016) 10, 71.
22
Kirsten Westphal, ‘Germany and the EU-Russia Energy Dialogue’ in Pami Aalto (ed.),
The EU-Russian Energy Dialogue: Europe’s Future Energy Security (Aldershot: Ashgate 2008)
93.
23
Interviews with senior officials from the DG Energy and DG DEVCO of the European
Commission (Brussels, October 2016).

LEAL-ARCAS_9781786431042_t.indd 199 08/09/2017 13:02

On the other hand, a number of EU member states have been highly sensitive on the role
of Russia in the EU energy security landscape. Current members of the EU but formerly
part of the Warsaw Pact countries such as Poland and Hungary are highly dependent on
Russian gas and approach the role of Moscow from a largely geopolitical perspective.
This, for example, has been reflected in the response to the construction of Nord Stream
1 & 2, with the Polish defense minister Radek Sikorski characterizing the former as similar
to the Soviet-Nazi Molotov-Ribbentrop Pact while the latter has been met with criticism
by the government of Poland and Hungary.24 According to the so-called Visegrad group
of countries, Moscow is an energy partner that should not be trusted because it has used
energy as a political weapon and could be expected to adopt this strategy again; hence,
the EU should focus on minimizing its exposure in relation to Russian gas. What is more,
other EU institutes such as the EEAS, albeit not so bold, share some of the concerns
of the Eastern European countries; they recognize the geopolitical dimension in energy
security and underscore the necessity for a concrete EU energy security strategy vis-à-vis
the elephant in the room, which is the European overdependence on Russian gas.25
5. THE EU ENERGY DIVERSIFICATION STRATEGY IN THE

CASPIAN SEA REGION
Sitting on vast natural resources, the Caspian Sea region plays a key role in the EU’s
energy calculations, with Brussels seeking to access the gas deposits of Azerbaijan and
Turkmenistan.26 The situation, however, has been far from rosy and, as a newcomer,
the EU has been facing considerable challenges in accessing the region’s gas deposits.
Diversification and closer energy ties with Azerbaijan and Turkmenistan have been high
on the EU agenda and, most recently, in February 2015, the European Commission pub-
lished a Communication that calls for increased diversification away from Russian gas
through the promotion of energy ties with Central Asia.27
5.1 The Framework of the EU Policy towards the Caspian Sea Region
Using its soft power as the spearhead for its energy diplomacy the EU has launched
a number of initiatives with neighboring energy-rich countries such as the European
Neighbourhood Policy (ENP) and the Technical Assistance to Commonwealth States
(TACIS), including a set of comprehensive policies which provide technical and policy
support and financial assistance, and which bring the partner countries closer to the EU.
Such measures seek to address, among other issues, fostering closer energy ties with the
beneficiary countries, including Azerbaijan in the case of ENP and both Turkmenistan
24
William Powell, ‘Weekly Overview: Nord Stream 2 Strikes Back’ (Natural Gas World, 25
March 2016), http://www.naturalgasworld.com/weekly-overview-nord-stream-2-strikes-back-287
98 (accessed 18 October 2016).
25
Interviews with senior officials from EEAS (Brussels, October 2016).
26
European Commission, ‘Energy EU Crude Oil Imports and Supply Cost’, https://ec.europa.
eu/energy/en/statistics/eu-crude-oil-imports (accessed 20 October 2016).
27
European Commission (n 6).

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and Azerbaijan for TACIS. Undoubtedly such initiatives are aimed towards ensuring
security of energy supply based not merely on market-based calculations but also on
strategic considerations. The color revolution, as well as the limits of the EU foreign and
security policy vis-à-vis the rise of new geopolitical challenges, made it imperative that
the EU will use its soft power in order to ensure, among other goals, access to the energy
resources of the Caspian Sea.28
In parallel, Brussels has established more targeted programs that aim at closer energy
cooperation with partner countries, such as INOGATE and the Baku Initiative. These
initiatives, while seeking to promote the declared liberal market-based approach on
energy security of the EU, had a distinct strategic dimension as they were designed based
on calculations about the EU capabilities and structural parameters in the European
periphery.29 INOGATE, originally standing for Interstate Oil and Gas Transportation
to Europe, was operated from 1996 until 2016, and aimed at enhancing energy security for
both the EU and the partner countries by providing technical cooperation and bringing
the energy markets of non-EU states closer to the principles and operational standards of
the EU energy market. Similarly, in 2004 the Baku Initiative was announced as a platform
for energy cooperation between the EU and the Black Sea and Caspian Sea countries. The
long-term strategy of the Baku Initiative was to establish an integrated regional energy
market that will, in turn, be integrated with the EU energy market.
Unsurprisingly, the impact of these programs has been debated among scholars and
policy-makers. According to Raszewski (2016) INOGATE and the Baku Initiative played
a facilitating role in the internal and the external EU energy market, yet on the other hand
it has been unsuccessful as they have partially at least failed to provide sustainable energy
supply diversification options.30 In parallel, Urdze claims that EU officials recognize, off
the record, that INOGATE cannot be considered a success story.31 Based, however, on
semi-structured interviews with EU senior officials, some EU agencies question the results
achieved by INOGATE and the Baku Initiative, while officials from the DG Energy of
the European Commission state their satisfaction with the specific programs, suggesting
that their success largely depends on the level of cooperation of the partner countries.32
Furthermore, the complexity and the lack of coordination in the EU energy policy-
making process have been illustrated in the European energy diplomacy towards
Azerbaijan and Turkmenistan. Having been used to dealing with states such as Russia and
China, which share the premise of traditional sovereign state cooperating, the Caspian
Sea states face difficulties in understanding how a post-modern structure like the EU
28
Roland Dannreuther, ‘Developing the Alternative to Enlargement: The European Neighbour
hood Policy’ (2006) 11(2) EFAR 183.
29
Elsa Tulmets, ‘Can the Discourse on “Soft Power” Help the EU to Bridge its Capability-
Expectations Gap?’ (2007) 7 EPER 199.
30
Slawomir Raszewski, ‘The EU’s External Policy of Energy Diversification in the Wider
Black (and Caspian) Sea Region: Regional Security of Security Community? in Karen Henderson
and Carol Weaver (eds), The Black Sea Region and EU Policy The Challenge of Divergent Agendas
(Ashgate 2010) 143–7.
31
Sigita Urdze, ‘The Tool-kit of EU-Central Asian Cooperation’ in Alexander Warkotsch
(eds), The European Union and Central Asia (Routledge 2011) 26.
32
Interviews with senior officials from the DG Energy and DG DEVCO of the European
Commission (Brussels, October 2016).

LEAL-ARCAS_9781786431042_t.indd 201 08/09/2017 13:02

operates. This lack of compatibility is often reflected in the exchanges between EU offi-
cials and their counterparts from the Caspian states, despite the declared willingness of
all sides to cooperate.33 Furthermore, the polyphony among EU agencies impedes the
articulation of a coherent EU strategy in the Caspian Sea region. The Lisbon Treaty tried
to address these deficiencies, albeit not without problems. During the establishment of the
EEAS and the HR of the CFSP there was a leadership gap that offered an opportunity
to the DG Energy to take the lead in the policy-making process in terms of the Caspian
Sea states. Hence the DG Energy replaced the HR of CFSP or the Directorate General
(DG) External Relations (RELEX) from the European Commission, not only as the key
counterpart of Azerbaijan in their negotiations, but also as the key mediator in the 2010
Azerbaijan-Turkmenistan mediation on the Caspian Sea borders.34 While the involve-
ment of the DG Energy might have brought positive results, this institutional turmoil
undermined the credibility of Brussels as a coherent actor.
5.2 The Strategic Importance of the Southern Gas Corridor
The most important project towards diversification of gas supply routes has been the
Southern Corridor project which sought to bring gas from the Caspian Sea and the
Middle East to Europe, bypassing Russia. The first plans for this vast pipeline network
were initiated in November 2008 and the European Commission has been a very active
supporter of the project. The European Commission President Barroso characterized the
Southern Corridor as a key priority for the EU, and in the same year Southern Corridor
EU Energy Commissioner Günther Oettinger stressed the importance of establishing a
direct link with the Caspian and Middle East region (Euractiv, 2010). Stretching over
3,500 kilometers and crossing seven countries, the Southern Gas Corridor includes a
series of smaller projects, such as the South Caucasus Pipeline, the Trans-Anatolian
Pipeline (TANAP), the Trans-Adriatic Pipeline (TAP), and a number of vertical pipelines
that will bring the imported gas to Central and Eastern Europe, such as Trans Austria
Gas (TAG) pipeline, the Transitgas pipeline, etc. The annual capacity of the network is
20bcm and initially the Southern Gas Corridor will bring 10bcm of Shah Deniz II gas (the
offshore gas field in the Caspian Sea from where the gas originates) per year to Europe,
while there are projections for the construction of a Trans-Caspian Pipeline (TCP) that
will potentially bring gas from Turkmenistan to Europe through the Southern Corridor.
Up to 2013, three projects had been competing for the EU branch of the project, the
Nabucco pipeline that envisaged bringing gas to Central and Eastern Europe, the Trans-
Adriatic Pipeline (TAP) that would connect TANAP with Italy, and the Interconnector
Turkey-Greece-Italy (ITGI) pipeline. Interestingly, although the EU clearly backed
Nabucco, it was TAP that was eventually preferred for a series of political, technical and
33
Interviews with senior officials from the DG Energy of the European Commission, the
EEAS, the Mission of the Republic of Azerbaijan to the European Union, Embassy of the
Republic of Azerbaijan to the Hellenic Republic (Brussels, Athens, October 2016).
34
Samuel Lussac, ‘EU-Azerbaijan Association Agreement: A New Framework for Updated
Cooperation?’ (CACI Analyst, 22 July 2010), http://www.cacianalyst.org/publications/analytical-
articles/item/12104-analytical-articles-caci-analyst-2010-7-22-art-12104.html (accessed 22 October
2016).

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economic reasons. Brussels’ unambiguous support of Nabucco was illustrated in Barroso’s

statement during the 2009 signature of the Nabucco Intergovernmental Agreement
(IGA), according to which ‘Nabucco is thus a truly European project . . . the European
Commission is very proud of the contribution [it] made to this agreement’.35 In parallel,
the EU’s reception of both TAP and ITGI was rather tepid.36 The reasoning behind the
strong EU support was not just based on economic considerations but also drew on stra-
tegic calculations about the need to mitigate gas supply risks related to Gazprom, given
that Nabucco would deliver gas to the areas with the highest dependence on Russian gas.
However, events did not unfold according to Brussels’ expectations, as the Shah Deniz
II consortium, involving BP and Azerbaijan’s public company SOCAR, opted out of
TAP. Officially, the selection was based on eight technical, economic criteria, namely com-
merciality, project deliverability, financial deliverability, engineering design, alignment
and transparency, safe and efficient operability, scalability, and public policy considera-
tions, as well as political criteria which reflect Azerbaijan’s strategic aims, the EU strategic
goal for diversification of gas supplies, and the consortium’s interests.
However, the rationale behind the choice of TAP had to do with commercial aspects
such as the transportation costs for the gas, projected gas demand, expected prices in the
respective markets, differences in the organizational and decision-making mechanisms
of the projects, as well as the Third Party Access (TPA) exemption that was granted
to TAP.37 In parallel, one needs to keep in mind the growing interest of Azerbaijan in
the Greek energy market and the subsequent lobbying on behalf of the Greek Prime
Minister Samaras in favor of TAP. The choice of TAP came at a time when SOCAR had
reached an agreement with the Hellenic Republic Assets Development Fund (HRADF/
TAIPED) for the acquisition of a 66% stake in the Greek natural gas grid operator
DESFA, while it had expressed its interest in purchasing Greek gas trading company
DEPA, although later SOCAR had to withdraw its bid, reportedly amidst pressure
from the European Commission.38 Prime Minister Samaras’ active support of TAP
was recognized by representatives of Azerbaijan as an important input vis-à-vis the
implementation of TAP.39
Despite the signs that all sides, including the EU, Azerbaijan and the Greek govern-
ment, had adopted a strategy that was based not entirely on commercial criteria, today
they identify TAP as a purely commercial project, claiming that commercial interests
35
José Manuel Durão Barroso, President of the European Commission, ‘Remarks by
Commission President José Manuel Barroso upon the signature of the Nabucco intergovernmental
agreement’, SPEECH/09/339, Ankara, 13 July 2009, 2.
36
Nicolò Sartori, ‘Energy and Politics: Behind the Scenes of the Nabucco-TAP Competition’
(2013) IAI Working Papers 1327, 2–3, http://www.iai.it/sites/default/files/iaiwp1327.pdf (accessed
19 October 2016).
37
Nicolò Sartori, ‘Energy and Politics: Behind the Scenes of the Nabucco-TAP Competition’
(2013) IAI Working Papers 1327, 4–5, http://www.iai.it/sites/default/files/iaiwp1327.pdf (accessed
19 October 2016).
38
Dimitar Bechev, ‘Sofia View: Southern Gas Corridor Goes TAP’ (2013) ECFREU, http://
www.ecfr.eu/blog/entry/sofia_view_southern_gas_corridor_goes_tap (accessed 12 September 2016).
39
Interviews with senior officials from the Mission of the Republic of Azerbaijan to the
European Union and the Embassy of the Republic of Azerbaijan to the Hellenic Republic (Brussels,
Athens, October 2016).

LEAL-ARCAS_9781786431042_t.indd 203 08/09/2017 13:02

have been the only driving force behind the decision.40 All in all, however, the choice of
TAP over Nabucco was considered a defeat for EU interests as well as for the Central and
Eastern EU member states. By extension it was a victory for Greece and Italy as well as
for Russia, given that TAP was smaller than Nabucco and it did not compete directly with
the Russian pipelines. What is more, analysts were initially skeptical about the choice of
TAP over Nabucco for a number of reasons, the most important being the limited size
of the former compared to the latter (20bcm/year as opposed to 30bcm/year), as well as
the fact that apart from Bulgaria and Greece no other South-Eastern European country
would have access to the gas as there have been no related contracts.41 However, given the
expanding interconnectedness of the EU internal energy market, the gas transported via
the Southern Gas Corridor can eventually be brought to the EU areas which are more
dependent on Russia.42 This stands as one additional example of how measures such as
vertical pipelines and reverse flow capabilities can foster EU energy security.
Part of the Southern Corridor is also the Trans-Caspian Pipeline (TCP), which would
bring gas from Turkmenistan to Europe through the Southern Corridor. In 2011 the EU
opened talks with Azerbaijan and Turkmenistan to facilitate the implementation of the
project. However, negotiations resulted in a stalemate as Azerbaijan and Turkmenistan
could not resolve their bilateral disputes, while the EU was unable to provide the necessary
funding for the project.43 The legal status of the Caspian Sea however remains unclear and
despite good intentions from Azerbaijan and Turkmenistan, the Russian determination to
block possible solutions undermines the efforts of Ashgabat to connect with the Southern
Gas Corridor.44 Again, the EU remains inactive, with the position of the EU officials in
charge suggesting that they are unable to interfere with the specific issue.45
5.3 EU-Azerbaijan Energy Security Relations
Starting from 2007 Azerbaijan became a gas exporter based on three main sources of
gas: (1) the Shah Deniz field, which is the country’s largest gas deposit; (2) associated gas
from the Azeri-Chirag-Guneshli oil field; and (3) volumes produced by SOCAR from the
Shallow Water Guneshli field and other smaller fields. In 2015 the country’s gas produc-
tion reached 18.9bcm with 8.3bcm being exported. The energy consulting company Wood
40
Republic of Azerbaijan to the Hellenic Republic, the Hellenic Republic Ministry of Finance
(Brussels, Athens, October 2016).
41
Dickel et al. (n 21) 40.
42
Manfred Hafner, ‘The Southern Gas Corridor and the EU Gas Security of Supply: What’s
Next?’ (Natural Gas World, 28 March 2015), http://www.naturalgasworld.com/southern-gas-corri
dor-and-eu-gas-security-of-supply-22688 (accessed 17 October 2016).
43
Catherine A Fitzpatrick, ‘Is the Trans-Caspian Pipeline Feasible Again?’ (Natural Gas
World, 14 November 2014) http://www.naturalgaseurope.com/trans-caspian-pipeline-feasibility
(accessed 22 October 2016).
44
Luke Coffey, ‘Who Owns the Caspian?’ Al Jazeera (7 September 2015), http://www.aljazeera.
com/indepth/opinion/2015/09/owns-caspian-150906054015762.html (accessed 19 October 2016).
45
Interviews with senior officials from the DG Energy of the European Commission and the
EEAS (Brussels, October 2016).

LEAL-ARCAS_9781786431042_t.indd 204 08/09/2017 13:02

Mackenzie and the International Energy Agency estimate that after Shah Deniz II is put
into operation by 2020 the annual gas production of Azerbaijan will reach 25–30bcm.46
EU-Azerbaijan relations date back to the demise of the Soviet Union. However, the
two sides became closer with the launch of regional programs such as INOGATE, the
1999 Partnership and Cooperation Agreement (PCA), and the establishment of the 2004
ENP. Until the middle of the 2000s the EU-Azerbaijan dialogue did not bring concrete
results, at least not in the energy sector, with Brussels being rather reluctant to further
penetrate the region due to rising geopolitical competition between Russia and the US on
the Baku-Tbilisi-Ceyhan oil pipeline, while EU efforts to mediate the Nagorno-Karabakh
conflict were fruitless.47 However, the situation started to improve after the launch of the
Baku Initiative and, principally, the wake-up call of the 2006 Russia-Ukraine gas crisis. In
2006, a joint EU-Azerbaijan Action Plan in the framework of their PCA was signed by
the EU-Azerbaijan Cooperation Council, while since then bilateral dialogue has been fos-
tered through numerous instruments, such as the Eastern Partnership and the European
Neighbourhood Instrument (ENI).
Although the Southern Gas Corridor has been the backbone of EU-Azerbaijan energy
relations, Baku has been able to sell gas to Europe for a number of years via the Baku-
Tbilisi-Erzurum (BTE) pipeline and the Turkish-Greek pipeline that brings Azeri gas
to Turkey and from there to Europe. However, the Southern Gas Corridor, in tandem
with the development of Shah Deniz II, could be a game changer in the energy relations
between the two sides. When the final investment decision (FID) on extracting gas from
the Shah Deniz II gas field in Azerbaijan was taken by the Shah-Deniz-II-Consortium
in 2013, European Commissioner Barroso welcomed the signing of the agreement, char-
acterizing it as a ‘a strategic door opener for stronger European energy security’ and ‘a
major milestone for the diversification of our energy supplies, to the benefit of European
consumers and businesses’.48 Based on this agreement as well as on a series of sales agree-
ments that were inked in 2013 and the decision of the Shah-Deniz-II-Consortium to
proceed with the TAP, by 2019 Baku will be selling 10bcm annually to nine companies in
Italy, Greece and Bulgaria via the South Gas Corridor.
A thorny issue however, is the performance of Azerbaijan in terms of human rights and
democracy. In many cases EU member states and EU agencies are largely divided with
respect to the energy–human rights nexus in Azerbaijan; Nordic countries, for example,
have very often criticized the suppression of civil liberties by Aliev’s government, while at
the other end of this spectrum the Prime Minister of Hungary Viktor Orban, following
the signing of a Joint Declaration on Strategic Partnership between the two countries,
characterized Azerbaijan as a ‘model country’. In the same vein, while the European
Commission and other EU agencies which are involved in energy negotiations such as
46
Simon Pirani, ‘Azerbaijan’s Gas Supply Squeeze and the Consequences for the Southern
Corridor’ (OIES, Oxford, July 2016), https://www.oxfordenergy.org/wpcms/wp-content/uploads/
2016/07/Azerbaijans-gas-supply-squeeze-and-the-consequences-for-the-Southern-Corridor-NG-1
10.pdf (accessed 20 October 2016).
47
Lussac (n 34).
48
European Commission, ‘Gas from Azerbaijan: Commission welcomes final investment
decision to extract gas pledged for Europe’ (17 December 2013), http://europa.eu/rapid/press-
release_IP-13-1271_en.htm (accessed 15 October 2016).

LEAL-ARCAS_9781786431042_t.indd 205 08/09/2017 13:02

the EEAS have kept a balance between the need to secure access to gas supplies and
the promotion of certain principles and norms via EU energy diplomacy, the European
Parliament has been very critical of the government of Azerbaijan, and in September
2015 the European Parliament issued a resolution criticizing the deteriorating human
rights situation in Azerbaijan.49 Baku condemned the ‘biased’ approach of the European
Parliament and responded with a series of measures, including the decision to withdraw
from the Euronest Parliamentary Assembly.50 In turn, the reaction from other EU agen-
cies was rather moderate, with senior officials recognizing the problems that stem from the
polyphony in the EU diplomacy, while on the other hand they stressed that the EU should
neither give up its values nor stop applying the power which constitutes the European
comparative advantage, in the name of security of gas supply.51 The confidence of the EU
officials stems from, among other factors, the deepening of the EU internal gas market
and the gloomy projections for gas demand that make the need for Azeri gas less pressing.
All in all, it is important to stress that both sides kept energy outside the human rights
issue, expressing their certainty that their energy trade will not be hampered.52 The reason
behind this is not that their energy relationship entails merely corporate projects with
no geopolitical dimension, as all sides claim, but rather the willingness of both sides to
safeguard their energy partnership. On the other hand, the lack of coherence between
EU member states and agencies clearly does not bring added value to the EU diplomacy
towards Azerbaijan.
5.4 Prospects for EU-Turkmenistan Energy Relations
Following the demise of the Soviet Union, Turkmenistan has gradually emerged as a new
energy hotspot, eager to sell its hydrocarbon reserves on the global market. According
to the 2014 BP Statistical Review of World Energy, gas reserves in Turkmenistan are
calculated at 17.5 trillion cubic meters of gas.53 For many years, and even after the disin-
tegration of the Soviet Union, Russia monopolized Turkmenistan’s gas market; against
this backdrop, Ashgabat, seeking to diversify its energy clientele, has turned towards the
energy-hungry Beijing, with the two sides establishing a vast pipeline network, the Central
49
European Parliament, ‘European Parliament resolution of 10 September 2015 on Azerbaijan
(2015/2840(RSP))’ (10 September 2015), http://www.europarl.europa.eu/sides/getDoc.do?pubRef5-//
EP//NONSGML+TA+P8-TA-2015-0316+0+DOC+PDF+V0//EN (accessed 23 October 2016).
50
Eastern Partnership Civil Society Forum, ‘Parliament of Azerbaijan Reacts to the EP
Resolution and Decides to Withdraw from the Euronest Parliamentary Assembly’ (23 September
2015), http://eap-csf.eu/en/news-events/articles-analytics/parliament-of-azerbaijan-reacts-to-the-
ep-resolution-and-decides-to-withdraw-from-the-euronest-parliamentary-assembly/ (accessed 24
October 2016).
51
EEAS (Brussels, Athens, October, 2016).
52
Republic of Azerbaijan to the Hellenic Republic, the Hellenic Republic Ministry of Finance
(Brussels, Athens, October 2016).
53
Abdelghani Henni, ‘Gas for Cash: The Future of Turkmenistan’ (Society of Petroleum
Engineers, 11 November 2014), http://www.spe.org/news/article/Turkmenistan-Gas-for-Cash

LEAL-ARCAS_9781786431042_t.indd 206 08/09/2017 13:02

Asia-China gas pipeline, which can transport annually up to 55bcm of gas. However,
following the rising Chinese demand for Turkmen gas deals and a series of energy trade,
infrastructure and finance agreements that made Ashgabat highly dependent on China,
the Turkmen leadership has been interested in selling gas to Europe in order to decrease
its dependence on China.54
In April 2008, the Turkmen government signed a Memorandum of Understanding
on a strategic energy partnership with the European Commission which indicated a
willingness to reserve 10bcm/y of gas for Europe, which is merely a fraction of what
Turkmenistan exports to China.55 The most likely transportation route of the Turkmen
gas will be through the Trans-Caspian Pipeline (TCP) that will connect Turkmenistan
with the Southern Gas Corridor in Azerbaijan. Amidst growing fears for the reliability
of Russia as an energy partner, the EU has stepped up its diplomatic contacts with
Ashgabat during recent years and recently EU officials stated that the TCP could
be built by 2019.56 Similarly, Turkmen officials have been expressing their certainty
that until 2020 Turkmenistan will be selling large amounts of gas to the European
Union.57
However, the prospects for an EU-Turkmen energy partnership are far from rosy as
the two sides need to overcome a series of legal, political and technical hurdles. Apart
from territorial disputes among the Caspian littoral states, additional issues need to be
dealt with concerning gas pricing and tariffs, while it is questionable whether Brussels will
conform to Ashgabat’s requirement that its clients must purchase its gas on its border,
thus taking all the transit risks – a demand which has already been met by Beijing.
An additional problem with the EU is that it is a latecomer in the Turkmen energy
market and there is clearly a lack of compatibility between the energy security
approaches of the two actors. Obviously, the EU cannot compete with the clout of
Beijing, which brings on board diplomatic leverage, vast foreign exchange reserves, and
an energy security approach that is closer to Ashgabat’s perceived needs. As a result,
while China has already consolidated a strong foothold in Turkmenistan, Brussels has
been struggling to establish channels of communications and mutual trust. The EU
has been unable to put into force the 2010 Partnership and Cooperation Agreement
(PCA) with Turkmenistan, which is still pending ratification by the EU countries and
the European Parliament, due to human rights concerns. The lack of steam in the
EU-Turkmenistan relationship was also evident in September 2012 when President
Berdimuhamedow snubbed the EU Energy Commissioner Günther Oettinger, who was
visiting Turkmenistan.
In Turkmen officials’ eyes the EU is a reluctant actor which remains ambivalent
54
Abdujalil Abdurasulov, ‘China’s Growing Demand for Turkmenistan’s Gas’ BBC (20
November 2014), http://www.bbc.com/news/business-30131418 (accessed 25 October 2016).
55
Jos Boonstra, ‘The EU-Turkmenistan Energy Relationship: Difficulty or Opportunity?’
(2010) 5 EDC2020 2.
56
Daryna Tabatska, ‘Turkmenistan: The Diversification of Gas Export Market’ (Natural Gas
Europe, 16 December 2015), http://www.naturalgaseurope.com/turkmenistan-the-diversification-
of-gas-export-market-27160 (accessed 18 October 2016).
57
Interview with the Ambassador of Turkmenistan H.E. Tajievna Rustamova (Beijing, July
2016).

LEAL-ARCAS_9781786431042_t.indd 207 08/09/2017 13:02

vis-à-vis Russia and which, as opposed to China, cannot ‘make things happen’.58
This mismatch became apparent when the then European Commission President
José Manuel Barroso visited Turkmenistan in 2011, with Turkmen diplomatic sources
appearing uneasy over the visit as Barroso had no concrete plans that would advance
an energy deal.59 While Ashgabat expects EU officials to be able to put energy deals
into motion, EU officials approach their energy dialogue with Ashgabat from another
perspective, leaving such issues to energy companies.60 This might be the way the EU
conducts its business, yet it has been a distinct disadvantage in an environment where
more state leaders can take decisions on and sign energy agreements. On the other
hand, it needs to be stressed that gradually EU officials appear more confident, if not
indifferent regarding the future of EU-Turkmenistan energy trade, given the success
of the internal energy market measures and the pessimistic projections for gas demand
in Europe.61
Furthermore, adding the European interest into Turkmenistan’s energy equation
has led to questions about Turkmenistan’s capacity to supply enough gas to China, the
EU and possibly Russia. According to the 2015 BP Statistical Review of World Energy,
Turkmenistan produced 69.3bcm of gas in 2014, of which 27.7bcm were consumed,
25.5bcm were exported to China, and the remaining quantity was exported to Iran and
former Soviet Union states. If the EU is to purchase 10bcm of gas from Turkmenistan,
Ashgabat will have to boost its gas production, otherwise it will find itself stretched thin
trying to satisfy all its supply obligations.62 The situation will become even more demand-
ing for Ashgabat given that it has contracts to ship 80bcm of gas to China once Line D
of the China-Turkmenistan pipeline is completed. Again, however, Turkmen officials
appear confident that their gas deposits will fully satisfy both domestic and external
demand. An issue of key importance will be the ongoing development of the Galkynysh
gas field, which can boost the country’s gas production to 95bcm per year. In line with
this, President Gurbanguly Berdymuhamedov had announced that Turkmenistan would
ramp up gas production to 83.8bcm in 2015.63 Even under this scenario, however, the
situation will remain strained for Turkmenistan, which will have to step up its efforts and
meet the stated goal of 100–120bcm annually in order to provide all its clients simultane-
ously with ample gas.
58
Catherine A Fitzpatrick, ‘TCP Shelved, TAPI Stalled; Shake-up in Turkmenistan’s Oil
and Gas Ministries’ (Natural Gas Europe, 24 January 2013), http://www.naturalgaseurope.com/
turkmenistans-oil-gas-ministry-shakeup (accessed 13 October 2016).
59
Andrew Rettman, ‘Turkmenistan: We’re Not Sure Why Barroso is Coming’ (euobserver, 10
January 2011), https://euobserver.com/foreign/31616 (accessed 17 October 2016).
60
Interviews with senior officials from the DG Energy of the European Commission (Brussels,
October, 2016).
61
Nick Butler, ‘Has Gas Demand in Europe Peaked?’ Financial Times (23 May 2016).
62
BP Statistical Review of World Energy (London 2015) 22–3, 28.
63
‘Turkmenistan to Increase Gas Production to 84 bcm in 2015’ (The Times of Central Asia,
13 January 2015) https://www.timesca.com/index.php/news/14863-turkmenistan-to-increase-gas-
production-to-84-bcm-in-2015 (accessed 13 October 2016).

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6. KNOWLEDGE GAP FOR FUTURE RESEARCH
Not so long ago, oil prices were soaring above $100 per barrel, Hu Jintao was arguing
that ‘certain powers have all along encroached on and tried to control navigation through
the [Malacca] Strait’,64 and 11 people in Central and Eastern Europe had died as a result
of the Russia-Ukraine gas stand-off. Until recently, the traditional notion of energy
security was garnering the lion’s share of attention from academics and policy-makers as
well as corporate leaders. However, the situation has changed dramatically during recent
years, with mounting environmental concerns, the oversupply of fossil fuels following the
Chinese shale gas revolution and the slowing of the Chinese economy in tandem with
major changes in the country’s energy policy, as well as the sharp decline in the price of
oil. Gradually, the center of attention has shifted towards energy-demand policies. The
promotion of renewable energy resources has been drawing attention away from oil and
gas supply, while the ongoing fourth industrial revolution and new challenges such as
cyber energy security have been shaping a new energy security landscape.
Against this backdrop, the existing research on energy geopolitics has been rather
limited, with the majority of researchers focusing on the allocation of fossil fuels and thus
barely scratching the surface with respect to the geopolitical dimensions in some crucial
aspects of the new global energy reality. As a result, there is a great deal of uncertainty
regarding not only the economic but also the political and security implications of the
emergence of renewable energy systems, the integration of the modernization of the
energy markets with higher interconnectivity, smart-grids and the cross-border flow of
renewable energy.65 Consequently, it will be of profound interest to explore what this new
energy reality might imply for international relations, and particularly what the impact
will be on patterns and perceptions of cooperation or potential competition between
energy suppliers and consumers. Currently, we have a very limited volume of research on
the security and political impact of issues such as the decentralized generation of electric
energy, the transportation and storage of energy security, cyber threats to smart grids and
green energy technology transfers.
However, the above-mentioned issues have the potential to create new dimensions
in the energy relations between the EU and the Caspian Sea states which are worth
exploring. For one thing, Central Asia has tremendous potential for the development
of renewable energy and energy efficiency; Kazakhstan is already the regional leader
in this respect, with the country’s potential production of wind energy alone exceed-
ing by 10 times the country’s projected electricity needs by 2030. Similarly, four-fifths
of Turkmenistan’s land is covered by the Karakum desert, which provides enormous
potential for the development of solar and wind power.66 Azerbaijan, in turn, has
64
Ian Storey, ‘China’s “Malacca Dilemma”’, China Brief 6, No. 8 (2006), http://www.james
town.org/single/?no_cache51&tx_ttnews%5Btt_news%5D531575 (accessed 28 September 2016).
65
Daniel Scholten and Rick Bosman, ‘The Geopolitics of Renewables; Exploring the Political
Implications of Renewable Energy Systems’ (2016) 103 (C) JTFSC 273.
66
Komila Nobiyeva, ‘Renewable Energy and Energy Efficiency in Central Asia: Prospects
for German Engagement’ (2015) Marion Dönhoff Working Paper, 1–9, http://succow-stiftung.
de/tl_files/pdfs_downloads/MDF%20Working%20Paper/MDF%20Paper_RE%20and%20EE%20
in%20Central%20Asia_Kominla%20Nabiyeva_2015.pdf (accessed 29 October 2016).

LEAL-ARCAS_9781786431042_t.indd 209 08/09/2017 13:02

been paying growing attention to the development of green energy. According to Jamil
Melikov, deputy head of the Agency for Alternative and Renewable Energy (AFARE) of
Azerbaijan, Baku hopes to beef up its renewable energy capacity from 830MW in 2015
to 2,500MW by 2020.67 This will allow Azerbaijan not only to deal with climate issues
but also to export more oil and gas to its energy importers, and, towards this end, Baku
has identified the EU as a key partner.68
These developments can create new realities not only in the relations between the EU
and the Caspian states but also between major energy players in the region, including
China. Inevitably, the EU or just EU member states may emerge as key providers of trade,
technology, and know-how in the region, and, through potential spill-overs, coopera-
tion in renewable energy and energy demand measures might impact the broader energy
security landscape in the region. For example, China is confident about its consolidated
presence in the Caspian Sea and as a result of this position, currently Beijing appears to
be neutral about the role of the EU in the Caspian Sea. A closer cooperation between the
EU, Turkmenistan and Kazakhstan might foster the EU’s profile in the region, creating
new opportunities, and hence it will be interesting to see how this will impact their trian-
gular relations. These dynamics constitute unchartered waters for energy security studies
and can attract the attention of future research. To put it more simply, as we are heading
towards a new global energy landscape in the framework of the 2015 Paris Agreement,
future researchers should study international relations and geopolitics within a new green
and integrated energy system, an integral part of which will be the EU and the Caspian
states.
7. CONCLUSIONS
EU energy security strategy has recently found itself at a crossroads, with a set of coun-
terforces shaping its future direction. On one level, memories of people dying as a result
of the 2009 Russia-Ukraine gas dispute and the Russian invasion of Crimea have been a
watershed for the EU, casting doubt on the reliability of Moscow as an energy partner.
At the same time, it needs to be stressed that even during the most critical times of the
Cold War, Moscow met its own obligations in the gas agreements with Europe. In paral-
lel, we should not neglect the ongoing paradigm shift that has been taking place globally,
with states’ attention moving from the traditional notion of energy security as the need
to access oil and gas towards a more comprehensive approach that understands energy
security as the resilience of energy systems and pays much attention to environmental
sustainability and climate change. The tectonic shifts in the global energy markets have
resulted in an excessive availability of fossil fuels, more than we can actually consume,
67
Amina Nazarli, ‘Azerbaijan Seeking Much Alternative Energy in Total Energy Balance’
(Azernews, 21 October 2016), http://www.azernews.az/nation/103870.html (accessed 28 October
2016).
68
VladislavVorotnikov, ‘Azerbaijan Focuses on Alternative Energy Development to Increase
Fossil Fuel Exports’ (Renewable Energy World, 21 April 2015), http://www.renewableenergy
world.com/articles/2015/04/azerbaijan-focuses-on-alternative-energy-development-to-increase-fos
sil-fuel-exports.html (accessed 31 October 2016).

LEAL-ARCAS_9781786431042_t.indd 210 08/09/2017 13:02

making energy importing states, including the EU, more confident with respect to the
security of gas supplies.
At the center of the energy security strategy of the EU towards the Caspian Sea rests
the energy trade between Europe and Russia, and the risks that emanate from over
dependence on Russian gas. As in many EU policy fields, a chronic problem for the
European energy security strategy is the deep divisions among the EU member states,
and in the case of energy security the key issue is whether Russia constitutes a threat to
EU energy security; as long as EU member states have different energy mixes and conse-
quently different priorities, as well as different understandings and memories about the
relationship between Moscow and the West, it is hard to imagine how Brussels will articu-
late a single policy towards Russia and by extension to other Caspian Sea states. To make
matters worse, internal competition between different EU agencies further undermines
the implementation of a coherent and concrete strategy towards Russia.
Moreover, it is important to note that if the EU is to remain loyal to its stated adher-
ence to a market-based approach on energy security, then energy relations with Russia
should be seen from an economic perspective and not as a chess-game that includes power
politics, pipeline diplomacy and zero sum calculations. From this perspective, measures
such as energy market liberalization, reverse flow capabilities and closer interconnection
between EU member states have boosted the resilience of the EU’s energy system against
gas supply disruption shocks. Brussels might have been criticized for not standing up
against Moscow or for not pursuing an aggressive strategy, similar to the Chinese energy
diplomacy, that will give them access to gas deposits of other countries, yet the EU choice
to mitigate supply disruption risks via market-based approaches has been a successful
one, not only because it has mitigated energy insecurities but also because it tends to de-
securitize energy relations with Moscow.69
In parallel, the declared priority for energy diversification has been on the top of
the EU agenda, regardless of its standpoint on Russian reliability. After all, maintain-
ing a diverse portfolio of energy sources is in principle an optimum policy, while the
lack of recent Russian investments in the oil and gas sector underscores the economic
rationale behind an energy diversification strategy. As a result, the EU effort to pen-
etrate the energy markets of Azerbaijan and Turkmenistan has been unambiguously
correct, despite the flaws in its articulation. Over recent years Brussels has articulated
a strategy that has already borne fruit with the establishment of the Southern Gas
Corridor, which will serve as an alternative to Gazprom. Although the 10bcm that has
already been agreed so far is just a fraction of what Moscow exports to Europe, this is
an important first step, and, again, how one evaluates its prospects largely depends on
the narrative under which it is framed; on the one hand it will not be a game changer
regarding the importance of Russia, yet, on the other, if considered in tandem with
other internal energy market measures, it brings considerable added value to the overall
EU strategy.
69
Tim Boersma and Michael E. O’Hanlon, ‘Why Europe’s Energy Policy has been a Strategic
Success Story’, (Brookings Institution, 2 May 2016), https://www.brookings.edu/blog/order-
from-chaos/2016/05/02/why-europes-energy-policy-has-been-a-strategic-success-story/ (accessed
29 October 2016).

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12. Russian energy projects and the global climate,
geopolitics and development conundrum
Slawomir Raszewski
1. INTRODUCTION
Russian energy resources play an important role in European Union (EU) energy supply
security, side by side with the Community’s decarbonisation efforts and the power of its
internal energy market. Yet, despite ‘conventional’ narratives premised on energy depend-
ence understood as the ration of imports to consumption,1 it is not so much the Russian
energy resources per se that constitute the challenge concerning EU-Russia energy relations.
The essence of the relations is the way these energy resources are traded and the manner
in which the transit of these resources is governed. In respect to the current energy trade
between the EU and Russia, oil and gas represent two different dynamics. Crude oil is a
globally traded commodity and it is governed through what is effectively a globalising inter-
national market characterised by its own oil-specific trade and transit challenges.2 As for
natural gas, it still largely remains a regional, yet increasingly internationalising, commodity
led by ever increasing gas-to-gas competition in a form of liquefied natural gas (LNG). As
for natural (pipeline) gas, owing to structures governing its trade and transit – long-term
contracts and multi-stakeholder pipelines – natural gas supply security has become one of
the most politicised of all matters in EU-Russia energy relations for over a decade now.
Governance of the energy trade relationship between Russia and the EU is intertwined
with geopolitics involving existing and would-be transit countries and jurisdictions. The
issue of transit of natural gas has been a matter of particular concern within the trilat-
eral energy security relationship involving the EU, Russia and Ukraine, as evidenced by
recurring gas supply disruptions in 2006 and 2009.3 Russia’s ability to export natural gas
to Europe hinges on the geopolitics of transit via Ukraine. Russia’s total gas export capac-
ity to Europe amounts to around 240 bcm with 120 bcm passing through Ukraine. With
Gazprom exports to Europe averaging 150–160 bcm, at least 30–40 bcm of the amount
must be shipped via the Ukrainian system.4
1
Catherine Locatelli, ‘Europe’s Gas Supplies: Diversification with Caspian Gas and the
“Russian Risk”’ (2010) Cahier de Recherche LEPII n 29.
2
For a detailed analysis of sea-borne energy transit and choke points in global oil trade
see: Caroline Kuzemko, Michael Keating and Andreas Goldthau, The Global Energy Challenge:
Environment, Development and Security (Palgrave Macmillan 2016) 171–4.
3
Jonathan Stern (2006) ‘The Russian-Ukrainian Gas Crisis of January 2006’, OIES; Jonathan
Stern, Simon Pirani and Katja Yafimava (2009) ‘The Russo-Ukrainian Gas Dispute of January
2009: A Comprehensive Assessment’, OIES NG27.
4
James Henderson, ‘Unclogging the Issues Blocking Russia’s Nord Stream 2 Pipeline’, Russia
Direct (8 July 2016) http://www.russia-direct.org/opinion/unclogging-political-issues-blocking-rus
sias-nord-stream-2-pipeline (accessed 12 October 2016).
215
LEAL-ARCAS_9781786431042_t.indd 215 08/09/2017 13:02

The geopolitical situation was further complicated following the crisis in Ukraine – the
key transit country for Russia’s gas exports to Europe – involving civil conflict within
the country’s eastern regions, as well as annexation of the state’s territory, the Crimean
Peninsula in 2014. The geopolitics of gas transit, insecurity on the EU’s doorstep and the
politics of alternative supply routes and projects forged at the time of writing this chapter
demonstrate the intertwined nature of energy in Europe due to the ongoing insecurity in
Ukraine. At the same time, though, the changing geopolitics in the region are arguably
enhancing Russia’s energy strategy towards Europe.5
With respect to natural gas, the essence of the energy relations between energy consum-
ers in Europe and energy producers in Russia has been the issue of transit. The transit of
natural gas – which has reverberated over agreeing on a mutually acceptable energy trade
governance structure – has been addressed through a number of institutional and diplo-
matic formats in the past two decades or so, evolving to effectively become the ‘external
dimension’ of the EU’s energy security. The external dimension of the EU’s energy secu-
rity had at most times been difficult to put into practice, largely due to issues with com-
pliance externally. In the absence of immediate remedies to address the transit dilemma
externally, the EU has revived arguably its strongest political tool – that of integration
from within. Since the late 2000s the integration tool has been applied in the domain
of energy in a bid to create fully-fledged internal energy market regulation. The idea of
internal energy market integration rested on market logic. The EU region as a whole is one
of the main energy demand centres and one the largest importers of energy in the world.
The integration of markets and policies have held a promise that a concerted policy
towards suppliers of natural gas would not only be an important step forward but would
also allow capturing a value in an attempt to ensure more competitive terms on access
to the lucrative market for external gas suppliers. The market approach has been sup-
ported on a legal basis by means of the so-called Third Energy Package (TEP). In July
2009 the Third Gas Directive and Regulation 715 (repealing the Second Gas Directive
and Regulation 1775) had been adopted by the EU, and, together with a wider set of
internal energy market Directives and Regulations, became known as the ‘Third Energy
Package for Gas’ or simply the ‘Third Package’.6 The TEP aims at liberalising the EU
gas market while building a pan-European public policy with the financial tools avail-
able to streamline a functional makeover of the Community’s energy markets, including
natural gas – for example, the financial tools available at the EU’s disposal to enable
funding feasibility studies for the construction of physical interconnections between
regional markets (‘projects of common interest’). The ‘markets and laws’ approach to
alleviate negative consequences of geopolitics in EU energy relations, not only with
Russia but also other existing and future suppliers, has been tightly coupled with the
bold decarbonisation agenda that Brussels had embraced (a pledge to decrease carbon
emissions by set deadlines and by a specific amount). These actions, taken at the level
of the Community, have allowed for an unprecedented degree of functional integration,
5
Andrey A Konoplyanik, Ekaterina Orlova, Maria Larionova (2014) ‘What is the Future of
Russian Gas Strategy for Europe after the Crimea?’ 4 OGEL.
6
Katja Yafimava (2013) ‘The EU Third Package for Gas and the Gas Target Model: Major
Contentious Issues Inside and Outside the EU’, OIES NG 75.

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Russian energy projects, global climate, geopolitics and development 217
transforming the EU’s energy market, with the rule of law allowing further scrutiny to
strengthen the global climate objectives.7
As an addition to addressing natural gas imports from Russia, EU energy policies have
also contributed to an emerging debate on the future of fossil fuels, following the COP21
summit and choices to be made in the coming decades regarding the types of energy
sources and technologies to be used to meet EU energy demand while protecting the eco-
system. Departing from there in the next section, this chapter will proceed with an over-
view of the key transit projects designed to carry natural gas from Russia – projects the
chapter then draws on in conceptual debates demonstrating the policy and legal challenges
and opportunities facing the Russian natural gas projects, and in sketching a critical analy-
sis of existing conceptual debates concerning the natural gas trade in Europe. Bearing
in mind the changing global energy and environment policy landscape, the chapter first
discusses the issue of climate to explain how the bigger picture of environmental concerns
is shaping energy policy narratives in Europe, with possible implications for the future of
Russian gas projects and imports.
2. GLOBAL PUBLIC POLICY AND THE ENERGY–

ENVIRONMENT NEXUS
Energy policy has traditionally reverberated around security of supply – broadly under-
stood as ‘insurance against supply risks’8 – and market competitiveness to keep the
volatile energy markets stable while leaving environmental preoccupations broadly aside.
Climate change science has been gradually altering the energy policy objectives, adding
the sustainability and energy dimensions as inseparable aspects. In the face of man-
induced climate change, attempts have been made to deliver a collective response to the
‘non-traditional’ dilemma by means of international law. The United Nations Framework
Convention on Climate Change (UNFCCC), which entered into force on 21 March 1994,
opened up the process. The UNFCCC’s milestones – including the 1997 Kyoto Protocol,
the 2010 Cancun Agreement and the 2012 Doha Conference – resulted in the adoption of
the legally binding Paris Agreement in 2015, which, at the time of writing this chapter, has
been adopted by 87 countries around the world. With a ‘top-down’ approach to delivera-
bles at the level of cities and regions, the emerging global public policy on climate is bring-
ing a new dynamic into the energy policy dimension, with a possible long-term transition
away from hydrocarbons. Resting on the assumption that the use of hydrocarbons will be
restricted due to the public policy objectives, it can be anticipated that alternative sources
of supply should become available to substitute for a partial phase-out of the fossil fuels
way forward.9 With the global public policy on climate driving the transition towards less
7
Rüdiger KW Wurzel, James Connelly (eds), The European Union as a Leader in International
Climate Change Politics (Routledge 2011).
8
Christian Egenhofer, Thomas Legge, ‘Security of Energy Supply: A Question for Policy
or the Markets’ (2001) CEPS Task Force Reports, https://www.ceps.eu/system/files/book/37.pdf
9
Nick Butler, ‘Climate Change and the Myth of Stranded Assets’, Financial Times (London,
28 September 2015).

LEAL-ARCAS_9781786431042_t.indd 217 08/09/2017 13:02

carbon-intensive practices and technologies, if the COP21 is successfully internalised by

the contracting parties, some assets are expected to become ‘stranded’, that is, suffering
‘from unanticipated or premature write-downs, devaluations or conversion to liabilities’.10
The challenge of stranded assets and divestment movement have become salient across
the oil and gas industry – including oil and gas exploration companies in the upstream to
mid- and downstream utilities and power plants – calling for a review of existing measures
to address potential issues, including liability and ethics as well as physical and transition
risks in the way the transition affects the existing business model by which the fossil fuel
world is governed.11 The phenomenon of stranded assets can be evidenced by ongoing
developments in Europe. The undesired consequence of the energy–environment nexus
and the transition of major EU utility companies has been that of mothballing or pre-
maturely closing recently built high-efficiency combined-cycle gas turbine (CCGT) power
plants. As a result of disincentivised capacity investment – contradictory to the objectives
of the global public policy on climate – some CCGTs have been rendered stranded, with
coal generation paradoxically gaining market share.12
With the rise of global public policy on climate, the process of divestment involving
selling off business interests or investments motivated by climate-change-related risks has
gained prominence and become the fastest growing social movement in history.13 These
unexpected consequences, which stem from the energy–environment objectives, under-
score potential transition risks and the challenge of integrating climate and energy policies
with the value of EU utility companies, which have been facing profitability downturns
as a result of the changing policy environment.14
The business–policy angle, or more broadly governance of the energy–environment
nexus, has been paramount in the presence of a top-down, UNFCCC-led global climate
policy, which is now being implemented.
Embracing the global public policy on climate by business actors in Europe will mean
that the existing business model of the natural gas industry is likely to be affected in a
number of ways. In the natural gas sector investment certainty means that periods of
20 and more years are assured to ensure completion of the EU’s projects of common
interest, which had been designed to liberalise and promote the common energy market.
Uncertainty over the future internalisation of the climate policy package may bear reputa-
tional risks to the natural gas industry due to the decarbonisation agenda and the possible
unsettled role the industry is set to play in the coming decades.15
10
Ben Caldecott, Jeremy McDaniels, ‘Stranded Generation Assets: Implications for European
Capacity Mechanisms, Energy Markets and Climate Policy’ (2014) Working Paper 1/2014, http://
www.smithschool.ox.ac.uk/research-programmes/stranded-assets/Stranded%20Generation%20
Assets%20-%20Working%20Paper%20-%20Final%20Version.pdf (accessed 10 December 2016).
11
Richard Baron, David Fischer, ‘Divestment and Stranded Assets in the Low-carbon Transition’
(2015) OECD, 4, https://www.oecd.org/sd-roundtable/papersandpublications/Divestment%20and%
20Stranded%20Assets%20in%20the%20Low-carbon%20Economy%2032nd%20OECD%20RTSD.
pdf (accessed 10 December 2016).
12
Ibid, 6.
13
Ibid.
14
Ibid.
15
Wolfgang Peters, ‘The Case for Gas Post COP21: Natural Gas is the “Low Hanging Fruit” for
Material and Immediate Reduction of Greenhouse Gases’ (The Gas Value Chain Company GmbH,

LEAL-ARCAS_9781786431042_t.indd 218 08/09/2017 13:02

From the governance standpoint, if thoroughly embraced by the international com-

munity, the global public policy on climate is likely to substantially alter the ‘balance of
power’ in energy geopolitics. It has been observed that due to changes in international
markets, European policy frameworks, and EU decarbonisation targets – including
changes in the incumbent market structure and pressure on the gas sector to change its
traditional business models – natural gas markets in Europe are in flux.16
As mentioned above, the EU did make considerable efforts to build political and
legal tools to address the external dimension of energy supply. The Community’s capac-
ity to act as a unified actor to sanction and enforce the activities of energy majors in
their upstream activities has played a role in promoting alternatives, including the EU’s
embrace of renewables and efficiency measures.17 It should be noted that the EU’s uneasy
energy relationship with Russia, coupled with the dilemma of the environment–energy
nexus and its impact on climate, have all informed the EU’s search for alternative policy
options.
The environment–policy nexus is a matter of concern. The EU, together with China
and the United States, are the highest consumers of energy. In 2013 the total primary
energy supply (TPES)18 of the EU-28 equalled 1666.6 million tonnes of oil equivalent
(toe), constituting over 12 per cent of the global TPES (roughly comparing to China’s
over 22 per cent and the US’s 16 per cent share of global TPES).19 The EU is the world’s
largest importer of energy at a staggering 1441.8 million toe – or nearly 28 per cent of
global energy imports – with natural gas constituting nearly 24 per cent of the energy
imported by the EU-28.20 The EU-28’s natural gas consumption rose to reach 445 bcm
in 2015, with much of its gas demand met by indigenous supply (31 per cent of EU-28
demand in 2015) and external supplies from the Russian Federation (28 per cent of the
EU-28 demand in 2015) as well as LNG imports.21 The energy relationship between
Europe and Russia is mature and mutually interdependent. Europe is the key consumer
of energy from Russia. Over 70 per cent of Russia’s crude oil and nearly 90 per cent
September 2016) http://www.energystreamcmg.com/media/293037/CaseForGasPostCOP21-_WP

eters_09-2016.pdf (accessed 10 October 2016).
16
Andreas Goldthau, ‘Assessing Nord Stream 2: Regulation, Geopolitics & Energy Security
in the EU, Central Eastern Europe & the UK’ (2016) EUCERS Strategy Paper 10, 11, http://
www.europeangashub.com/custom/domain_1/extra_files/attach_685.pdf (accessed 10 December
2016)
17
Harald Hecking and others, ‘Options for Gas Supply Diversification for the EU and
Germany in the next Two Decades’ (2016) EWI & the EUCERS, 49, http://www.ewi.research-sce
narios.de/cms/wp-content/uploads/2016/10/Options-for-Gas-Supply-Diversification.pdf (accessed
10 November 2016).
18
Total primary energy supply (or gross inland consumption) is comprised of coal & ignite, oil,
gas, nuclear energy, renewables & waste, and electricity & heat.
19
Eurostat, ‘The EU in the World. 2016 Edition’ (2016, 173) http://ec.europa.eu/eurostat/
documents/3217494/7589036/KS-EX-16-001-EN-N.pdf/bcacb30c-0be9-4c2e-a06d-4b1daead493e
(accessed 16 December 2016).
20
Ibid.
21
UK Government, ‘Physical Gas Flows across Europe and Diversity of Gas Supply in 2015:
Special Feature – European Gas Flows’ (2016) https://www.gov.uk/government/uploads/system/
uploads/attachment_data/file/579632/Physical_gas_flows_across_Europe_in_2015.pdf (accessed 16
December 2016).

LEAL-ARCAS_9781786431042_t.indd 219 08/09/2017 13:02

of Russia’s natural gas exports go to Europe.22 In 2015 Russia’s natural gas exports to
Western European countries reached 158.6 bcm, constituting 82 per cent of the country’s
exports. Russia’s fuel and energy complex ‘accounts for over a quarter of GDP, almost
30% of the national budget, more than two-thirds of export revenue, and a quarter of
total investments’.23
The European Commission’s energy trends until 2050 project a slight decrease in natural
gas demand until 2030 and a constant demand of circa 435 bcm from 2030 onwards.24
Major projects that are aimed at delivering gas from Russia to the EU have received a
mixed welcome due to the sensitivity of EU-Russia energy relations. The EU and Russia
remain at odds, sharing a ‘different understanding of energy security and types of energy
governance’ which is a major obstacle to ‘decarbonisation cooperation and trade’.25
The EU’s success on its climate policy hinges on the Community’s ability to keep the
position of global climate policy leader, which inevitably requires addressing its energy
consumption, while at the same time producing tangible results at the bloc level concern-
ing the way its energy demand portfolio undergoes diversification.
3. THE GEOPOLITICS OF RUSSIAN OIL AND GAS
The resource credentials of Russia as a petro-state are impressive.26 After Saudi Arabia,
Russia is both the world’s second largest oil producer (12.6 per cent of total production)
and its second-largest exporter of oil. As for natural gas, Russia is the second-largest pro-
ducer after the US, and the leading exporter of natural gas.27 According to the European
Commission’s data, in 2013 39 per cent of total EU gas imports came from Russia.28
While the resource base fundamentals position Russian energy in the global first league,
a number of political issues hinge upon the status the country enjoys.
The country’s resources, its vast geography and the political role the country’s leaders
play in the management of its resources have all elevated geopolitics as a key lens through
which to contextualise Russia’s oil and gas. It should be noted, however, that while a geo-
political narrative has been prevalent in addressing the Russian energy sector and its inter-
action with the EU (and beyond), alternative, critical perspectives have been presented
that emphasise the importance of law, among other factors.29
Since early 2000s the geopolitical dimension of Russian energy has grown to be widely
discussed from a number of angles. The idiosyncratic model – focusing on a unique
feature ascribed to an individual, often his ability to exercise power over an issue area – has
22
Michael Bradshaw, Richard Connolly, ‘Barrels and Bullets: The Geostrategic Significance of
Russia’s Oil and Gas Exports’ (2016) 72(3) Bulletin of the Atomic Scientists, 157.
23
Ibid, 158.
24
Harald Hecking and others (n 17), 13.
25
Olga Khrushcheva, Tomas Maltby, ‘The Future of EU-Russia Energy Relations in the
Context of Decarbonisation’ (2016) 21(4) Geopolitics, 799.
26
Bradshaw and Connolly (n 22), 157.
27
Ibid, 157.
28
Ibid, 158.
29
Tatiana Romanova, ‘Is Russian Energy Policy towards the EU only about Geopolitics? The
Case of the Third Liberalisation Package’ (2016) 21(4) Geopolitics.

LEAL-ARCAS_9781786431042_t.indd 220 08/09/2017 13:02

become known as a useful analytical tool to explain the phenomenon of the geopolitics
of Russian energy and the influence Russia’s leadership wields across the broad post-
Soviet space and Europe.30 The rise of Vladimir Putin to power in Russia – first as the
President, then Prime Minister and again as the President of the Russian Federation – has
often been analysed as a shift in the way the Russian leadership has sought to utilise the
resource factor in the formulation of its energy policy.31 This shift has also been linked
and correlated with the security domain, describing Russia’s energy policy ambitions as
a new projection of its foreign policy and strategy.32 Such narratives of Russia’s energy
policy objectives in the post-Cold-War period have inevitably led the Euro-Atlantic com-
munity to believe the energy trade to be about more than just economics. As the backdrop
to these narratives, Europe has come be viewed as a particularly vulnerable region due to
its dependence on Russian energy. Dependence on imports from the Russian Federation
has become unacceptable geopolitically, and both the EU countries who felt compelled
to rectify this state of affairs and the EU alike have engaged in a process of amending
their policies.33
The early conceptualisation of the term geopolitics links it to the Eurasian l andmass –
which was originally the referent of Halford Mackinder’s geopolitics, epitomised by
the ‘pivot area’ and the World’s ‘heartland’34 – which has been essential in ensuring
access to and the production of fossil fuels, including oil and gas, in Russia. While the
early concept of geopolitics has evolved, leaving much of its colonial clout behind, new
dynamics and policy prerogatives now reinforce the geopolitical importance of the vast
landmass that Russia exercises control over. In the context of energy it has been noted
that ‘geopolitics is perhaps another word defining the circumstances under which a
nation will always act to protect its national interest, whatever those interests may be’,
with Russia doing just that.35 The geopolitical importance of Siberia is linked to its
remoteness, which, from the industry point of view presents both a challenge and an
opportunity at the same time. With one of world’s lowest population densities, Siberia
represents 10 per cent of the Earth’s land surface, and, in the present, as it has in the past,
it continues to play a vital strategic role for the Russian state.36 Russia is the holder of
the world’s largest reserves of natural gas – standing at about 45 trillion cubic meters or
a quarter of the global reserves of natural gas – with the majority of the reserves located
in Siberia and in the high north. The Yamburg, Urgengoy and Medvezhye fields alone
30
Peter Rutland, ‘Putin’s Path to Power’ (2000) 16(4) Journal of Post-Soviet Affairs.
31
Harley Balzer, ‘The Putin Thesis and Russian Energy Policy’ 21(3) Journal of Post-Soviet
Affairs.
32
Pavel K Baev, Russian Energy Policy and Military Power: Putin’s Quest for Greatness
(Routledge 2008).
33
Jonathan Stern, ‘In Search of “Good” Energy Policy’, Cambridge University (20 October 2015)
http://sms.cam.ac.uk/media/2101937 (accessed 15 December 2016).
34
Halford J Mackinder, ‘The Geographical Pivot of History’ (1904) 23(4) The Geographical
Journal, 312.
35
Robert E Ebel, ‘The Geopolitics of Russian Energy: Looking Back, Looking Forward’, CSIS
Energy and National Security Program (July 2009) https://csis-prod.s3.amazonaws.com/s3fs-public/
legacy_files/files/publication/090708_Ebel_RussianEnergy_Web.pdf (accessed 11 November 2016).
36
Stratfor, ‘The Changing Geopolitical Importance of Siberia’ (6 April 2012) https://www.strat
for.com/sample/analysis/changing-geopolitical-importance-siberia (accessed 10 November 2016).

LEAL-ARCAS_9781786431042_t.indd 221 08/09/2017 13:02

account for about 45 per cent of Russia’s total reserves and are all licensed to Gazprom;
95 per cent of Russia’s gas production is carried out in Siberia.37 The east of Siberia and
the far east of Russia hold a total of proved reserves of 5 trillion cubic meters (tcm) of
natural gas, while its prospective resources could be as large as 65 tcm.38 In addition, the
far north is a source of another geopolitical phenomenon – alternative maritime transit
routes. In the energy–environment domain, the changing climate inevitably opens up
the Arctic to shipping, resurrecting the Northern Sea Route (NSR)39 between Asia and
Europe, as well as a focus on infrastructure, a move often seen in the West as likely to
come at a high price.40
4. RUSSIA’S GAS PIVOT TO ASIA AND THE EASTERN GAS

STRATEGY
In the domain of international oil and gas trade, Russia has entered a new stage,
seeking to increase its oil demand security as well as decreasing its reliance on oil
trade traditionally oriented towards European markets. Starting from the first Putin
Administration, Russia’s foreign trade policy focus had been reoriented, with the
country starting to regard Asia as a market worthy of significant investment.41 The
reorientation of Russia’s policy had been facilitated to some extent by the Western
policy on the Middle East in the wake of the deterioration of international security
post-September 11. In the domain of crude oil, the decreasing role of Asian markets
coupled with the Western consuming nations’ attempts to diversify away from Middle
Eastern oil meant that Saudi Arabia sought to reorient its oil export strategy towards
Europe, threatening the market traditionally dominated by Russian exports. As a result
of Saudi Arabia turning to Europe for the sale of its oil, Russia sought to diversify
its oil demand by looking to the East. Russia acted on this new oil trade opportu-
nity, moving on to develop the transportation facilities for its Siberian resources.
This development triggered the stated objective of Russia’s new ‘pivot to Asia’ policy
under Putin, with vital infrastructure unlocking the country’s oil reserves which oth-
erwise would have been classified as stranded or uneconomical to explore.42 Russia’s
policy towards the East has rested on exports through the East Siberia–Pacific Ocean
37
Ibid.
38
James Henderson and Jonathan Stern, ‘The Potential Impact on Asia Gas Markets of
Russia’s Eastern Gas Strategy’, OIES Comment (February 2014) https://www.oxfordenergy.org/
wpcms/wp-content/uploads/2014/02/The-Potential-Impact-on-Asia-Gas-Markets-of-Russias-Eastern-
Gas-Strategy-GPC2-.pdf (accessed 1 November 2016).
39
Tina Hunter, ‘The New Prize? The Impact of Petroleum Innovation and Technology on the
Global Energy Security Paradigm’ (2015) 1 Reflections Working Paper Series, 30.
40
‘Russia’s Arctic Obsession’, Financial Times (London, 21 October 2016) https://ig.ft.com/
russian-arctic/ (accessed 20 October 2016).
41
James Henderson and Tatiana Mitrova, ‘Energy Relations between Russia and China:
Playing Chess with the Dragon’, OIES WPM67 (August 2016) https://www.oxfordenergy.org/
wpcms/wp-content/uploads/2016/08/Energy-Relations-between-Russia-and-China-Playing-Chess-
with-the-Dragon-WPM-67.pdf
42
Ibid, 26.

LEAL-ARCAS_9781786431042_t.indd 222 08/09/2017 13:02

(ESPO) oil pipeline, which is aimed at Asian buyers.43 Commissioned in two stages in
2009 and 2012, the ESPO pipeline started flowing crude oil in December 2009. The
project’s transport capacity was 600,000 barrels of oil per day at the outset, increasing
to 1,000,000 in 2013 and with an expected 1,600,000 capacity to be reached at a later
date.44 ESPO is a geopolitical project regarded by President Putin as one that will break
open the window to the East.45
The oil dimension of Russia’s ‘pivot to Asia’ policy unlocked other opportunities,
including the geopolitical strategy of a pipeline gas supply aimed at meeting China’s
demand. Historically, the record of cooperation between Russian and China in the energy
field has been an uneasy one. Since the collapse of the Soviet Union numerous discussions
concerning gas pricing had been carried out, producing no conclusive results. However,
Chinese-Russian energy relations have been gradually changing following the accession
of Vladimir Putin to power. A number of energy projects in the east of Russia have been
facilitated as a part of the so-called Eastern Gas Programme launched in September 2007.
Russia’s Eastern Gas Programme had been initiated by the Industry and Energy Ministry
of the Russian Federation, with an aim of integrating gas production, transportation
and a supply system in eastern Siberia and the country’s far east, taking into account the
potential of natural gas imports to China and other Asia-Pacific countries, and with the
Russia’s state-owned Gazprom appointed as the Programme’s executive coordinator.46 At
the time of writing this chapter, Russia’s natural gas exports to Asia are facilitated only
in terms of LNG through the huge multibillion-dollar Sakhalin-2 project in the country’s
far east.47
To offset energy demand dependence on European gas markets, Asia has become an
important part of Russia’s gas strategy. While there is no immediate connection between
the European and Asian gas markets that would allow price arbitrage and reduce con-
tractual dependence on gas supplies to the West, the gas strategy is likely to strengthen
in the coming decades – should the actual physical infrastructure connecting Siberian
sources with the Asian markets be built. Such a strategy entails mega projects (supported
by conducive policies and politics) that would have to be pursued in the coming decades
along with continued demand for natural gas by the World’s largest energy demand
centres in the region, Europe and China. Provided that both the energy policies and gas
demand are in place, Russia’s gas pivot to Asia is destined to transform the geopolitics
of Eurasia.
Russia’s ‘traditional’ energy export market in Europe is mature and, in the presence of
tensions between Moscow and Washington over the former’s foreign policy in its ‘near
43
Irina Mironova, Aaron Wood, ‘Russia and the Geopolitics of Oil’, Russia Direct (22 October
2015) http://www.russia-direct.org/opinion/russia-and-new-geopolitics-oil (accessed 1 November
2016).
44
Platts, ‘Russian Crude Oil Exports to the Pacific Basin – ESPO Starts Flowing’, Platts
Special Report (May 2010), 3, http://www.platts.com/im.platts.content/insightanalysis/industryso
lutionpapers/espoupdate0510.pdf (accessed 1 November 2016).
45
Henderson and Mitrova (n 41), 26.
46
Mike Bradshaw, ‘Russia’s Eastern Gas Strategy’, University of Leicester, 2010, 5, http://www.
biee.org/wpcms/wp-content/uploads/Russias-Eastern-Gas-Strategy-2010-Compatibility-Mode.pdf
(accessed 2 November 2016).
47

LEAL-ARCAS_9781786431042_t.indd 223 08/09/2017 13:02

abroad’ (that is, post-Soviet space), in particular in the aftermath of the Crimean annexa-
tion in 2014, Russia is seeking to look eastwards, to expand new market opportunities.
In addition to the foreign trade policy, Russia’s ‘pivot to Asia’ is inevitably designed to
develop the country’s eastern regions, which have been neglected for a long time following
the collapse of the USSR.48
After more than a decade of negotiations, on 21 May 2014 Russia and China signed the
Power of Siberia contract. Hailed as a historic deal, the US$400 billion Power of Siberia
contract envisages the construction of a 38 bcm per annum pipeline that would supply
natural gas from Russia’s East Siberia to China’s northern (Bohai Bay) gas market, based
on a 30-year supply agreement.49 Following the Power of Siberia contract, a memoran-
dum of understanding on the second gas deal, the West Siberia/Altai, was signed on 9
November 2014. Once implemented, the West Siberia/Altai agreement is expected to have
an even greater impact than the Power of Siberia pipeline, allowing Russia to become a
swing supplier to Asia and Europe and shoring itself against the impact of globalising
LNG supply competition.50 At the time of writing, the Ukraine and Russia Sanctions,51
imposed by the US Government and the EU over the annexation of Crimea and the
instigation of conflict in eastern Ukraine, have meant that Russia has been economically
pressurised due to the imposition of sanctions. Considerable damage has been inflicted
on Russia’s economy, primarily due to the country’s isolation from global capital markets,
which, as a result, has been impacting its energy industry, which is seeking to finance its
high-expenditure projects.52
The geopolitics of Russian oil and gas has been traditionally westward-oriented, a
trend which has been changing since 2000s. With the major centres of energy demand in
the Asia-Pacific region, where the world’s most urban and urbanising populations live,
the energy policy of Russia continues to underscore this change. While no immediate shift
due to the change in energy trade orientation is likely to take place anytime soon (not
least because of the scale of infrastructure waiting to be developed), should the strategy
continue then Russia is likely to position itself at the centre of the global energy market,
between the world’s major energy demand centres – the mature markets in Europe and the
emerging energy markets of Asia and the Pacific. The agreement and memorandum of
understanding between Russia’s Gazprom and China’s National Petroleum Corporation
(CNPC) can be seen as a breakthrough in Moscow’s policy in its far east and eastern
Siberia. If materialised, the agreement over the price benchmark for the future pipe-
line gas trade with China will open the way for the development of the very significant
Siberian resources, allowing for future interconnection with the rest of the transmission
infrastructure.
48
Henderson and Mitrova (n 41), 5.
49
Keun-Wook Paik, ‘Sino-Russian Gas and Oil Cooperation: Entering into a New Era of
Strategic Partnership?’, OIES WPM 59 (April 2015), 1, https://www.oxfordenergy.org/wpcms/wp-
content/uploads/2015/04/WPM-59.pdf (accessed 28 October 2016).
50
Ibid.
51
US Department of State, ‘Ukraine and Russia Sanctions’ (6 March 2014) https://www.state.
gov/e/eb/tfs/spi/ukrainerussia/ (accessed 3 November 2016).
52

LEAL-ARCAS_9781786431042_t.indd 224 08/09/2017 13:02

5. NATURAL GAS PROJECTS: RUSSIA
Russia’s key energy projects can be found in the entire energy value chain and across
the Eurasian continent. As outlined above, at the Asian end two natural gas pipeline
projects – the Power of Siberia and the Altai gas pipeline – feature prominently in Russia’s
energy strategy, underpinning Russia’s ‘pivot to Asia’. As explained above, the Asian
strategy addresses broadly internal and external dimensions of Russia’s energy policy.
Internally, the strategy is oriented towards economic development of the vast Siberian
reserves by means of connecting the remote region with the European gas infrastructure.
Externally, the strategy addresses future gas demand in China, while engaging the country
and its finances in energy partnerships in Russia.
Russia’s ‘pivot to Asia’ strategy is intertwined with Russia’s Gazprom’s projects at the
European end of Eurasia, where gas transit projects have been planned for construction at
the time of writing this chapter. The following section focuses on the midstream gas pro-
jects, featuring a selection of the key pipelines projects which are of key importance for,
and have an impact on the EU. To this end the following sections discuss the Nord Stream
project on the European side and the Turkish Stream project on the south European
side. Both projects are planned to connect Russia with its key European export markets,
Germany and Turkey, respectively.
5.1 Turkish Stream
After Germany, Turkey is the biggest European demand centre for Russia’s exports.
Nearly 99 per cent of the natural gas Turkey consumes comes from imports. In 2015,
Turkey imported around 48.4 bcm of natural gas with around 55 per cent of the natural
gas imported from Russia, 16 per cent from Iran and 13 per cent from Azerbaijan, fol-
lowed by 8 per cent from Algeria and 3 per cent from Nigeria.53 The Russian–Turkish
natural gas trade dates back to the 1980s when Ankara signed an inter-governmental
agreement with Moscow on deliveries through the trans-Balkan gas pipeline, transit-
ing Romania and Bulgaria, which first materialised in 1987.54 Turkey’s rapidly growing
natural gas market means that there is a strong business case for gas exporters such as
Russia’s Gazprom forging links there. Turkey’s gas market structure, with the national sup-
plier BOTAŞ being responsible for roughly 80 per cent of natural gas imports, facilitates
pipeline gas supplies into Turkey. The country’s strong natural gas market has reassured
Ankara’s active energy diplomacy in the region. In addition, Turkey seeks to use energy
to strengthen its national role in the region while addressing its energy security needs. To
address the objective of performing a key regional trade and security role, Ankara has
been forging energy relations within its energy-rich neighbourhood. Iran and Azerbaijan
remain important import sources of fossil fuels, with the former being the second biggest
source of natural gas imports for Turkey, and the latter becoming a key foreign investor
53
The percentages share of imports rounded to one decimal point by the author based on
Turkey’s Energy Profile and Strategy of the Ministry of Energy and Natural Resources, http://
www.mfa.gov.tr/turkeys-energy-strategy.en.mfa (accessed 10 December 2016).
54
GazpromExport, Turkey, http://www.gazpromexport.ru/en/partners/turkey/ (accessed 10
December 2016).

LEAL-ARCAS_9781786431042_t.indd 225 08/09/2017 13:02

in the energy domain within Turkey at the time of writing this chapter. Natural gas from
Russia has been critical to Turkey’s energy diplomacy, with the two countries’ gas relation-
ship being strengthened due to the planned infrastructure project, the Turkish Stream gas
pipeline, also known in Turkey as ‘TürkStream’. Turkish Stream is an offshore natural
gas project designed to link Russia’s gas grid with that of Turkey through pipelines laid
under the Black Sea. The Agreement on the Turkish Stream project between Turkey and
Russia was signed on 10 October 2016 in Istanbul.55 The Grand National Assembly of
Turkey ratified the Intergovernmental Agreement in December 2016, opening the way
for construction to commence in 2017, with an expected completion date by the end of
2019,56 subject to counter-ratification by the Russian side. At the time of writing, a bill
to ratify the Turkish Stream has been passed by the Russian Government and sent to the
Russian Parliament, the Duma.57
Politically, the agreement concerning the Turkish Stream project has had a healing
effect on the relations between Ankara and Moscow.58 Conceived in December 2014, the
Turkish Stream succeeded the so-called South Stream project. Inception of the Turkish
Stream project followed the cancellation of the predecessor project, the South Stream.
The South Stream project, officially announced on 23 June 2007, was originally envis-
aged as connecting the Russian gas system with that of an EU member state, Bulgaria,
avoiding transit via Ukraine. Following EU law compliance issues voiced by European
Commission representatives, the South Stream project was abruptly cancelled in an
announcement delivered by Russia’s President Vladimir Putin while in Turkey.59 The
cancellation of the South Stream project instantly opened discussion on an alternative
project – the Turkish Stream – which was expected to solve the problem of the EU
energy law compliance. Rather than landing in an EU country, the Turkish Stream
trading structure has rested on the sale of gas at the Greek-Turkish border rather than
in the European downstream market.60 There are a few important notes – legal, eco-
nomic and political – that need to be made regarding the South Stream–Turkish Stream
remake.
The South Stream–Turkish Stream remake has had important implications. Legally,
Russia’s decision to cancel the South Stream project reduced Bulgaria’s role as a would-
55
Murat Yetkin, ‘Rhetoric Changes, Pipelines Remain’, Hurriyet Daily News (17 October
2016) http://www.hurriyetdailynews.com/rhetoric-changes-pipelines-remain.aspx?pageID5449&n
ID5104821&NewsCatID5409 (accessed 18 October 2016).
56
‘Turkey’s Parliament Ratifies Agreement with Russia on “Turkish Stream” Gas Pipeline’,
RT (2 December 2016) https://www.rt.com/news/368953-turkey-deal-russia-stream/ (accessed 2
December 2016).
57
‘Russia Ratifies Bill on Turkish Stream Gas Pipeline’, Hürriyet Daily News (19 December
2016) <http://www.hurriyetdailynews.com/russia-ratifies-bill-on-turkish-stream-gas-pipeline--.aspx
?pageID5238&nID5107480&NewsCatID5348 (accessed 19 December 2016).
58
Diyar Güldoğan, ‘Putin Welcomes Approval of TurkStream Project’, Anadolu Agency (6
December 2016) http://aa.com.tr/en/economy/putin-welcomes-approval-of-turkstream-project/7006
83 (accessed 6 December 2016).
59
Georgi Gotev, ‘Russia Confirms Decision to Abandon South Stream’, EuroActiv (10
December 2014) https://www.euractiv.com/section/energy/news/russia-confirms-decision-to-aban
don-south-stream/ (accessed 16 December 2014).
60
Goldthau (n 16), 18, http://www.europeangashub.com/custom/domain_1/extra_files/atta
ch_685.pdf.

LEAL-ARCAS_9781786431042_t.indd 226 08/09/2017 13:02

be transit country for Russian gas supplies to Europe (which would have happened
had the South Stream project continued), cementing the EU rule of energy law and the
European Commission’s role as the enforcer of the Community rules. Economically, the
hard stance of the EU on the South Stream project as a litmus test for the effectiveness
of its energy acquis can be seen against the backdrop of a significant capital investment
made by Russia’s gas company – in particular, the sunk cost of the steel pipelines com-
missioned and delivered to the Black Sea shore and the prospects of possible financial
penalties from the project partners, should the project be stalled permanently. The cost of
the stranded assets from the defunct South Stream project, estimated at US$4.5 billion,61
must have played an important role in Gazprom’s decision to initiate an alternative pipe-
line that would avoid a destination in EU territory, and, instead, an alternative delivery
option to the border of Turkey and Greece was sanctioned through the Turkish Stream
project.62
Finally, politically, the cancellation of South Stream opened up a new political momen-
tum between Russia and Turkey, both of which found themselves in new geopolitical
circumstances. The shooting down of the Russian military plane at the Syrian-Turkish
border63 triggered an abrupt change in Russia-Turkey relations, resulting in a freeze of
the Turkish Stream following the imposition of Russian sanctions on Turkey, although
they were later revoked.64
The Turkish Stream is a continuation of the cancelled South Stream project, using
the existing routing except for landing in Turkey rather than on the EU’s territory.
The background story of the two projects prove Russia’s determination to continue
playing a leading role in its main markets in Europe. Being the second largest European
market for gas imports from Russia, Turkey stands as a major beneficiary of the
projected interconnection through Turkish Stream (which strengthens its ambition of
improving its security of supply and regional gas trade prospects). For Russia’s Putin
Administration, the Turkish Stream project aims at both the EU market as well as
Turkey.
For Turkey, an increased energy trade relationship with Russia is an opportunity and a
challenge at the same time. The issue of energy supply security looms large on Ankara’s
energy agenda. Having no significant reserves to sustain substantial production means
that Ankara has to look out for imports to continue its economic and developmental
agendas. However, the energy relationship with Russia has been seen both as a challenge,
due to energy dependence, and, at the same time, an opportunity to form an energy hub
that would elevate the role Turkey that plays in regional energy diplomacy, policy and
trade.
Paradoxically, the Russian gas supply has been perceived as both solving the energy
supply issue and also aggravating it. Turkey’s renewed interest in Iran, the second biggest
61
Igor Sutyagin, ‘Russia’s “South Stream” is Closed, but Nothing has Changed’, RUSI
Commentary, 18 December 2014, https://rusi.org/commentary/russia%E2%80%99s-%E2%80%98
south-stream%E2%80%99-closed-nothing-has-changed (accessed 19 December 2014).
62
Ibid, 18.
63
‘Turkey Shoots Down Russian Warplane on Syria Border’, BBC News (24 November 2015)
http://www.bbc.co.uk/news/world-middle-east-34907983 (accessed 24 November 2016).
64
Yetkin (n 55).

LEAL-ARCAS_9781786431042_t.indd 227 08/09/2017 13:02

gas exporter to Turkey, should be viewed as an attempt to hedge any uncertainty over too
much dependence on Russian gas, which some view as potentially problematic.
5.2 Nord Stream
The European market is a key destination for Gazprom’s exports, providing the company
with the bulk of its revenues. In 2014 Gazprom sold 146.6 bcm of natural gas to Europe
which equalled 33 per cent of the company’s entire output and 70 per cent of its exports.65
Owing to the size of its economy, Germany remains Europe’s main gas demand centre,
and, at the same time, is Russia’s top natural gas export destination in Europe. The history
of the trade relationship between them dates back to the Cold War era. By the end of
the 1970s and 1980s the discovery and development of giant gas fields in Soviet Siberia
meant that a policy of pipeline construction was initiated to facilitate trade in natural
gas. The existing infrastructure already supplied gas from Siberia to Ukraine. It was soon
recognised that building an extension from the existing pipeline would allow it to reach
Western Europe, thus providing the USSR with new markets and much-needed hard
currency in exchange for its gas.66 Thanks to the Soviet-legacy Soyuz and Brotherhood
pipelines commissioned in 1984 Ukraine remained the main transit corridor for gas
exports from the Russian Federation to Europe. The trade relation flourished following
the collapse of the Soviet Union, gently altering the country’s transit role with additional
export pipeline capacity constructed in the neighbourhood. The construction of the
Yamal-Europe pipeline, with a 33 bcm/y capacity, through Belarus and Poland, which
started in 1994, provided for additional trade opportunities, which culminated in a plan to
construct a dedicated undersea interconnection between Russia and Germany, originally
envisaged in the late 1990s – the Nord Stream pipeline. Comprised of two parallel lines,
the Nord Stream pipeline project was commissioned in 2011 (the first phase of the pipe-
line) and 2012 (the second phase of the pipeline). Construction of the 55-bcm-capacity
Nord Stream pipeline acted effectively as a catalyst for the 2009 gas price dispute with
Ukraine.67 Since the inception of the idea to construct the pipeline, the project aroused
political controversy, largely concerning fears expressed by the transit countries such as
Poland and Ukraine as well as other Baltic and Scandinavian states. The concerns raised
included environmental as well as strategic and security matters. In terms of the latter it
was argued that the pipeline would be used to play off EU member states against each
other in the face of growing bilateralism between Germany and Russia.68 The commis-
sioning of the Nord Stream interconnector pipeline opened up a new transit route for
Russia’s gas exports directly to Germany, becoming a new strategic reality for the region
to reckon with.
The Nord Stream 2 pipeline project is designed to transport natural gas directly from
65
Goldthau (n 16), 17.
66
Ustina Markus, Oil and Gas: The Business and Politics of Energy (Palgrave Macmillan,
2015), 43.
67
Henderson (n 4).
68
Fraser Cameron, ‘The Nord Stream Gas Pipeline Project and its Strategic Implications’
(2007) Directorate-General for Internal Policies, Policy Department C: Citizens’ Rights and
Constitutional Affairs, Petitions, Note PE393.274.

LEAL-ARCAS_9781786431042_t.indd 228 08/09/2017 13:02

Russia to Germany under the Baltic Sea. It is to be built by Russia’s Gazprom along with
a consortium of European energy companies including Austria’s OMV, France’s Engie,
Germany’s Uniper and Wintershall, and Anglo-Dutch Shell. Similarly to its predecessor,
the Nord Stream, the new Nord Stream 2 project would be comprised of twin pipelines
with a total capacity of 55 bcm/y. The Nord Stream 2 project would double the capacity
of the existing Nord Stream gas interconnection which it will run alongside under the
Baltic Sea. The planned Nord Stream 2 pipeline would increase the transit of natural gas
from Russia addressing the issue of transit reliability through Ukraine. With the strength-
ening of Germany’s role as a transit and hub country, the Nord Stream 2 increases the
country’s chances of becoming a regional gas hub, in particular for gas imports from
Russia.69 Coinciding with expiration of gas agreement with Ukraine at the end of 2019,
commissioning of the Nord Stream 2 is expected to avoid the transit of natural gas via
Ukraine.70 The ‘transit avoidance’ idea – a strategy to avoid the transit of gas for sale in
Western Europe – which Nord Stream 2 arises from, has arguably been a decade-long
strategy of Gazprom ever since the first interruption of Russian gas deliveries to Europe
in transit via Ukraine in 2006.71
The Nord Stream 2 has been viewed as one of the most controversial projects in EU
energy policy, with its proponents viewing the Nord Stream 2 as a purely commercial
venture and the project’s opponents regarding the pipeline as a political project in conflict
with the EU’s goals and rules on energy.72 The timing of the inception of the natural gas
pipeline project, which has coincided with the Ukraine Crisis and Russia’s military cam-
paign in Syria, has raised moral and political concerns.73
The main concerns from the Central and Eastern Europe (CEE) perspective are geopo-
litical and legal. Both Nord Stream and Nord Stream 2 facilities will allow the possibility
of a major re-routing of the natural gas transit from Central and Eastern Europe, includ-
ing Slovakia and Poland, meaning that the project would significantly reduce Gazprom’s
dependence on existing transit, and, thus, any likely impact the pipeline would have on
the region. In a political statement, nine CEE EU member states – Czech Republic,
Estonia, Croatia, Hungary, Lithuania, Latvia, Poland, Romania and Slovakia – opposed
the construction of the Nord Stream 2 pipeline.74 The Obama Administration objected
to the project as it would deprive Ukraine of 2 billion euros in gas transit fees, putting the
International Monetary Fund or EU at risk of an increased aid package to Kiev, should
69
Hecking and others (n 17), 49.
70
EurActiv, ‘Gazprom Reaffirms Plans to Bypass Ukraine in 2019’, EurActiv (10 June 2015)
http://www.euractiv.com/section/europe-s-east/news/gazprom-reaffirms-plans-to-bypass-ukraine-in-
2019/ (accessed 16 December 2016).
71
Henderson (n 4).
72
Agata Loskot-Strachota, ‘Nord Stream 2: Policy Dilemmas and the Future of EU Gas Market’,
NUPI Policy Brief (2/2016) https://brage.bibsys.no/xmlui/bitstream/handle/11250/2378856/NUPI_
Policy_Brief_2_Loskot_Strachota.pdf ?sequence53&isAllowed5y (accessed 16 December 2016).
73
Comments by Ambassador Richard L Morningstar at the EUCERS Event to mark launch
of ACUS report on LNG, King’s College London, 25 February 2016 available through podcast at
https://www.youtube.com/watch?v51WGYj5S2Cfs.
74
Konrad Szymanski, ‘Russia’s Gas Pipeline Threatens European Unity’, Financial Times (21
October 2016) https://www.ft.com/content/25a17928-96c3-11e6-a1dc-bdf38d484582 (accessed 21
October 2016).

LEAL-ARCAS_9781786431042_t.indd 229 08/09/2017 13:02

the Nord Stream 2 pipeline go ahead. The strategy to avoid transit through Ukraine
had led Gazprom to initiate the South Stream pipeline, which, as mentioned above, was
cancelled in December 2014 amid tensions related to the Ukraine crisis.75 Arguably, the
political go-ahead for Nord Stream 2 would also be politically difficult for other EU
member states in south-eastern Europe, where the South Stream project was cancelled
under pressure from EU law, for precise reasons concerning EU energy law and, more
broadly, because of the objectives of the EU Energy Union.76
In this highly polarised debate between the proponents and opponents of the pipeline,
the European Commission is likely to play a key role, using its regulatory tools in deter-
mining compliance with EU energy law. Yet, the question remains as to the manner –
political or regulatory – in which the regulatory tools at the Commission’s disposal are
likely to be used. 77
6. IN LIEU OF A CONCLUSION: NATURAL GAS AND

IMPLICATIONS FOR CLIMATE AND ENERGY
In 2011 the world’s leading energy body, the International Energy Agency (IEA) in
its annual energy report forecast a greater a role for natural gas in the global energy
mix.78
Pipeline gas and LNG have been at the centre of global energy policy due to a number
of factors, including lower emissions, supply security and accessibility due to being widely
dispersed geographically. The ‘golden era of natural gas’, driven by unconventional gas
production and the surge of LNG, has brought hope in terms of the role natural gas can
play in addressing the climate dimension facilitating a greater shift to low-carbon energy
sources.
These new developments are shaping global energy. A leading data source for the oil
and gas industry suggests that the ‘breaking point’ established by the US shale industry
is likely to arbitrate the price of natural gas. Natural gas backs up energy alternatives to
hydrocarbons, including renewables. The reduced cost of renewables, which is currently
led by solar energy, is becoming the ‘new normal’. With coal recording the largest decline
in consumption as of 2016, natural gas is predisposed to play an ever greater role in future
energy demand. A lot will depend on the world’s key consumers. China’s demand for coal
is likely to determine the future of natural gas as a fuel of choice in the transition between
the era of coal to an era of renewable sources of energy. Fluctuations in energy demand
or economic stagnation in the Chinese markets is inevitably affecting the bigger picture
75
James Henderson, ‘Unclogging the Issues Blocking Russia’s Nord Stream 2 Pipeline’, Russia
Direct (8 July 2016) http://www.russia-direct.org/opinion/unclogging-political-issues-blocking-rus
sias-nord-stream-2-pipeline (accessed 22 October 2016).
76
Judy Dempsey, ‘The (German) Politics of Nord Stream 2’, Carnegie Europe (3 November
2016) http://carnegieeurope.eu/strategiceurope/65028 (accessed 10 November 2016).
77
Goldthau (n 16), 6.
78
International Energy Agency, ‘Are We Entering a Golden Age of Gas?’ World Energy Outlook
(2011) http://www.worldenergyoutlook.org/media/weowebsite/2011/WEO2011_GoldenAgeofGas
Report.pdf (accessed 1 November 2016).

LEAL-ARCAS_9781786431042_t.indd 230 08/09/2017 13:02

of natural gas in its bid to become the fuel of choice.79 Aside from the geopolitical and
developmental priorities discussed above, the Russo-Chinese natural gas deal could also
be seen as a way to address the environmental policy objective of China. Access to ‘big
gas’ would allow China to gradually substitute coal with gas in power generation, and,
most importantly, would provide much needed back-up for its surging solar energy instal-
lations across the country.
In Europe, the role of natural gas is likely to continue to grow yet not without policy
repercussions. The EU is at the crossroads between the economic and environmental poli-
cies concerning natural gas, a dilemma which may have an impact on the Community’s
climate change track record and the economic performance of its economies. Within
that, a bone of contention has been the Community’s energy policy towards Russia, with
its political, economic and geopolitical aspects high on the agenda, and less attention on
the environmental barometer. The proposed Russian projects have been highly politicised
and are likely to continue to be so due to the very challenges, both internal and external,
within the European Union. As observed by a leading scholar on the subject, with rela-
tion to the Nord Stream 2 project, it ‘will be built and operated in a contested geopoliti-
cal environment’.80 At the core lies the EU’s ability to navigate through and regulate the
energy acquis it has achieved, while, simultaneously, sharing the energy policy domain
with the member states which may have different priorities and expectations. As the two
case studies above suggest, the Turkish Stream and Nord Stream pipelines have been par-
ticularly susceptible to geopolitics and viewed as political projects of questionable value.81
Global energy developments suggest continued change in the energy–environment
domain. With the US becoming the powerhouse of the global gas production driven by
shale, the economics of gas trade continues to transform the US energy landscape with
a slow but steady overspill beyond North America. The natural gas trade is globalis-
ing, opening the way for natural gas as a fuel of choice. This, of course, is no easy task.
Natural gas is seen differently in different parts of the world. The US has favoured gas as
a way to diversify away from oil (trucking/transport), become energy independent (supply
security), reduce CO2 emissions (climate) while re-industrialising (the economy). To date,
it has been difficult to replicate the shale ‘revolution’ in Europe due to a number of chal-
lenges, both environmental and legal, featuring prominently. Phasing out nuclear energy
and, at the same time the need for substitution and back-up for renewable energies elevates
the role of natural gas, be it LNG or through the pipelines. Reforming the use of coal is
likely to happen precisely because of the presence of alternatives rather than because of
a shortage of coal.82
79
Anjli Raval, ‘Slowing China Demand Stalls “Golden Age of Gas”’, Financial Times (8 June
2016) https://www.ft.com/content/fe83a638-2c8f-11e6-bf8d-26294ad519fc (accessed 10 June 2016).
80
Goldthau (n 16), 6.
81
US State Department’s Special Envoy for International Energy Affairs Amos Hochstein
on South Stream, Turk Stream, Nord Stream, see: Fuad Huseynaliyev, ‘Gas Without Political
Impurities’, Region Plus (29 October 2016) http://www.regionplus.az/en/articles/view/5867?mc_
cid5708b5d0b20&mc_eid55abf120691 (accessed 1 November 2016).
82
Dieter Helm, ‘The Future of Fossil Fuels – Is It the End?’, OXREP (12 January 2016),
15, http://www.dieterhelm.co.uk/assets/secure/documents/OXREP-ASSESSMENT-Fossil-Fuels-F.pdf
(accessed 10 June 2016).

LEAL-ARCAS_9781786431042_t.indd 231 08/09/2017 13:02

Natural gas has potential to assist in the steady transition to renewable energy. Solar
energy is in a strong position to become the winner within renewables, and, should this
happen, gas holds a promise to indirectly substitute for oil in the transitory period (e.g.
electric cars) via gas power stations.83 Developments in China and its relations vis-à-vis
Russia’s gas exports are likely to be important indications of the future of Russia’s gas
projects on the wider Eurasian continent. The development of the projects, as evidenced
by the pipeline politics and the Nord Stream 2, remains a ‘moving target’ where ‘political
decisions and legal verdicts remain imminent, whilst market structures remain in flux’.84
While natural gas is abundant, globalising and clean(er), we are still some distance from
the convergence of regional policies on natural gas, as demonstrated by the geopolitics
and politics of natural gas in Europe. Finally, natural gas in Europe is not the solution
but part of the solution within a specific period of time – the transition – with the EU
yet to decide whether the golden era of natural gas and the projects aimed at delivering
the hydrocarbon resources are compatible with its long-term climate and developmental
policy objectives.
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wpcms/wp-content/uploads/2011/01/Jan2006-RussiaUkraineGasCrisis-JonathanStern.pdf
Stern J, Pirani S, Yafimava K, ‘The Russo-Ukrainian Gas Dispute of January 2009: A Comprehensive
Assessment’ (2009) OIES NG27, https://www.oxfordenergy.org/wpcms/wp-content/uploads/2010/11/NG27-
TheRussoUkrainianGasDisputeofJanuary2009AComprehensiveAssessment-JonathanSternSimonPiraniKa
tjaYafimava-2009.pdf
Stratfor, ‘The Changing Geopolitical Importance of Siberia’ (6 April 2012) https://www.stratfor.com/sample/
analysis/changing-geopolitical-importance-siberia
Sutyagin I, ‘Russia’s ‘South Stream’ is Closed, but Nothing has Changed’, RUSI Commentary, 18 December
2014, https://rusi.org/commentary/russia%E2%80%99s-%E2%80%98south-stream%E2%80%99-closed-
nothing-has-changed
Szymanski K, ‘Russia’s Gas Pipeline Threatens European Unity’, Financial Times (21 October 2016) https://
www.ft.com/content/25a17928-96c3-11e6-a1dc-bdf38d484582
UK Government, ‘Physical Gas Flows across Europe and Diversity of Gas Supply in 2015: Special Feature
– European Gas Flows’ (2016) https://www.gov.uk/government/uploads/system/uploads/attachment_data/
file/579632/Physical_gas_flows_across_Europe_in_2015.pdf
US Department of State, ‘Ukraine and Russia Sanctions’ (6 March 2014) https://www.state.gov/e/eb/tfs/spi/
ukrainerussia/
Wurzel RKW, Connelly J (eds), The European Union as a Leader in International Climate Change Politics
(Routledge 2011)
Yafimava K, ‘The EU Third Package for Gas and the Gas Target Model: Major Contentious Issues Inside and
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NG-75.pdf
Yetkin M, ‘Rhetoric Changes, Pipelines Remain’, Hurriyet Daily News (17 October 2016) http://www.hur
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Website sources
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GazpromExport, Turkey, http://www.gazpromexport.ru/en/partners/turkey/

LEAL-ARCAS_9781786431042_t.indd 234 08/09/2017 13:02

PART III
ECONOMIC, SOCIAL AND

LEGAL ASPECTS

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LEAL-ARCAS_9781786431042_t.indd 236 08/09/2017 13:02

13. The dark side of power: corruption and bribery
within the energy industry
Costantino Grasso
You must not distort justice; you must not show partiality; and you must not accept bribes for
a bribe blinds the eyes of the wise and subverts the cause of those who are in the right.
(The Law of Moses, c. 1400 BCE)
1. CORRUPTION IN THE 21ST CENTURY
Ancient Rome, 70 BC: Marcus Tullius Cicero, who at that time served as a prosecutor,
delivered a series of vivid trial orations before the Roman Senate against Gaius Verres,
who was the former governor of Sicily.1 Verres was the quintessence of the dishonest and
unscrupulous official, who betrayed the public trust in several ways, enriched himself by
accepting bribes, and even tried to bribe the judges of his trial. It is striking that today,
after more than 2000 years, Cicero’s words appear still so relevant:
When he first returned from the province, he endeavoured to get rid of this prosecution by
corrupting the judges at a great expense; and this object he continued to keep in view till the
conclusion of the appointment of the judges. After the judges were appointed [. . .] the whole
attempt at bribery was abandoned.2
Even if it might sound trivial, it is important to try to offer a definition of corruption.

Traditionally, the various legal instruments have only identified bribery as the relevant
illicit conduct to be criminalized. In reality, bribery, which corresponds to ‘the corrupt
payment, receipt or solicitation of a private favor for official action’,3 represents only a
particular form of potential corruption. The term corruption4 has a much wider signifi-
cance than that. It is a very broad term, which might refer to a multitude of different illicit
1
For more information about this historic trial see Douglas O. Linder, ‘Gaius Verres Trial (70
B.C.)’ (2008), http://law2.umkc.edu/faculty/projects/ftrials/Verres/verresmain.html.
2
See C.D. Yonge (tr), The Orations of Marcus Tullius Cicero (Henry G. Bohn 1856) 138. The
original text in Latin was the following: ‘Ut primum e provincia rediit, redemptio est huius iudici facta
grandi pecunia. Mansit in condicione atque pacto usque ad eum finem, dum iudices reiecti sunt. Postea
quam reiectio iudicum facta est – quod et in sortitione istius spem fortuna populi Romani, et in reicien-
dis iudicibus mea diligentia, istorum imprudentiam vicerat – renuntiata est tota condicio’. See Marco
Tullio Cicerone, In Verrem (Emilio Piccolo ed, Loffredo 2009) 9.
3
See Black’s Law Dictionary, 9th Edition, Bribery, n. (16c).
4
As regards the ordinary meaning of the word, the Oxford Dictionary defines corruption as
‘dishonest or illegal behaviour, especially of people in authority’. See Margaret Deuter, Jennifer
Bradbery and Joanna Turnbull, Oxford Advanced Learner’s Dictionary, 9th edition (Oxford
University Press 2015), corruption.
237
LEAL-ARCAS_9781786431042_t.indd 237 08/09/2017 13:02

conducts.5 However, there is no consensus at the international level regarding the way in
which corruption should be defined. The fact that the United Nations Convention against
Corruption does not include a definition of corruption is clearly illustrative of the dif-
ficulties that have been traditionally encountered in fighting against such a phenomenon.6
A more comprehensive definition has been eventually offered at the supranational level
by the World Bank Group:
A corrupt practice is the offering, giving, receiving or soliciting, directly or indirectly, anything
of value to influence improperly the actions of another party.7
Anyway, even such a definition does not appear completely satisfactory in that it does not
underline the extremely adverse effects that corruption produces to the social fabric of our
communities. Exemplary is that, under the presidency of Barack Obama, corruption has
been formally considered as a conduct that potentially violates fundamental human rights:
We are working within the broader international system, including the U.N., G-20, Organization
for Economic Cooperation and Development (OECD), and the international financial institu-
tions, to promote the recognition that pervasive corruption is a violation of basic human rights
and a severe impediment to development and global security.8
As a result, the best way we currently have to describe corruption is to imagine it in a

figurative way as a multi-faceted and tentacular evil creature that has the power to infect
every aspect of our society.9 Barry Rider has expressed this concept excellently:
Corruption is something that we have all had to live with since Eve took the first bite of the ser-
pent’s apple, and it is but one manifestation of our human greed and insecurity [. . .] The fact that
corruption is within us all, like the potential for violence, deceit and no doubt lust, does nothing
to mitigate our responsibility as a matter of morality, good governance, or even self-interest in
survival, to control and curb it.10
Equally illustrative is the statement made by the Secretary-General of the United Nations
and included in the foreword of the United Nations Convention against Corruption:
Corruption is an insidious plague that has a wide range of corrosive effects on societies. It
undermines democracy and the rule of law, leads to violations of human rights, distorts markets,
erodes the quality of life and allows organized crime, terrorism and other threats to human
security to flourish.11
5
See David Chaikin and J.C. Sharman, Corruption and Money Laundering: A Symbiotic
Relationship (Palgrave 2009) 8.
6
See ‘The United Nations Convention against Corruption’ (United Nations Office on Drugs and
Crime), www.unodc.org/documents/brussels/UN_Convention_Against_Corruption.pdf (accessed 5
December 2016).
7
See ‘What is Fraud and Corruption?’ The World Bank Group, www.worldbank.org/en/about/
unit/integrity-vice-presidency/what-is-fraud-and-corruption (accessed 5 December 2016).
8
See ‘National Security Strategy’ White House (May 2010), at page 38, www.whitehouse.gov/
sites/default/files/rss_viewer/national_security_strategy.pdf (accessed 5 December 2016).
9
Such a way of depicting these forms of criminal phenomena is not new. Since the mid-1980s
the Italian criminal organization known as Mafia has been called ‘the octopus’ for its notorious
corruptive powers in a famous series of movies. See The Octopus 1984 (IMDb), www.imdb.com/
title/tt0086779/?ref_5fn_al_tt_1 (accessed 11 June 2017).
10
See Barry Rider (ed.), Corruption: The Enemy Within (Kluwer Law 1997) 1.
11
See United Nations Convention against Corruption (n 6).

LEAL-ARCAS_9781786431042_t.indd 238 08/09/2017 13:02

Corruption and bribery within the energy industry 239
No sector of our society appears immune to corruption. As a matter of fact, this phe-
nomenon is absolutely endemic in politics.12 It is general knowledge that political parties
receive illicit funds through bribes, kickbacks and other forms of payoffs.13 As has been
recently demonstrated by the ‘Panama Papers’ scandal, which represented a giant leak of
more than 11.5 million financial and legal records that were previously hidden by secretive
offshore companies, it is common for key politicians around the globe to be enmeshed
in crime, corruption and wrongdoing.14 Taking into consideration such widespread illicit
behavior, it is not surprising that people’s expectations about the honesty and ethical
standards of politicians have lowered, reaching a pessimistic level.15 It is emblematic that,
over the course of the US presidential elections, although potential conflicts of interests
had been revealed between Hillary Clinton and the Clinton Foundation,16 her conduct
was considered by the media as consistent with that of the average politician;17 she has
been addressed as a ‘fundamentally’ honest politician, and, even in the absence of suffi-
cient transparency, any attempt to insist on her ‘purity’ has been condemned as imposing
an unfair ‘double standard’.18 Although such a defensive reaction by the press might be
considered as understandable taking into consideration Donald Trump’s rhetoric19 in
exposing all US political corruption over the course of his extremely populist campaign,20
it betrays, in any case, the general level of tolerance for political corruption that Western
12
In democratic countries, corruption undermines the quality of representation when elected
politicians make decisions motivated by the desire for personal enrichment rather than by the
preferences of voters. See Matthew S. Winters and Rebecca Weitz-Shapiro, ‘Lacking Information
or Condoning Corruption. When Do Voters Support Corrupt Politicians?’ [2013] Comparative
Politics 418.
13
See Michael Levi, ‘The Crime of Corruption’, in Barry Rider (ed.), Corruption: The Enemy
Within (Kluwer Law 1997) 35.
14
The leaks have unveiled the offshore holdings of 140 politicians and officials, including
12 current and former presidents, monarchs and prime ministers. See ‘Leak of the Century:
The Lesson of the Panama Papers’, The Economist (9 April 2016), www.economist.com/news/
leaders/21696532-more-should-be-done-make-offshore-tax-havens-less-murky-lesson-panama-
papers (accessed 5 December 2016).
15
Due to the fact that some routines for the practice of corruption are profoundly rooted in
our social and political life, it is not surprising that people show no excitement when corruptive
practices are experienced on a daily basis. See Samuel Paul, ‘Corruption as Spectator Sport’ [2001]
Economic and Political Weekly 1061.
16
See ‘The Clintons’ Financial Affairs. Bill and Hillary Inc.’ The Economist (1 October 2016),
www.economist.com/news/united-states/21707936-clintons-activities-outside-politics-are-both-
inspiring-and-worrying-bill-and-hillary (accessed 5 December 2016).
17
Recent research has explored two possible reasons behind voters’ support of potentially
corrupt candidates: either voters lack information about corrupt behaviors (the information
hypothesis); or they knowingly support a corrupt politician because of his performance in other
areas (the trade-off hypothesis). See Winters and Weitz-Shapiro (n 12) 419.
18
See Jill Abramson, ‘This May Shock You: Hillary Clinton is Fundamentally Honest’ The
Guardian (28 March 2016), www.theguardian.com/commentisfree/2016/mar/28/hillary-clinton-
honest-transparency-jill-abramson (accessed 5 December 2016).
19
See Jonathan Martin, ‘Donald Trump’s Barrage of Heated Rhetoric Has Little Precedent’
The New York Times (14 October 2016), www.nytimes.com/2016/10/15/us/politics/trump-speech-
highlights.html?_r50 (accessed 5 December 2016).
20
For an insight into populist persuasions see Michael Kazin, The Populist Persuasion: An
American History (Cornell University Press 1995).

LEAL-ARCAS_9781786431042_t.indd 239 08/09/2017 13:02

countries are currently experiencing. The fact that this criminal phenomenon is extremely
far-reaching is also demonstrated by the circumstance that it has stretched its tentacles
into sectors such as the judiciary, the academy and sport. Another glaring example is the
situation of Italian universities, none of which is included in any of the world’s top 180
rankings.21 This data, which denotes a condition of dramatic and continuing decline,22
appears to be openly conflicting with the circumstance that Italy’s universities produce
hundreds of highly skilled researchers that every year leave the country and achieve
remarkable success abroad.23 The reason for this poor score lies in the extent of cor-
ruption in higher education, where the grip of family fiefdoms24 is to be blamed for the
countrywide brain drain25 and where bribery and favoritism, quid pro quo arrangements,
and putting a higher valuation on personal networks and cronyism instead of meritoc-
racy represent common practices.26 Not even the world of sport, whose governing bodies
should be inspired by and serve as a source of inspiration for high moral principles such
as fair play,27 has been spared from the insidious effects of corruption. The FIFA28 cor-
ruption scandal has revealed that sport is pervaded by bribery, from the kickbacks given
to officials who help hand tournaments to undeserving countries, to the betting agencies
that make ill-gotten gains from match-fixing.29 It is not surprising that FIFA, which is
a multi-billion dollar business, operates under Swiss Charitable Association rules that
21
According to the Higher Education Network QS rankings, in 2016 the sole Italian univer-
sity included in the top 200 is the ‘Politecnico di Milano’, which is ranked 183rd in the world.
See ‘Top 200 Universities in the World 2016 – the Table’ The Guardian (5 September 2016), www.
theguardian.com/higher-education-network/ng-interactive/2016/sep/05/top-200-universities-in-
the-world-2016-the-table (accessed 5 December 2016).
22
See Michael Day, ‘Family Fiefdoms Blamed for Tainting Italian Universities’ The
Independent (24 September 2010), www.independent.co.uk/news/world/europe/family-fiefdoms-
blamed-for-tainting-italian-universities-2089120.html (accessed 5 December 2016).
23
See Alexander Hellemans, ‘Beating the European Brain Drain’ Nature (22 November 2001),
www.nature.com/nature/journal/v414/n6862 (accessed 5 December 2016).
24
This particular form of corruption is also known as clientelism. It consists in a situation
in which individuals use their public offices to gain favorable advantages for themselves or their
friends. These corrupt practices generate a system characterized by a complex network of personal
or familial affiliations and ties that are based on a long tradition of factional or personal loyalties.
See Maria Dakolias and Kim Thachuk, ‘Attacking Corruption in the Judiciary: A Critical Process
in Judicial Reform’ [2000] Wisconsin International Law Journal 353, 356.
25
See Day (n 22).
26
See Emiliano Fittipaldi, ‘Concorsopoli. I baroni regnano sull’università’ L’Espresso (12
May 2014), http://espresso.repubblica.it/inchieste/2014/05/09/news/i-baroni-regnano-sull-univer
sita-1.164632 (accessed 5 December 2016).
27
Fair play is a complex concept that comprises and embodies several fundamental values like
fair competition, respect, equality, integrity, solidarity and tolerance. See ‘What is Fair Play?’ 2015
(International Fair Play Committee), www.fairplayinternational.org/what-is-fair-play- (accessed 11
June 2017).
28
The Fédération Internationale de Football Association (FIFA), which was founded in
1904 and based in Zurich, represents the football’s global governing body. See ‘Who We Are’
2016 (FIFA), www.fifa.com/about-fifa/who-we-are/index.html (accessed 11 June 2017).
29
See ‘Football. Polishing up a Tarnished Trophy’ The Economist (30 May 2015), www.econ
omist.com/news/business-and-finance/21652222-officials-world-footballs-governing-body-have-be
en-arrested-american-instigation?zid5319&ah517af09b0281b01505c226b1e574f5cc1 (accessed 5
December 2016).

LEAL-ARCAS_9781786431042_t.indd 240 08/09/2017 13:02

effectively cloak its financial operations in a shroud of secrecy. The statement made in
2003 by Markus Siegler, the then FIFA Director of Communications, to avoid giving a
direct answer to the investigative journalist Andrew Jennings when he enquired about
President Blatter’s earnings, is highly illustrative of the total lack of transparency existing
in that context:
We must abide by internal rules and cultural traditions. In Switzerland, salaries or income are
simply not published. Also, you must not question FIFA’s dedication to transparency.30
Having verified that corruption has always constituted a plague for human civiliza-
tion31 and that it has penetrated also into unexpected sectors of our society, two crucial
questions remain unanswered: on the one hand, why for centuries has corruption been
rampant and its practice appeared de facto tolerated by governments; on the other, why,
unpredictably, over the course of the last two decades, have significant and increasingly
determined efforts been devoted to fighting against such a criminal phenomenon?
The reason for the enormous difficulties that our societies have traditionally faced
in fighting against corruption appears to lie behind the inherent connection that exists
between power and corruption. As brilliantly stated by Lord Acton in 1887: ‘Power tends
to corrupt and absolute power corrupts absolutely’.32 It is undeniable that in order to
be corrupted an individual must be in a position of power that allows him or her to act
with deliberate favoritism; at the same time, in order to corrupt, an individual must be
able to offer some bargaining chip as the quid pro quo of the illicit agreement. As a result,
corruption becomes a way of managing personal influence and getting additional advan-
tages from it. The fact that such a criminal phenomenon affects primarily the dominant
class of a country, whose members are often enmeshed in corruption, explains why for
so long there had not been a serious political willingness to fight against it, sanctioning
the perpetrators and implementing effective regulatory countermeasures. Consequently,
it is not surprising that, although corruption has always constituted a plague for human
societies, it was not until the 1990s that the fight against such a criminal phenomenon was
eventually included in the political agenda all over the globe.
Then, almost unexpectedly, over the course of the last two decades corruption has
30
See Andrew Jennings, ‘Investigating Corruption in Corporate Sport: The IOC and FIFA’
[2011] International Review for the Sociology of Sport 387, 395.
31
It is undeniable that corruption exerts extremely adverse effects on our societies. To be merely
illustrative and not exhaustive, it has been demonstrated that: it reduces income and government
revenues; it increases costs, undermining fair competition; it distorts policy, letting priorities be
determined by personal interests; it breeds disloyalty in public institutions; it diverts resources from
where they are needed the most; it reduces productivity, demotivating those that receive unfair
rewards; and it destroys cultures at all levels. See Denis Osborne, ‘Corruption as Counter-culture:
Attitudes to Bribery in Local and Global Society’, in Barry Rider (ed.), Corruption: The Enemy
Within (Kluwer Law 1997) 27.
32
John Emerich Edward Dalberg Acton, who was a historian and moralist also known simply
as Lord Acton, wrote such a statement in a series of letters sent to Bishop Creighton concern-
ing the moral problem of writing history about the Inquisition. See Lord Acton writes to Bishop
Creighton 1887 (Online Library of Liberty), http://oll.libertyfund.org/quote/214 (accessed 11 June
2017).

LEAL-ARCAS_9781786431042_t.indd 241 08/09/2017 13:02

gradually moved from the margins to the center of the international political stage. The
reason behind such a drastic change appears to lie with globalization, which, with its doc-
trine of open markets and free trade, has radically changed the way in which international
business is conducted.33
As a matter of fact, the process of economic globalization, mainly consisting in capital
and product market liberalization, has dramatically transformed the way in which com-
panies organize their business activities and has had profound effects on the way in which
corporations are governed.34 This phenomenon also led to a wave of cross-border mergers
and acquisitions that rose significantly as of the mid-1980s.35 Thanks to a series of GATT
negotiations that took place over the course of the second half of the 20th century, and
the consequent reduction of trade barriers that such agreements entailed, the world
gradually became a globalized single market.36 Such a globalized economy created an
extremely competitive market environment37 that has progressively led, on the one hand,
to a de facto reduction of managerial discretion,38 and, on the other, to a special attention
to the risks, costs and consequences of bribery, graft and other forms of corruption in
international business.39 The reason being that such a globalized market, where only the
fittest survive, inherently requires a trading system characterized by honesty, transpar-
ency and fair dealing.40
Taking the above into consideration, it makes perfect sense that the most relevant efforts
have been traditionally limited to fighting only bribery in the conduct of international
business instead of criminalizing the phenomenon of corruption per se. Consequently, it
is not surprising that some authors consider the Foreign Corrupt Practices Act (FCPA),
which is the most relevant anti-corruption piece of legislation in the United States, as a
33
See Michael A. Almond and Scott D. Syfertt, ‘Beyond Compliance: Corruption, Corporate
Responsibility and Ethical Standards in the New Global Economy’ [1997] North Carolina Journal
of International Law and Commercial Regulation 389, 391.
34
The 20th century witnessed an irreversible shift in the global economy, which has marked
the end of an epoch. It has subordinated individuals, locations and goods to skills, mobility and
ideas. Globalization has exerted a downward pressure on salaries, threatening, in particular, the
workers who are confined to a specific location or possess limited skills. It has also menaced
the very idea of nation-states evening out different cultural preferences, national tastes and
standards. See Jim Chen, ‘Globalization and its Losers’ [2000] Minnesota Journal of Global
Trade 157.
35
See Alan Dignam and Michael Galanis, The Globalization of Corporate Governance (Ashgate
2009) 135.
36
See ibid 97.
37
As competition intensifies and margins shrink, multinational corporations compete fiercely,
seeking to obtain the best combination of price, quality, reliability and delivery for products that
appear highly standardized. When a global producer offers his lowest costs internationally, he or
she rapidly acquires new market shares, thus endangering the smaller competitors that focus on
domestic markets. See Theodore Levitt, ‘The Globalization of Markets’ [1983] Harvard Business
Review 92, 95.
38
Before that, during the so-called ‘golden age of capitalism’, management exercised a wide
discretion and undertook a central coordination role within firms. This allowed corporate execu-
tives to resolve conflicts among the various resource providers and make long-term commitments
to stakeholders. See Dignam and Galanis (n 35) 111.
39
See Almond and Syfertt (n 33) 391.
40
See ibid.

LEAL-ARCAS_9781786431042_t.indd 242 08/09/2017 13:02

component of international trade law instead of criminal law.41 It is also emblematic that,
in 1997, the members of the Organisation for Economic Co-operation and Development
(OECD) adopted the historical OECD Anti-Bribery Convention, which specifically aims
at establishing legally binding standards to criminalize the bribery of foreign public offi-
cials in international business transactions. Specifically, the OECD Convention requires
that all the adhering states should criminalize illicit conduct as outlined in the following
definition:
[. . .] it is criminal offence under its law for any person intentionally to offer, promise or give any
undue pecuniary or other advantage, whether directly or through intermediaries, to a foreign
public official, for that official or for a third party, in order that the official act or refrain from
acting in relation to the performance of official duties, in order to obtain or retain business or
other improper advantage in the conduct of international business.42
It all started in 1979 when the Foreign Corrupt Practices Act (FCPA) was eventually
adopted in the United States. In fact, whilst until the 1970s the practice of bribing foreign
public officials did not raise any specific concern, the Watergate scandals unexpectedly
brought into the public domain the circumstance that some of the major American corpo-
rations, such as Gulf Oil, Exxon and Lockheed, had perpetrated such a form of corrup-
tion on a massive scale. The public condemnation that followed the scandals resulted in
the adoption of the FCPA, at that time an innovative piece of legislation.43 The adoption
of the FCPA constituted a point of no return, in that it permanently changed the rules of
the global trade game. In fact, after the enactment of the FCPA, American corporations
suffered from a de facto competitive disadvantage compared with their foreign competitors
who did not have to play by the rules of the FCPA and might still bribe with impunity in
order to obtain favorable contracts abroad. As a result, the United States exerted an intense
pressure on the global community to adopt anti-corruption regulations all over the world.
Such an effort eventually resulted in a series of international achievements in the fight
against this criminal phenomenon. In particular, such a result was obtained through the uti-
lization of two international actors over which the United States has traditionally wielded
enormous influence: the Organisation for Economic Co-operation and Development44 and
41
See Eric C. Chaffee, ‘From Legalized Business Ethics to International Trade Regulation: The
Role of the Foreign Corrupt Practices Act and Other Transnational Anti-Bribery Regulations in
Fighting Corruption in International Trade’ [2014] Mercer Law Review 701, 705.
42
See the OECD Convention on Combating Bribery of Foreign Public Officials in International
Business Transactions, Article 1(1), www.oecd.org/daf/anti-bribery/ConvCombatBribery_ENG.
pdf (accessed 5 December 2016).
43
See Henry H. Rossbacher and Tracy W. Young, ‘The Foreign Corrupt Practices Act: An
American Response to Corruption,’ in Barry Rider (ed.), Corruption: The Enemy Within (Kluwer
Law 1997) 210.
44
The Organisation for Economic Co-operation and Development (OECD) is an international
organization, which began its operations as a sort of ‘rich-country club’ and whose objective is to
promote policies that will improve the economic and social well-being of people around the world.
In particular, it fights bribery in international business to strengthen development, reduce poverty
and bolster confidence in markets. Its main achievements in this area have been the issuance of
the OECD Anti-Bribery Convention and the Convention’s 2009 Anti-Bribery Recommendation.
See ‘Bribery in International Business’ (OECD), www.oecd.org/corruption/anti-bribery (accessed
5 December 2016).

LEAL-ARCAS_9781786431042_t.indd 243 08/09/2017 13:02

the World Bank.45 Furthermore, other international players such as the United Nations46
and Transparency International47 have played a crucial role in raising global public aware-
ness about corruption.
2. THE PECULIARITIES OF CORRUPTION IN THE

ENERGY SECTOR
Even if, as we have argued so far, corruption is rife in every sector of our society, includ-
ing the most unexpected ones, such a criminal phenomenon has traditionally been wildly
rampant in the energy sector and its effects have proved to be extremely dramatic. It is not
surprising that, as was revealed in 1976 during the Watergate scandal, several well-known
energy firms were identified among the American corporations that took part in the most
relevant corrupt activities.48
The report of the Securities and Exchange Commission on questionable and illegal
corporate payments and practices included an entire section dedicated to the unethical
business operations carried out by energy companies. For instance, the report describes
how Gulf Oil49 made foreign political contributions in seven countries, consisting of
payments to foreign officials totaling approximately $6,900,000, during the period
45
The World Bank Group is a Multilateral Development Bank (MDB), which is currently
formed by five institutions: the International Bank for Reconstruction and Development (IBRD);
the International Development Association (IDA); the International Finance Corporation (IFC);
the Multilateral Investment Guarantee Agency (MIGA); and the International Center for
Settlement of Investment Disputes (ICSID). Strictly speaking, the term ‘World Bank’ refers to the
IBRD, which represents the original institution that was founded on the grounds of the Articles of
Agreement negotiated at Bretton Woods in 1944 and opened its doors for business on 25 June 1947.
The World Bank Group currently considers corruption as a major challenge to its institutional
goals, and the fight against such a criminal phenomenon is regarded as a priority, representing
the focal point of its recently established Sustainable Development Goals. See Anti-Corruption,
20 May 2016 (The World Bank), www.worldbank.org/en/topic/governance/brief/anti-corruption
46
In its resolution 55/61 of 4 December 2000, the General Assembly of the United Nations
recognized that an effective international legal instrument against corruption was needed.
Consequently, the United Nations Convention against Corruption was adopted by the General
Assembly by resolution 58/4 of 31 October 2003. See United Nations Convention against
Corruption (n 6).
47
Transparency International is a non-governmental organization dedicated to fighting cor-
ruption, whose activities focus on advancing accountability, integrity and transparency worldwide.
Among its publications, the ‘Corruption Perceptions Index’, which was first launched in 1995, has
been widely credited with putting the issue of corruption on the international policy agenda. See
‘Corruption Perceptions Index’ (Transparency International), www.transparency.org/research/cpi/
overview (accessed 5 December 2016).
48
As regards the connection between the Watergate scandal and the enactment of the Foreign
Corrupt Practices Act, see Wallace Timmeny, ‘An Overview of the FCPA’ [1982] Syracuse Journal
of International Law and Commerce 235.
49
Gulf Oil International is a multinational enterprise that has a strong association with fuel
retail stretching back over a hundred years. Its network today has grown to over 1,100 sites in 25
countries, spreading across Europe, the Middle East and South America. See ‘History of Gulf Oil’
(Gulf Oil), www.gulfoilltd.com/about/history-of-gulf-oil/ (accessed 5 December 2016).

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1960–1973.50 The report also describes how Gulf Oil used a subsidiary in the Bahamas
to launder dirty assets and highlights that past top officials of the company knew of
these questionable and illegal activities.51 Another energy company on which the report
focused was Ashland Oil Inc.,52 which paid $202,000 to officials in a foreign country in
connection with the acquisition of petroleum rights and the transfer of operating per-
mits.53 The report also states that in 1969, Ashland’s Chief Executive Officer personally
delivered $7,500 to an official of another foreign country.54 The scandal revealed that the
Phillips Petroleum Company55 was also enmeshed in corruption. As the SEC indicated,
$1,258,000 of off-books cash was paid to foreign individuals involved in a construction
project in a foreign country and these payments were not properly entered in Phillips’
books and records.56 Finally, it emerged that Exxon57 made political contributions in Italy
averaging more than $27,000,000 from 1963 to 1971; those political contributions were
recorded through invoices for services as payments to sales organizations or were made
in cash from off-book funds.58
At least three key reasons appear to lie behind the pervasiveness of corruption in the
energy sector. The first reason is the crucial geopolitical importance that energy resources
have always had due to the asymmetric distribution of reserves, production and consump-
tion of natural resources around the globe.59 The enormous difficulties that have constantly
been experienced at the transnational level in regulating the energy trade reflect the unique-
ness of such a situation.60 As a result, countries’ ability to meet their primary energy needs
might well represent a relentless national drive to conclude a contract at any cost, even
50
See Securities and Exchange Commission, ‘Report on Questionable and Illegal Corporate
Payments and Practices’ (May 1976), B-7, www.sec.gov/spotlight/fcpa/sec-report-questionable-
illegal-corporate-payments-practices-1976.pdf (accessed 5 December 2016).
51
ibid B-8.
52
Ashland is an American Fortune 500 petrochemical company which operates in more than
100 countries. See ‘About Ashland’ (Ashland), www.ashland.com/about/about-ashland (accessed 5
December 2016).
53
See Securities and Exchange Commission (n 50) B-4.
54
See ibid.
55
Phillips Petroleum Co. was an American firm incorporated in 1917, whose operations
included petroleum refining, natural gas gathering and producing chemicals. As a result of a series
of acquisitions, it is now part of the Phillips 66 energy company. See ‘Our History’ (Phillips 66),
www.phillips66.com/EN/about/history/Pages/index.aspx (accessed 5 December 2016).
56
See Securities and Exchange Commission (n 50) B-14.
57
Over the last 125 years ExxonMobil has evolved from a regional marketer of kerosene to the
largest publicly traded energy company in the world. ‘About Us’ (ExxonMobil), http://corporate.
exxonmobil.com/en/company/about-us (accessed 5 December 2016).
58
See Securities and Exchange Commission (n 50) 46.
59
In modern times energy resources have always represented the foundation of every interna-
tional order and have determined the fate of every battle for space and power. In the 18th and 19th
centuries, the British Empire prospered through controlling the production of coal. From the end
of the 19th to the early 21st centuries, petroleum has supported the American world leadership, and
the new ‘age of natural gas’ could make the United States the world’s leading geopolitical power well
into the new century. See Robert D. Kaplan, ‘The Geopolitics of Energy’ (Forbes), www.forbes.com/
sites/stratfor/2014/04/04/the-geopolitics-of-energy/#259850c547c6 (accessed 5 December 2016).
60
See Rafael Leal-Arcas, Costantino Grasso and Juan Alemany Ríos, Energy Security, Trade
and the EU: Regional and International Perspectives (Edward Elgar 2016) 89.

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secretly bribing foreign public officials. Another reason, which is clearly connected with
the first one, is the enormous amount of money usually involved in energy transactions.
The investments in the energy sector are usually massive and require a vast amount of
funds. As a matter of fact, the establishment and maintenance of energy networks (such
as pipelines and gas terminals) are extremely expensive; even the mere transportation of
crude oil and gas is very costly.61 As a result, energy companies tend to become huge and
enormously rich corporations, which in many cases are also backed by governments. Such
immense corporate wealth allowed these firms to obtain ‘an unfair advantage in the politi-
cal marketplace’.62 Gazprom, whose net profit in 2015 amounted to US$12.2 billion,63
and Rosneft, whose net profit in 2015 amounted to US$5.4 billion,64 represent a glaring
example of the scale of this phenomenon. Although both companies, which are the two
largest publicly traded energy producers in the world,65 have been privatized, the Russian
government currently controls over 50 percent of their shares.66, 67 Other examples are
the state-owned PetroChina, which is currently the world’s fourth biggest public energy
company, and the semi-public Brazilian multinational corporation Petrobas, which is
ranked eighth.68 Even where, through privatization processes, national governments have
lost their majority holding, the interconnection between these huge companies and the
state is still very strong. For instance, the necessity of cutting UK greenhouse gas emissions
has recently highlighted the close ties between British Petroleum and the UK government,
which in 1987 sold the last of its shares in the company.69 The access to virtually unlimited
funds makes energy corporations the biggest potential perpetrators of corruption on a
grand scale. Moreover, thanks to their wealth, power and political connections it is easy
for them to arrange complex schemes to deceive the public and the prosecuting authorities
about their unlawful activities. On many occasions, they could easily avoid accountability,
making use of the vast number of skilled lawyers and accountants at their disposal. In this
regard, some of the reasons behind the collapse of Enron in 2001 appear truly emblematic.
In particular, it has to be highlighted how Enron adopted an extremely complex business
model, which relied extensively on the creation of shell firms and made the business opera-
tions carried out by the corporation completely obscure and almost impossible to control.70
61
Ibid 230.
62
See Samuel Issacharof, ‘On Political Corruption’ [2011] Harvard Law Review 118, 124.
63
See ‘PJSC Gazprom IFRS Consolidated Financial Statements: 31 December 2015’ (Gazprom),
www.gazprom.com/f/posts/12/001311/gazprom-ifrs-2015-12m-en.pdf (accessed 5 December 2016).
64
See ‘Consolidated financial statements, Rosneft Oil Company for the year ended December
31, 2015’ (Rustocks), www.rustocks.com/put.phtml/RSNT_4Q2015_IAS_consolidated_EN.pdf
65
See ‘The World’s Biggest Public Energy Companies 2016’ (Forbes), www.forbes.com/pic
tures/hefj45fim/introduction/#11dab5c325de (accessed 5 December 2016).
66
See ‘Shares’ (Gazprom), www.gazprom.com/investors/stock (accessed 5 December 2016).
67
See ‘Shareholder Structure’ (Rosneft), www.rosneft.com/Investors/Equity/Shareholder_struc
ture (accessed 5 December 2016).
68
See ‘The World’s Biggest Public Energy Companies 2016’ (n 65).
69
See Felicity Lawrence and Harry Davies, ‘Revealed: BP’s Close Ties with the UK Government’
The Guardian (21 May 2015), www.theguardian.com/environment/2015/may/20/revealed-bps-close-
ties-with-the-uk-government (accessed 5 December 2016).
70
See William W. Brattof, ‘Enron and the Dark Side of Shareholder Value’ [2002] Tulane Law
Review 1275, 1306.

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Furthermore, the massive amount of money paid to Enron’s external auditor, Arthur
Andersen, undermined its independence, eventually compromising its work.71
The second reason is related to the inherent intrusiveness of the vast majority of
energy investments with respect to a country’s environment and social fabric. For
instance, it is well known that the explorations made to find crude oil and the con-
struction of oil pipelines inevitably entail severe environmental damage, as well as
major risks for human health. As a matter of fact, crude oil is dangerous because it
typically contains more than 1,000 chemicals, a large majority of which are hazard-
ous to humans and might cause degenerative diseases like leukemia and neurological
problems.72 The risks connected to investments in energy infrastructure are already
significant in industrialized countries,73 where higher security standards have to be
applied,74 and commonly spark strong anti-government protests.75 The health and
environmental risks increase dramatically in developing countries. The tremendous
amount of crude oil spilled from oil pipelines in the Niger delta and the related tragic
effects on the soil and the local population neatly exemplify such a phenomenon.76 The
statement eventually released by Shell in 2010 is emblematic of the seriousness of the
damages that extraction procedures may produce on local communities in countries
with low safety standards:
I am proud to say that we make a symbolic new start by saying to the people of the Niger delta:
We are sorry. We are sorry for the oil and gas spills that have made your rivers toxic, we are sorry
for the gas flares that stink up your villages, we are sorry for the fact that you cannot eat your
fish, that you cannot grow on your land, and that you cannot drink your water. We have had
similar extraction operations in Alaska with little problem. We know there is a double standard
and that must end.77
71
Ibid 1349.
72
See Brant Phillips, ‘Oil Pipelines and Spills’ Auburn University (9 August 2016), http://cla.
auburn.edu/ces/energy/oil-pipelines-and-spills (accessed 5 December 2016).
73
Oil spills resulted in North America with regard to the Keystone Pipeline, which is a pipeline
that runs from Alberta, Canada, to the Gulf Coast of Texas. See ibid.
74
For a detailed analysis of pipelines’ safety in the United States, see Lena Groeger, ‘Pipelines
Explained: How Safe are America’s 2.5 Million Miles of Pipelines?’ ProPublica (15 November
2012), www.propublica.org/article/pipelines-explained-how-safe-are-americas-2.5-million-miles-
of-pipelines (accessed 5 December 2016).
75
For example, the works related to the Dakota Access Pipeline have led to angry protests
in the United States, especially among the Sioux Native American people of the Standing Rock
Indian reservation who fear it will displace sacred artifacts and pollute the water supply for sur-
rounding communities. See Ralph Ellis, ‘Standing Rock Protesters Ordered Out by Army Corps
of Engineers’ CNN (28 November 2016), http://edition.cnn.com/2016/11/25/us/dakota-pipeline-
access-army-corps (accessed 19 October 2016).
76
It has been calculated that an estimated 13 million barrels (1.5 million tons) of crude oil
have been spilled in the region since 1958 from over 7,000 oil spill incidents (i.e. a yearly average of
about 240,000 barrels). See Best Ordinioha and Seiyefa Brisibe, ‘The Human Health Implications
of Crude Oil Spills in the Niger Delta, Nigeria: An Interpretation of Published Studies’ [2013]
Nigerian Medical Journal 10, 395.
77
Excerpt from the statement released by Bradford Houppe, Vice-President of the Ethical
Affairs Committee at Shell. See ‘Shell: We Are Sorry’ You Tube (28 March 2010), www.youtube.
com/watch?v5zciWUOrIUqo (accessed 30 November 2016).

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Besides the potential environmental and health damages, which are extremely difficult
to reverse,78 the construction of energy infrastructures necessitates massive deforesta-
tion and dispossession of land schemes.79 The land-grabbing operations conducted
in Myanmar for the construction of a pair of immense Beijing-backed transnational
energy pipelines is highly illustrative of such a situation.80 As a result, in order to
obtain the green light from host governments to construct such intrusive and dam-
aging energy infrastructures, industrialized countries traditionally used imperialistic
approaches,81 then, after decolonization, they have systematically installed puppet
regimes.82 At the same time, the powerful energy corporations have methodically used
corruption as an effective means of obtaining political support or controlling local
rulers.83
The third reason is that, historically, the vast majority of countries that are rich in terms
of energy resources appear also more vulnerable to corruption. Although, as we have
seen, every country, regardless of political tradition, culture or socio-economic status, has
experienced bribery, misappropriation of funds and misuse of political position,84 devel-
oping countries seem to be more exposed to corruption risks, and that, in turn, such illicit
activities exert adverse consequences on their development.85 According to Transparency
International, the majority of countries that have abundant oil resources, such as Russia,
78
For instance, the United Nations Environment Programme, which has undertaken the first
major scientific study of pollution in the Niger delta area, has determined that the devastating oil
spills over the past five decades will cost $1 billion to rectify and take up to 30 years to clean up. See
‘Environmental Assessment of Ogoniland’ United Nations Environment Programme (2011), http://
postconflict.unep.ch/publications/OEA/UNEP_OEA.pdf (accessed 30 November 2016).
79
The International Criminal Court’s Office of the Prosecutor has recently published a policy
paper on case selection and prioritization, under which illicit activities against the environment,
such as the illegal exploitation of natural resources, the illegal dispossession of land, or the destruc-
tion of the environment, will be reviewed by the ICC where they represent the means through
which the crimes that fall within its jurisdiction (i.e. the crime of genocide, crimes against human-
ity, war crimes, and the crime of aggression) are perpetrated. Such an innovation will potentially
allow the ICC to prosecute CEOs and other executives of multinational enterprises intentionally
involved in the perpetration of crimes against the environment. See ‘Policy Paper on Case Selection
and Prioritisation’ International Criminal Court (15 September 2016), www.icc-cpi.int/itemsDocu
ments/20160915_OTP-Policy_Case-Selection_Eng.pdf (accessed 30 November 2016).
80
See ‘The Great Land Rush. Myanmar: The Dispossessed’ Financial Times – Investigations (1
March 2016), https://ig.ft.com/sites/land-rush-investment/myanmar (accessed 30 November 2016).
81
See Dani Rodrik, The Globalization Paradox (Oxford University Press 2011) 26.
82
See Ibrahim J. Gassama, ‘Africa and the Politics of Destruction: A Critical Re-examination
of Neocolonialism and its Consequences’ [2008] Oregon Review of International Law 327, 342.
83
It is emblematic that, in Nigeria, corruption has always represented as the main tool for
allowing foreign companies like Shell to access the country’s oil and gas resources. See Jêdrzej
George Frynas, Matthias P. Beck and Kamel Mellahi, ‘Maintaining Corporate Dominance after
Decolonization: The “First Mover Advantage” of Shell-BP in Nigeria’ [2000] Review of African
Political Economy 407, 417.
84
See Maria Dakolias and Kim Thachuk, ‘Attacking Corruption in the Judiciary: A Critical
Process in Judicial Reform’ [2000] Wisconsin International Law Journal 353, 355.
85
This reflects the phenomenon widely known as ‘resource curse’, which refers to the paradox
of possessing large deposits of oil and natural gas and, at the same time, being subject to poor
economic performance and governance challenges. See Nicholas Shaxson, ‘Oil, Corruption and the
Resource Curse’ [2007] International Affairs 1123.

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China, Iraq, Iran, Brazil, Venezuela, Mexico and Nigeria,86 present serious levels of
public sector corruption, and many of them can still be considered as developing coun-
tries.87 The vulnerability of such countries to corruption depends on several determining
factors. One of them is the weakness of their public institutions. Colin Leys has expressed
this concept excellently:
The idea of the national interest is weak because the idea of a nation is new. And the institutions
and offices of the state are, for most people, remote and perplexing. Even to the civil servants and
politicians directly involved in them they are new; they are aware of the ‘official purposes’ which
are attached to them by importation, but they scarcely regard them as ‘hallowed’ and hence they
do not necessarily regard them as sacrosanct.88
Moreover, low public-sector wages, illiteracy, inadequate management controls and lack
of adequate technology for monitoring, poor recruitment and selection procedures, poor
working conditions and facilities, lack of public information, and the inadequate capacity
to meet the demand for government services, are all factors frequently cited as a source of
corruption in less developed countries.89 Finally, the presence of an authoritarian regime
might per se increase corruption risks. In fact, although democracies are not impervious
to corruption, their policy-making processes, which tend to be more transparent, and the
accountability of politicians to voters, may help them to contain this criminal phenom-
enon. As a result, in democratic countries corruption tends to assume the more subtle
form of influence peddling, whilst, at the same time, blatant forms of bribery appear to
be relatively less common.90
A realistic depiction of the ways in which energy investments and corruption are inter-
twined has recently been offered by Big Men, a critically acclaimed and award-winning
documentary produced by Brad Pitt.91 In particular, the film provides the audience with a
rare insight into the energy industry, focusing on corruption involving American financi-
ers and oil companies doing business in Ghana.
3. ANOTHER TALE OF DISHONESTY WITHIN THE

ENERGY INDUSTRY
On 15 November 2016, the energy sector was hit for the umpteenth time by a major
scandal. The Russian Economic Development Minister Alexei Ulyukayev was arrested on
86
In 2015, these countries have been listed among the top 13 world producers of petroleum. See
‘Total Petroleum and Other Liquids Production, 2015’ U.S. Energy Information Administration (2016),
www.eia.gov/beta/international/rankings/#?prodact553-1&cy52015 (accessed 30 November 2016).
87
All of these countries have obtained a score below 40 on a scale of 0 (highly corrupt) to 100
(very clean). See ‘Corruption Perceptions Index, 2015’ Transparency International (2016), www.
transparency.org/cpi2015 (accessed 30 November 2016).
88
See Colin Leys, ‘What is the Problem About Corruption?’ [1965] The Journal of Modern
African Studies 215, 224.
89
See Kimberly Ann Elliott, ‘The Problem of Corruption: A Tale of Two Countries’ [1998]
Northwestern Journal of International Law & Business 524, 527.
90
See ibid 525.
91
See the movie official website at http://bigmenthemovie.com (accessed 4 December 2016).

LEAL-ARCAS_9781786431042_t.indd 249 08/09/2017 13:02

charges of corruption.92 He allegedly received a $2.6 million cash bribe from the Kremlin-
controlled Rosneft to facilitate the controversial acquisition of Bashneft.93 This case of
corruption is particularly relevant for the purposes of this work not so much because
the minister represents the highest-ranking official arrested in Russia since Soviet times,
but because it serves as a striking illustration of the pervasiveness of corruption in the
energy sector and of the circumstance that politicians are deeply enmeshed in such illicit
activities.
Although Alexei Ulyukayev originally opposed the sale of Bashneft to Rosneft because
he aimed at reducing the portion of the economic sector controlled by the state, he then
adhered to President Putin’s decision and, eventually, Rosneft acquired the controlling
stake in Bashneft for $5 billion.94 The investigation was set up by the Federal Security
Service (FSB), the Russian secret police, and it seems almost certain that, due to the
country’s highly centralized system of government,95 the investigators had to obtain the
green light directly from Putin to arrest the minister.96
In reality, it emerged that Rosneft’s acquisition of Bashneft led to a major turf war
between rival Kremlin factions. When the economic liberals in the government, like Alexei
Ulyukayev, had fiercely opposed the acquisition, believing that Bashneft should approach
private investors, they dared to challenge the head of Rosneft, Igor Ivanovich Sechin, who
had lobbied hard for buying Bashneft.97 Sechin, who is ranked 47 in Forbes world’s most
powerful people ranking,98 is a former Soviet spy, one of the closest allies of Vladimir
Putin and the puppeteer behind Russia’s strategies in the energy sector.99 As a result, the
arrest of the minister appears more like a retaliation than an action to fight the corrup-
tion that is rampant in the country. Alexei Navalny, who is an opposition politician and
anti-corruption campaigner, expressed this clearly:
Of course this case has nothing to do with any real fight against corruption [. . .] It’s clear that
only Putin can make the decision on something like Rosneft taking over Bashneft. The idea that
92
See ‘Russian Economy Minister Alexei Ulyukayev Detained over $2 Million Bribe Allegation’
ABC News (15 November 2016), www.abc.net.au/news/2016-11-15/russian-economy-minister-
detained-over-bribe/8027834 (accessed 30 November 2016).
93
Bashneft is a Russia-based company which is active within the oil and gas industry. Its prin-
cipal activities include the extraction, exploration and production of crude oil and oil products. See
‘Structure of the Business’ Bashneft (15 November 2016), www.bashneft.com/company/structure/
94
See ‘Russian Intrigues. Arresting Developments’ The Economist (19 November 2016), www.
economist.com/news/europe/21710197-corruption-charges-against-minister-signal-rising-tensions-
russias-elite (accessed 30 November 2016).
95
The contemporary Russian police system has inherited a centrally controlled and managed
structure from the Soviet police. See Theodore P. Gerber and Sarah E. Mendelson, ‘Public
Experiences of Police Violence and Corruption in Contemporary Russia: A Case of Predatory
Policing?’ [2008] Law & Society Review 1, 10.
96
See ibid.
97
See ABC News (n 92).
98
See ‘The World’s Most Powerful People, 2015 Ranking – #47 Igor Sechin’ Forbes (2015),
www.forbes.com/profile/igor-sechin (accessed 30 November 2016).
99
See Luke Harding, ‘Igor Sechin: Rosneft’s Kremlin Hard Man Comes Out of the Shadows’
The Guardian (18 October 2012), www.theguardian.com/business/2012/oct/18/igor-sechin-rosneft-
kremlin-hard-man-shadows?INTCMP5SRCH (accessed 30 November 2016).

LEAL-ARCAS_9781786431042_t.indd 250 08/09/2017 13:02

Ulyukayev was in a position to somehow blackmail Rosneft and demand money for approving
the deal is utterly comical.100
Researchers, journalists and non-governmental organizations widely agree that, since the
1990s, corruption and abuses of power have spiraled out of control in Russia. The country
is considered as the most corrupt economic and political system among the major economic
powers.101 In particular, its law enforcement agencies have increasingly conducted their
investigations through what is known as ‘predatory policing’, which means that police activi-
ties primarily aim at obtaining personal enrichment and repressing dissenting groups rather
than guaranteeing the protection of the public.102 Within such a scenario, since the adop-
tion of the farcical privatization processes that followed the collapse of the Soviet Union,
the energy sector has become the privileged hunting ground for the new class of emerging
rich oligarchs.103 This phenomenon was consolidated during the ongoing Putin era. The
President used his political influence to pursue a strategy aimed at gaining the complete
control of the enormous Russian energy resources, and, in order to implement this plan, he
had no qualms about inflicting severe casualties on any dissenting party. In 2003, the arrest
of Mikhail Khodorkovsky, who was one of the richest people in Russia and the head of
the energy company Yukos, is emblematic of such an approach. Although he was formally
charged with tax evasion, embezzlement and fraud, it emerged that the real reasons behind
his arrest were his direct challenge to the president’s authority and Putin’s lust for power.104
In fact, at the beginning of 2003, Khodorkovsky decided to openly support two opposition
parties and made public statements criticizing the anti-democratic trends of Russian poli-
tics.105 Moreover, in the period of time prior to the arrest, he was actively seeking to merge
his firm with Sibneft, another large Russian oil company, and with the US-based company
Exxon Mobil. Moreover, Yukos and the state company Rosneft were involved in a public
struggle for the control of some strategic oilfields.106 After the prosecution, the Russian tax
authorities, carefully directed by the central government, froze the firm’s bank accounts and
set impossible deadlines. Consequently, Yukos’ tax bills became unpayable and, eventually,
the company ended up in the hands of the state-owned oil firm Rosneft.107 It is not surpris-
ing that, in 2011, the European Court of Human Rights affirmed that the criminal proceed-
ings against Khodorkovsky violated several fundamental human rights enshrined in the
Convention for the Protection of Human Rights and Fundamental Freedoms.108
100
See Shaun Walker, ‘The Russian Economy Minister in Court Over Alleged $2m Bribe’ The
Guardian (15 November 2016), www.theguardian.com/world/2016/nov/15/russia-economy-minis
ter-detained-over-alleged-2m-bribe (accessed 30 November 2016).
101
See Liam Anderson, ‘Corruption in Russia: Past, Present and Future’, in Charles Funderburk
(ed.), Political Corruption in Comparative Perspective: Sources, Status and Prospects (Routledge
2012) 71.
102
See Gerber and Mendelson (n 95) 1.
103
See Anderson (n 101) 83.
104
See ibid 87.
105
See Khodorkovskiy v Russia ECHR 2011 Case no. 5829/04, para 9.
106
See ibid, para 8.
107
See ‘The Khodorkovsky Case. The Tycoon and the President’ The Economist (19 May 2005),
www.economist.com/node/3983898 (accessed 30 November 2016).
108
In particular, the Court affirmed that, during his detention, Khodorkovsky was subjected to
‘inhuman or degrading treatments’, which amounted to a violation of Article 3 of the Convention.

LEAL-ARCAS_9781786431042_t.indd 251 08/09/2017 13:02

Once he had obtained control of the vast majority of Russian energy resources, Putin
began to exercise his immense power to benefit himself and his entourage by means of
the misuse of public functions and the appointment of his most loyal lieutenants, such
as Sechin, in crucial roles within the vast public energy sector. In particular, in order to
pursue his political interests, the President used his power to persuade key individuals,
both domestically and abroad, to join his corrupt inner circle.
As a matter of fact, a journalistic inquiry109 has recently investigated the shady
deals that Putin orchestrated to establish a close relationship between the Russian
energy companies and Eni SpA, the Italian multinational oil and gas giant.110
The existence of such corrupt activities was originally unveiled by Julian Assange
through the website WikiLeaks.111 Specifically, American diplomats reported that
the then Italian Prime Minister, Silvio Berlusconi, profited individually and sub-
stantially from secret deals with Vladimir Putin.112 Corruption and misuse of public
office lay at the bottom of such agreements. These corrupt activities were possible
because, like the state-controlled Russian companies, the Italian energy conglomer-
ate is partly owned by the Italian government. It also appeared that Putin promised
Berlusconi ‘a percentage of profits from any pipelines developed by Gazprom in
co-ordination with ENI’.113 The words of the US diplomats are illustrative of this
situation:
It seems that Russian-Italian economic relations are directed by PMs who have a direct line to
each other as well as control over some of the largest assets of their respective economies. To
whatever end they direct those assets, it is likely they are not doing so based solely on commercial
or rate-of-return calculations.114
It also ruled that Russian authorities violated Article 5§1(b) of the Convention because they
maliciously changed the venue of the eventual detention proceedings to one that was more con-
venient for the central government (i.e. they moved it from Novosibirsk to Moscow where the
General Prosecutor’s Office is located). Furthermore, the Court recognized the infringement of
Khodorkovsky’s right to liberty and security as provided in Article 5§3 of the Convention because
his detention was not justified and had thus exceeded any ‘reasonable time’. Finally, in the deci-
sion, it was stated that the applicant’s detention was not compatible with the minimal procedural
requirements of Article 5§4 of the Convention in that the defense lawyers were not allowed to com-
municate freely with their client. See Khodorkovskiy v Russia ECHR 2011 Case no. 5829/04, paras
119, 142, 202, 234.
109
See Andrea Greco and Giuseppe Oddo, Lo Stato Parallelo (Chiarelettere 2016).
110
Eni SpA has been ranked at 12 by Forbes among the world’s biggest public energy compa-
nies. See ‘The World’s Biggest Public Energy Companies’ (Forbes) (n 65) 83.
111
WikiLeaks is the multinational media organization founded by Julian Assange in 2006. It
specializes in the analysis and publication of censored or otherwise restricted official materials
involving war, spying and corruption. See ‘What is WikiLeaks’ WikiLeaks (3 November 2015),
https://wikileaks.org/What-is-Wikileaks.html (accessed 30 November 2016).
112
See Rob Evans, Luke Harding and John Hooper, ‘WikiLeaks Cables: Berlusconi “Profited
from Secret Deals” with Putin’ The Guardian (2 December 2010), www.theguardian.com/world/2010/
dec/02/wikileaks-cables-berlusconi-putin (accessed 30 November 2016).
113
See ibid.
114
See ‘Public Library of US Diplomacy: Italian Diplomat on Energy Interests, Putin-
Berlusconi Link (C-RE9-02730)’ WikiLeaks (5 February 2010), https://wikileaks.org/plusd/
cables/10MOSCOW266_a.html (accessed 30 November 2016).

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The following excerpts from the comprehensive report on the relations between Italy and
Russia issued by the US Ambassador in Rome, Ronald P. Spogli, are even more emblem-
atic of the level of corruption that pervades the energy sector:
Italy’s relationship with Russia is complex, encompassing historical ideological sympathies,

geostrategic calculations, commercial pressure, energy dependence, and personal relation-
ships between top leaders [. . .] In its relationship with Russia, energy is the most important
bilateral issue and the quest for stable energy supplies from Russia frequently forces Italy
to compromise on security and political issues [. . .] By far the most important factor is the
personal attention Putin devotes to the relationship. [Putin] has held more bilateral meetings
with sitting Italian PMs in the recent past than any other world leader. Contacts in both the
opposition center-left party and Berlusconi’s own PdL party, however, have hinted at a more
nefarious connection. They believe that Berlusconi and his cronies are profiting personally
and handsomely from many of the energy deals between Italy and Russia [. . .] ENI, Italy’s
most prominent energy parastatal, wields immense political power; its business strategy has
focused on complicated geopolitical environments generally perceived as overly risky by many
of its international competitors [. . .] There is even suspicion that ENI maintains journalists
on its payroll.115
Over the course of their inquiry, the Italian journalists had the opportunity to interview
the Georgian President, Mikheil Saakashvili.116 He revealed the existence of a ‘small and
exclusive club’, the members of which were political leaders who met in Rome, Saint
Petersburg or Moscow in order to conduct ‘their private affairs’ in the energy sector.117
This club was described as a sort of ‘Spectre’ that tried to dominate Europe by means
of personal policies established among friends who abused public functions for private
gains.118
4. CONCLUSIONS
Within such a grim scenario, the circumstance that many governments, international
organizations and NGOs are committed to fighting against corruption is surely admira-
ble and has to be warmly welcomed. However, it is necessary to recognize that, especially
in the energy sector, we are still very far from defeating corruption or even curbing it.
Besides the United States, some other key countries have adopted, or firmed up, their
anti-corruption regulations that might potentially exert a positive influence on the
energy industry: in 1998, the federal government of Canada enacted the Corruption
of Foreign Public Officials Act;119 in 2010, the United Kingdom adopted the Bribery
115
See ‘Public Library of US Diplomacy: Italy-Russia Relations: The View from Rome
(C-RE8-02675)’ WikiLeaks (26 January 2009), https://wikileaks.org/plusd/cables/09ROME97_a.
html (accessed 30 November 2016).
116
It appears that leaders such as Putin, Berlusconi, Schröder and Erdoğan, participated in
such exclusive meetings. See Greco and Oddo (n 109) 26.
117
Ibid.
118
See ibid 27.
119
See ‘Corruption of Foreign Public Officials Act (S.C. 1998, c. 34)’ Government of Canada –
Justice Laws Website (21 November 2016), http://laws-lois.justice.gc.ca/eng/acts/c-45.2/ (accessed
30 November 2016).

LEAL-ARCAS_9781786431042_t.indd 253 08/09/2017 13:02

Act,120 which is characterized by an extensive extraterritorial reach; in 2013, Brazil

passed an Anti-Corruption Act (Federal Law 12,846/2013);121 in 2015 Italy amended its
anti-corruption laws;122 and on 18 July 2016, Mexican President Enrique Peña Nieto
approved the laws of Mexico’s new National Anti-Corruption System, which aim at
coordinating the efforts of all governmental bodies involved in anti-corruption enforce-
ment.123 However, such measures do not appear per se capable of solving the vexed
question of corruption, especially in sectors, such as energy, where this illicit phenom-
enon is rampant. These interventions are sporadic and their implementation depends on
the willingness of national authorities.124 Moreover, the general perception that, in the
absence of a globally accepted regime, enforcing tight domestic laws might put energy
companies at a competitive disadvantage against foreign firms, may dissuade even the
most virtuous administrations from rigorously enforcing their law.125 Consequently,
concerted anti-corruption actions at the global or regional level appear to be prefer-
able to national initiatives. Most importantly, the criminal law approach has proved to
be highly inefficient for the purpose of preventing corporate crime and, specifically,
corruption. The reasons behind such a failure lie, on the one hand, in the fact that
prosecutors face considerable difficulties in securing convictions in corruption trials,126
and, on the other, that this area of law has been originally conceived and developed to
be applied to natural persons, not to legal entities. As a result, a compelling need exists
to develop alternative legal instruments and regulatory measures specifically designated
for fighting corporate crime. Due to its inherent defects, long-term successes cannot be
achieved by merely resorting to criminal law. Conversely, only the combined applica-
tion of criminal, corporate governance and corporate social responsibility measures can
120
See ‘Bribery Act 2010’ (legislation.gov.uk), www.legislation.gov.uk/ukpga/2010/23/contents
121
See ‘Lei nº 12.846, de 1º de Agosto de 2013’ Câmara dos Deputados, www2.camara.leg.br/
legin/fed/lei/2013/lei-12846-1-agosto-2013-776664-publicacaooriginal-140647-pl.html (accessed 30
November 2016).
122
See ‘Disposizioni in materia di delitti contro la pubblica amministrazione, di associazioni di
tipo mafioso e di falso in bilancio’ Senato della Repubblica, www.senato.it/service/PDF/PDFServer/
BGT/00910713.pdf (accessed 30 November 2016).
123
See ‘Mexico Enacts New Anti-Corruption Laws’ Lexology, www.lexology.com/library/
detail.aspx?g55294bfa9-c7e1-4c13-a26f-a7e20537d54a (accessed 30 November 2016).
124
It seems that only four countries (Germany, Norway, Switzerland and the United States)
are actually active enforcers of their anti-bribery laws. See Peter Jeydel, ‘Yoking the Bull: How to
Make the FCPA Work for U.S. Business’ [2012] Georgetown Journal of International Law 523, 534.
125
For instance, it has been widely argued that the FCPA may have such an effect on US energy
companies. This is because where American energy firms operate within corrupt markets they do
not bribe and ‘in doing so lose contracts to foreign companies that engage in bribery without fear
of penalty’. See Will White, ‘Oil, Corruption, and the Department of Justice: FCPA Enforcement
and the Energy Industry’ [2014] Texas Journal of Oil, Gas, and Energy Law 181, 202.
126
The necessity to ease the prosecution of corporations led in England to the introduction of
the offence of ‘Failure of commercial organisations to prevent bribery’, as provided by section 7
of the Bribery Act 2010. It represents a new form of corporate liability for omission that does not
require knowledge, intention or recklessness and occurs when the commercial organization has
failed to prevent a corrupt practice. See Costantino Grasso, ‘Peaks and Troughs of the English
Deferred Prosecution Agreement: The Lesson Learned from the DPA between the SFO and ICBC
SB Plc’ [2016] Journal of Business Law 388, 391.

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produce profound and lasting effects in eradicating corporate criminal behaviors.127 As

a matter of fact, the perpetration of corporate offenses is often related to the distorted
way in which firms are governed and to the absence of an adequate anti-financial crime
culture among companies’ employees. Consequently, the repression exercised by means
of the criminal law should always be accompanied by the implementation of specific
measures of a different nature,128 such as purposely developed compliance programs,
mandatory reporting systems or the inclusion of independent financial crime experts
in firms’ decision-making processes. From this perspective, the European Union effort
that led to the adoption of a new Accounting Directive in 2013, which has introduced
ground-breaking new rules forcing oil, gas and mining companies to publish details of
the payments made during their commercial operations, has to be praised.129 Similarly,
international projects such as the Extractive Industries Transparency Initiative (EITI),
which specifically aims at establishing principles of greater transparency and account-
ability in the oil, gas and mining sectors, need to be widely supported.130 Such a
necessity and the circumstance that no comprehensive empirical study has focused
exclusively on the effect of anti-corruption measures within the energy industry will
surely lead corruption experts to pursue a rich and rigorous research agenda in the
near future. This appears of even greater importance in the present day when, with the
decline of globalization,131 the victory of a populist leader like Donald Trump,132 and
127
As an example of corporate social responsibility measures in this area, the academic
research project on preventing corporate corruption that Eni SpA sponsored in 2014 can be men-
tioned. However, due to the fact it was not part of a coherent corporate plan to create a sound anti-
corruption culture, the measure, although commendable, appears to fall into the corporate charity
category, and, as such, seems to be inherently incapable of altering corporate behavior in a positive
way. In any case, the interesting outcomes of the research were published in a dedicated volume;
see Stefano Manacorda, Francesco Centonze and Gabrio Forti (eds), Preventing Corporate
Corruption: The Anti-Bribery Compliance Model (Springer 2014).
128
Taking this into consideration, it is not surprising that the current anti-corruption strate-
gies appear multi-faceted and involve a combination of regulation, self-regulation and multi-
stakeholder initiatives. See Indira Carr and Opi Outhwaite, ‘Corruption and Business Integrity:
Law, Policy and Company Practices’ [2009] Manchester Journal of International Economic Law
16, 18.
129
Under Chapter 10 of the Directive, companies involved in the exploration, prospection,
discovery, development and extraction of minerals, oil, natural gas deposits or other materials,
have to report to governments any ‘amount paid, whether in money or in kind’ for those activities.
See Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the
annual financial statements, consolidated financial statements and related reports of certain types
of undertakings.
130
The Extractive Industries Transparency Initiative is a meritorious project, which promotes
public awareness about how countries manage their oil, gas and mineral resources. See ‘The
Extractive Industries Transparency Initiative’ (EITI), https://eiti.org (accessed 5 December 2016).
131
See ‘In Retreat. The Multinational Company is in Trouble’ The Economist (28 January
2017), www.economist.com/news/leaders/21715660-global-firms-are-surprisingly-vulnerable-att
ack-multinational-company-trouble (accessed 6 February 2017).
132
As argued by the New York Times, ‘Trump’s “authoritarian xenophobic” rampage has taken
him to the White House’. See Thomas B. Edsall, ‘The Peculiar Populism of Donald Trump’ The
New York Times (2 February 2017), www.nytimes.com/2017/02/02/opinion/the-peculiar-populism-
of-donald-trump.html?_r50> (accessed 11 June 2017).

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the surprising results of extremist parties such as those led by Marine Le Pen133 and
Nigel Farage,134 dark clouds are gathering on the horizon.135 On 3 February 2017, with
a resolution sponsored by 34 Republican Representatives,136 the US Congress nullified
the rules that the SEC issued in 2016 to implement Section 1504 of the Dodd-Frank
Act, under which companies in the extractive industries (oil, gas and mining) have to
publicly disclose the amounts that they pay to foreign governments in connection with
projects abroad.137 Such a complete change in the United States’ anti-corruption strat-
egy not only appears clearly unethical138 but also poses the risk of triggering a domino
effect that could let the world slip back to the old days when multinational corporations
engaged in corruption with impunity to secure profitable contracts. In fact, it is hard
to believe that the other virtuous countries will continue to impose on their companies
transparency rules that are more stringent than the ones applicable to the firms of the
world’s biggest economy.
133
Although Marine Le Pen lost the presidential election, it would be a mistake to under-
estimate her achievement. There is no doubt she has set an unprecedented record for her right-
wing populist and nationalist political party, the Front National. See ‘Even if Defeated, Marine
Le Pen has Changed French Politics’ The Economist (4 May 2017), www.economist.com/news/
europe/21721659-france-more-divided-ever-even-if-defeated-marine-le-pen-has-changed-french-
politics (accessed 11 June 2017).
134
It is emblematic that Nigel Farage, leader of the UK Independence Party, said that
June 23rd marked independence day for Britain. See ‘After the Vote, Chaos’ The Economist (25
June 2016), www.economist.com/news/britain/21701264-britain-has-voted-leave-eu-what-follows-
will-be-new-prime-minister-volatile-financial (accessed 11 June 2017).
135
As clarified by Transparency International, whilst populist leaders like Donald Trump,
Marine Le Pen and Nigel Farage are on the rise, in part in response to corruption, their election
only exacerbates widespread malpractices and social inequality. See Finn Heinrich, ‘Corruption
and Inequality: How Populists Mislead People’ Transparency International (25 January 2017),
www.transparency.org/news/feature/corruption_and_inequality_how_populists_mislead_people
(accessed 6 February 2017).
136
See U.S. Congress Joint Resolution H.J.Res.41 of 3 February 2017.
137
See ‘SEC Adopts Rules for Resource Extraction Issuers Under Dodd-Frank Act’ U.S.
Securities and Exchange Commission, www.sec.gov/news/pressrelease/2016-132.html (accessed 6
February 2017).
138
As Rep. Maxine Waters, who is a ranking member of the House Committee on Financial
Services, clearly underlined: ‘Striking Section 1504 would mean that Big Oil companies like
ExxonMobil would be able to continue their questionable dealings with corrupt parties such as
Vladimir Putin and Russia’. See Rene Marsh, ‘House Republicans Look to Roll Back Transparency
Law for Energy Companies’ CNN Politics (1 February 2017), http://edition.cnn.com/2017/01/31/
politics/oil-industry-regulations (accessed 6 February 2017).

LEAL-ARCAS_9781786431042_t.indd 256 08/09/2017 13:02

14. Electricity and gas markets
Guy Block and Elvira Saitova
1. INTRODUCTION
Since the adoption of the Treaty establishing the European Coal and Steel Community,
signed in Paris in 1951, and the Treaty establishing the European Atomic Energy
Community, signed in Rome in 1957, the energy markets have changed significantly.
Energy is nowadays mentioned in the Energy Treaty on the Functioning of the European
Union. Furthermore, energy markets fall within the scope of EU competition law and
the four freedoms. The new energy era is characterised by the challenges of security of
supply and climate change. The need to ensure secure, sustainable and competitively
priced energy leads to a growing willingness to establish a more coordinated, developed
and integrated EU energy policy.
The process of liberalising the European electricity and gas markets started in the
1990s when the European Community decided to open up gas and electricity markets
to competition and to create an integrated European energy market. This chapter
analyses the evolution of the electricity and gas markets through the creation of a
common energy market in the European Union and gives a description of the stages
of its elaboration. Special attention is paid to the latest developments and future
challenges.
2. LIBERALISATION OF THE ELECTRICITY AND GAS

MARKETS IN THE EU
2.1 Historical Overview
Historically, the supply of energy to consumers has been viewed as an obligation of the
state, something of a public service. Most of the European countries established vertically
integrated public companies that were granted the monopoly rights to the production,
transmission and supply of electricity and gas to consumers. In return the companies had
to take on the obligation to ensure continuous supply.1 Several reasons could be identified
to explain why this direction of the energy sector development was selected by almost all
European governments,2 for example:
1
Alexei Ispolinov and Tatiana Dvenadtcatova, ‘The Creation of a Common EU Energy
Market: A Quiet Revolution with Far-reaching Consequences’ (2013) 2 Baltic Region, p. 79.
2
Damien Geradin, ‘Twenty Years of Liberalization of Network Industries in the European
Union: Where Do We Go Now?’, Inaugural lecture, 3 November 2006, Tilburg.
257
LEAL-ARCAS_9781786431042_t.indd 257 08/09/2017 13:02

● the strong and popular belief that due to its large size, the energy sector can only be
an object of natural monopoly;
● the monopolist had to simultaneously assume the obligation to provide continuous
energy supply to consumers;
● the governments’ belief that having one provider makes it easier to control its work
and energy prices;
● the idea of competition in the energy sector was seen as highly risked.
However, from the late 1970s, consumer organisations started to pay attention to the
low productivity of state monopolies and the existent monopoly model started to be
questioned by economists, politicians and legal scholars. The idea that the European
Union needed a common internal energy market developed in the late 1980s. Back then it
was already clear that the European energy market should be competitive, common and
flexible. This was reflected in the EU legislation and in numerous working documents.3
However, the turning point was a change in the approach to supplying energy to the
consumer. The traditional interpretation of energy supply as an obligation of the state,
crucial for the normal functioning of any society, was replaced by a perception of energy
as a commodity. Considered as a commodity, it is then subject to competition law. The
Single European Act of 1986 (SEA) facilitated the achievement of the internal market
and recognised the economic importance of the energy.
The electricity and gas markets have been restructured gradually. In June 1987, the
Energy Council advised the Commission to draw up an inventory of the existing obsta-
cles, together with possible remedies to create an internal energy market. This led to the
adoption of the 1988 Working Document in which the Commission suggested, on the
one hand, applying existing EC law and, on the other, submitting specific directives to
address existing obstacles.4 Unfortunately, the 1988 Working Document did not provide
a comprehensive programme in order to create a single internal energy market. In fact,
the type of competition that had to be pursued was not clearly determined and it did
not contain a clear commitment towards a truly unified energy market. Moreover, due
to the resistance of certain Member States to further progress towards an internal energy
market, they remained essentially free to regulate and organise their national markets.5
Consequently, the Commission was left with the basic Treaty provisions related to
competition and free movement as its principal instruments for establishing the internal
energy market.6
The first step in restructuring electricity and gas markets was to adopt two directives
in 1990 to improve price transparency and the use of the grid for electricity transit.7 Just
3
Bram Delvaux, EU Law and the Development of a Sustainable, Competitive and Secure
Energy Policy : Opportunities and Shortcomings (Cambridge: Intersentia 2013) pp. 10–11.
4
Commission working document of 2 May 1988, ‘The internal energy market’, COM(1988)
238.
5
Bram Delvaux, op. cit. (n 3), p. 13.
6
Leigh Hancher, ‘A Single European Energy Market – Rhetoric or Reality?’ [1990] Energy
Law Journal, pp. 223–5.
7
Council Directive 90/377/EEC of 29 June 1990 concerning a Community procedure to
improve the transparency of gas and electricity prices charged to industrial end-users, OJ L 185/16.

LEAL-ARCAS_9781786431042_t.indd 258 08/09/2017 13:02

Electricity and gas markets 259
before the adoption of the First Electricity and Gas Directives,8 the Commission adopted
a Green Paper in 1994, followed by a White Paper on an Energy Policy for the European
Union and External Security of Energy Supply, which outlined that the external dimen-
sion should be developed in order to secure the energy supply.9, 10 The Green Paper of
200011 acknowledged the gap between the Union’s production and demand, highlighted
the risk of increasing import dependence and proposed some solutions to security
supply issues.12 Moreover, it promoted the use of renewable energies as the instrument
to reinforce sustainable and secure energy supply. However, in that period there was no
consensus on whether or not the Union should have external competences in the energy
field and this consequently resulted in the lack of a framework able to manage the import
dependency of the Union.13 The concerns on the progress of the Green Paper of 2000 led
to the adoption of the Green Paper on a European Strategy for Sustainable, Competitive
and Secure Energy in 2006.14
The liberalisation started with the adoption of the first legislative package consisting
of the First Electricity Directive of 1996 and the First Gas Directive of 1998. The First
Electricity Directive was characterised by a partial opening of markets manifested in the
freedom of the states to choose which markets they want to open for competition and
when. The only obligatory criterion was the requirement that the open market account
for at least 35% of the annual power consumption by end consumers. The first instru-
ment launched the process of separating electric energy generation and sales by national
monopolies from electricity transmission. Some states were reluctant to accept this, which
resulted in the splitting of the vertically integrated businesses at the level of management
(not yet at the level of ownership).15 The Directive regulated only the very basic prin-
ciples of a common EU energy market and the Member States still enjoyed significant
Council Directive 90/547/EEC of 29 October 1990 on the transit of electricity through transmis-
sion grids, OJ L 313/30; and Council Directive 91/296/EEC of 31 May 1991 on the transit of
natural gas through grids, OJ L 147/37. Both directives have been repealed by the Second Electricity
Directive and Second Gas Directive.
8
Directive 96/30/EC of the European Parliament and the Council of 19 December 1996 con-
cerning common rules for the internal market in electricity, OJ L 27/10 (First Electricity Directive);
Directive 98/30/EC of the European Parliament and the Council of 22 June 1998 concerning
common rules for the internal market in natural gas, OJ L 204/1 (First Gas Directive).
9
Commission Green Paper, ‘European Union Energy Policy’, COM(94) 659; Commission
White Paper, ‘Energy Policy for the European Union’, COM(95) 682.
10
Bram Delvaux, op. cit. (n 3), p. 13.
11
Commission Green Paper, ‘Towards a European Strategy for the Security of Energy Supply’,
COM(2000) 769.
12
This Green Paper also highlighted that ‘the European Union has very limited scope to influ-
ence the energy supply side’ and therefore, the EU should focus its action on the demand side. See,
Sanam Haghighi, Energy Security: The External Legal Relations of the European Union with Major
Oil and Gas Supplying Countries (Oxford: Hart Publishing 2007), p. 156; Bram Delvaux, op. cit.
(n 3), p. 14.
13
See European Parliament Resolution on the Commission Green Paper Towards a European
Strategy of Energy Supply, COM(2000)769 - C5-0145/2001 - 2001/2071(COS).
14
Commission Green Paper, ‘A European Strategy for Sustainable, Competitive and Secure
Energy’, COM (2006)105.
15
Directive 96/30/EC of the European Parliament and the Council of 19 December 1996 con-
cerning common rules for the internal market in electricity, OJ L 27/10 (First Electricity Directive).

LEAL-ARCAS_9781786431042_t.indd 259 08/09/2017 13:02

freedom in developing their national energy legislation, which resulted in the uncoordi-
nated implementation of the Directive. Consequently, national markets remained mainly
defragmented. Directive 98/30/EC (the First Gas Directive) was adopted in June 1998 and
came into force in August 1998. The deadline set by the directive for the harmonisation of
the national legislation was August 2000. Similarly to the Electricity Directive, the First
Gas Directive contained general rules regulating the transmission and storage of natural
gas, its distribution and consumption. It also addressed the organisation and functioning
of the gas market. However, the main problems related to ensuring open access to gas
pipelines and gas storage remained.16
The First Package was followed by a second round of Electricity and Gas Directives
in 2003,17 with the main goal of a liberalised national electricity and gas markets for
all consumers by 2007 (‘Second Energy Package’).18 More specifically, the Package
contained provisions on the further division of the business activities of natural
monopolies, the reduction of their horizontal concentration, the development of
competition in wholesale and retail energy supply, the management of third parties’
access to the energy infrastructures and on the monitoring of energy transmission
and distribution networks.19 Concerning the unbundling, there were two minimum
requirements: the legal splitting of energy transmission companies from those supply-
ing energy to end consumers and the establishment of a national regulatory authority
in each Member State. In a comprehensive study of the functioning of the common
European energy market of 2005, the following issues were identified by the European
Commission:
● the persistence of monopolies in the energy sector in most of the EU Member

States;
● a lack of liquidity in the markets;
● weak integration between energy markets of the Member States;
● lack of transparency;
● inadequate unbundling of energy networks and supply.20
Series of documents were adopted at the international, European and national levels
dealing with the growing need to establish secure and sustainable energy strategies. In
16
Directive 98/30/EC of the European Parliament and the Council of 22 June 1998 concerning
common rules for the internal market in natural gas, OJ L 204/1 (First Gas Directive).
17
Directive 2003/54/EC of the European Parliament and of the Council of 26 June 2003 con-
cerning common rules for the internal market in electricity and repealing Directive 96/92/EC, OJ
L 176, 15.7.2003, p. 37–56; Directive 2003/55/EC of the European Parliament and of the Council
of 26 June 2003 concerning common rules for the internal market in natural gas and repealing
Directive 98/30/EC, OJ L 176, 15.7.2003, p. 57–78.
18
Simone Tagliapietra, ‘Towards a European Energy Union: The Need to Focus on Security of
Energy Supply’ (2014) 95 Nota di Lavoro, p. 7.
19
See Directive 2003/54/EC and Directive 2003/55/EC.
20
Commission Communication, ‘Inquiry pursuant to Art.17 of Regulation (EC) No. 1/2003
into the European gas and electricity sectors’, COM(2006) 0851. For more details, see Kim Talus,
Vertical Natural Gas Transportation Capacity, Upstream Commodity Contracts and EU Competition
Law (the Netherlands: Kluwer Law International: 2011), pp. 245–67.

LEAL-ARCAS_9781786431042_t.indd 260 08/09/2017 13:02

fact, since 1970 world energy consumption has almost doubled and is set to increase
by more than 30% between 2008 and 2035.21, 22 Following the Green Paper of 2006, the
Commission adopted an Energy Efficiency Action Plan23 and the so-called Energy and
Climate Package in 2008, containing the major and famous advancement: the ‘20-20-20’
energy policy targets.24 In other words, by 2020 the European Union should reduce by
20% its emissions of greenhouse gases (from 1990 levels), increase by 20% its energy effi-
ciency and reach 20% of renewable energy sources of energy consumption in its territory.25
In the framework of the ‘20-20-20’ programme implementation, the European
Commission developed the Third Energy Package. The Third Energy Package was
adopted in 2009,26 six years after the Second Electricity and Gas Directives. The target of
the Package was a full liberalisation of national markets and, as a result, competition in the
internal European energy market.27 The Third Energy Package requires effective unbun-
dling of generation and network assets. In addition, conditions for access to the network for
cross-border exchanges in electricity were introduced by Regulation 714/2009 to encour-
age cross-border competition. The Agency for the Cooperation of Energy Regulation was
established at the same time as the first European body regulating the EU energy market.28
In 2011, the European Union committed to reducing greenhouse gas emissions to
80–95% below 1990 levels by 2050. For this purpose, the European Commission adopted
an Energy Roadmap29 and a Roadmap for moving to a competitive low carbon economy,30
exploring the transition of the energy system in ways that would be compatible with this
greenhouse gas reductions target, while also increasing competitiveness and security of
supply. The European Council of October 2014 reaffirmed these ambitions by endorsing
targets for 2030 of at least 40% for a domestic greenhouse gas emissions reduction (com-
pared to 1990 levels), at least 27% for the share of renewable energy consumption, binding
at EU level and at least 27% energy saving, to be reviewed by 2020, bearing in mind an
21
Kim Talus, op. cit. (n. 20), pp. 245–67.
22
For more details on the International Energy Agency expectations, see International Energy
Agency (IEA), World Energy Outlook 2010, November 2010.
23
Commission Communication of 19 October 2006, ‘Action Plan for Energy Efficiency:
Realising the Potential’, COM(2006) 545.
24
Commission Communication of 10 January 2007, ‘An Energy Policy for Europe’, COM(2007) 1.
25
Guy Block, Interlaw Book on Renewable Energies (Brussels: Bruylant 2015), p. 73.
26
The Third Energy Package consisted of two Directives: (i) Directive 2009/72/EC repeal-
ing Directive 2003/54/EC; (ii) Directive 2009/73/EC repealing Directive 2003/55/EC, and three
Regulations: (i) Regulation (EC) No 714/2009 repealing Regulation (EC) No 1228/2003; (ii)
Regulation (EC) No 715/2009 repealing Regulation (EC) No 1775/2005; and (iii) Regulation (EC)
No 713/2009.
27
Simone Tagliapietra., op. cit. (n 18), p. 5.
28
2009 establishing an Agency for the Cooperation of Energy Regulators, OJ L 211/1.
29
European Economic and Social Committee and the Committee of the Regions on the Energy
Roadmap 2050, COM(2011) 885.
30
European Economic and Social Committee and the Committee of the Regions on a Roadmap
for moving to a competitive low carbon economy in 2050, COM(2011) 112.

LEAL-ARCAS_9781786431042_t.indd 261 08/09/2017 13:02

EU level of 30% (the ‘2030 targets’).31 The European Council of March 2016 confirmed
the EU’s commitment to implementing the 2030 targets and underlined the need for the
EU and its Member States to be able to ratify the Paris Agreement adopted at the Paris
climate conference (COP21) in December 2015.
2.2 Current Legislative Framework
Electricity and gas markets are currently regulated at the EU level by the ‘Third Energy
Package’. The main objectives of the Package are:
● improving competition through better regulation, unbundling and reducing asym-

metric information;
● improving security of supply by strengthening the incentives for sufficient invest-
ment in transmission and distribution capacities;
● improving consumer protection and preventing energy poverty.
The Third Package mainly focuses on improving the conditions for competition as result-
ing from previous generations of legislation by improving the level playing field.
Many of the measures associated with the Third Package sought to directly or indirectly
address the issue of vertically integrated companies by improving the unbundling regime,
strengthening regulatory oversight, improving the conditions for cross-border market
integration and lowering entry barriers by improving transparency.32 The Third Energy
Package required companies to unbundle energy production and supply from network
and transmission activities. Thus, the companies were forced to sell their networks or to
put them under an independent management entity. The industry was very much against
the idea, therefore ownership unbundling was set as the minimal level of unbundling
and the new Directives still allow less rigorous alternatives of legal unbundling when the
transmission/system network is run by an independent operator.33 The Third Package also
contains measures on the greater independence of energy market regulating bodies, the
development of cooperation and decision making by the National Regulating Agency for
Transnational Issues, greater coordination between energy transmission companies for
more efficient cross-border trade, consumer protection and equal access to gas storage
facilities, and LNG production and supply.
The Third Energy Package also created the possibility of enacting secondary legislation
concerning cross-border issues, often referred to as ‘network codes’ or guidelines,34, 35 and
31
See the conclusions adopted by the European Council at the meeting of 23 and 24 October
2019 on the 2030 Climate and Energy Policy Framework, EUCO 169/14.
32
See the Commission staff working document accompanying the legislative package on the
internal market for electricity and gas, SEC (2007) 1179/2.
33
For more details on the different alternatives, see Kim Talus, op. cit. (n 20), pp. 77–83.
34
For an overview of these network codes and guidelines please refer to Annex VII of
Commission staff working document accompanying the legislative package for consumer-centred
clean energy transition, ‘Impact assessment on the revised rules for the electricity market, risk pre-
paredness and ACER’, SWD (2016) 410.
35
Network codes are sets of rules that apply to one or more parts of the energy sector. The
need for them was identified during the course of developing the Third Energy Package. More

LEAL-ARCAS_9781786431042_t.indd 262 08/09/2017 13:02

provided a mandate for developing these network codes (as well as other tasks related
to the EU’s electricity markets) in relation to transmission system operators within the
European Network of Transmission System Operators (ENTSO-E)36 and to national
regulatory authorities, within the Agency for the Cooperation of Energy Regulators
(ACER). Network codes play a very important role in structuring electricity markets.
Because of technical reasons and network security, each electricity network must operate
according to certain common rules. A network code has the same status as a European
Regulation and is directly applicable in all EU Member States.37 The Capacity Allocation
and Congestion Management Regulation is the first of the ten EU network codes
developed in accordance with the Third Energy Package.38 The Guideline on Capacity
Allocation and Congestion Management (‘CACM’) was adopted on 5 December 2014.
The provisions of CACM govern the establishment of cross-border EU electricity
markets in the day-ahead and intraday market timeframes, as well as methods for the
calculation of interconnection capacity.39
The main framework for electricity security of supply in the EU is currently Directive
2005/89/EC (‘Security of Electricity Supply Directive’ or ‘SoS Directive’).40 This Directive
requires Member States to take certain measures with a view to ensuring security of supply,
but leaves the way they implement these measures, by and large, to the Member States.
The Third Package complemented the SoS Directive and replaced de facto some of its
provisions.
The Third Energy Package is a significant achievement in the energy market liber-
alisation process. In fact, energy production and sales have been separated from energy
transmission infrastructure (transmission lines and pipelines). Thus, the activity, which
was previously controlled by a single national operator (monopolist), is now performed
by a wide range of companies operating on the national territory of a single state, but also
across the European Union. Moreover, important progress has been made in eliminating
barriers and uniting national markets. Even more importantly, the Third Package aimed
to reinforce the role of someone who had been left out of the two previous packages:
‘the final consumer’.41 This individual now plays an increasingly active role since being
granted more rights when choosing an energy supplier. However, transposition of the
specifically, Regulation (EC) 714/2009 sets out the areas in which network codes will be developed
and a process for developing them.
36
Currently, ENTSO-E is working on ten network codes.
37
Recital 6 and Article 6/2 of Regulation 714/2009.
38
Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a guideline on capacity
allocation and congestion management, OJ L 197/24.
39
For further developments on network codes and on how they are developed see Petri
Mäntyssari, EU Electricity Trade Law: The Legal Tools of Electricity Producers in the Internal
Electricity Market (Cham: Springer 2015), p. 121 and http://ec.europa.eu/energy/en/topics/
whole sale-market/electricity-network-codes.
40
Directive 2005/89/EC of the European Parliament and of the Council of 18 January 2006
concerning measures to safeguard security of electricity supply and infrastructure investment, OJ
L 33, 4.2.2006.
41
Guy Block, ‘L’enjeu du Troisième Paquet Energie n’est-il pas en définitive, l’exercice d’une
meilleure régulation au profit du consommateur?’ in David Renders and Raphaël Born, Actualités
du droit de l’énergie (Brussels: Bruylant 2013), pp. 433–43.

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Directives of the Third Package has been a challenge for the majority of the Member
States. By the end of the transposition deadline set at March 2011, none of the Member
States had achieved full transposition. However, progress has been made, and all of the
infringement proceedings for partial transposition of the Electricity Directive have now
been closed as the Member States achieved full transposition in the course of the pro-
ceedings.42 In addition to ensuring compliance of national rules with the Third Package,
the Commission has carried out assessments to identify and resolve problems concern-
ing the incorrect transposition or application of the Third Package. On this ground, the
Commission has opened EU pilot cases against a number of Member States. As of 7 July
2016, eight of the EU Pilot cases have resulted in infringement procedures where, inter
alia, violation of the EU electricity market rules is at stake.43 More generally, issues of
asymmetric implementation of the Package have led to different degrees of openness in
different energy markets. Some Member States have achieved more in terms of opening
their markets to competition than others. There are also issues related to the ‘20-20-20’
programme implementation, including the absence of a Pan-European controlling and
regulatory body (with national authorities still being unable to solve transboundary
problems in the energy sector).44
3. RECENT DEVELOPMENTS
New developments have led to fundamental changes in European electricity and gas
markets. The share of electricity generated from renewable energy sources (RES)
has steeply increased. This shift will continue as it is a key condition in fulfilling the
Union’s obligations under the Paris Agreement on climate. The physical nature of
RES is now more variable, less predictable and more decentralised than traditional
generation methods, requiring an adaptation of market and grid operation rules to the
more flexible nature of the market. In parallel, state interventions, often designed in an
uncoordinated manner, have led to distortions of the wholesale electricity market, with
negative consequences for investments and cross-border trade.45 Significant changes
are also taking place on the technological side. Electricity is traded almost European-
wide through the so-called ‘market coupling’ mechanism, jointly organised by power
exchanges and transmission system operators. Digitalisation and the rapid development
of internet-based metering and trading solutions enable industry, businesses and even
households to generate and store electricity, as well as participate in electricity markets
via so-called ‘demand response’ solutions. The European Commission outlines that
‘the electricity market of the next decade will be characterised by more variable and
42
The Commission opened 38 infringement cases against 19 Member States for not transpos-
ing or for only partially transposing the Directives.
43
Commission staff working document accompanying the legislative package for consumer-
centred clean energy transition, ‘Impact assessment on the revised rules for the electricity market,
risk preparedness and ACER’, SWD (2016) 410, p. 35.
44
Alexei Ispolinov and Tatiana Dvenadtcatova, op. cit. (n 1), p. 85.
45
See Communication from the Commission, ‘Delivering the internal electricity market and
making the most of public intervention’, C(2013) 7243.

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decentralised electricity production, an increased interdependence between Member

States and new technological opportunities for consumers to reduce their bills and
actively participate in electricity markets through demand response, self-consumption
or storage’.46
Aiming to adapt the current market rules to new market realities, the Directorate
General for Energy of the European Commission firstly launched a public consultation
on retail markets for energy in January 2014. While preparing the single market progress
report published on 13 October 2014,47 DG ENER decided to study a number of changes
to the current legislation. In 2015, the European Commission started the preparatory
work to assess policy options related to the internal energy market for electricity and
to security of electricity supply. In July 2015, the Commission launched the public con-
sultation on a New Energy Market Design.48 The Commission received 320 replies to
the consultation. About 50% of submissions come from national or EU-wide industry
associations, with 26% of answers stemming from undertakings active in the energy
sector (suppliers, intermediaries, customers) and 9% from network operators. Seventeen
national governments and several national regulatory authorities also submitted a reply.
A significant number of individual citizens and academic institutes participated in the
consultation.49
On 25 February 2015, the European Commission presented its EU Energy Union
Package.50 The project’s aims are to integrate 28 European energy markets into one
Energy Union, make Europe less energy dependent and provide the predictability that
investors need to create jobs and growth. The incomplete nature of the internal energy
market, with some parts of the EU remaining isolated energy islands, and the fact that
renewable energy is not fully integrated into the electricity system, are also pointed out.
The Energy Union Package breaks down the EU energy policy into five dimensions
designed to bring greater energy security and competitiveness, for which it identifies
challenges and proposes solutions. The five mutually reinforcing and closely interrelated
dimensions are:
● Energy security, solidarity and trust;

● A fully integrated European energy market;
● Energy efficiency contributing to moderation of demand;
46
See Commission Proposal for a Regulation of the European Parliament and of the Council
on the internal market for electricity (recast), COM(2016) 861, p. 2.
47
European Economic and Social Committee, the Committee of the Regions on the progress towards
completing the Internal Energy market, COM(2014) 634.
48
European Economic and Social Committee, the Committee of the Regions launching the public
consultation process on a new energy market design, COM(2015) 340.
49
See the Preliminary results from the public consultation on Electricity Market Design available
on https://ec.europa.eu/energy/en/consultations/public-consultation-new-energy-market-design.
50
European Economic and Social Committee, the Committee of the Regions and the European
Investment Bank establishing a Framework Strategy for a Resilient Energy Union with a Forward-
Looking Climate Change Policy (‘Energy Union Package’), COM(2015) 80.

LEAL-ARCAS_9781786431042_t.indd 265 08/09/2017 13:02

● Decarbonising the economy;

● Research, innovation and competitiveness.
On 29 April 2015, the Commission (DG Competition) launched a sector inquiry into the
financial support that EU Member States grant to electricity producers and consumers
to safeguard security of electricity supply (national capacity mechanisms).51 It had con-
cerns that capacity mechanisms may unduly favour particular producers or technologies
and that they may create obstacles to trade in electricity across borders The Commission
interim report and the accompanying Commission staff working document were adopted
on 13 April 2016.52
In February 2016, as part of its Energy Security Package, the Commission published
its proposal for revision of the Regulation on Security of Gas Supply,53 the proposal for
revision of the Decision on Intergovernmental Agreements (‘IGAs’),54 the strategy for
liquefied natural gas and storage,55 and its heating and cooling strategy.56
On 30 November 2016, the European Commission published its long-awaited ‘Clean
Energy For All Europeans’ package, more commonly called the ‘Winter Package’, con-
sisting of numerous legislative proposals, together with accompanying documents, aimed
at implementing the European Energy Union and at completing the internal market
for electricity.57 The Package contains numerous planned measures and the following
legislative proposals:
● Proposal for a recast of the Internal Electricity Market Directive;

● Proposal for a recast of the Internal Electricity Market Regulation;
● Proposal for a recast of the ACER Regulation;
● Proposal for a Regulation on Risk-Preparedness in the Electricity Sector and
Repealing the Security of Supply Directive;
● Proposal for a recast of the Renewable Energy Directive;
● Proposal for a revised Energy Efficiency Directive;
51
Commission decision initiating an inquiry on capacity mechanisms in the electricity sector
pursuant to Article 20a of Council Regulation (EC) No 659/1999 of 22 March 1999, C(2015) 2814.
52
Interim Report from the Commission of the Sector Inquiry on Capacity Mechanisms,
C(2016) 2107.
53
Commission proposal of 16 February 2016 for a Regulation of the European Parliament
and of the Council concerning measures to safeguard the security of gas supply and repealing
Regulation (EU) No 994/201, COM(2016) 52.
54
Commission proposal of 16 February 2016 for a Decision of the European Parliament and
of the Council on establishing an information exchange mechanism with regard to intergovern-
mental agreements and non-binding instruments between Member States and third countries in the
field of energy and repealing Decision No 994/2012/EU, COM(2016) 53.
55
European Economic and Social Committee, the Committee of the Regions on an EU strategy for
liquefied natural gas and gas storage, COM(2016) 49.
56
European Economic and Social Committee, the Committee of the Regions on an EU Strategy on
Heating and Cooling, COM(2016) 51.
57
Communication from the Commission on Clean Energy For All Europeans, COM(2016)
860 final.

LEAL-ARCAS_9781786431042_t.indd 266 08/09/2017 13:02

● Proposal for a revised Energy Performance of Buildings Directive;

● Proposal for a Regulation on the Governance of the Energy Union.
The Winter Package also contains various Communications, Regulations, memos,

reports, impact assessments and other documents that are the result of the consul-
tation process started by the European Commission in July 2015. In addition, the
measures contained in the Package complement the Energy Security Package released
in February 2016.58 The proposed initiatives are strongly linked to other energy- and
climate-related legislative proposals brought forward in parallel with the present initia-
tive, equally aimed at delivering upon the five dimensions of the Energy Union set out
above. These other energy-related legislative proposals include: a Renewable Energy
Package comprising the new Renewable Energy Directive and bioenergy sustain-
ability policy for 2030 (‘RED II’),59 Commission guidance on regional cooperation,60
an Energy Union governance initiative,61 the Energy Efficiency legislation (‘EE’)
and the related Energy Performance of Buildings Directive (‘EPBD’), including
the proposals for their amendment, and the Commission Regulation establishing a
Guideline on Electricity Balancing (‘Balancing Guideline’).62 Other relevant instru-
ments are the Commission proposal for setting national targets for 2030 for the sectors
outside the EU’s Emissions Trading Scheme (ETS), the revision of the EU’s ETS
for the period after 2020, the EU’s competition instruments and the EU’s state aid
rules applicable to the energy sector and clarified in the Environmental and Energy
State Aid Guidelines (EEAG), as well as the decarbonisation of the transport sector
initiative.63
58
All the documents are available on https://ec.europa.eu/energy/en/news/commission-proposes-
new-rules-consumer-centred-clean-energy-transition.
59
The RED II covers a number of measures deemed necessary to attain the EU binding objec-
tive of reaching a level of at least 27% RES in final energy consumption by 2030 across the electric-
ity, heating and cooling, and transport sectors. As regards electricity in particular, the Renewables
Directive proposes a framework for the design of support schemes for renewable electricity, a
framework for renewable self-consumption and renewable energy communities, as well as various
measures to reduce the administrative costs and burden.
60
The forthcoming guidance on regional cooperation may set out general principles for
regional cooperation across all five dimensions of the Energy Union, may describe how these
principles are being addressed in this initiative and other legislative proposals for Renewables
and Energy Union governance, and will offer suggestions on how regional cooperation, where it
applies, can be made to work in practice.
61
The Energy Union governance initiative aims at ensuring a coordinated and coherent
implementation of the Energy Union Strategy across its five dimensions, with emphasis on the
EU’s energy and climate targets for 2030. This is established through a coherent combination of
EU-level and national action, a strengthened political process and with reduced administrative
burden.
62
The Balancing Guideline constitutes an implementing act that will be adopted using the
Electricity Regulation as a legal basis. The Balancing Guideline aims at harmonising certain aspects
of the EU’s balancing markets, with a focus on optimising the cross-border usage that Transmission
System Operators (TSOs) make of the balancing reserves that each have decided to contract individ-
ually, such as harmonisation of the pricing methodology for balancing, standardisation of balancing
products and merit-order activation of balancing energy.
63
SWD (2016) 410, p. 39.

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The three main goals of the Package are: (i) putting energy efficiency first; (ii) achiev-
ing global leadership in renewable energies; and (iii) providing a fair deal for consumers.
(i) Energy efficiency is the most universally available source of energy. Putting energy
efficiency first reflects the fact that the cheapest and cleanest source of energy is the energy
that does not need to be produced or used. Energy efficiency has to be taken into account
throughout the energy system, i.e. actively managing demand so as to optimise energy con-
sumption, reducing costs for consumers and import dependency, while treating investment
in energy efficiency infrastructure as a cost-effective pathway towards a low-carbon and
circular economy. In this regard, the Commission has reviewed the EU’s energy efficiency
target, in line with the request by the European Council of October 2014, and considers that
the EU should set a target binding at the EU level of 30% by 2030.64 The Commission also
proposes to extend beyond 2020 the energy saving obligations set in the Energy Efficiency
Directive requiring energy suppliers and distributors to make energy savings of 1.5% per
year, and to support the delivery of the EU’s low-emission mobility strategy and the increas-
ing use of electricity in transport. In order to further accelerate the renovation of buildings
and support the transition to a clean energy building stock, the Commission is launching
a European Buildings Initiative with a ‘smart financing for smart buildings’ component.
(ii) In order to achieve global leadership in renewable energies, the Renewable Energy
Directive, together with the proposals on the new electricity Market Design,65 set a regula-
tory framework that allows a level playing field for all technologies without jeopardising
climate and energy targets.
(iii) Consumers are at the centre of the Energy Union. Energy is a critical good, abso-
lutely essential for full participation in modern society. The Commission proposes to
reform the energy market to empower consumers and enable them to be more in control
of their choices when it comes to energy. For businesses, this translates into greater
competitiveness. For citizens, it means better information, possibilities to become more
active on the energy market and more in control of their energy costs. The regulatory
changes introduced by the package and the shift from centralised conventional generation
to decentralised, smart and interconnected markets will also make it easier for consumers
to generate their own energy, store it, share it, consume it or sell it back to the market.
The different documents and proposals can be subdivided into rules: on a new power
market design, on the promotion and integration of renewables and sustainability of
bioenergy, on energy efficiency and performance, on the institutional framework and on
miscellaneous issues. The scope of this chapter limits our analysis of the Package to the
Power Market Design rules. The New Market Design intends to better fit future electricity
markets. The Proposal for a Directive on Common Rules for the Internal Market on
Electricity (recast) is based on the existing Directive 2009/72/EC, which remains in force
with an extended scope and certain essential modifications, including:
64
Compared to the minimum 27% target agreed in 2014, this increase is expected to translate
into up to €70 billion of additional gross domestic product and 400,000 more jobs, as well as a
further reduction of the EU’s fossil fuel import bill. The increased target will also help in meeting
the EU’s 2030 greenhouse gas emission reduction and renewables targets.
65
The market design initiative consists of a recast of the Electricity Directive (COM(2016) 864), a
recast of the Electricity Regulation (COM(2016) 861), a recast of the ACER Regulation (COM(2016)
863), and a new Regulation on risk preparedness in the electricity sector (COM(2016) 862).

LEAL-ARCAS_9781786431042_t.indd 268 08/09/2017 13:02

● More market-based pricing with a possible public intervention for vulnerable con-
sumers but subject to strict conditions and a notification to the Commission;
● Reinforcement and expansion of consumer rights with possibilities to enter into
dynamic pricing contracts reflecting spot prices and restricting termination fees, to
enter into agreements with demand-response providers and aggregators (without
the supplier’s consent) and to access and use free of charge comparison tools and
smart metering systems and functionalities;
● The existing provisions on Transmission System Operators (‘TSOs’) are maintained
with clarifications regarding ancillary services, storage and the new Regional
Coordination Centres;
● Clarifications concerning the role of Distribution System Operators (‘DSOs’) with
respect to the procurement of network services in order to ensure flexibility and
storage are introduced;
● The extension of the tasks and competences of National Regulatory Authorities
(‘NRAs’) with respect to regional cooperation on cross-border issues and especially
with respect to the establishment of Regional Operational Centres.
The Proposal for a Regulation on the Electricity Market (recast) is based on the existing
Regulation (EC) No 714/2009, which remains in force. The recast Regulation aims at
establishing fundamental principles for well-functioning, integrated electricity markets,
which allow non-discriminatory market access for all resource providers and electricity
consumers. The major changes can be summarised as follows:
● The introduction of rules on balancing markets (energy and capacity). Market par-
ticipants will now be held financially responsible for imbalances they cause (based
on marginal pricing and real-time value);
● Non-discriminatory and market-based dispatch of power generation and demand
response;
● Priority dispatch allowed for small renewables or high-efficiency cogeneration
installations with an installed capacity of less than 500 KW and for demonstration
projects for innovative technologies;
● The introduction of a definition of ‘bidding zones borders’;
● Non-transaction-based methods to solve congestion, continuous trading for intra-
day, capacity allocated through explicit auctioning or implicit auctioning (energy
and capacity);
● Priority of market-based re-dispatching or curtailment;
● The prohibition of TSOs limiting the volume of interconnection capacity to be
allocated in order to solve congestion inside their own control area;
● Distribution tariffs reflecting the cost of use of the distribution system by system
users (including ‘active consumers’);
● Member States can introduce capacity mechanisms if they are justified by a resource
adequacy concern supported by a European resource adequacy assessment con-
ducted on the basis of a shared methodology established by ENTSO-E and ACER;
● The introduction of Regional Operational Centres consisting of TSOs to perform
functions at the regional level (e.g. capacity calculation, regional procurement of
balancing capacity);

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● The introduction of a platform for cooperation between DSOs that are not part of
a vertically integrated undertaking or that are unbundled (‘The European entity for
DSOs’).
The Proposal for a Regulation on Risk Preparedness in the Electricity Sector repeals
the existing Directive 2005/89/EC and includes measures on risk assessments, risk pre-
paredness and the management of crisis situations in relation to the Union’s electricity
systems, and resource adequacy and security of power supply. Linked to the Proposal for a
Regulation on Risk Preparedness, the Commission also released its Final Report of Sector
Inquiry on Capacity Mechanisms.66 The Commission concluded that resource adequacy
concerns should be first addressed through market reforms, and proposed an EU-wide
methodology for a rigorous adequacy assessment. The ideal capacity mechanism should
be open to all potential domestic and foreign capacity providers (with specific attention to
new entries), designed to coexist with electricity scarcity prices in order to avoid domestic
overcapacity and trade distortions, include a competitive price-setting process to ensure
competition and minimise the price paid for capacity, and ensure incentives for continued
investments in interconnection.67
4. CONCLUSION
Twenty years after the beginning of energy market liberalisation significant achievements
have been made, but Europe still faces considerable challenges. Europe’s energy sector is
in the middle of a period of profound change. Considered as a huge transformation of
Europe’s energy policy, the Energy Union and the Winter Package proposing new rules for
consumer-centred clean energy are at their very beginning. Their successful implementa-
tion will depend on the political commitment of all actors involved, including EU institu-
tions, Member States and the other stakeholders. More specifically, the implementation of
‘Network Codes’ and ‘Capacity Mechanisms’, the role of consumers as ‘central players’
on the energy markets and the protection of the most vulnerable consumers are now the
main challenges of the future markets.
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Ibid.

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Hancher, Leigh, ‘A Single European Energy Market – Rhetoric or Reality?’ [1990] Energy Law Journal.
Ispolinov, Alexei and Tatiana Dvenadtcatova, ‘The Creation of a Common EU Energy Market: A Quiet
Revolution with Far-reaching Consequences’ (2013) 2 Baltic Region.
Tagliapietra, Simone, ‘Towards a European Energy Union: The Need to Focus on Security of Energy Supply’
(2014) 95 Nota di Lavoro.

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15. Energy Justice: a concept to make the Pigouvian
tax work
Jan Schmitz*, Kai Menzel and Fabian Dittrich
1. ENERGY TAXES’ CARDINAL PROBLEMS: REGRESSIVE

EFFECTS AND POLITICAL OPPOSITION TO TAXATION
There is nearly unanimous consensus amongst economists that energy taxes or cap and
trade systems – which have very similar effects – are efficient policy instruments to combat
climate change.1 With such instruments, a desired amount of carbon dioxide emission
reduction can be achieved at the lowest economic cost to society.2
However, there are two main problems with the use of these instruments. First, any
instrument increasing energy prices3 places a disproportionate burden on people with
lower incomes, since in developed economies many private energy-intensive activities such
as the use of household appliances are carried out to a similar extent, irrespective of the
different levels of income. This is why energy consumption, while increasing with income,
does so less than proportionally. Consequently, poorer households tend to spend a larger
share of their income on energy consumption. If the price of energy increases, for instance
due to energy taxation, poorer households thus pay a larger share of their income on
energy taxes than households with higher incomes. Energy taxation, as currently applied,
is a regressive tax which increases relative inequality among households in different income
brackets. One might be tempted to draw the conclusion that the environment can only be
saved at the expense of the poor.
The other principal problem with energy taxation is rooted in the political process.
Where energy is seriously taxed, citizens’ complaints about high energy prices often
abound. These two issues are partially related to each other, and in the political discourse
the burden of increasing energy bills on the poor is often an important aspect.4 Yet, the
effects on the middle class are also an integral part of the political equation, assuming
that the energy bill, in relative terms, is big enough to matter for the political process.
This creates a perceived conflict between environmental protection on the one hand, and
reducing inequality as well as people’s disposable income on the other hand.
* The findings, interpretations and conclusions expressed in this text are those of the authors
and cannot be taken to reflect the views of the European Commission.
1
Joseph Aldy, Alan Krupnick, Richard Newell, Ian Parry and Wiliam Pizer, ‘Designing
Climate Mitigation Policy’ Journal of Economic Literature 48 (2010), 903–34 at p. 918.
2
Ian Parry, Ruud de Mooij and Michael Keen, ‘Fiscal Policy to Mitigate Climate Change: A
Guide for Policymakers’ International Monetary Fund (2012), at p. vii.
3
Including regulatory measures, such as prohibitions, which have equivalent economic effects,
but these effects might be less obvious for consumers.
4
See, e.g., Terry Dinan, ‘Offsetting a Carbon Tax’s Costs on Low-Income Households’ US
Congressional Budget Office Working Paper (2012), at pp. 1–3.
273
LEAL-ARCAS_9781786431042_t.indd 273 08/09/2017 13:02

All this may lead politicians or political parties to attempt to capitalize on the result-
ing sense of anger and resistance seen as prevalent in their constituencies. This process
can even lead to the complete termination of energy taxation schemes, as has recently
happened in Australia.5 In addition, it renders tax escalation increasingly difficult,

although tax escalation is an economically sensible policy allowing people to adjust
gradually to taxation. The empirical evidence for this political problem is overwhelming:
all known climate policy schemes fall grossly short of achieving the carbon dioxide reduc-
tions which scientists consider necessary or desirable.6
From a political economy perspective, this problem can be easily explained. Any
rational politician would tax energy only to an extent which is compatible with voters’
willingness to pay for environmental policy. In reality, however, the average level of voters’
willingness to pay merely allows for energy taxation which is clearly below the scien-
tifically necessary level.7 Hence politicians have a tendency to balance voters’ desire for
climate action against their dislike of paying higher taxes and ultimately higher energy
prices. As a result, political economy considerations lead to energy prices which are too
low and emission levels which are too high from an allocative perspective.
2. EXPLAINING THE CONCEPT OF ENERGY JUSTICE
Our idea to remedy the problems discussed above is simple: under the Energy Justice
concept an energy tax would add to the price of energy the social costs of energy
consumption,8 just as proposed by Pigou almost a century ago.9 Yet each and every cent
collected from energy taxation10 shall be returned to citizens.11 In its most simple and (in
terms of allocation) most neutral form, each resident would obtain the average amount
of tax revenues from the energy tax, for example once a year with his annual energy con-
5
Lisa Friedman and Julia Pyper ‘Australia Repeals its Carbon Tax and Triggers an International
Debate’ Climate Wire, July 18, 2014, available at http://www.eenews.net/stories/1060003102. For a
full discussion see Christopher Rootes, ‘A Referendum on the Carbon tax? The 2013 Australian
Election, the Greens, and the Environment’ Environmental Politics 23 (2014), pp. 166–73.
6
OECD, ‘Effective Carbon Rates. Pricing CO2 through Taxes and Emissions Trading
Systems’, available at http://www.oecd.org/tax/effective-carbon-rates-9789264260115-en.htm. A.
Kossoy, G. Peszko, K. Oppermann, N. Prytz, A. Gilbert, N. Klein, L. Lam and L. Wong, ‘Carbon
Pricing Watch 2015’ World Bank Group, pp. 1–12. R.S. Tol, ‘The Social Cost of Carbon’ Annual
Review of Resource Economics 3(1) (2011), pp. 419–43.
7
M.J. Kotchen, K.J. Boyle and A.A. Leiserowitz, ‘Willingness-to-pay and Policy-instrument
Choice for Climate-change Policy in the United States’ Energy Policy 55 (2013), pp. 617–25.
8
Such as damage to the environment and its estimated impact on the climate. This obviously
implies that ‘clean energy’ would not be taxed, for example by accounting for the energy mix of
each energy supplier.
9
Arthur Cecile Pigou, The Economics of Welfare (1920), used (4th edn) London (1931),
Macmillan.
10
Proceeds from a cap-and-trade system could be treated in the same manner.
11
In general terms, one can speak of revenue recycling, which however, plays only a minor role
in global cap-and-trade systems and a limited role in global carbon tax systems. See for an overview
Jeremy Carl and David Fedor, ‘Tracking Global Carbon Revenues: A survey of Carbon Taxes
Versus Cap-and-trade in the Real World’ Energy Policy 96 (2016), 50–77 at pp. 52–3.

LEAL-ARCAS_9781786431042_t.indd 274 08/09/2017 13:02

Energy Justice: a concept to make the Pigouvian tax work 275
sumption statement.12 If, for example, energy tax revenues were €3 billion in a specific year
in a country with a population of 10 million people, each resident of that country would
receive €300 in energy tax returns for that year. Revenues from energy taxation for the
general budget or specific purposes would be zero. Note that the taxation returns are the
average amount and hence independent from individual energy consumption.
This arrangement has several advantages. Incentives to save energy would – all else
being equal – remain just as strong as under ‘traditional’ energy taxation. Each individual
still pays more in energy taxes, if he or she consumes more energy. Financial gains from
energy saving remain the same. This is because the tax payable still does depend on each
individual’s energy consumption, whereas tax returns do not. Each individual alone does
not exercise a noticeable influence on overall energy tax revenues and hence on the average
amount returned to citizens.
Take the country with 10 million people again as an example. Imagine in the follow-
ing year, everything were to remain the same (population, tax rate, etc.) except that one
individual with average energy consumption increased the energy consumption by 10%
and thus increased the payable tax from 300 to 330. Overall tax revenues would rise to 3
billion and 30 euros. Per capita tax revenue would rise only by an amount of well below
one cent. Hence energy tax returns would remain 300, but that individual would pay 330
in energy taxes and thus bear the full tax on the increased energy consumption.
Preserving the incentives of a traditional Pigouvian tax, the Energy Justice concept has
the potential to contribute to solving the two cardinal problems mentioned above. The
previously described burden on the poor could be remedied. This is because, normally,
poor households consume less energy than the average household in a population – as is
true for most goods and services. Therefore, the energy tax payable by households with
a lower income should be well below the average amount paid. Since energy tax returns
equal that average amount, poorer households are assumed get back more than they pay
in energy taxes on average. This policy is most likely to increase poorer households’ dis-
posable income instead of reducing it. The Energy Justice concept therefore would con-
tribute to reducing inequality. This in itself can be considered to be a politically attractive
feature. Over and above that, implementing the Energy Justice concept could also improve
the political feasibility of adequate climate policies, in the sense that it can counter the
political arguments that energy taxation is particularly harmful to the poor, and, more
broadly, it cannot be perceived as a hidden tax increase.
3. IMPLEMENTATION UNDER THE FRAMEWORK OF EU

ENERGY POLICY
3.1 The EU Energy Position
It is well known that in the long and medium run, the EU energy position contains high
risks, in terms of energy supply security and, even more importantly, in terms of its impact
12
We would propose a per capita assignment, but other arrangements are possible without alter-
ing the incentive structure. For example, one could account for energy savings in larger households.

LEAL-ARCAS_9781786431042_t.indd 275 08/09/2017 13:02

on climate change. Since the EU is importing over half of its energy at a cost of roughly
€350 billion,13 and much of the remainder is still generated by burning fossil fuels, only a
combination of changing the energy mix, i.e. moving towards more renewable energy and
incentives to increase energy efficiency by bringing down average consumption, is likely to
successfully put both energy production and consumption on a track to sustainable levels.
In the light of high dependence on energy imports, much has been written about EU
energy security.14 For a long time, the EU has been dependent on imports to cover its
energy demand.15 Taking a five-year average of the period before and after the economic
crisis, between 2007 and 2011, the EU sourced from non-EU countries around 53.5% of
its total energy.16 These imports represented 41% of the EU’s solid fuel consumption, 25%
of its petroleum consumption, and 67% of its gas consumption in 2011.17 From a geo-
political perspective, given that the EU, the world’s largest importer of energy, consumes
one-fifth of the world’s energy supply,18 this high level of energy dependence has resulted
in the EU’s exposure to both political and economic risks. The weakness of the EU’s
energy position is further accentuated by the lack of diversity within the EU’s primary
energy suppliers, namely Russia, Norway and Algeria, who together account for 85% of
the EU’s natural gas imports and for almost 50% of its crude oil imports.19 Excluding
Norway, it is rather difficult to argue that these countries are stable and reliable energy
suppliers for the EU, when taking into account associated political risks.
In addition, the EU’s reliance on fossil fuels will make it increasingly difficult to achieve its
climate change targets:20 the Europe 2020 goals (20% targets for renewable energy, greenhouse
gas reduction and energy efficiency); the 2030 goals (a 40% cut in greenhouse gas emissions,
at least a 27% share of renewable energy consumption and energy savings compared with the
business-as-usual scenario); and the 2050 goals (reducing greenhouse gas emissions by at least
80–90%). These targets require an exponential reduction of greenhouse gas emissions over
time. According to the breakdown of total EU energy consumption in the first post-crisis
13
European Commission, Energy Strategy: Secure, Competitive, and Sustainable Energy,
2016, available at https://ec.europa.eu/energy/en/topics/energy-strategy.
14
Rafael Leal-Arcas and Jan Schmitz, ‘Unconventional Energy Sources and EU Energy
Security: A Legal, Economic and Political Analysis’ Oil, Gas & Energy Law Journal 12(4) (2014),
1–37; Queen Mary School of Law Legal Studies Research Paper No. 181/2014. Available at SSRN:
https://ssrn.com/abstract52499522.
15
Sanam Haghighi, Energy Security: The External Legal Relations of the European Union
with Major Oil and Gas Supplying Countries (Hart Publishing 2007), at p. 9; Pekka Voutilainen,
‘Developing Energy Policy For Europe: A Finnish Perspective on Energy Cooperation in the
European Union’ Energy L.J. 29 (2008), 121–39 at pp. 121, 123.
16
European Commission Statistics (Eurostat), ‘Eurostat Data for 2011, Energy Dependence’,
last update of data: 08.01.2014, available at http://epp.eurostat.ec.europa.eu/tgm/table.do?tab5t
able&init51&language5en&pcode5tsdcc310&plugin51.
17
European Commission, ‘EU Energy in Figures: Statistical Pocketbook 2013’ (2013), at
p. 24.
18
European Commission, ‘The European Union Explained: Energy – Sustainable, Secure and
Affordable Energy for Europeans’ (2012), at p. 3.
19
European Commission, ‘Renewable Energy: A Major Player in the European Energy
Market’ SWD (2012) 149 final, at p. 8.
20
Compare for an overview, European Commission Directorate-General for Energy (2016),
available at https://ec.europa.eu/energy/en/topics/energy-strategy.

LEAL-ARCAS_9781786431042_t.indd 276 08/09/2017 13:02

year in 2009, 37% consumption came from oil, 24% from gas, 16% from coal and 14% from
nuclear energy, whereas only 9% was from renewable energy sources.21 This means that 77%22
of EU energy consumption drew from traditional energy sources23 that are finite and patchily
distributed across the world and, most crucially in relation to climate change, highly polluting.
Even more problematic, 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 friend-
lier energy sources in the EU’s energy mix is not substantially above the global level.24
This is indeed alarming, when the EU energy transition 2020–2050 targets are to be taken
seriously.
While the ongoing change of the energy mix, moving towards more renewable energy
created in the EU itself, namely wind and solar energy, will play an important role in the
EU’s energy transition, the sheer amount of investment necessary and its related societal
costs will make this energy transition very costly. For Germany alone, a simulation of the
reduction of its greenhouse gas emissions in line with the EU aim for 2050 (a greenhouse
gas emission reduction of around 85%) could amount to €4–7 trillion in cumulative
costs.25 To arrive at net societal costs at the lower end of the estimates, policy makers in the
EU will have to look creatively at all options and, in particular, mobilize all mechanisms
available to incentivize energy efficiency by promoting energy consumption reductions by
both consumers and businesses.26 While energy consumption reduction has opportunity
costs in the form of forgone utility, aggregated costs to society, up to a certain energy
consumption reduction target, that is where the marginal aggregate forgone utility equal-
izes the marginal cost of the society’s energy transition to renewables, can be assumed to
be the preferred alternative for society.
3.2 Implementation of the Energy Justice Concept under EU Law
It can be argued that for many policy makers in EU Member States’ capitals and therefore
in the Council of the European Union,27 the concept of Energy Justice will be perceived
21
European Commission, ‘Key Figures’, Market Observatory for Energy, Directorate-General
for Energy (June 2011), at p. 11.
22
Ibid.
23
For the sake of brevity, we refer to these interchangeably as ‘hydrocarbons’ and ‘fossil fuels’.
24
During 2011, 81% of global energy consumption came from hydrocarbons/fossil fuels. This
figure represents 10,689 Mtoe out of a total of 12,274 Mtoe. The actual breakdown is 4,059 Mtoe/c.
33% from oil, 2,905.6 Mtoe/c. 24% from gas, and 2,724.3 Mtoe/c. 30% from coal. See BP Statistical
Review of World Energy (June 2012), at pp. 40–41 (www.bp.com/statisticalreview).
25
Frauhenhofer Institut ISE, Was kostet die Energiewende? Wege zur Transformation des
deutschen Energiesystems bis 2050, Freiburg 2015.
26
In this chapter, we relinquish an explicit discussion of businesses. However, the Energy
Justice concept could be made applicable to the business sector as well and, indeed, the energy tax
as part of the concept of Energy Justice can be raised at several points on the value chain. The
economic effects of an energy tax do not depend on where the tax is being collected. Assuming that
supply and demand are at least slightly elastic, the tax, in all possible applications, increases after-
tax prices for end consumers. The amount of the price increase for the end consumer will depend
on the price setting power of producers.
27
For reasons of simplicity, hereafter the Council of the European Union will be referred to
as ‘the Council’.

LEAL-ARCAS_9781786431042_t.indd 277 08/09/2017 13:02

as difficult to implement, essentially because it touches on one of the most sensitive areas
of policy making that EU Member States have guarded fiercely as their prerogative:
taxation matters.
While since the Lisbon Treaty, EU primary legislation explicitly stipulates the pro-
motion of a common Union energy policy as a goal and according to Article 194(1)(c)
TFEU the EU shall aim to ‘promote energy efficiency and energy saving . . .’, paragraph
3 of the same article clearly spells out that ‘. . . the Council, acting in accordance with a
special legislative procedure, shall [only] unanimously and after consulting the European
Parliament, establish the measures referred to therein when they are primarily of a fiscal
nature’ (bracketed text and italics added).
This effectively means that although Article 4 TEU defines the policy areas of environ-
ment and energy as those of mixed competence,28 in the case that the environmental or
energy policy measure is of fiscal nature, each EU Member State has a veto right on the
legislative policy instrument.
Unanimity in the Council will make it relatively harder to implement the concept of
Energy Justice EU-wide. Nonetheless, the possibility of full reimbursement of its own
national energy tax revenues to the citizens of a Member State provides a strong argu-
ment to counter the potential political opposition that such an energy tax would increase
citizens’ tax burden or be detrimental to intra-EU competitiveness. It is therefore not
inconceivable to implement the concept EU-wide under the legal basis of Article 194
TFEU (energy policy) or potentially even under 192 TFEU (environmental policy).29
However, we argue that the concept of Energy Justice is not only compatible with
the EU Treaties but, more precisely, implementable at the level of EU Member States
under current secondary legislation in force, i.e. Directive 2003/96/EC (hereinafter ‘the
Directive’).30 Based on Article 93 TEC (now Article 113 TFEU), the article on the harmo-
nization of legislation concerning turnover taxes, excise duties and other forms of indirect
taxation, the Energy Tax Directive of 2003, aims at setting a lower floor for energy taxation
in the EU by introducing minimum taxation levels for different energy sources. This was
seen as necessary because several EU Member States, such as Scandinavian countries and
Germany, started to introduce or increase environmental taxes in the 1990s, and there was
a concern that this could have a detrimental effect on intra-EU competitiveness. Recitals
(2), (3), (4) and (5) are testimony to this.31 Equally noteworthy are Recital (6) referring to
Article 6 TEC (now Article 11 TEU), the provision requiring that ‘environmental protec-
tion must be integrated into the definition and implementation of the Union’s policies
and activities . . .’, and Recital (7), stating that the taxation of energy products is one of
the instruments available for achieving the Kyoto Protocol’s (the original predecessor to
28
In areas of mixed competence, EU Member States can only adopt policies in so far as the
Union has not exercised its competences and where, according to Articles 192(1) and 194(1) when
the EU level exercises its competence, qualified majority voting in the Council applies. Under the
EU Treaty qualified majority means: 55% of EU countries, representing at least 65% of the EU
population.
29
In both cases, following from the application of the special legislative procedure, the
European Parliament will have to be consulted, but will not be able to vote on the measure.
30
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri5OJ:L:2003:283:0051:0070:EN:PDF.
31
Ibid.

LEAL-ARCAS_9781786431042_t.indd 278 08/09/2017 13:02

the Paris Agreement)32 greenhouse gas reduction objectives. All these make it evident that
the Directive has the aim of using EU-wide taxation rules for environmental and energy
efficiency policy objectives.
Recital (28) provides for a possible avenue of implementation of the Energy Justice
concept by stating, ‘certain exemptions or reductions in the tax level may prove necessary;
notably because of the lack of a stronger harmonisation at Community level, because of
the risks of a loss of international competitiveness or because of social or environmental
considerations’ (italics added). Article 6(c) further specifies that ‘refunding all or part of the
amount of taxation’ is a permitted means of applying the specific exemptions or reductions
on the tax level. Hence, if one argues that due to the reimbursements of the average energy
tax paid, the effective tax rate is lower than the minimum rates as specified by Article 4 and
Annex I and II of the Directive,33 it is foreseen that for social or environmental reasons such
lower rates are justifiable and the implementation of effective lower rates can be through
full or partial reimbursement. We think the implementation of the Energy Justice concept
would clearly be covered by the above-mentioned justification, although it would in some
cases be leading to a reimbursement higher than the energy tax paid.
Under the classification of the concept as leading to a lower effective tax rate than
the minimum levels, as specified in the Directive, Article 19 of the Directive, stating,
‘the Council, acting unanimously on a proposal from the Commission, may authorise any
Member State to introduce further exemptions or reductions for specific policy consid-
erations’ (italics added), would need to be invoked. Article 19(1) necessitates European
Commission screening with regards to potential distortions related to ‘inter alia, the
proper functioning of the internal market, the need to ensure fair competition and
Community health, environment, energy and transport policies’. It is noteworthy that any
such measure needs to be proposed by the European Commission and has to be agreed
unanimously in the Council. The initiative thus lies with the European Commission and
the measure will have to be approved by all Member States of the EU, procedural require-
ments equally as heavy as for EU secondary legislation on taxation measures. According
to Article 19(2), any such measure can be in force for a maximum of six years, renewable
under the same procedures as its instalment.
Finally, according to Recital (11), the Directive leaves wide discretion to EU Member
States as to the implementation of the provisions of the Directive within their internal
system of taxation. Specifically, it states that, ‘. . . Member States might decide not to
increase the overall tax burden if they consider that the implementation of such a principle
of tax neutrality could contribute to the restructuring and the modernisation of their tax
systems by encouraging behaviour conducive to greater protection of the environment
and increased labour use’ (italics added). From this recital, one can arguably deduce the
compatibility of the Directive with tax reimbursements in the form of flat payments, as
proposed in the Energy Justice concept, that keep up incentives to save energy, because
the reimbursement is fixed at certain moments in time while the energy tax payments are
32
At the Paris climate conference (COP21) in December 2015, 195 countries adopted the uni-
versal, legally binding global climate targets. The agreement sets out a global plan to put the world
on track to avoid or limit the impact of climate change by reducing global warming to below 2°C.
33
http://eur-lex.europa.eu/legal-content/en/ALL/?uri5CELEX:32003L0096.

LEAL-ARCAS_9781786431042_t.indd 279 08/09/2017 13:02

linked to actual energy consumption. Since under the proposed concept the aggregate
energy tax is reimbursed in total, it can be conceived as a tax-neutral implementation of
the Directive, aiming at not increasing the overall tax burden as described in Recital (11).
Consequently, there seem to be three avenues to be explored for the implementation of
the concept of Energy Justice under current EU law:
1. Secondary EU legislation on the basis of Article 192 and/or 194 TFEU;

2. Member State legislation qualifying as an exemption to Directive 2003/96/EC under
Article 19 thereof; and
3. Applying the principle of tax neutrality as referred to in Recital (11) of Directive
2003/96/EC.
While the first two avenues require both heavy procedures (unanimity in the Council) and
a Commission initiative, the third approach is justifiable under existing secondary legisla-
tion and therefore can be seen as the most feasible and flexible option for implementation.
In order to maximize its environmental impact, theoretically, an EU-wide initiative might
be preferable. As a more realistic option, however, it might be necessary to reflect on some
flexible approaches whereby certain EU Member States take the lead and others follow
in the implementation. In addition, it is possible that such a flexible approach could in
the long run initiate pressures for the harmonization of Member State measures, as has
happened in the process leading to the adoption of the Directive.
4. THE MICROECONOMICS OF THE ENERGY JUSTICE

CONCEPT
To demonstrate the economic effects of the Energy Justice concept we use the basic frame-
work of a utility-maximizing, budget-constrained household from introductory micro-
economics (Figure 15.1). We assume that the representative household can only spend
its income on energy (E) or on other consumption (C). The linear downward sloping
budget line represents all possibilities of the household to split its income between energy
and other consumption. Points to the right or above the budget line are not feasible since
expenditure would exceed income. Points below the budget line cannot be optimal because
not the entire income is spent. Here, the household could consume more energy or other
consumption or both, without having to give up either of the two.
The bended utility curves represent all combinations of energy and other consumption,
which provide identical utility to the consumer. They also slope downwards. This implies
that if the household consumes less energy, it must consume more of other consumption
in order to maintain the same utility level. The optimal consumption plan provides the
highest possible utility within the limited budget. Graphically, this is the case where the
indifference curve is tangent to the budget line. In Figure 15.1, this is the case in point A,
where the dashed indifference curve is tangent to the dashed budget line. This combina-
tion of energy and other consumption maximizes utility before any policy intervention.
As a second step, let us consider the effects of a traditional Pigouvian tax. This policy
is depicted by the dotted budget line and dotted indifference curve. As a consequence of
the Pigouvian tax, the original (dashed) budget line rotates around its ordinate intercept.

LEAL-ARCAS_9781786431042_t.indd 280 08/09/2017 13:02

C
A
B
Energy (E)
Figure 15.1 The representative household
The ordinate intercept remains unchanged since the price of other consumption as well
as nominal income remain the same after taxation. The abscissae intercept must decrease
since energy is taxed. For simplicity, we assume a tax per energy unit. If the household
were to spend its entire income on energy, it could purchase less energy after taxation
than before, hence the shorter abscissae intercept. In addition to the net price of energy,
the household must now pay a per unit energy tax. The effect is the same as that of any
price increase of energy plotted on the abscissae. The budget line becomes steeper since
the household can obtain more other consumption than before taxation for abdicating
one unit of energy.
The optimum after tax is point B. It is clearly to the left of point A, i.e. energy con-
sumption decreases. There are two reasons for this. Firstly, the relative price of energy
compared to other consumption has increased. This prompts the household to consume
relatively less energy and relatively more of other consumption (substitution effect).
Secondly, higher energy costs also reduce other consumption possibilities within the con-
stant limited budget. This income effect also entices lower energy consumption (assuming
that neither energy nor other consumption are Giffen goods).34 Note that we have so far
assumed that the household does not benefit from the energy tax revenues, since other
consumption is negatively influenced by the income effect and positively by the substitu-
tion effect. Therefore, the change in demand for other consumption is undetermined.
Let us now turn to analyzing the concept of Energy Justice. In Figure 15.1, the result
of the introduction of such a policy is represented by the continuous budget line and
34
A Giffen good is a good of which households consume more if the price rises and vice versa,
violating the basic law of demand in microeconomics.

LEAL-ARCAS_9781786431042_t.indd 281 08/09/2017 13:02

indifference curve. The Energy Justice budget line is a parallel shift of the dotted budget
line under Pigouvian taxation. The relative price of energy remains the same as under the
mere Pigouvian policy, if we implement the same tax rate. Thus the slope of the budget
lines is identical. Yet, the budget line under Energy Justice must be more to the right
compared to Pigouvian taxation. This is because tax revenues are returned to citizens.
The effect is the same as an increase in income.
The optimum under Energy Justice is point C. Note that the budget line and the
optimum are chosen simultaneously. The amount returned in taxes and hence the posi-
tion of the budget line depends on the amount of energy consumed (and the tax paid and
returned) in the optimum and vice versa. Other points on the same budget line are not
attainable. Each potential optimum would have its own corresponding budget line.
The optimum has to be at the intersection of the Energy Justice budget line with the
dashed budget line (situation without any taxation). The intuition is as follows: the hori-
zontal shift of the Energy Justice budget line compared to the dotted Pigouvian budget
line corresponds to the amount of energy which can (additionally) be purchased from
the tax returns at a given amount of other consumption, i.e. the ‘tax returns expressed in
energy units’. (The returns are shown in energy units since this is what is plotted on the
abscissae.) The horizontal distance (i.e. at a given level of consumption) between the origi-
nal budget line (‘without energy taxation’) and the Pigouvian budget line is the amount of
energy which the household can no longer afford due to taxation (‘tax burden expressed in
energy units’). At the optimal level of other consumption, the additionally possible energy
consumption due to tax returns must be the same as the energy no longer affordable due
to the Pigouvian tax for the representative household. After all, the entire tax revenues
are paid back under Energy Justice. Tax burden and tax returns are only identical at the
intersection of the two budget lines, where the horizontal distance between the Pigouvian
budget line and the two other budget lines, under no taxation and the Energy Justice
concept respectively, are equal.
To put it another way: since all energy tax revenues are returned, real income must be
the same in the Energy Justice optimum as in a situation without any taxation. If the
representative household pays €300 in energy taxes, it also receives €300 in tax returns.
The only point on the Energy Justice budget line where real income is the same as under
no taxation is where those two budget lines intersect.35
C (the optimum under Energy Justice) must be northwest from A (the optimum without
taxation). A higher relative price of energy ensures that less energy is consumed. This is
a pure substitution effect since real income remains the same. Other consumption clearly
rises since its relative price decreases. There is no potentially compensating negative
income effect as under pure Pigouvian taxation. Technically speaking, the intersection
of the budget lines (Energy Justice and no taxation) must therefore be in the quadrant
northwest of the original optimum in A. The new budget line under Energy Justice is
steeper than that without taxation since the relative price of energy has increased. Hence
the tangent indifference curve must also be steeper. This is only the case at lower levels of
energy consumption relative to other consumption. Since the real income is the same as
under no taxation, this is only an optimum if the absolute level of energy consumption
35
A mathematical proof is available from the authors.

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is lower and other consumption is higher than without taxation. C is in the quadrant
northeast of B (the optimum under Pigouvian taxation). The compensation of the income
effect under Energy Justice raises other consumption as well as that of energy.
Note that the household’s utility is still lower under Energy Justice than in a situation
without any energy tax (C is on a lower indifference curve than A). While real income is
the same in both points, the tax changes the consumption structure in C, reducing the
consumption of energy. From a pure consumption perspective, this implies a welfare
loss. However, Figure 15.1 does not account for the assumed environmental and climate
improvements resulting from the lower energy consumption, so that overall utility for the
representative household might well be higher than before. Clearly, utility is higher under
Energy Justice than under a Pigouvian tax only (point B).
5. EFFECTS ON DIFFERENT HOUSEHOLD TYPES
Thus far we have analyzed the effects of Energy Justice on a representative household.
Since distributional issues are a main argument in favor of the Energy Justice concept, we
now regard its effects on different household types. For simplicity, we assume solely two
household types, namely poor (p) and wealthy (w) households. In Figure 15.2, we assume
that poor and wealthy households make up around 50% of our model society respectively
and that household sizes are identical.
In Figure 15.2, the two original budget lines of the two household types before taxation
are the thicker black dashed ones. The budget line of the wealthy household is more to the
right, since it can afford more energy at a certain level of other consumption. In Figure
15.2 the income of the wealthy household would be roughly twice that of the poor one. The
respective optima Ap of the poor household and Aw of the wealthy household are where
the dashed indifference curves are tangent to the dashed budget lines. Aw is northeast of
Ap. The wealthier household consumes more energy as well as more other consumption.
As in Figure 15.1, the dotted lines and indifference curves represent Pigouvian taxation
with an inward turn of the budget lines compared to the situation with no taxation. The
respective optima Bp and Bw are characterized by lower energy demand due to substitu-
tion and income effects. The overall effect on other consumption is uncertain.
Let us now introduce Energy Justice. Budget lines again shift to the right, parallel to the
dotted lines under the Pigouvian setting. The new budget lines are characterized by the
same relative prices as under the Pigouvian setting, but with an effectively higher income
since all energy tax revenues are returned to households.
The major difference compared to the case of one representative household is that
the optima of neither the poor nor the wealthy household are at the intersection of the
Energy Justice budget line with the no taxation budget line. Cp is definitely north of the
intersection point and also north of Ap. This implies higher other consumption under
Energy Justice than under no taxation. Whether Cp is east or west of Ap, however, is
undetermined. If tax returns make up a large part of the poor household’s income (e.g.
because income differences are large), the income effect might even lead to a higher level
of energy consumption of the poor household in spite of the substitution effect working
in the opposite direction. In this case, the Energy Justice budget line would intersect with
the no taxation budget line east of Ap. However, this potential increase in energy demand

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Cw
Aw
Bw
Cp
Bp Ap
Figure 15.2 Different household types
of the poor household should be more than compensated by the decreasing energy con-
sumption of the wealthy household.
While other results are possible, we should expect the optimum of the poor household
under Energy Justice to contain less energy and more other consumption compared to
the situation with no taxation. If the income effect is not trivial, there is also a welfare
gain for the poor household. Technically, the continuous indifference curve for the poorer
household should be higher than the dashed one.
The effects of Energy Justice are different for the rich household type. Income and
substitution effect work in the same direction, reducing energy consumption (com-
pared to the situation with no taxation). The optimum under Energy Justice Cw must
thus be to the left/west of Aw. It is undetermined whether other consumption rises or
falls. The intersection of the Energy Justice budget line with the original no tax budget
line must be to the left of Aw, since the wealthy household receives less in tax returns
than it pays in energy taxes. If tax returns are relatively small (for example, because
wealthy households are a small part of the overall population), other consumption
under Energy Justice in point Cw can be smaller than under no taxation in Aw. From a
total consumption perspective, utility of the wealthy household is lower than under no
taxation and higher than under a pure Pigouvian tax situation. Again, environmental
and climate improvements from lower energy consumption have not yet been added
to the calculation.
Overall, poorer households with a generally lower absolute level of energy consumption
receive a net payment under Energy Justice. In reality, this may not be true for every single
poor household, since some of these households might consume more energy than the
average of the population and hence bear a net energy tax burden. Such an arrangement,

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however, maintains incentives to save energy for these specific household types. The net
burden of energy taxation falls on households with above average energy consumption,
which are usually wealthier households, as long as energy is not an absolutely inferior
good (which would imply an absolute decrease in consumption with rising income). On
average, the burden of taxation under the Energy Justice concept is clearly progressive.
Together with the net support for the poor, Energy Justice doubtlessly reduces inequality
created by energy taxation.
6. CONCLUSION AND OUTLOOK

Economists agree that a tax on externalities as proposed by Pigou in the 1920s, if applied
correctly to energy consumption, is one of the most efficient and effective means to inter-
nalize the social cost of environmental pollution, and can be used as a powerful policy
tool. The traditional economic literature has mainly discussed the difficulty of determin-
ing the ‘correct’ tax rate which would capture the exact social costs. Yet, political reality
in democracies has shown a different problem to be the root cause for complications in
the rate-setting exercise: without the willingness of voters to bear the full individual part of
the social costs through taxation, rates are nearly always too low to fully internalize even
the lowest estimates of the social costs of environmental damage and climate change.
Furthermore, in its currently applied versions, Pigouvian taxation acts as a regressive
form of taxation, since the relative share of energy costs in disposable income is higher for
low-income households than for higher-income households. These problems from the
political economy realm have proven serious hurdles both for the introduction as well as
for the maintenance of energy taxation schemes which try to capture the estimated social
costs of environmental pollution and climate change.
The solution we have proposed is straightforward: the entire revenue from energy taxa-
tion shall be given back to voters. Doing so on a per capita basis and reimbursing the
average amount of the energy tax paid to each resident leaves the incentive structure of the
Pigouvian taxation setting intact. Under such a setting, the payable energy tax is higher
the more energy is consumed, while after reimbursement the average household bears no
tax burden at all. Only households with above average energy consumption pay net energy
taxes; low energy households even receive a net transfer.
In the political realm, this should allow for much higher energy taxation rates. Energy
savings continue to pay off individually, because the individual household can save energy
(and lower tax payments) with the reimbursement remaining untouched. At the same
time, the regressive effects of a traditional Pigouvian taxation scheme are not reproduced,
since it can be assumed that households with lower income usually consume less energy in
absolute terms. This could make the introduction of an energy tax and its escalation to a
level which roughly captures social costs more feasible in a political setting where voters
with below average incomes are assumed to be the majority of the electorate.
In Europe’s economically and legally intertwined policy-making environment, eco-
nomic feasibility does not equal political and legal implementability. We therefore
undertook a basic legal analysis of the possibility of implementing the concept under the
current legal setting of the EU acquis. It seems that the concept of Energy Justice is not
only compatible with the EU Treaties, but there are several avenues to introduce the policy

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under the existing framework of secondary legislation, in particular Directive 2003/96/EC

on the harmonization of energy taxation.
Given our initial analysis, we believe that the concept of Energy Justice would merit
further research. More complex economic models could shed further light on the dynam-
ics of the taxation effect, and the introduction of a formalized political economy model
could increase our understanding of the effects of the concept on voters’ behavior.
In order to keep our model simple and to increase the feasibility of the proposal, we
have focused the Energy Justice concept on the primary energy consumption of private
households. If designed that way, Energy Justice can supplement prevailing EU and
national climate policies. However, the concept could also be broadened to encompass
most activities which lead to carbon dioxide emissions. This would obviously imply
taxing energy consumed by businesses as well, which makes up almost 70% of EU energy
consumption.
It would be worthwhile to study such options, implementing broader designs that aim
at taxing all fossil fuels, i.e. inputs. The comprehensive nature of this approach would
establish incentives to search for options to reduce emissions in all sectors of the economy.
One major research question would be to examine potential arrangements for companies
which compete internationally. If designed that way, a carbon tax could function as a
replacement for the European Emissions Trading System (ETS). Since the ETS leaves out
a large share of businesses, the effectiveness and efficiency of EU climate policy could be
improved.
Finally, the rudimentary legal analysis could be taken up and expanded by more expe-
rienced scholars in the field, and political scientists might find it relevant to look at the
political implications and the feasibility of the introduction of the Energy Justice concept
in the policy-making environment of the Council of the European Union.
In democracies, ultimately any test of the feasibility of a political concept lies in its
acceptability to voters and the courage of the politicians proposing it. We hope that the
presented ideas provide those policy makers with relevant tools that can increase the fea-
sibility of effective and efficient environmental policy.

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16. Energy and the law of the sea
Stephen Minas
1. INTRODUCTION
The nexus between the oceans and the energy required to power modern economies has
been progressively strengthened by technological developments. The ability to transport
oil and liquefied natural gas by ship, to extract oil and gas from the ocean floor and, most
recently, to harness the renewable energy resources of the sea have all increased the role
of the oceans in meeting the ever-growing demands for energy.
With these increasing uses of the seas has come the need for law to provide regulation
and to resolve disputes. This chapter will focus on the United Nations Convention on
the Law of the Sea (UNCLOS), which is generally recognised as ‘the authoritative law on
the law of the sea’,1 in regulating relations between states with respect to energy and the
oceans. While UNCLOS is far from being a ‘one stop shop’ for the regulation of energy in
the oceans,2 it is the crucial instrument in setting a framework for energy activities based
on zonal entitlements and broad functional rights and obligations.3
The chapter is structured as follows. Section 2 gives a broad overview of the energy-
related activities in the ocean. Section 3 discusses the development and structure of
UNCLOS. Section 4 discusses the relationship between UNCLOS and the European
Union. Section 5 examines the nexus between UNCLOS and energy, including the
development of the Convention, its zonal system of regulation and the delimitation
of overlapping state claims. Section 6 focuses on dispute resolution and manage-
ment under UNCLOS as it relates to energy. Section 7 surveys current issues in
oceans law regarding energy, including pollution, marine renewable energy, protec-
tion of the high seas, newly discovered resources and the particular challenges of the
Arctic. Section 8 provides an agenda for future research and section 9 concludes the
chapter.
2. ENERGY AND THE OCEANS
The oceans have long been both a source of and a vital transit zone for energy resources.
Certain of the seas subject to competing sovereign claims are particularly important
1
T Koh, ‘Setting the Context: A Globalized World’ in Myron H Nordquist and others (eds),
Freedom of Navigation and Globalization (Brill Nijhoff 2015) 6.
2
C Redgwell, ‘Mind the Gap in the GAIRS: The Role of Other Instruments in LOSC Regime
Implementation in the Offshore Energy Sector’ (2014) 29 International Journal of Marine and
Coastal Law 619.
3
The Preamble to UNCLOS provides that matters not regulated by the Convention ‘continue
to be governed by the rules and principles of general international law’.
287
LEAL-ARCAS_9781786431042_t.indd 287 08/09/2017 13:02

transit zones.4 The importance of the oceans as both a source and a transit zone for
energy is increasing. The depletion of most of the world’s easy-to-access oil has increased
the focus on exploiting offshore deposits in difficult-to-access locations such as the Gulf
of Guinea and the Northern Arabian Gulf. It has been estimated that the vast majority
of additional non-OPEC oil supply will come from offshore deposits.5 The establish-
ment of national policies for exploiting offshore energy resources has been a particular
feature of large emerging economies such as China and Brazil.6
Energy exploitation and transit through the seas are also strongly influenced by changes
in geopolitics and political economy. Regional realignments can have a dramatic impact
on the flow of energy through particular seas. For example, the dissolution of the Soviet
Union opened the Black Sea to western oil companies, resulting in the amount of oil
transported through the Black Sea and the Turkish Straits, bound for western markets,
to nearly triple between 1996 and 2010.7
The nature of hydrocarbon exploitation makes it particularly prone to geopolitical
cleavages and territorial disputes. As is well known, the ‘physical properties of an energy
resource determine how it may be regulated’.8 Liquid or gaseous resources do not respect
borders in the same way that solid resources do.9 Rather, as ‘fugitive substances’, oil and
gas ‘migrate to the point(s) of perforation’ when undersea drilling has taken place.10 This
adds complexity to the challenge of regulation in disputed waters. Additionally, offshore
oil and gas projects, including exploration, production and decommissioning,11 present
major environmental challenges.
The net consequence of increased hydrocarbon exploitation, the development of
marine renewable energy and improved technology for exploiting seabed resources is
‘increased competition for ocean space’,12 placing increased pressure on the law of the sea
in the management of overlapping activities and the resolution of disputes. In addition,
the EU is continuing to innovate in its domestic oceans policy. Notably, a 2014 Directive
4
J Kraska, Maritime Power and the Law of the Sea: Expeditionary Operations in World Politics
(Oxford University Press 2011) 426.
5
Ibid, 6–7.
6
JL Suarez de Vivero and JC Rodriguez Mateos, ‘Ocean Governance in a Competitive World.
The BRIC Countries as Emerging Maritime Powers – Building New Geopolitical Scenarios’ (2010)
34 Marine Policy 967.
7
N Oral, ‘PSSA for the Black Sea’ (2013) 35 University of Hawai’i Law Review 793.
8
R Barnes, ‘Energy Sovereignty in Marine Spaces’ (2014) 29 International Journal of Marine
and Coastal Law 576.
9
I Townsend-Gault, ‘Zones of Cooperation in the Oceans – Legal Rationales and Imperatives’
in Myron H Nordquist and John Norton Moore (eds), Maritime Border Diplomacy (Martinus
Nijhoff Publishers 2012) 116.
10
CH Schofield and I Townsend-Gault, ‘Choppy Waters Ahead in “a Sea of Peace Cooperation
and Friendship”? Slow Progress towards the Application of Maritime Joint Development to the
East China Sea’ (2011) 35 Marine Policy 29.
11
W Ritchie, ‘The Concept of the International Transfer of Good Practice as an Environmental
Policy Component in Major Offshore Oil and Gas Developments: A Perspective from Environmental
Science’ in Myron H Nordquist, John Norton Moore and Alexander S Skaridov (eds), International
Energy Policy, the Arctic and the Law of the Sea (Martinus Nijhoff Publishers 2005) 101.
12
N Bankes and S Trevisanut, ‘Introduction: Energy from the Sea’ (2014) 29 International
Journal of Marine and Coastal Law 563.

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Energy and the law of the sea 289
established a framework for maritime spatial planning to strengthen the coherence of

management across functional areas. The Directive’s point of departure summarises the
current challenge of increasing, competing and overlapping claims on ocean space:
The high and rapidly increasing demand for maritime space for different purposes, such as
installations for the production of energy from renewable sources, oil and gas exploration and
exploitation, maritime shipping and fishing activities, ecosystem and biodiversity conservation,
the extraction of raw materials, tourism, aquaculture installations and underwater cultural her-
itage, as well as the multiple pressures on coastal resources, require an integrated planning and
management approach.13
3. THE LAW OF THE SEA
3.1 History
Until the mid-20th century, the law of the sea was essentially customary and could be
traced back to the law of the Greek island of Rhodes, c.800 BCE, concerning exclusive
flag state jurisdiction.14 Centuries later, the advent of long-distance ocean navigation
made the question of maritime jurisdiction one of controversy between the European
powers. The principle of the freedom of the seas, including freedom of navigation, was
formulated early in the 17th century by Hugo Grotius15 and provided a theoretical basis
for the Dutch government’s challenge to the ‘closed sea’ policies of Portugal in the East
Indies and to English claims on the herring catch.16 In 1927, the Permanent Court of
International Justice established that the freedom of the high seas arises from absence
of territorial sovereignty and lack of coastal state competence to claim jurisdiction over
foreign vessels.17 In its 1949 Corfu Channel Case judgment, the ICJ found freedom of the
seas to be ‘part of the new international law’.18
The jurisdiction of states over their coastal waters has been a longstanding exception
to this general freedom of the seas. In the 17th century, Cornelius Van Bynkershoek and
Emmerich de Vattel defined the limits of national jurisdiction to be as far as a cannon
ball could travel when fired from the shore – at the time, about three miles. The three-mile
standard, never codified, lasted for three centuries and was the ‘strongest norm in oceans
law’ pre-UNCLOS.19
13
Directive 2014/89/UE of the European Parliament and of the Council, 23 July 2014,
establishing a framework for maritime spatial planning, Official Journal of the European Union,
L 257/135, 28 August 2014, para. 1.
14
(Oxford University Press 2011) 33–4.
15
H Grotius, Mare Liberum (R. Feenstra ed., Brill 2009) 64–5.
16
F Fernandez-Armesto, Civilizations: Culture, Ambition, and the Transformation of Nature
(Simon and Schuster 2001) 317.
17
The Lotus (Judgment No. 9), 1927, P.C.I.J., Series A, No. 10, at 25; J Kraska, Maritime Power
and the Law of the Sea: Expeditionary Operations in World Politics (Oxford University Press 2011)
134.
18
Corfu Channel Case (Merits, Judgment), 1949 ICJ Rep 46.
19

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The enduring need to balance competing interests between coastal states and the inter-
national community was well captured by Myres S. McDougal and William T. Burke in
1962: ‘The net total of the inclusive uses available for sharing among all states is directly
dependent . . . upon restriction of the exclusive claims to the minimum reasonably neces-
sary to the protection of common interest’.20 The 1958 conventions left much important
work undone, such as agreement on the breadth of the territorial sea. This work was taken
up by the third UN Conference on the Law of the Sea, culminating in the agreement of
UNCLOS in 1982.
3.2 The Convention
UNCLOS is divided into parts concerning various zones: the territorial sea and contiguous
zone (Part II), straits used for international navigation (Part III), archipelagic states (Part
IV), the Exclusive Economic Zone (Part V), the continental shelf (Part VI), the high seas
(Part VII), the regime of islands (Part VIII), enclosed or semi-enclosed seas (Part IX),21
the rights of land-locked states (Part X) and the Area (Part XI). The respective provisions
which obtain in the territorial sea, contiguous zone, EEZ, continental shelf, high seas and
Area are discussed below, with a focus on how these relate to energy resources. Further
parts of UNCLOS are divided functionally into the protection and preservation of the
marine environment (Part XII), marine scientific research (Part XIII), the development
and transfer of marine technology (Part XIV) and the settlement of disputes (Part XV).
The essence of UNCLOS is ‘a carefully negotiated package of balances between the
rights and interests of the coastal State . . . and the rights and interests of the international
community’.22 The ambition and breadth of the Convention has earned it the epithet of
‘Constitution for the Oceans’.23 A corollary of this scope is the significant challenge of
compliance. It has been estimated that at least a third of UNCLOS parties are in breach
of at least one significant provision.24
4. UNCLOS AND THE EU
4.1 The EU in the Negotiation of UNCLOS
EU participation in the negotiation of UNCLOS was required because the negotiations

pertained to areas of exclusive EU competence. However, the EEC was admitted to the
20
MS McDougal and WT Burke, The Public Order of the Oceans: A Contemporary International
Law of the Sea (New Haven Press 1985 [1962]) 52.
21
States bordering an enclosed or semi-enclosed sea (such as the South China Sea) have addi-
tional obligations to cooperate with each other. UNCLOS, Art. 123.
22
T Koh, ‘Setting the Context: A Globalized World’ in Myron H Nordquist and others (eds),
Freedom of Navigation and Globalization (Brill Nijhoff 2015) 6.
23
NH Wirajuda, ‘North and South East Asia: Regional Order at Sea’ in Myron H Nordquist
and John Norton Moore (eds), Maritime Border Diplomacy (Martinus Nijhoff Publishers 2012) 3.
24
R Churchill, ‘Compliance with the UN Convention on the Law of the Sea: Problems and
Prospects’ in Hans-Joachim Koch and others (eds), Legal Regimes for Environmental Protection:
Governance for Climate Change and Ocean Resources (Brill Nijhoff 2015) 290–91.

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talks only as an observer, without voting rights. The right of the EEC to become party to
the Convention became a controversial point of negotiation, entering the formal agenda
of talks in 1979.25 Ultimately, the final text of UNCLOS would include Annex IX on
‘participation by international organisations’, the EU being the only international organi-
sation satisfying the UNCLOS criteria for ‘international organisations’.26 UNCLOS was
the first UN global agreement allowing for accession by regional bodies.27
As outlined above, UNCLOS was adopted in 1982. However, the EU was prevented
from signing the Convention by a lack of unanimity in the Council. In December
1984, all Member States allowed the EU to sign the Convention.28 Further negotia-
tions resulted in the agreement on implementation of Part XI, and UNCLOS entered
into force in 1994. The EU acceded to UNCLOS in 1998, joining all Member States
with the exceptions of Belgium, Denmark and Luxembourg. As required by Article
5(1) of Annex IX to UNCLOS, the EU made a declaration ‘specifying the matters
governed by this Convention in respect of which competence has been transferred
to the organization by its member States’. The declaration states that UNCLOS
and the Part XI implementing Agreement applies only, ‘with regard to competences
transferred to the European Community, to the territories in which the Treaty
establishing the European Community is applied’, beyond which the declaration is
inapplicable and is without prejudice to Member State activities or positions under
UNCLOS.29
4.2 UNCLOS in EU Law and Policy
The EU legal order is the product of the following sources: the constitutive treaties, case
law of the Court of Justice of the European Union (CJEU), international agreements
entered into by the EU, and EU regulations, directives and decisions.30 International
agreements concluded by the EU have priority over EU secondary legislation.31 The
25
V Frank, The European Community and Marine Environmental Protection in the International
Law of the Sea: Implementing Global Obligations at the Regional Level (Martinus Nijhoff Publishers
2007) 152.
26
UNCLOS, Annex IX, Article 1.
27
KR Simmonds, ‘The Community’s Declaration Upon Signature of the UN Convention on
the Law of the Sea’ (1986) 23 Common Market Law Review 524.
28
2007) 160.
29
‘Declaration Concerning the Competence of the European Community with Regard to
Matters Governed by the United Nations Convention on the Law of the Sea of 10 December 1982
and the Agreement of 28 July 1994 Relating to the Implementation of Part XI of the Convention’,
reproduced in V Frank, The European Community and Marine Environmental Protection in the
International Law of the Sea: Implementing Global Obligations at the Regional Level (Martinus
Nijhoff Publishers 2007) Annex II, 433ff.
30
2007) 46–8.
31
Case C-377/98, The Netherlands v European Parliament and Council (CJEU), para. 53; Case
C-61/84, Commission v Germany (CJEU), para. 52.

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CJEU has stated that EU powers must be interpreted and limited ‘in the light of the rel-
evant rules of the international law of the sea’.32
In the years since UNCLOS entered into force, the EU has emerged as an important
contributor to the development of oceans law. Indeed, Ronán Long has contended that
the EU has used UNCLOS as a ‘regulatory plinth to strengthen its position as a global
leader in oceanic affairs’, including through the adoption of universal UNCLOS ratifica-
tion as an objective of the EU’s Integrated Maritime Policy33 and through the EU’s advo-
cacy for an UNCLOS implementing agreement on the protection of marine biodiversity
in areas beyond national jurisdiction.34
5. UNCLOS AND ENERGY
This section will examine the role of energy concerns in the development of the law of
the sea, before turning to elements of the legal regime established by UNCLOS that are
particularly salient to contemporary energy projects.
5.1 Energy in the Development of the Law of the Sea
Undersea mining is not a recent phenomenon.35 However, technological progress in the

20th century far outpaced the development of law regulating access to ocean resources.
The Second World War brought a broadened appreciation of the importance of oil as
a source of energy.36 Also, in the 1940s, the oil industry developed the offshore drilling
techniques necessary to access hydrocarbons. In this climate, attention turned to the
bottom of the ocean as ‘a storehouse of natural resources’.37 The spirit of the age is well
represented by the response President Roosevelt gave to a journalist asking how far out
the United States’ territorial sea extends: ‘As far out as our interests need it to go’.38 An
influential policy response followed with the 1945 proclamation by President Truman
laying claim to the ‘natural resources’ of the seabed and subsoil.39
Following the Corfu Channel judgment recognising the freedom of the seas, the UN
secretariat to the International Law Commission argued that the challenge of making
this freedom consistent with coastal state rights to offshore resources ‘does not appear
insoluble provided the extension of the jurisdiction of littoral states to the high seas in the
vicinity of their coasts does not develop into a territorial jurisdiction . . . but is confined
32
Case C-986/90, Poulsen (CJEU), para. 9.
33
Art. 2(e) Reg. No 1255/2011, OJ L 321/1, 5.12.2011.
34
R Long, ‘The European Union and Law of the Sea Convention at the Age of 30’ (2012) 27
International Journal of Marine and Coastal Law 719.
35
L Juda, International Law and Ocean Use Management: The Evolution of Ocean Governance
(Routledge 1996) 53.
36
Ibid, 93.
37
Ibid, 95.
38
39
Presidential Proclamation No. 2667, September 28, 1945, 59 Stat. 884; N Klein, Dispute
Settlement in the UN Convention on the Law of the Sea (Cambridge University Press 2004) 128.

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to a special jurisdiction over one or more of the natural elements distinguishable in the
high seas’.40
With the development of technology enabling hydrocarbon exploration came the chal-
lenge of the competitive exploitation of resources, which can lead to overproduction and
depletion, as foreseen in the ‘tragedy of the commons’.41 The issue was taken up by the
International Law Commission in the 1950s, and various solutions were suggested.42 The
ILC’s work culminated in the 1958 Convention on the Continental Shelf. The question of
state rights and duties where a hydrocarbon province is divided by a maritime boundary
was not addressed in either the 1958 or 1982 Convention. Following entry into force of the
1958 Convention on the Continental Shelf, states addressed the issue bilaterally, typically
agreeing to divide the proceeds.43
Concerns over the exploitation of resources were at the heart of the process that
resulted in the adoption of UNCLOS. In November 1967 the diplomat Arvid Pardo,
remembered as the ‘Father of the Law of the Sea Conference’, warned of a ‘colonial’ rush
to grab the resources of the seabed if no international regime was put in place.44
5.2 The Territorial Sea
The system of zonal rights and obligations established by UNCLOS is undergirded by the
principle that ‘the land dominates the sea’, i.e. it is sovereignty over land which empowers
a state to exercise rights in adjacent waters.45 This principle is operationalised through the
role of coastal baselines in determining zonal rights.
A coastal state has sovereignty over its territorial sea,46 extending up to 12 nautical miles
(NM) into the sea from the land of the coastal state.47 While UNCLOS does not address
control of energy in the territorial sea, it is well established that such resources are under
the control of the coastal state, subject to the right of innocent passage.48
40
Memorandum on the Regime of the High Seas, UN Doc. A/CN.4/32, 14 July 1950 at 15.
41
G Hardin, ‘The Tragedy of the Commons’ (1968) 162 Science 1243.
42
Nijhoff Publishers 2012) 117–18.
43
Nijhoff Publishers 2012) 119–20; N Bankes, ‘Recent Framework Agreements for the Recognition
and Development of Transboundary Hydrocarbon Resources’ (2014) 29 International Journal of
Marine and Coastal Law 666.
44
A Pardo, UN Doc. A/C.1/PV.1515, 1 November 1967, at 6, cited in G Hafner, ‘The Division
of the Commons? The Myth of the Commons: Divide or Perish’ in Holger Hestermeyer and others
(eds), Law of the Sea in Dialogue (Springer 2011) 91.
45
North Sea Continental Shelf Cases (Federal Republic of Germany/Denmark; Federal
Republic of Germany/Netherlands), Judgment of 20 February 1969, ICJ Reports 1969, 3, para. 96;
Maritime Delimitation and Territorial Questions between Qatar and Bahrain Merits, Judgment of
16 March 2001, ICJ Reports 2001, 40, para. 185.
46
UNCLOS, Art. 2.
47
UNCLOS, Art. 3.
48
For which, see UNCLOS, Arts 17–19; R Barnes, ‘Energy Sovereignty in Marine Spaces’
(2014) 29 International Journal of Marine and Coastal Law 591.

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5.3 The Contiguous Zone
Beyond the territorial sea lies the contiguous zone, which extends to a maximum of 24
NM from the baseline.49 Within the contiguous zone, the coastal state ‘may exercise the
control necessary to: (a) prevent infringement of its customs, fiscal, immigration or sani-
tary laws and regulations within its territory or territorial sea; (b) punish infringement of
the above laws and regulations committed within its territory or territorial sea’.50 It has
been argued that the concept of the contiguous zone – and the regulatory powers granted
to the coastal state within it – allowed the drafters of UNCLOS to emphasize the eco-
nomic function of the EEZ and, therefore: ‘The contiguous zone . . . serves as recognition
of the limits on EEZ authority’.51
5.4 The Exclusive Economic Zone (EEZ)
The EEZ is ‘subject to the specific legal regime established’ in Part V of UNCLOS.52
Article 56 of UNCLOS in part provides:
1. In the exclusive economic zone, the coastal State has: (a) sovereign rights for the purpose
of exploring and exploiting, conserving and managing the natural resources, whether living or
non-living, of the waters superjacent to the seabed and of the seabed and its subsoil, and with
regard to other activities for the economic exploitation and exploration of the zone, such as the
production of energy from the water, currents and winds.53
In the EEZ, coastal states also have the exclusive right ‘to construct and to authorize and
regulate the construction, operation and use of’ ‘artificial islands’ and ‘installations and
structures for the purposes provided for in article 56 and other economic purposes’.54
The rights concerning ‘the seabed and subsoil shall be exercised in accordance with Part
VI’,55 concerning the continental shelf. Part VI provides that the ‘coastal State exercises
over the continental shelf sovereign rights for the purpose of exploring it and exploit-
ing its natural resources’.56 Concerning energy, these resources relevantly include ‘the
mineral and other non-living resources of the seabed and subsoil’.57 The coastal state’s
rights are exclusive, so that no one may ‘explore the continental shelf or exploit its natural
resources’ without the coastal state’s ‘express consent’,58 and the rights ‘do not depend
49
UNCLOS, Art. 33(2).
50
UNCLOS, Art. 33(1).
51
52
UNCLOS, Art. 55.
53
The UN Secretary-General has stated that the ‘reference to energy in article 56 is not exhaus-
tive and can reasonably be understood as encompassing any type of energy produced from the
marine environment’. Oceans and the law of the sea: Report of the Secretary-General, A/67/79, 4
April 2012, para. 31.
54
UNCLOS, Art. 60(1).
55
UNCLOS, Art. 56(3).
56
UNCLOS, Art. 77(1).
57
UNCLOS, Art. 77(4).
58
UNCLOS, Art. 77(2).

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on occupation, effective or notional, or on any express proclamation’.59 The coastal state

additionally has the ‘exclusive right to authorize and regulate drilling on the continental
shelf for all purposes’.60
State practice indicates that an EEZ must be expressly proclaimed by a coastal state for
that coastal state to enjoy EEZ rights.61 The coastal state’s rights and duties in the EEZ
must be exercised with ‘due regard to the rights and duties of other States’,62 including
freedoms of navigation and overflight and of the laying of submarine cables and pipe-
lines.63 The EEZ has been identified as a ‘potential battleground for resources’ due to its
concentration of living and non-living resources and the presence of competing national
claims to it.64
5.5 The Continental Shelf
A coastal state’s continental shelf ‘comprises the seabed and subsoil of the submarine
areas that extend beyond its territorial sea throughout the natural prolongation of its land
territory to the outer edge of the continental margin, or to a distance of 200 nautical miles
from the baselines from which the breadth of the territorial sea is measured where the
outer edge of the continental margin does not extend up to that distance’.65
While all states are entitled to ‘lay submarine cables and pipelines on the continental
shelf’,66 the coastal state retains jurisdiction over ‘cables and pipelines constructed or
used in connection with the exploration of its continental shelf or exploitation of its
resources’.67
Where a coastal state exploits the non-living resources of the continental shelf beyond
200 NM from the baseline (i.e. beyond the EEZ), it must ‘make payments or contribu-
tions in kind’,68 on an annual basis, ‘with respect to all production at a site after the first
five years of production at that site’. The payments begin at 1 per cent of the ‘value or
volume of production at the site’ in the sixth year, with the rate increasing annually by 1
per cent to a cap of 7 per cent in the twelfth year.69 The payments or contributions are
to be made ‘through’ the International Seabed Authority, which ‘shall distribute them to
States Parties to this Convention, on the basis of equitable sharing criteria, taking into
account the interests and needs of developing States, particularly the least developed and
the land-locked among them’.70 Developing countries which are net importers of the
59
UNCLOS, Art. 77(3).
60
UNCLOS, Art. 81.
61
NA Poulantzas, ‘The European Union and the Exclusive Economic Zone of Mediterranean
States: Does a Duty to Cooperate Exist?’ (2013) 66 RHDI 313.
62
UNCLOS, Art. 56(2).
63
UNCLOS, Art. 58(1).
64
65
UNCLOS, Art. 76(1).
66
UNCLOS, Art. 79(1).
67
UNCLOS, Art. 79(4).
68
UNCLOS, Art. 82(1).
69
UNCLOS, Art. 82(2).
70
UNCLOS, Art. 82(4).

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resource being exploited are exempt from such payments.71 Importantly, the right to an
extended continental shelf is extended to states which are not parties to UNCLOS.72 It
has been estimated that 50 or more states are entitled to an extended continental shelf.73
Revenue sharing under Article 82 may be a degree of further uncertainty regarding
hydrocarbon projects on the extended continental shelf. As has been noted, UNCLOS
‘provides little guidance as to how Article 82 might be implemented in practice’.74 The
interpretation of ‘five years of production’ is an important question for concession-
holders, given the typical process of exploratory drilling for discovery followed by a
substantial lead-time until commercial production can take place.75
5.6 The High Seas
The high seas constitute ‘all parts of the sea that are not included in the exclusive eco-
nomic zone, in the territorial sea or in the internal waters of a State, or in the archipelagic
waters of an archipelagic State’.76 The high seas, which account for almost half of the
world’s surface, ‘are open to all States’, which enjoy freedoms of navigation, overflight,
the laying of submarine cables and pipelines and scientific research, inter alia.77 Article
89 of UNCLOS adds that ‘[n]o State may validly purport to subject any part of the high
seas to its sovereignty’.
5.7 The Area
The ‘Area’ is the ‘seabed and ocean floor and subsoil thereof, beyond the limits of national
jurisdiction’.78 UNCLOS provides that ‘[t]he Area and its resources are the common
heritage of mankind’.79 ‘Resources’ means ‘all solid, liquid or gaseous mineral resources
in situ in the Area at or beneath the seabed, including polymetallic nodules’.80 No state
may exercise sovereignty or sovereign rights over any part of the Area or its resources.81
Furthermore, ‘[a]ll rights in the resources of the Area are vested in mankind as a whole,
on whose behalf the [International Seabed Authority] shall act’.82 ‘Activities in the Area’
71
UNCLOS, Art. 82(3).
72
MW Lodge, ‘The International Seabed Authority and Article 82 of the UN Convention on
the Law of the Sea’ (2006) 21 International Journal of Marine and Coastal Law 327.
73
A Chircop, ‘Energy Policy and International Royalty: A Dormant Servitude Relevant for
Offshore Development’ in Myron H Nordquist, John Norton Moore and Alexander S Skaridov
(eds), International Energy Policy, the Arctic and the Law of the Sea (Martinus Nijhoff Publishers
2005) 247.
74
MW Lodge, ‘The International Seabed Authority and Article 82 of the UN Convention on
the Law of the Sea’ (2006) 21 International Journal of Marine and Coastal Law 325.
75
G Mingay, ‘Article 82 of the LOS Convention – Revenue Sharing – The Mining Industry’s
Perspective’ (2006) 21 International Journal of Marine and Coastal Law 335.
76
UNCLOS, Art. 86.
77
UNCLOS, Art. 87.
78
UNCLOS, Art. 1(1).
79
UNCLOS, Art. 136.
80
UNCLOS, Art. 133(a).
81
UNCLOS, Art. 137(1).
82

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means ‘all activities of exploration for, and exploitation of, the resources of the Area’.83
Article 140 of UNCLOS provides that activities in the area must be ‘carried out for the
benefit of mankind as a whole’ and that the International Seabed Authority is to ‘provide
for the equitable sharing of financial and other economic benefits derived from activities
in the Area through any appropriate mechanism, on a non-discriminatory basis’. The
Authority has been producing regulations for prospecting in the Area, although actual
activity remains limited.84
Tullio Treves has contended that while ‘common heritage’ is not defined in UNCLOS,
‘the notion of common heritage is a label, a shorthand expression, to indicate a set of rules
providing for a regime and a machinery, and that the treaty establishing such regime and
machinery is indeed UNCLOS’.85 Disagreements over the operationalisation of ‘common
heritage of mankind’ and the assertion of national claims concerning seabed resources
has remained mostly theoretical, although developments in contested zones such as the
Arctic and South China Sea could bring these issues to the fore.86
5.8 The Regime of Islands
Article 121(1) of UNCLOS provides that ‘[a]n island is a naturally formed area of land,
surrounded by water, which is above water at high tide’. Such islands generate the same
territorial sea, contiguous zone, EEZ and continental shelf as does a coastline,87 with the
important exception that ‘[r]ocks which cannot sustain human habitation or economic
life of their own shall have no exclusive economic zone or continental shelf’.88 Disputes
between states have taken place over both the ownership and the status of islands proxi-
mate to hydrocarbon resources, as in the South China Sea situation discussed below.
5.9 Delimitation
Where the respective maritime zones of states under UNCLOS meet and overlap, it is nec-
essary for those states to resolve the competing claims. Delimitation of either the EEZ or
the continental shelf must, in the first instance, ‘be effected by agreement on the basis of
international law . . . in order to achieve an equitable solution’.89 If no such agreement can
be reached ‘within a reasonable period of time’, states have recourse to dispute settlement
procedures contained in Part XV of UNCLOS.90
83
UNCLOS, Art. 1(3).
84
Regulations on Prospecting and Exploration for Polymetallic Nodules in the Area,
ISBA/6/A/18, 4 October 2000; Regulations on Prospecting and Exploration for Polymetallic
Sulphides in the Area, ISBA/16/A/12/Rev.1, 7 May 2010; Regulations on Prospecting and
Exploration for Cobalt-rich Ferromanganese Crusts in the Area, ISBA/18/A/11, 22 October 2012.
85
T Treves, ‘Judicial Action for the Common Heritage’ in Holger Hestermeyer and others
(eds), Law of the Sea in Dialogue (Springer 2011) 114.
86
87
88
89
UNCLOS, Arts 74(1), 83(1).
90
UNCLOS, Arts 74(2), 83(2).

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Successful delimitation, or the setting aside of boundary disputes, is particularly

important for the exploitation of hydrocarbons, which invariably requires large invest-
ments. Unsettled disputes can have a chilling effect on such investment.91 It has even been
observed that disputes which stymie resource exploitation can harm the ‘political stability’
of coastal developing states.92
Importantly, UNCLOS also requires that, pending agreement, states, ‘in a spirit of
understanding and cooperation, shall make every effort to enter into provisional arrange-
ments of a practical nature and, during this transitional period, not to jeopardize or
hamper the reaching of the final agreement’.93 It has been argued that this duty to work
towards ‘provisional arrangements’, when coupled with the obligations of cooperation in
enclosed or semi-enclosed seas,94 requires states ‘not only to negotiate in good faith, but
also to cooperate, especially where the maintenance of international peace and security
is at stake’.95
The obligation not to ‘jeopardize or hamper’96 has been elaborated in the case law,
with significant implications for energy exploitation activities. In the 1976 Aegean Sea
Continental Shelf interim measures case, the ICJ allowed seismic surveys on the basis
that they do not irreversibly damage the seabed.97 In the 2007 Guyana/Suriname case, the
Tribunal likewise allowed seismic surveys but prohibited unilateral drilling.98 In the latter
case, Suriname claimed that Guyana had breached its Article 74(3) provisional arrange-
ments obligation as it had ‘persistently demanded that Suriname permit [the Guyanese
concession holder] to resume exploratory drilling and that Suriname accept Guyana’s
concessions in the disputed area’.99 The Tribunal found Guyana to have breached Article
73(4), but it also found Suriname to have breached the same provision by resorting to
‘self-help’ in ‘threatening’ the concession-holder’s rig.100 The Tribunal went on to observe
that Guyana could have discharged its provisional arrangements duties by, inter alia,
‘seeking [the] cooperation of Suriname in undertaking the activities’, ‘offering to share
the results of the exploration’ and ‘offering to share all the financial benefits received from
the exploratory activities’.101
91
See also In the Matter of the Bay of Bengal Arbitration between Bangladesh and India, Award,
PCA, The Hague, 7 July 2014, para. 218.
92
DM Ong, ‘Joint Development of Common Offshore Oil and Gas Deposits: “Mere” State
Practice or Customary International Law?’ (1999) 93 American Journal of International Law 774.
93
UNCLOS, Art. 74(3). The identical Art. 83(3) pertains to delimitation of the continental
shelf.
94
UNCLOS, Art. 123.
95
96
C Yiallourides, ‘Oil and Gas Development in Disputed Waters Under UNCLOS’ (2016) 5
UCL Journal of Law and Jurisprudence 60.
97
Aegean Sea Continental Shelf (Greece/Turkey) (Interim Measures) [1976] ICJ Rep 3. This
and other delimitation cases predated UNCLOS but followed the entry into force of the 1958
Continental Shelf Convention.
98
Guyana/Suriname Case (Arbitral Tribunal) (Award) (2007).
99
Ibid, para. 471.
100
Ibid, paras 473–6.
101
Ibid, para. 477.

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In the 2015 provisional measures case of Ghana/Côte d’Ivoire, the International

Tribunal for the Law of the Sea (ITLOS) provided further guidance. In that case, Côte
d’Ivoire requested provisional measures requiring Ghana to suspend oil operations in
the disputed area. The Special Chamber highlighted the risk of irreparable prejudice to
a party when ‘activities result in significant and permanent modification of the physical
character of the area in dispute’.102 The Special Chamber therefore found that Ghana’s
planned exploration and exploitation activities ‘may cause irreparable prejudice to the
sovereign and exclusive rights invoked by Côte d’Ivoire’.103 However, the Special Chamber
declined to order the suspension of all exploration or exploitation activities, on the basis
that this ‘would entail the risk of considerable financial loss to Ghana and its conces-
sionaires and could also pose a serious danger to the marine environment resulting, in
particular, from the deterioration of equipment’.104 This would ‘cause prejudice to the
rights claimed by Ghana and create an undue burden on it’.105
A principle which emerges from these authorities is that ‘States are obliged to refrain
from undertaking any unilateral oil and gas activities in disputed waters should the latter
prove to aggravate the dispute’.106 Tempering this principle may be a sensitivity to the
economic situation of state which has engaged in exploration activities, as demonstrated
in the Ghana/Côte d’Ivoire Order.
Delimitation remains a major challenge for the EU region. In the Mediterranean,
high seas continue to exist because states have not successfully delimited their overlap-
ping claims.107 As has been observed, such ‘stalemates’ – often driven by geopolitics or
natural resources – hamper the cooperation of states in the protection of the marine
environment.108
6. ENERGY IN THE OCEANS – UNCLOS DISPUTE

RESOLUTION AND MANAGEMENT
It has been more common for states to settle or manage disputes over offshore oil and gas
through diplomatic negotiation than through formal dispute settlement under interna-
tional law.109 As the cases below indicate, both the diplomatic and the legal routes present
challenges.
102
Dispute Concerning Delimitation of the Maritime Boundary between Ghana and Côte
d’Ivoire in the Atlantic Ocean (Ghana/Côte d’Ivoire, Request for the Prescription of Provisional
Measures), Order of 25 April 2015, para. 89.
103
Ibid, para. 96.
104
Ibid, para. 99.
105
Ibid, para. 100.
106
107
M Gavouneli, ‘Mediterranean Challenges: Between Old Problems and New Solutions’
(2008) 23 International Journal of Marine and Coastal Law 479.
108
N Oral, ‘Non-Ratification of the 1982 Law of the Sea Convention: An Aegean Dilemma of
Environmental and Global Consequence’ (2009) 1 Berkeley Journal of International Law Publicist 64.
109
EC Economy and M Levi, By All Means Necessary: How China’s Resource Quest Is Changing
the World (Oxford University Press 2014) 146–7.

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6.1 The Eastern Mediterranean
The Eastern Mediterranean is rich in both hydrocarbons and territorial disputes, which
can be seen as components of generally difficult bilateral relationships. The picture is
further complicated by Israel and Turkey not being parties to UNCLOS.110 The discovery
of large hydrocarbon reserves in the Eastern Mediterranean in recent decades has been
followed by delimitation agreements between littoral states, as precursors to exploita-
tion.111 Economic crisis in the EU’s Eastern Mediterranean Member States has added
impetus to the search for fossil fuel reserves.112 However, the quest for resources has also
been an exacerbating factor in ‘delimitation conflicts’.113
A particularly fraught situation concerns the partitioned island of Cyprus, on which
the breakaway Turkish Republic of Northern Cyprus (TRNC) is recognised by Turkey
and by no other state.114 Turkey and the TRNC have concluded a delimitation agree-
ment with each other and have granted oil concessions to a Turkish state-owned firm in
the waters surrounding Cyprus.115 In addition, in 2014 Turkey conducted surveys in the
Cypriot EEZ. The EU, which is an important actor in efforts to manage and ultimately
resolve the Cyprus question, responded to the survey activity by ‘urg[ing] Turkey to show
restraint and to respect Cyprus’ sovereignty over its territorial sea and Cyprus’ sovereign
rights in its exclusive economic zone’.116
6.2 The South China Sea
Vietnam, China, Taiwan, Malaysia, the Philippines and Brunei all lay claim to disputed
sections of the South China Sea, the vast majority of which falls within the ‘nine-dash
line’ of China’s claim.117 The 1992 creation by China of an oil exploratory block 160 NM
from the coast of Vietnam, prior to China declaring its EEZ, may be seen as evidence of
110
Environmental and Global Consequence’ (2009) 1 Berkeley Journal of International Law Publicist
53.
111
These include: the Maritime Boundary Agreement between the Government of the State of
Israel and the Government of the Hashemite Kingdom of Jordan, 18 January 1996; the Agreement
between the Republic of Cyprus and the Arab Republic of Egypt on the Delimitation of the
Exclusive Economic Zone, 17 February 2003; and the Agreement between the Government of the
State of Israel and the Government of the Republic of Cyprus on the delimitation of the exclusive
economic zone, 17 December 2010, UNTS 2740.
112
S Katsanevakis et al., ‘Marine Conservation Challenges in an Era of Economic Crisis and
Geopolitical Instability: The Case of the Mediterranean Sea’ (2015) 51 Marine Policy 32.
113
Environmental and Global Consequence’ (2009) 1 Berkeley Journal of International Law Publicist
57.
114
See, e.g., UN Security Council Resolution 550, 11 May 1984.
115
N Ioannidis, ‘Friction in the Cyprus EEZ: Analyzing Conflicting Claims under the Law
of the Sea’, http://opiniojuris.org/2014/11/04/guest-post-friction-cyprus-eez-analyzing-conflicting-
claims-law-sea/ (accessed 1 November 2016).
116
European Council, Conclusions, EUCO 169/14, Brussels, 24 October 2014, para. 24.
117
For a detailed assessment, see South China Sea Arbitration, Philippines v China, Award,
Permanent Court of Arbitration, 12 July 2016.

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China’s view of its rights within the ‘nine-dash line’.118 All of the claimants face energy
security concerns.119
It should be acknowledged that experts hold divergent views on the size of the potential
hydrocarbon endowments of the South China Sea.120 Nevertheless, the waning of onshore
oil reserves has prompted rapid expansion of China’s offshore petroleum industry.121 The
resource deposits believed to lie beneath disputed areas of the South China Sea are attrac-
tive to China because they are close and would not have to transit through the maritime
chokepoints of the Straits of Hormuz or Malacca.122
Moves to exploit the hydrocarbon resources of disputed areas of the South China
Sea have caused confrontations between the different claimants. For example, in May
2014 a Chinese state-owned company moved an oil exploration rig west of the Paracel
Islands, deep into Vietnam’s claimed EEZ. This led to confrontations between Chinese
and Vietnamese vessels surrounding the rig and violent protests in Vietnam.123 China
subsequently withdrew the rig from the disputed zone prior to its scheduled completion
of activities.124
Concerning the dispute between the Philippines and China, a recent Center for Strategic
and International Studies (CSIS) study stated that ‘Manila has also been unable to com-
mercially exploit what are believed to be rich natural gas deposits beneath Reed Bank’,
some 80 NM northwest of Palawan, within the Philippine EEZ. ‘The only major natural
gas field currently being exploited in the Philippines is set to run dry around 2024, making
access to Reed Bank vital to the nation’s energy security’.125 Officials and scholars have
periodically floated proposals for ‘joint development’ of the hydrocarbon resources.126 In
2011, the Philippines proposed the creation of a ‘Zone of Peace, Freedom, Friendship
and Cooperation’, including joint development in disputed zones. The proposal came to
naught. The principle that states may not agree to joint development without the consent
118
K Zou, Law of the Sea in East Asia: Issues and Prospects (Routledge 2005) 46–7.
119
NA Owen and CH Schofield, ‘Disputed South China Sea Hydrocarbons in Perspective’
(2012) 36 Marine Policy 811.
120
EC Economy and M Levi, By All Means Necessary: How China’s Resource Quest Is
Changing the World (Oxford University Press 2014) 140.
121
K Fu, ‘China’s Energy Policies and the Law of the Sea’ in Myron H Nordquist, John
Norton Moore and Alexander S Skaridov (eds), International Energy Policy, the Arctic and the Law
of the Sea (Martinus Nijhoff Publishers 2005) 47–9.
122
Changing the World (Oxford University Press 2014) 139–40.
123
M Green, K Hicks and M Cancian, ‘Asia-Pacific Rebalance 2025: Capabilities, Presence,
and Partnerships – an Independent Review of U.S. Defense Strategy in the Asia-Pacific’ (Center
for Strategic and International Studies 2016) 106, https://www.csis.org/analysis/asia-pacific-reba
lance-2025.
124
125
M Green, K Hicks and M Cancian, ‘Asia-Pacific Rebalance 2025: Capabilities, Presence,
and Partnerships – an Independent Review of U.S. Defense Strategy in the Asia-Pacific’ (Center
for Strategic and International Studies 2016) 74, https://www.csis.org/analysis/asia-pacific-rebal
ance-2025.
126
K Fu, ‘China’s Energy Policies and the Law of the Sea’ in Myron H Nordquist, John
Norton Moore and Alexander S Skaridov (eds), International Energy Policy, the Arctic and the Law
of the Sea (Martinus Nijhoff Publishers 2005) 57.

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or participation of all claimants to the relevant zone has further impeded joint develop-
ment proposals in the South China Sea.127
The Arbitral Tribunal concerning the Philippines’ dispute with China, which issued
its substantive Award in 2016, reaffirmed that UNCLOS, rather than any ‘historic
right’, regulates access to hydrocarbon resources. In finding no legal basis for China
to claim historic rights to resources within the sea areas falling within the ‘nine-dash
line’, the Tribunal dismissed the notion that China historically regulated or con-
trolled the exploitation of non-living resources in the seabed as not even ‘theoretically
possible’:
Seabed mining was a glimmer of an idea when the Seabed Committee began the negotiations
that led to the Convention. Offshore oil extraction was in its infancy and only recently became
possible in deep water areas . . . With respect to the seabed, the Tribunal does not see any his-
torical activity that could have been restricted or controlled, and correspondingly no basis for
a historic right.128
6.3 Northeast Asia
Agreements on joint development have progressed further in the seas of Northeast Asia,
although without leading to significant activity. In 1974, Japan and the Republic of Korea
concluded an agreement on joint development of the petroleum resources of a disputed
area of the continental shelf.129 The agreement came in the wake of the OPEC oil embargo
and global oil price spike.130 Nevertheless, ‘the 1974 Agreement has not produced a
single drop of oil, but has produced a number of academic papers, including some PhD
dissertations’.131
In the East China Sea, the distance between China and Japan is less than 400 NM,
resulting in conflicting claims between the two countries.132 In the 1970s, China began
prospecting for hydrocarbons in the East China Sea. In 2004 it began to build an oil
platform at the disputed Chunxiao/Shirabaka gas field. Japan protested this action, con-
cerned, inter alia, that Chinese exploitation would siphon resources from the Japanese
127
V Becker-Weinberg, ‘Joint Development Agreements of Offshore Hydrocarbon Deposits:
An Alternative to Maritime Delimitation in the Asia-Pacific Region’ [2011] China Oceans Law
Review 65.
128
South China Sea Arbitration, Philippines v China, Award, Permanent Court of Arbitration,
12 July 2016, para. 270.
129
Japan and the Republic of Korea, Agreement concerning joint development of the southern
part of the continental shelf adjacent to the two countries (with map, appendix, agreed minutes
and exchanges of notes), Seoul, 30 January 1974, https://treaties.un.org/doc/Publication/UNTS/
Volume%201225/volume-1225-I-19778-English.pdf.
130
Nijhoff Publishers 2012) 127.
131
Judge Choon-Ho Park, cited in K-G Lee, ‘Recent Developments of Maritime Delimitation
in Northeast Asia from an International Law Perspective’ in Myron H Nordquist and John Norton
Moore (eds), Maritime Border Diplomacy (Martinus Nijhoff Publishers 2012) 136.
132

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side of the median line.133 In 2008, China and Japan publicised a ‘principled consensus’
on joint development of the Shirabaka/Chunxiao gas field, but subsequent events sharply
escalated Sino-Japanese tensions in the East China Sea and no development has taken
place.134
7. CURRENT ISSUES
7.1 Pollution and Oceans Law
It is noteworthy that UNCLOS explicitly includes ‘energy’ in its definition of ‘pollu-

tion of the marine environment’.135 This is a broader construction of pollution than
that contained in the 1958 High Seas Convention.136 Part XII of UNCLOS provides
for the protection and preservation of the marine environment and requires states to
take ‘all measures consistent with this Convention that are necessary to prevent, reduce
and control pollution of the marine environment from any source’.137 These measures
include the minimisation of ‘pollution from vessels’138 and ‘pollution from installations
and devices used in exploration or exploitation of the natural resources of the seabed and
subsoil’.139
The potential of oil pollution to devastate the marine environment has been dramati-
cally illustrated by Iraq’s deliberate spillage of millions of barrels of oil into the Arabian
Gulf following its invasion of Kuwait, as an act of sabotage,140 and the 2010 Deepwater
Horizon catastrophe in the Gulf of Mexico. A further source of pollution comes from
the inadequate disposal or outright abandonment of offshore platforms for hydro-
carbon exploitation. It is estimated that there are over seven thousand such platforms
worldwide.141
A further pollution challenge is in the form of greenhouse gases from international
shipping. The UN Framework Convention on Climate Change is mandated142 to address
shipping emissions and works with the International Maritime Organization (IMO),
133
M Hayashi, ‘The 2008 Japan-China Agreement on Cooperation for the Development of
East China Sea Resources’ in Myron H Nordquist and John Norton Moore (eds), Maritime Border
Diplomacy (Martinus Nijhoff Publishers 2012) 43.
134
Changing the World (Oxford University Press 2014) 142.
135
UNCLOS, Art. 1(4).
136
Of which, see Art. 24; L Juda, International Law and Ocean Use Management: The Evolution
of Ocean Governance (Routledge 1996) 241.
137
138
UNCLOS, Art. 194(3)(b).
139
UNCLOS, Art. 194(3)(c).
140
J Briscoe, ‘Iraq’s Defilement of the Gulf Environment and the Damages Awards to Issue’ in
Myron H Nordquist and John Norton Moore (eds), Current Maritime Issues and the International
Maritime Organization (Martinus Nijhoff Publishers 1999) 113.
141
Y Lyons, ‘The New Offshore Oil and Gas Installation Abandonment Wave and the
International Rules on Removal and Dumping’ (2014) 29 International Journal of Marine and
Coastal Law 480.
142
FCCC/CP/1995/7/Add.1, Decision 4/CP.1, paragraph 1(f) (6 June 1995).

LEAL-ARCAS_9781786431042_t.indd 303 08/09/2017 13:02

which is responsible for operationalisation, on this agenda item. In 2011, Annex VI of

the International Convention for the Prevention of Pollution from Ships (MARPOL)143
was amended to address GHG emissions. The amendments entered force in 2013.144 The
amendment also applies to ‘every fixed and floating drilling rig and other platforms’.145
The absence of a global cap on greenhouse gas emissions from shipping leaves open the
prospect of unilateral measures by certain states.146
7.2 Marine Renewable Energy
Marine renewable energy (MRE) includes ocean energy, wind energy from offshore
turbines, geothermal energy from submarine geothermal resources and bioenergy from
marine biomass.147 In Europe, MRE technology has moved beyond the pilot stage, and
offshore wind energy, in particular, has been developed at a commercial scale.148 The North
Sea, which has long been a site of hydrocarbon exploitation, has become the global leader
in offshore wind energy generation.149 The development of MRE in Europe is partly
driven by the EU’s renewable energy targets and by broader treaty objectives concerning
energy that are ‘remarkably avant-garde from an offshore wind power perspective’.150
Most of the North Sea countries are relying on offshore wind to contribute to their respec-
tive targets.151 It has been estimated that offshore wind facilities could become the ‘most
extensive technical development in marine habitats’ in Europe.152
As the UN Secretary-General has noted, the ‘legal framework for marine renewable
energy is anchored in [UNCLOS]’.153 In particular, the territorial sea and EEZ provided
for in the Convention provide certainty of jurisdiction for MRE developers. There is
143
International Convention for the Prevention of Pollution from Ships (London, 2 November
1973), amended by the 1978 Protocol (London, 1 June 1978) 1340 UNTS 184.
144
Amendment to MARPOL Annex VI on Regulation for the Prevention of Air Pollution
from Ships by Inclusion of New Regulations on Energy Efficiency for Ships, Res. MEPC. 203(62),
Doc. MEPC 62/24/Add/1, adopted on 15 July 2011, in force 1 January 2013.
145
Ibid, Annex, Chapter 2, Regulation 5(4).
146
M Bothe, ‘Measures to Fight Climate Change – a Role for the Law of the Sea?’ in Holger
Hestermeyer and others (eds), Law of the Sea in Dialogue (Springer 2011) 44.
147
Oceans and the law of the sea: Report of the Secretary-General, A/67/79, 4 April 2012,
para. 9.
148
Ibid, paras 21–3.
149
HK Müller and M Roggenkamp, ‘Regulating Offshore Energy Sources in the North Sea –
Reinventing the Wheel or a Need for More Coordination?’ (2014) 29 International Journal of
150
R Long, ‘Harnessing Offshore Wind Energy: Legal Challenges and Policy Conundrums in
the European Union’ (2014) 29 International Journal of Marine and Coastal Law 699; Art. 194(1)
TFEU.
151
HK Müller and M Roggenkamp, ‘Regulating Offshore Energy Sources in the North Sea –
Reinventing the Wheel or a Need for More Coordination?’ (2014) 29 International Journal of
152
J-P Ducrotoy and M Elliott, ‘The Science and Management of the North Sea and the Baltic
Sea: Natural History, Present Threats and Future Challenges’ (2008) 57 Marine Pollution Bulletin
14.
153
Oceans and the law of the sea: Report of the Secretary-General, A/67/79, 4 April 2012,
para. 27.

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a trend to locate offshore wind energy further out to sea, in the EEZ.154 As has been
observed, the declaration by North Sea countries of their respective EEZs has given them
the legal right to establish offshore wind installations beyond their territorial seas.155 These
states also assume obligations, such as the removal of disused installations in the EEZ in
accordance with IMO standards.156
The exploitation of MRE also enlivens states’ obligations to protect and preserve the
marine environment under Part XII of UNCLOS.157 Avoiding the ‘paradoxical harm’
of damage to the marine environment in pursuit of climate change mitigation will be
a growing challenge with the proliferation of MRE.158 For the EU, an additional chal-
lenge is to manage disputes between Member States over the siting of offshore wind
farms.159
7.3 Protection of Biodiversity in Areas beyond National Jurisdiction
In 2015 the UN General Assembly resolved to ‘develop an international legally binding

instrument under [UNCLOS] on the conservation and sustainable use of marine bio-
logical diversity of areas beyond national jurisdiction [BBNJ]’.160 This is the latest step
in a long-running negotiation, during which the EU, as noted above, has championed
the creation of a BBNJ instrument. Any BBNJ instrument which results from the
current process would necessarily limit the uses to which areas of the high seas could be
put, potentially affecting the future deployment of installations for generating marine
renewable energy.161 It remains to be seen how a BBNJ instrument could be reconciled
with the UNCLOS freedom of navigation, including regarding the transport of energy
resources.
154
the European Union’ (2014) 29 International Journal of Marine and Coastal Law 694.
155
HK Müller and M Roggenkamp, ‘Regulating Offshore Energy Sources in the North Sea
– Reinventing the Wheel or a Need for More Coordination?’ (2014) 29 International Journal of
156
International Maritime Organization, Guidelines and Standards for the Removal of
Offshore Installations and Structures on the Continental Shelf and in the EEZ. IMO Resolution
A.672, 2008, para. 16.
157
US Department of Energy, Report to the Congress: Potential Environmental Effects of
Marine and Hydrokinetic Energy Technologies, 2008; D Rodríguez-Rodríguez et al., ‘Achieving
Blue Growth through Maritime Spatial Planning: Offshore Wind Energy Optimization and
Biodiversity Conservation in Spain’ (2016) 73 Marine Policy 8.
158
G Wright, ‘Marine Governance in an Industrialised Ocean: A Case Study of the Emerging
Marine Renewable Energy Industry’ (2015) 52 Marine Policy 81.
159
the European Union’ (2014) 29 International Journal of Marine and Coastal Law 703.
160
UN General Assembly, Resolution 69/292, A/RES/69/292, 6 July 2015, para. 1.
161
T Scovazzi, ‘The Negotiations for a Binding Instrument on the Conservation and
Sustainable Use of Marine Biological Diversity beyond National Jurisdiction’ (2016) 70 Marine
Policy 189.

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7.4 Newly Discovered Resources in the EEZ, Continental Shelf and Area
Coastal states and the International Seabed Authority are also confronted with the chal-
lenge of regulating the exploitation of seabed resources discovered subsequent to the
agreement of UNCLOS, which may have very different qualities to oil, gas and manga-
nese nodules.162 One such recently discovered resource may be offshore methane hydrates,
which are believed to have high potential as a source of energy while also posing sig-
nificant risks to both the environment and human communities.163 Reflecting these novel
energy challenges, some scholars have called for an additional protocol to UNCLOS, the
renegotiation of the Convention or the creation of an entirely new convention.164
7.5 Energy Exploration in the Arctic
Most of the potential offshore hydrocarbon resources in the Arctic remain unexplored,
and it is estimated that the Arctic is home to significant proportions of global undis-
covered oil and gas reserves.165 Currently, some 80 per cent of these resources is covered
by ice for at least part of the year – a situation that could be dramatically altered by
climate change, putting substantially more oil and gas within reach for exploitation.166
Drilling for oil is currently taking place in Norwegian and Russian waters.167 However,
a number of projects have been discontinued, with the low price of oil a major factor in
decision-making.168
The five coastal Arctic nations (including the United States, which is not a signatory
to UNCLOS) have jointly recognised that UNCLOS ‘provides for important rights
and obligations concerning the delineation of the outer limits of the continental shelf,
the protection of the marine environment, . . . freedom of navigation, marine scientific
research, and other uses of the sea’.169 However, the Arctic remains subject to competing
162
G Hafner, ‘The Division of the Commons? The Myth of the Commons: Divide or Perish’
in Holger Hestermeyer and others (eds), Law of the Sea in Dialogue (Springer 2011) 103; L Juda,
International Law and Ocean Use Management: The Evolution of Ocean Governance (Routledge
1996) 3.
163
RA Partain, ‘A Comparative Legal Approach for the Risks of Offshore Methane Hydrates:
Existing Laws and Conventions’ (2015) 32 Pace Environmental Law Review 791.
164
M Tsamenyi and M Herriman, ‘Ocean Energy and the Law of the Sea: The Need for a
Protocol?’ (1998) 29 ODIL 3; F Galea, ‘A Legal Regime for the Exploration and Exploitation
of Offshore Renewable Energy’ (2011) 25 Ocean Yearbook 101; S Rares, ‘An International
Convention on Offshore Hydrocarbon Leaks?’ (2011) 12 Lloyd’s Maritime and Commercial Law
Quarterly 361.
165
S Gulas et al., ‘Declining Arctic Ocean Oil and Gas Developments: Opportunities to
Improve Governance and Environmental Pollution Control’ (2017) 75 Marine Policy 53.
166
HM Osofsky, J Shadian and SL Fechtelkotter, ‘Arctic Energy Cooperation’ (2015) 49 UCD
Law Review 1435.
167
168
HM Osofsky, J Shadian and SL Fechtelkotter, ‘Arctic Energy Cooperation’ (2015) 49 UCD
Law Review 1431.
169
Ilulissat Declaration, U.S.-Can.-Den.-Nor.- Russ., May 28, 2008, available at http://www.
oceanlaw.org/downloads/arctic/Ilulissat_Declaration.pdf.

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continental shelf claims.170 The extreme challenges of hydrocarbon exploitation in the

Arctic also pose major environmental risks.171
8. AGENDA FOR FUTURE RESEARCH
There are opportunities for future research on the relationship between the law of the
sea and energy which responds to current developments under UNCLOS, current geopo-
litical challenges and the ongoing development of energy technology – including marine
renewable energy – which creates new challenges of legal application. Such research
would assist in both understanding rapidly changing systems and creating legal options
for peaceful and environmentally sound outcomes. Issues that would benefit from further
research include:
● The modalities of operationalising Article 82 of UNCLOS;

● Further work on the factors which prevent successful joint development of energy
resources in disputed zones and opportunities to address these through legal and
diplomatic tools;
● The application of Part XIV of UNCLOS on the development and transfer of
marine technology – and any relevant component of a future BBNJ instrument – to
marine renewable energy;
● The scope for a future BBNJ instrument to facilitate the environmentally sound
generation of renewable energy in the high seas;
● Legal options to further address greenhouse gas emissions reductions from, and
improvements to the energy efficiency of, international shipping.
9. CONCLUSION
Oran Young’s warning of the danger of ‘thinking of regimes as rigid and unchanging
structures whose existence is somehow separate from ongoing political and economic
interactions within the relevant social structure’ is relevant to the current challenges
faced by the law of the sea concerning energy.172 Both the increasing ability to exploit
the finite energy resources of the ocean floor, and the new capacity to generate renewable
energy from the water column above it, are products of the evolving technological, eco-
nomic and political contexts in which UNCLOS must operate. Ongoing geopolitical ten-
sions and rival territorial claims further complicate energy governance under UNCLOS.
In the 1940s, Stefan Riesenfeld wrote that ‘the maritime frontiers of the world’ are not
‘sharp lines between national sovereignty’.173 This observation holds particularly true
170
171
Ibid, 54.
172
O Young, Resource Management at the International Level (Frances Pinter 1977) 46.
173
SA Riesenfeld, Protection of Coastal Fisheries Under International Law (Columbia University
Press 1942) 2.

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today for the energy resources of the sea. The rights and obligations carefully apportioned
under the UNCLOS ‘package deal’ continue to offer a robust framework for negotiating
controversies between states in this connection. However, creative legal and policy work
will be needed to apply the framework to both expanding technological capabilities and
urgent demands for environmental protection. The EU, as both a policy innovator and a
leading contributor to the development of international oceans law, will have a key role
to play.

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17. Access to an effective remedy in business-related
human rights violations in the context of oil and
gas disputes
Youseph Farah and Malakee Makhoul
1. INTRODUCTION
EU oil and gas companies occupy a significant share of the extractive industry, and have
a significant global reach. Whilst this can bring benefits for communities by creating
wealth and jobs, adding value and providing services, sometimes corporate activity can
have negative consequences for people, with a significant impact on civil and political
rights, economic, social and cultural rights, labour rights and the environment. When this
happens, the people who have been harmed often seek reparation, and expect the company
to be held to account. Victims of business-related human right violations (victims) have
increasingly sought a remedy in the home state of the parent company, either in relation
to its direct act or in relation to the unlawful conduct of its subsidiary in the host state.
We place the debate within the EU’s commitment to business and human rights. The
European Commission has endorsed the ‘United Nations Guiding Principles on Business
and Human Rights’1 (UNGPs), and committed to supporting their implementation,
encouraging companies to adhere to internationally recognised human rights, guidelines
and principles. In relation to the oil and gas sector, the European Commission issued a
non-binding ‘Oil and Gas Sector Guide on Implementing the UN Guiding Principles on
Business and Human Rights’2 (EU Oil and Gas Guide). This Guide recognises the poten-
tial adverse human rights risks that the oil and gas sector could present and advises on
how to implement the corporate responsibility to respect human rights in daily b usiness
operations through step-by-step guidance.
The Guide is intended to help oil and gas companies ‘translate’ respect for human
rights into their own systems and cultures.3 It refers to the interdependence of the state,
corporate entities and remedy pillars of the UNGPs. This means that the availability of
a system of redress which supports effective access to a remedy for victims, and which
gives effect to internationally recognised human rights, is fundamental to achieving the
objectives of the UNGPs. Whilst this may be taken for granted in some jurisdictions, it is
1
Office of the High Commissioner for Human Rights, ‘Guiding Principles for Business and
Human Rights: Implementing the United Nations “Protect, Respect and Remedy” Framework’
UN New York and Geneva 2011, HR/PUB/11/04 [hereinafter ‘UNGPs’].
2
See Shift and Institute for Human Rights and Business for the European Commission, ‘Oil
and Gas Sector Guide on Implementing the UN Guiding Principles on Business and Human
Rights’ (Brussels, 2013) [hereinafter ‘EU Oil and Gas Guide’], http://www.ihrb.org/pdf/eu-sector-
guidance/EC-Guides/O&G/EC-Guide_O&G.pdf (accessed 13 July 2016).
3
Ibid, p 3.
309
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less so in many of the jurisdictions in which EU-based oil and gas companies and their
subsidiaries operate.
Nowadays civil society, investors and international and national institutions are urging
oil and gas corporations to demonstrate how they make provision for the potential impact
of their activities on human rights, and asking whether these corporations are capable of
resolving issues arising in this area.4 It is increasingly evident that corporations may have
as much impact as governments do on human rights. Evidence suggests that victims of
human rights abuses, choosing court litigation within the EU or in other home states such
as the US, continue to face factual and legal challenges associated with court litigation.
Whilst there are some isolated success stories, all in all the experience has been challenging.
It has become evident that more often than not victims do not have an effective remedy
against the unlawful conduct of corporations, and that ‘there are clear gaps in the current
human rights accountability system’.5 The available avenues of seeking redress have been
too often afflicted with procedural and substantive obstacles. Human rights litigation
on the one hand, and recourse to non-binding non-judicial grievance mechanisms on
the other, have struggled to offer an effective remedy. For that reason, some civil society
lawyers and academics have called for the establishment of state-based non-judicial griev-
ance mechanisms to have enforceable outcomes and a broad mandate over the types of
human rights cases to be resolved by such processes.6 Others have recommended the estab-
lishment of an international business and human rights arbitral tribunal.7 This chapter is
therefore significant because it contributes to this debate and offers a timely analysis of
the role of binding non-judicial grievance mechanisms in strengthening victims’ access to
an effective remedy.
Specifically, this chapter offers, for the first time in academic writing, detailed analysis
on whether unilateral arbitration can serve as a viable mechanism for remediation of
human rights violations occurring in the oil and gas sector, whilst comparing its effective-
ness with other forms of judicial and non-binding non-judicial grievance mechanisms. In
this chapter unilateral arbitration is taken to mean that the participation in the arbitral
proceedings and its outcome (award) are binding only on the corporation. It will be shown
4
For example see the work of Amnesty International Charity, http://www.amnestyusa.org/
our-work/issues/business-and-human-rights/oil-gas-and-mining-industries; Friends of the Earth
Europe, http://www.foeeurope.org/extractive-industries; Greenpeace, http://energydesk.greenpea
ce.org/2016/03/03/shell-faces-fresh-legal-action-over-niger-delta/ (accessed 10 July 2016).
5
For example see, Report by Corporate Responsibility Coalition (CORE), ‘Protecting Rights,
Repairing Harm: How State-based Non-judicial Mechanisms Can Help Fill the Gaps in Existing
Frameworks for the Protection of Human Rights of People Affected by Corporate Activities’
(2010) [hereinafter ‘CORE Report’], https://business-humanrights.org/sites/default/files/media/
documents/ruggie/core-submission-to-ruggie-nov-2010.pdf (accessed 18 January 2017).
6
Ibid; see ‘Human Rights in Business: Removal of Barriers to Access to Justice in the
European Union – Executive Summary’ (Project coordinators Juan José Álvarez Rubio, Katerina
Yiannibas and Globernance Institute for Democratic Governance) [hereinafter ‘Human Rights
in Business: Removal of Barriers’]. The full study is due to be published in mid-2017, http://
humanrightsinbusiness.eu/wp-content/uploads/2016/09/EXECUTIVE_SUMMARY_HRB_Res
earch_Results.pdf (accessed 18 November 2016)
7
CORE Report (n 5); See Claes Cronstedt and Robert C Thompson, ‘An International
Tribunal of Business and Human Rights’, April 2015, http://www.l4bb.org/news/TribunalV5.pdf
(accessed 30 January 2017).

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An effective remedy in business-related human rights violations 311
that the oil and gas sector exhibits many of the important elements that would make this
a success.
This chapter is divided into three main parts. Section 2 analyses the EU’s competence
to act in the sphere of energy, business and human rights. It starts with examining the
underlying UNGPs, laying down issues to be addressed and implemented by the EU and its
Member States. Limits on the EU’s competence in this sphere make it difficult for the EU
to advance through binding instruments its policy imperative of ensuring respect of human
rights by corporations, and the remediation of victims of business-related human rights
violations. This gap between the declared policy imperatives of supporting the UNGPs
and what the EU can do in practice demonstrates the need to have a fresh approach to
making the remediation effective. Section 3 analyses issues relating to access to judicial
remedies in the EU through transnational tort litigation against EU-based oil and gas com-
panies. It highlights the challenges that third country nationals (victims) face when seeking
redress in an EU Member State’s court. The analysis concerning the recent retreat in Alien
Tort Statute (ATS) litigation post Kiobel provides further evidence that court litigation has
its limits, which makes the need for non-judicial grievance mechanisms all the more urgent.
Section 4 makes a case for non-judicial binding dispute resolution in the oil and gas sector
as an effective, legitimate, accessible and rights-compatible grievance mechanism, which
could provide support to existing judicial and non-judicial grievance mechanisms.
2. PROTECT, RESPECT AND REMEDY IN THE EU CONTEXT
Since the early 1970s it has been clear to the UN that a framework of human rights was
essential to rein in businesses’ negative impact on society, and ensure greater respect for
human rights. Horrific disasters such as the Bhopal gas disaster, which left thousands of
people dead and several thousand with partial or permanent disability, further awakened
the desire among civil society, governments and responsible businesses to do more to
ensure that human rights are put ahead of business interests.8
The first serious attempt to regulate businesses globally was in 2003, when the UN
sub-commission on the Promotion and the Protection of Human Rights presented to the
UN the Draft Norms on the Responsibilities of Transnational Corporations and Other
Business Enterprises with Regard to Human Rights (UN Draft Norms).9 The Draft
Norms were initially meant to be binding rules. General Principle 1 of the UN Draft
Norms, for example, stated that ‘transnational corporations and other business enter-
prises have the obligation to promote, secure the fulfilment of, respect, ensure respect of,
and protect human rights recognized in international as well as national law’ (emphasis
added). This initiative was met with fierce objection by businesses and it was therefore
very difficult to pass these norms as binding international law.10
8
See www.bhopal.com for figures and further details about the tragedy.
9
See United Nation Sub-Commission on the Promotion and Protection of Human Rights,
Draft Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises
with Regard to Human Rights, E/CN.4/Sub.2/2003/12/Rev.2, 26 August 2003.
10
For a critical discussion of the UN Draft Norms see, John Ruggie (2007), ‘Business and Human
Rights: The Evolving International Agenda’ 101 American Journal of International Law 819, p 825.

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Following the unsuccessful attempt to introduce the binding UN Draft Norms,

Professor John Ruggie was appointed as the special rapporteur on business and human
rights entrusted with a mandate to introduce a framework for business and human
rights.11 This mandate culminated in the UNGPs, which were adopted by the UN Human
Rights Council.12 The UNGPs have sought to clarify the respective roles and responsibili-
ties of states, businesses and those affected by business-related human rights violations
through a set of 31 guiding principles framed in a three-pillar structure:13
● The state’s duty to protect against human rights abuses by third parties, including
businesses;
● The corporate responsibility to respect the human rights of those affected by their
operations; and
● The right of victims to an effective remedy (judicial and non-judicial) when human
rights violations do occur.
The UNGPs have not resolved the existing debate as to whether corporations are bearers
of obligations under international law.14 Instead the UNGPs stipulate that corporations
have a responsibility to respect internationally recognised human rights, understood
at a minimum to be those rights expressed in the international Bill of Human Rights
and the principles concerning fundamental rights set out in the International Labour
Organization’s Declaration on Fundamental Principles and Rights at Work.15 The use
of the term ‘corporate responsibility’ expresses the UNGPs’ view that corporations are
expected to behave responsibly on a voluntary basis.16 Conversely, the UNGPs confirm
that states are the principal bearer of international human rights obligations, and have
existing obligations to ‘respect, protect and fulfil human rights and fundamental free-
doms’.17 In other words, UNGPs do not establish a legal responsibility mechanism for
corporations under international law. Under the second pillar of the UNGPs, corpora-
tions have the responsibility to ‘avoid causing or contributing to adverse human rights
impacts and to prevent, or mitigate such impacts that are directly linked to their opera-
tions, products or services . . . even if they have not contributed to those impacts’.18 This
11
See Human Rights Council, Report of the Special Representative of the Secretary General
on the issue of human rights and transnational corporations and other business enterprises, John
Ruggie, ‘Guiding Principles on Business and Human Rights: Implementing the United Nations
“Protect, Respect and Remedy” Framework’, 2011 UN Doc. A/HRC/17/31, 21 March 2011.
12
The Human Rights Council endorsed the Guiding Principles in its Resolution 17/4 of 16
June 2011.
13
United Nation Human Right Council (UNHRC), ‘Protect, Respect, and Remedy: A
Framework for Business and Human Rights: Report for the Special Representative of the
Secretary-General on the issue of Human Rights and Transnational Corporations and other
Business Enterprises, John Ruggie’, A/HRC/8/5, 7 April 2008, https://business-humanrights.org/
sites/default/files/reports-and-materials/Ruggie-report-7-Apr-2008.pdf (accessed 10 January 2017).
14
See Andrew Clapham, Human Rights Obligations of Non-State Actors (Oxford University
Press 2006), Chapters 2 and 3.
15
UNGPs (n 1) Principle 12.
16
Ibid, p 195.
17
Ibid, p 195.
18
Ibid, Principle 13, see also commentary to this article.

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responsibility is to be achieved by carrying out human rights ‘due diligence’.19 Despite this
focus on effective due diligence, the right to a remedy, the third pillar of the UNGPs, has
received limited attention and constructive focus relative to the first two pillars.20
The nature of the UNGPs is soft. This means that from a normative perspective, they
organise the relationship between corporations and individuals affected by their conduct
without any legal constraints in place.21 It is worthwhile noting that Bolivia, Cuba and a
group of other states who had not been satisfied by the non-binding nature of the UNGPs
drafted a resolution calling for the adoption of a binding Business and Human Rights
Treaty. In June 2014, the UN Human Rights Council adopted the resolution and set up a
working group to proceed on the issue.22 Furthermore, the Global Business Initiative on
Human Rights, the UN Global Compact, Business for Social Responsibility and six other
organisations recently issued a statement supporting the UN Framework and Guiding
Principles, however wishing to see states implement the state duty to protect human rights;
it also acknowledges that ‘without concerted action from all States in all regions of the
world, the vision of the Guiding Principles will not be fully realised’.23
The European Commission has endorsed the UNGPs and committed to supporting
their implementation, encouraging companies to adhere to international guidelines and
principles.24 However, as will be demonstrated in the next part of this chapter, the EU has
limited competence to bring about the objectives of the UNGPs. Nevertheless, the EU still
has a role in protecting, promoting and furthering the protection of human rights and in
supporting its Member States in effectively fulfilling their obligations.
2.1 EU Competences on Energy, Business and Human Rights
Energy and human rights under EU law are made of complex issues; they touch upon a
wide range of different legal and political areas, including but not limited to human rights
law, labour law, environmental law, anti-discrimination law, international humanitarian
law, investment and trade law, civil law, commercial law, corporate law and penal law.
Therefore, they entail different competences of the EU accordingly. The EU’s regulatory
competence, and hence the Commission’s ability to act, varies according to the scope of
19
UNGPs (n 1) Principle 17.
20
Human Rights in Business: Removal of Barriers (n 6).
21
Isabelle Duplessis, ‘Soft International Labour Law: The Preferred Method of Regulation
in Decentralized Society’ in Jean-Claude Javillier (ed.), Governance, International Law and
Corporate Social Responsibility (International Institute for Labour Studies, International Labour
Organization, 2008) pp 7–36.
22
United Nations, Human Rights Council, Elaboration of an International Legally Binding
Instrument on Transnational Corporations and other Business Enterprises with Respect to Human
Rights, 25 June 2014, A/HRC/26/L.22/Rev.1.
23
Session at the UN Annual Forum on Business and Human Rights ‘National Action Plans
to Implement the UN Guiding Principles: Stepping Up Government Commitments and Action’,
16 November 2016, http://www.global-business-initiative.org/wp-content/uploads/2016/11/NAPs-
Statement-Nov-2016.pdf (accessed 9 December 2016).
24
European Commission, Implementing the UN Guiding Principles on Business and Human
Rights – State of Play. Commission Staff Working Document SWD(2015)144 final, p 6 [hereinafter
‘Commission – State of Play’].

LEAL-ARCAS_9781786431042_t.indd 313 08/09/2017 13:02

competence awarded to the EU in respect of each of those areas.25 Notably, there is no

clear mention in the treaties of the interaction between business and human rights, and
instead we have been left with partial competence of different elements.
The protection of human rights is one of the common values upon which the EU was
founded, as stated in Article 2 of the Treaty on European Union (TEU).26 The EU rec-
ognises the rights, freedoms and principles set out in the Charter of Fundamental Rights
of the European Union to have the same legal value as the Treaties.27 The Charter applies
to the European Union in all its actions, and to Member States whenever they implement
EU law. As such, the Charter does not extend the EU’s competencies but rather obliges
the EU and its Member States to comply with human rights standards whenever EU law
is implemented.28 Even so, the EU aims to make EU industry and business more com-
petitive and to promote job creation and economic growth by creating a business-friendly
environment.29
In terms of the EU’s competence on energy, Article 4(1) of the Treaty on the
Functioning of the Union (TFEU) sets ‘energy policy’ as one of the Union’s shared com-
petences.30 The Treaty also introduced a new chapter on energy, making energy a formal
policy issue on the EU level.31 However, Article 194 of the TFEU clarifies the scope of
energy policy to energy ‘security’ and ‘efficiency’ in the internal market.32 It also stipulates
that national sovereignty over natural resources and energy taxation are matters for the
Member States, and that there is a shared Union competence for the rest.33 This creates
an ambiguity about which legal base to use in external action on energy, and where to
draw the line in the mix of the Union’s and Member States’ competences.34 Furthermore,
EU energy strategy is not only internally focused but also has consumers as a central
concern, introducing regulations that insist that consumers are better informed to make
the most of the opportunities offered by the internal energy market, and are given greater
transparency on where their energy has come from.35 This demonstrates that despite the
25
According to Article 5(2) TEU, the EU shall only act within the confines of the competences
conferred upon it by the Member States in pursuance of the objectives set out in the Treaties. In
addition, the use of Union competences is governed by the principles of subsidiarity (Article 5(3)
TEU) and proportionality (Article 5(4) TEU).
26
Consolidated Version of the Treaty on European Union, OJ 2012 C 326/13.
27
Article 6 TEU.
28
Article 6(1) TEU, ‘. . . The provisions of the Charter shall not extend in any way the compe-
tences of the Union as defined in the Treaties . . .’.
29
Article 3(3) TEU.
30
Consolidated Version of the Treaty on the Functioning of the European Union, OJ 2012 C
326/47 [hereinafter ‘TFEU’].
31
Chapter XXI, Article 194 TFEU. EU energy policy also deals with energy sources ranging
from fossil fuels, nuclear power, renewables (solar, wind, biomass, geothermal, hydro-electric and
tidal). For information see http://ec.eurropa.eu/energy/en (accessed 10 September 2016).
32
Article 194(1) TFEU.
33
Article 194(2) and (3) TFEU.
34
Sami Andoura, Leigh Hancher and Marc Van der Woude, ‘Towards a European Energy
Community: A Policy Proposal’ 76 Notre Europe Studies & Research (2010), Notre Europe, Paris.
35
European Commission, ‘Energy: Sustainable, Secure Affordable Energy for Europeans’
(European Commission, European Union Explained, July 2012), https://ec.europa.eu/energy/sites/
ener/files/documents/energy.pdf (accessed 10 September 2016).

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significant impact EU energy companies have on social rights where they operate, there
is a lack of synergy between the EU’s energy policy and its commitment to the UNGPs.
An example of the complications and limits of EU competence is the EU’s Directive
on safety and environment of offshore oil and gas operations (EU Offshore Safety
Directive).36 This Directive was enacted following the ‘Deepwater Horizon’ incident in
the Gulf of Mexico in April 2010.37 The Directive requires oil and gas companies to iden-
tify and manage major accident hazards and to put in place effective response strategies
should an incident occur. The Directive also required the creation of offshore competent
authorities within the Member States.38 The competent authorities should be independ-
ent and in charge of implementing the Directive in areas such as verification of safety
provisions and emergency readiness.39 Whilst the Directive applies only to the EU, Article
20 of the Directive suggests that an oil and gas company with its headquarters in the
EU has to apply uniform offshore safety and environmental policies to all its operations
worldwide. However, it is down to the discretion of Member States to request reports on
major accidents that occur in other territories. The Directive does not oblige the oil and
gas company to remediate the harm caused to victims by a conduct which falls below
the safety standards of the Directive. The Directive’s main objective is to promote and
enhance the safety culture of the EU oil and gas sector.
The European Union also recognises the importance of the external dimension of its
energy policy. Concerning the Union’s external action, Article 21 of the TFEU states
that ‘the Union shall define and pursue common policies and actions . . . consolidate
and support democracy, the rule of law, human rights and the principles of international
law’. The EU seeks to ‘prevent violations of human rights throughout the world, and
where violations occur, to ensure that victims have access to justice and redress that those
responsible are held to account’.40
Therefore, the EU’s ability to act varies on the scope of competence awarded to the EU
in respect of each of those areas. The next section deals with specific actions designed
to implement, streamline and promote human rights in some aspects of EU politics and
policies relevant to the oil and gas sector, addressing EU institutions as well as Member
States.
36
Directive 2013/30/EU on the Safety of Offshore Oil and Gas Operations and amending
Directive 2004/35/EC, OJ 2013 L178/66.
37
See Commission Communication, ‘Facing the Challenge of the Safety of Offshore Oil and
Gas Activities’, (32060) 14768/10 COM (10) 560.
38
This office will be known as the ‘Offshore Safety Directive Regulator’, an independent body
that provides regulatory oversight of the management of major accident, safety and environmental
risks. It is also responsible for implementing the EU Directive. For example, the UK set up the
Offshore Safety Directive Regulator (OSDR), http://www.hse.gov.uk/osdr/index.htm.
39
The Environmental Liability Directive requires the damage caused by a major environmen-
tal incident to be remediated and paid for by the company responsible. Article 7 of the Directive
prescribes that ‘Member States shall ensure that the licensee is financially liable for the prevention
and remediation. . .’.
40
The Council of the European Union, ‘Council Conclusions on the EU Action Plan on
Human Rights and Democracy 2015 – 2019’, 10897/15 COHOM 81 CFSP/PESC 399 COSCE
5 FREMP 160 INF 132 JAI 562 RELEX 604 DEVGEN 132 CONUN 142 (20 June 2015) p 2
[hereinafter ‘Council Conclusions on the EU Action Plan’].

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2.2 Implementing Business and Human Rights in the EU
The EU’s ‘Action Plan on Human Rights and Democracy’41 affirms the European
Union’s commitment to promoting and protecting human rights.42 The EU coordinates
its approach to business and human rights through its wider ‘Strategy on Corporate Social
Responsibility’ (CSR).43
The Commission promotes CSR in the EU and encourages enterprises to adhere
not only to UNGPs but also to international guidelines and principles, such as the UN
Global compact; International Organization for Standardization (ISO) 26000; Standards
on Social Responsibility, the International Labour Organization (ILO); Tripartite
Declaration of Principles concerning Multinational Enterprises and Social Policy (MNE
Declaration); and the Organisation for Economic Co-operation and Development
(OECD) Guidelines for Multinational Enterprises.44
The Commission expects that enterprises ‘should have in place a process to integrate
social, environmental, ethical human rights and consumer concerns’.45 Thus, CSR
influences a wide range of relationships, including with employees, suppliers, consum-
ers and civil society.46 For example, in 2014 the European Council and the European
Parliament jointly adopted Directive 2014/95 as regards disclosure of non-financial and
diversity information by certain large undertakings and groups, which called for larger
European companies to report annually on non-financial matters, including human
rights performance.47
The EU’s approach to CSR is ‘built upon “a smart mix of voluntary policy meas-
ures and, where necessary, complementary regulation” as well as the notion that
“the development of CSR should be led by enterprises themselves”’. This approach
holds true for the implementation of the UNGPs. At EU level, the UNGPs are rec-
ognised as an authoritative reference point.48 At national level, EU Member States
41
Council of the European Union, Strategic Framework and Action Plan on Human Rights
and Democracy, 11855/12 EU (Luxembourg, 25 June 2012).
42
Council Conclusions on the EU Action Plan (n 40).
43
Corporate social responsibility (CSR) in the EU refers to companies taking responsibility for
their impact on society. See more on the EU’s corporate social responsibility at http://ec.europa.eu/
growth/industry/corporate-social-responsibility_en (accessed 10 November 2016); Commission –
State of Play (n 24), pp 1–2, 14.
44
See Commission – State of Play (n 24), p 32; Council of the European Union, ‘Council
Conclusions on Business and Human Rights’, 10254/16 COHOM 78 CONUN 115 DEVGEN 132
FREMP 191 COPS 186 CFSP/PESC 484; and Press Release 359/16 (20 June 2016) [hereinafter
‘Council Conclusions on Business and Human Rights’].
45
European Economic and Social Committee and the Committee of the Regions, ‘A Renewed
EU Strategy 2011–14 for Corporate Social Responsibility’, COM(2011) 681 final, 25 October 2011.
46
See Jennifer A Zerk, Multinationals and Corporate Social Responsibility: Limitations and
Opportunities in International Law (Cambridge University Press 2011), p 31.
47
amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information
by certain large undertakings and groups, OJ 2014 L 330/1.
48
Commission – State of Play (n 24), pp 2, 8; Council Conclusions on Business and Human
Rights (n 44); European Parliament Resolution of 12 March 2015 on the Annual Report

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have committed to developing National Action Plans on the implementation of the
UNGPs.49
Part of the European Commission’s policy on corporate social responsibility in 2011
was to deliver sector-specific human rights guidance. One of three guides is the ‘EU Oil
and Gas Guide’,50 which set out the expectation that companies should have a process to
integrate social, environmental, ethical, human rights and consumer concerns into their
business operations and core strategy. This should be done in close cooperation with their
stakeholders. The guide is not legally binding.51 The guide is based on the three pillars of
the UNGPs ‘Protect, Respect and Remedy’ and makes clear that Member States’ obliga-
tions and companies’ responsibilities are independent of each other.52
The EU’s approach to the oil and gas sector’s conduct abroad is soft and flexible,
encouraging rather than compelling corporations to comply with UNGPs. Recognising
this, the state’s duty to protect is complemented by the right of victims to an effective
remedy. For success, much depends on clear National Action Plans53 by Member States,
and goodwill on the part of corporations. The next section scrutinises the legal ground
for access to remedy.
3. ACCESS TO AN EFFECTIVE REMEDY
It is firmly established under international law that it is the state’s duty to ensure that
victims of business-related human rights violations have access to an effective remedy.54
According to international human rights law, ‘access to justice’ is a basic principle of the
rule of law.55 It is enshrined in Articles 2(3) and 14 of the United Nations International
on Human Rights and Democracy in the World 2013 and the European Union’s policy on the
matter (2014/2216(INI)); OJ 2016 C316/141, para 100.
49
The Commission published a Joint Communication with the European External Action
Service on the Action Plan on Human Rights and Democracy (2015–2019) ‘Keeping Human
Rights at the Heart of the EU Agenda’, JOIN(2015) 16 final. This Plan will be composed of three
main parts depending on the kind of competences (exclusive, shared and supporting) and explain
what the EU has done to implement the UNGPs.
50
The other two guides cover employment and recruitment agencies and ICT companies.
51
EU Oil and Gas Guide (n 2), p 5.
52
EU Oil and Gas Guide (n 2), p 5. However, the Guide recognises that where governments are
unwilling or unable to meet their own human rights obligations, this makes it more challenging for
oil and gas companies to avoid being involved in harm to individuals’ human rights.
53
EU and its Member States are committed to actions to make advances on business and
human rights. See Council Conclusions on the EU Action Plan (n 40); Council Conclusions on
Business and Human Rights (n 44).
54
Basic Principles and Guidelines on the Right to a Remedy and Reparation for Victims of Gross
Violations of International Human Rights Law and Serious Violations of International Humanitarian
Law. Adopted and proclaimed by General Assembly resolution 60/147 of 16 December 2005.
55
Access to justice is safeguarded in a number of UN instruments, such as the 1998 Aarhus
Convention on Access to Information, Public Participation in Decision-Making and Access
to Justice in Environmental Matters and the 2006 Convention on the Rights of Persons with
Disabilities. It is also part of United Nation Development Programme (UNDP) http://www.
undp.org/content/undp/en/home/ourwork/democraticgovernance/focus_areas/focus_justice_law.
html (accessed 11 November 2016).

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Covenant on Civil and Political Rights56 and Articles 8 and 10 of the United Nations
Universal Declaration of Human Rights.57 Principle 26 of UNGP also confirms that
Member States have an obligation to remove all ‘legal, practical and other relevant barri-
ers’ to effective remedies.58
In the EU, Article 47 of the Charter of Fundamental Rights of the EU (the right
to effective remedy) recognises access to justice as a core fundamental right.59 Articles
81 and 82 of the TFEU confer competence on the EU to legislate in areas relating to
judicial cooperation in criminal and civil matters. This provides the basis for the EU
to harmonise in areas affecting EU civil justice, such as jurisdiction of the courts, the
recognition and enforcement of judicial decisions in civil and commercial matters,
and judicial assistance in cross-border situations. ‘Outside of these areas, EU Member
States remain competent for ensuring effective remedies for victims of corporate related
human rights abuses’.60 We shall see in section 3.1.1 below that this EU framework has
had little positive impact on allowing victims of human rights violations to access an
effective remedy.
The Charter of Fundamental Rights does not extend the competence of the EU to
matters not included by the Treaties. The EU Charter of Fundamental Rights applies
to EU institutions and bodies without restriction, and to Member States ‘when they are
implementing Union law’.61 In addition, all 28 EU Member States are also State Parties to
the European Charter on Human Rights (ECHR), which also provides ‘access to justice’,
a right which is enshrined in Articles 6 and 13 of the European Convention on Human
Rights. This means that if the Charter of Fundamental Rights does not apply, the ECHR
may apply.
According to international and European human rights law, ‘the notion of access to
justice obliges states to guarantee each individual’s right to go to court – or, in some cir-
cumstances, an alternative dispute resolution body – to obtain a remedy if it is found that
the individual’s rights have been violated’.62 Access to justice enables victims of human
rights violations to effectively enforce their right and remedy damage suffered, irrespec-
tive of the nature of the right.63 Although the systems are distinct, Article 13 of the
56
General Assembly (GA) (1996), International Covenant on Civil and Political Rights
(ICCPR), 16 December 1966.
57
UNGA (1948), Universal Declaration of Human Rights (UNDHR), 10 December 1948.
58
UNGPs (n 1) Principle 26: ‘States should take appropriate steps of domestic judicial
mechanisms when addressing business-related human rights abuses, including considering
ways to reduce legal, practical and other relevant barriers that could lead to denial of access to
remedy’.
59
It is also recognised as a core fundamental human right under the European Convention on
Human Rights (Articles 6 and 13).
60
Commission – State of Play (n 24), p 23.
61
Article 51 of Charter of Fundamental Rights of the EU. However, the application of the
Charter is subject to the principle of subsidiarity as explained in n 25 above.
62
European Union Agency for Fundamental Rights and Council of Europe (FRA) Handbook
on European Law Relating to Access to Justice (Luxembourg: Publications Office of the European
Union, 2016) p 16 [hereinafter ‘FRA Handbook’].
63
Ibid, pp 24–9. It is not confined to criminal charges and civil and political as well as eco-
nomic and social rights and obligations; the Charter, however, applies domestically only when
Member States are implementing (or derogating from) EU law.

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ECHR and Article 47 of the EU Charter of Fundamental Rights guarantee the right to
an effective remedy and the right to fair trial (both being essential components of access
to justice).64
Neither the ECHR nor the Charter of Fundamental Rights defines ‘remedy’. The
overriding requirement is for a remedy to be ‘effective’ in practice and in law.65 There are
no requirements regarding the form of the remedy, and states enjoy some discretion in
this respect. This means that different types of remedies may redress different types of
violations.66As set out in the EU Oil and Gas Guide,
Remediation is the process of providing a remedy for a harm. Remedy can take a variety of
different forms, including apologies, restitution, rehabilitation, financial and non-financial
compensation and punitive sanctions (whether criminal or administrative, such as fines), as well
as the prevention of harm through, for example, injunctions or guarantees of non-repetition.
While some forms of remedy are more likely in a judicial mechanism, many are possible through
non-judicial processes as well.67
The guide also states that oil and gas companies should take into consideration the vic-
tim’s view of the remedy sought, whilst ensuring that the victim has access to independent
legal advice.68
Given the wide recognition under international documents of the state’s duty to ensure
access to a remedy for victims of business-related human rights violations, the next section
will offer a critical view of recent experiences of human rights litigation in EU Member
States and also under the US ATS litigation.
3.1 Human Rights Civil Litigation Involving Corporations
The past few decades have witnessed a wave of law suits against corporations for civil
damages through actions pursued before the courts, either in the corporation’s country
of origin (home state) or the place where the harm usually occurs (host state). Most civil
litigations to date relate to oil companies’ damage to livelihoods (for instance, as the result
of pollution, damage to land or illegal eviction). Numerous procedural and substantive
obstacles continue to prevent victims from accessing an effective remedy through court
litigation, including issues associated with access to information, and the costs of legal
proceedings.69
3.1.1 Civil litigation in the EU

There have only been a handful of cases brought by victims before the courts of EU
Member States. Civil litigation brought by victims against oil and gas corporations
in the EU has mainly been in the form of compensation claims based on tort law for
alleged harm caused by ‘negligence’ arising from a breach of ‘duty of care’, rather than
64
Ibid, p 22 (footnote omitted).
65
Ibid, pp 92–5.
66
Ibid, pp 101–7.
67
EU Oil and Gas Guide (n 2), p 70 (emphasis added).
68
Ibid, pp 72–4.
69
‘Human Rights in Business: Removal of Barriers’ (n 6) pp 11–17.

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on direct violations of basic rights.70 As will be seen, the cases cannot be described as

having challenged doctrines that have stood in the way of allowing victims to seek a
remedy. Therefore, access to a remedy by victims by means of civil litigation remains
challenging.
EU private international law rules however make it easier for the Member State
courts to exercise jurisdiction over civil litigation concerning harm occurring outside
the EU. The primary instrument used in the European Union to determine whether an
EU court has jurisdiction over a claim brought against a corporation for human rights
violations committed outside the EU is Regulation 1215/2012 (Brussels I Regulation).71
Brussels I Regulation confers on courts of EU Member States the competence to
adjudicate civil cases against corporations domiciled within the EU regardless of their
nationality, or the place where the alleged harm occurred, or the nationality of the plain-
tiff.72 Domiciliation is defined by reference to the corporation’s ‘statutory seat’ or ‘prin-
cipal place of businesses’.73 Due to the importance attached to the principle of domicile,
the Court of Justice of the EU in Owasu74 ruled that unless the matter falls outside the
scope of Brussels I or the defendant is domiciled outside the EU, there is no place for
the doctrine of forum non conveniens within the system of Brussels I. Therefore, once the
conditions of Article 4 (domicile) have been met a national court seised of the matter
cannot refuse to exercise jurisdiction.75 The case of Alfred Akpan v Royal Dutch Shell 76
is a good example of how EU law enables victims to access Member State courts. In this
case civil claims in damages were brought against Shell in the Dutch courts in relation to
an oil spill in Nigeria caused by its subsidiary Shell Petroleum Development Company
of Nigeria (SPDC). This Shell subsidiary operation in Nigeria caused environmental
harm resulting in the loss of livelihood to Nigerian farmers and fishermen living in
the neighbouring villages.77 Shell contended that the Dutch court lacked jurisdiction
over SPDC, disputing the use by the plaintiffs of procedural principles under Dutch
law to enable the joinder of SPDC to the Netherlands-based parent. In this instance,
however, the Dutch court exercised jurisdiction over the parent company under Article
70
See Chandler v Cape Plc [2012] EWCA (Civ) 525. The English Court of Appeal decided that
a UK-based parent company owed a duty of care to the employees of its South African subsidiary
because the parent company had a degree of control over the work environment of the subsidiary.
As a result the Court of Appeal found the corporation liable under the tort of negligence.
71
Council Regulation (EC) 1215/2012 on jurisdiction and the recognition and enforcement of
judgments in civil and commercial matters OJ 2012 L351/1 [hereinafter ‘Brussels I Regulation’],
Article 1 on Scope and Article 4 on the importance of domicile.
72
Ibid, Article 4.1. See also: European Parliament Resolution on the Commission Green Paper
on Promoting a European Framework for Corporate Social Responsibility, COM (2001) 366-C5-
0161/2002 – 2002/2069 (COS), 30 May 2002, para 50.
73
Brussels I Regulation (n 71) Article 63.1.
74
Case C-281/02, Owusu v Jackson [2005] ECR I-1383.
75
Article 2.1 confers on courts of EU Member States the competence to adjudicate civil cases
against corporations domiciled within the EU regardless of their nationality, of the place where the
alleged harm occurred and of the nationality of the plaintiff.
76
Friday Alfred Akpan et al. v Royal Dutch Shell Plc et al., Case C/09/337050/HA ZA 09-150
[District Court of The Hague, 30 January 2013].
77
David M Ong (2015), ‘Regulating Environmental Responsibility for the Multinational Oil
Industry: Continuing Challenges for International Law’ 11(2) Int. J.L.C. 153, 163.

LEAL-ARCAS_9781786431042_t.indd 320 08/09/2017 13:02

4 of Brussels I, and allowed the joinder of SPDC to the proceedings under Dutch civil
procedure.78
Whilst the Dutch court asserted jurisdiction over the parent company and its subsidi-
ary, it only found the subsidiary liable for the harm caused, but not the parent company.
The court reasoned that under Nigerian tort law, being the applicable law under ‘Rome II
regulation’,79 the proximity requirement, which is so essential to establish the duty of care
owed to the victims,80 was not established by the claimants. Moreover, the court reasoned
that it would be unjust and unreasonable to hold the parent company responsible for
an indefinite number of potential claimants living in the vicinity of the oil field.81 Royal
Dutch Shell was considered a forerunner in CSR. However, the company remained a
regular target of civil society activism and legal proceedings concerned with malpractice.82
Article 4 of Brussels I however has its limits. In the case of Vava v Anglo American
of South Africa83 the claimants brought a claim against the South African gold mine
before the London High Court in relation to the illnesses silicosis and silico-tuberculosis,
caused by excessive exposure to gold dust in its mines in South Africa. There was suffi-
cient evidence showing that the South African company neglected important health and
safety control measures known to the industry that could have minimised or prevented
such diseases.84 The claimants contended that the South African company had its central
administration in London and therefore jurisdiction could be asserted under Article 62
of the Brussels I Regulation. The high court declined to exercise jurisdiction and accepted
the defendant’s argument that the central administration of the company was in South
Africa, despite the main headquarters of the parent corporation being in the UK. The
court drew a distinction between the place where the company conducts its business
(South Africa) and the place where the decisions which influence its business (UK) are
made. The latter was not enough to satisfy the central administration requirement under
Article 62 of Brussels I Regulation.85
Despite the decision of Vava Brussels I remains favourable to victims who bring pro-
ceedings against the parent corporation at its place of incorporation or central place of
78
Court of The Hague, Judgment in motion contesting jurisdiction of 30 December 2009,
Case No 330891/HA ZA 09-579, paras 2.4 and 3.4. The court relied on the Dutch Code of Civil
Procedure Article 7.
79
2007 on the law applicable to non-contractual obligations, OJ 2007 L199/40 [hereinafter ‘Rome II
Regulation’]
80
David M Ong (n 77), p 163.
81
This reflects the third prong of the famous English Court of Appeal Decision in Caparo
Industries Plc v Dickman [1990] 2 AC 605. It is worthwhile pointing out that the Dutch court did
not hesitate in the same proceedings to find that the subsidiary owed a duty of care to the claimants
and found it liable under the tort of negligence. See David M Ong (n 77), p 166.
82
See Esther Hennchen (2015), ‘Royal Dutch Shell in Nigeria: Where Do Responsibilities
End?’ 129(1) Journal of Business Ethics 1–25.
83
Vava and Ors v Anglo American of South Africa Ltd [2013] EWHC 2131 (QB), [2013] Bus
LR D65.
84
See Richard Meeran (2011), ‘Tort Litigation against Multinational Corporations for Violation
of Human Rights: An Overview of the Position Outside the United States’ 3(1) City University of
Hong Kong Law Review, p 38.
85
Vava (n 83) para 72

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administration. This gives victims the leverage at times to force some corporations to
settle the claims.86 For example, in Bodo v Shell,87 following two massive oil spills between
2006 and 2010 in the Niger Delta which devastated the sensitive environment of Bodo
and left many members of the Bodo community unable to earn money by fishing and
farming as they used to, in 2011 Shell admitted liability for the spills but continued to
dispute the amount of oil spilled and the extent of the damage caused. Shell claimed that
only 36 hectares of land were affected. In January 2015 settlement was reached ahead of
a full trial. Shell agreed to pay £55 million in compensation, with £20 million going to the
whole community, and £35 million divided between 15,600 individual residents, including
children. The community wanted the pollution to be cleaned up, and whilst SPDC has
agreed to do this through a separate process, the clean-up still has not started eight years
after the oil spills. The community intends to recommence litigation if the clean-up does
not begin in earnest.88
The reality on the ground therefore, is that few claims culminate in a final judgment.
Many civil proceedings, as in the case of EU litigation, are lost on procedural grounds,
or settled once the court finds in favour of asserting jurisdiction.89 This does not mean
that civil litigation is unlikely to yield success. Obviously a financial settlement is most
helpful in situations where victims are in dire need of repairing the harm which has been
caused by the corporation. Moreover, these claims continue to expose corporations to bad
publicity, and ‘even unsuccessful claims may bolster a political strategy aimed at curbing
human-rights abuses’.90 However, there are few examples where the financial settlement
was able to have this wider influence.
The above examples demonstrate that the EU civil justice system does improve the
86
See Guerrero v Monterrico Metal plc [2009] EWHC 2475; [2010] EWHC 3228; and Yao
Essaie Motto & Others v Trafigura Limited & Trafigura Beheer BV [2011] EWCA Civ 1150. In both
cases, the companies faced the prospect of a legal battle before the English High Court, and in
both situations the companies had corporate presence in the UK within the meaning of Article 62
of Brussels I Regulation, which allowed the claimants to defeat an objection as to the court’s juris-
diction. Trafigura involved a group action by about 30,000 claimants from Côte d’Ivoire against
Trafigura over the alleged dumping of toxic waste from the Probo Koala. Applicants alleged
that Trafigura had shipped high levels of hazardous waste to Côte d’Ivoire with knowledge that
there were no facilities to treat it. Three years later, the parties to the UK lawsuit reached a settle-
ment agreement in which Trafigura agreed to pay each of the 30,000 claimants a certain amount,
approximately $1,500.
87
Bodo Community and others v Shell Petroleum Development Company of Nigeria Ltd [2014]
EWHC 1973 (TCC); [2014] EWHC 2170 (TCC).
88
For more analysis see https://business-humanrights.org/en/shell-lawsuit-re-oil-spills-bodo-
community-in-nigeria (accessed 10 January 2017).
89
‘Human Rights in Business: Removal of Barriers’ (n 6) pp 11–17.
90
Ernest A Young (2015), ‘Universal Jurisdiction, the Alien Tort Statute, and the Transnational
Public-Law Litigation After Kiobel’ 64 Duke Law Journal 1023, 1057. Doe v Unocal, 395 F.3d 932 (9
Cir. 2002), alleged that Myanmar’s military subjected villagers to forced labour, rape, torture and
murder with the knowledge and support of Unocal (a US oil and gas corporation), which created
liability under the ATS; Wiwa v Royal Dutch Shell, 226 F.3d 88 (2nd Cir. 2000) alleged that Shell
was complicit in supporting military operations against the Ogoni and that Shell actively pursued
the convictions and exclusions of the Ogoni Nine, including by bribing witnesses against them.
This case extended corporate liability under ATS to foreign corporations if they maintained ‘con-
tinuous and systematic ties to the US’.

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ability for victims to access Member State courts. However, experience suggests that liti-
gating away from where the harm occurred, and where the evidence, witnesses and many
of the stakeholders can be found, causes great procedural inefficiencies.91 Moreover, the
jurisdictional part of Brussels I does not apply where the harm was caused by a subsidi-
ary of an EU company domiciled outside the EU, which is very common in human rights
litigation involving oil and gas companies. These procedural obstacles explain why only a
few cases have been brought in the courts at the home state. The next section demonstrates
that recent US decisions have imposed further limits on the ability to bring international
human rights litigation in federal courts under the Alien Tort Statute, making the need
for non-judicial grievance mechanisms all the more urgent.
3.1.2 Alien Tort Statute (ATS) and its limitation

ATS litigation concerns a civil law action in tort. The statute provides that ‘the district
courts shall have original jurisdiction of any civil action by an alien for a tort only, com-
mitted in violation of the law of nations or a treaty of the United States’.92 As a result,
a number of oil and gas companies, including those that were EU based, found them-
selves subject to ATS litigation. Until the decision in Kiobel, discussed below, this extra-
territorial nature of the Act was what made it so infamous among law attorneys and the
US Department of State, and popular among human rights litigants who found it pre-
sented an opportunity of seeking reparation in a plaintiff-friendly forum such as the US.93
The early years of ATS litigation involved lawsuits brought by victims who had suffered
harm at the hands of other individuals. Such was the case in Kadic v Karadžić, where the
claimant established the federal court’s jurisdiction by bringing a claim under ATS litiga-
tion alleging that the defendant breached the law of nations by committing or aiding and
abetting torture, rape and genocide.94 Mr Karadžić claimed that only states were subject
to international law. The second circuit rejected this submission, arguing that certain
international norms apply to non-state actors, and that in any case individuals could be
found liable for aiding and abetting state actors in the violation of international law.95
This potential for accessorial liability brought a wave of cases against corporations under
the ATS.
There is little doubt that the ATS is purely jurisdictional.96 In other words, it does not
create substantive obligations. In Sosa it was held that whilst the ATS allowed the exercise
of jurisdiction in relation to tort committed in breach of the law of nations, the chosen
91
Motto v Trafigura Limited [2011] EWCA Civ 1150. The leading law firm representing the
claimants in Trafigura billed the respondent £105 million in legal cost and fees. For further details
about the dispute see http://www.legalfutures.co.uk/latest-news/105m-trafigura-costs-dispute-set
tles-leaving-lawyers-seeking-clarity-on-interest (accessed 30 January 2017).
92
28 US Code § 1350, also called the Alien Tort Claims Act (ATCA).
93
See Amicus brief by the United Kingdom and the Netherlands before the Supreme Court in
Kiobel v Royal Dutch Petroleum, 133 U.S. 1659 (2013) [hereinafter ‘Supreme Court – Kiobel’]. See
also Ernest A Young (n 90), p 1098. US courts give the plaintiff procedural advantages which are
not available in other systems. Furthermore, US courts unlike many other jurisdictions, are able to
award punitive damages.
94
70 F.3d 232 (2nd Cir. 1995).
95
Ernest A Young (n 90), p 1052.
96
See also Sosa v Alvarez-Machain, 542 U.S. 692 at p 714.

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jurisdiction controls the substantive law. Where the corporation is the primary tortfeasor,
the application of the Sosa jurisdictional approach should not be too complex. However,
in the Khulumani decision the judges disagreed on whether any ancillary liability such as
aiding and abetting (complicity) should be assessed under international law or common
law. In Khulumani, Judge Katzmann made reference to international law, and found that
accessorial liability ‘was sufficiently recognised under customary international law which
made it cognizable under the ATS’.97
In another leading decision of the second circuit, the court in Talisman followed the
reasoning of Judge Katzmann. The court found that accessorial liability and the stand-
ard of its application must be assessed under international law. The court concluded
that:
a defendant may be held liable under international law for aiding and abetting the violation of
that law by another when the defendant (1) provides practical assistance to the principal which
has substantial effect on the perpetration of the crime, and (2) does so with the purpose of
facilitating the commission of that crime.98
Talisman therefore limited the effect of ATS litigation only to situations in which the
defendant had intended to facilitate the commission of the crime causing the harm.
A further important restriction on ATS litigation was made by the US Court of Appeal
for the second circuit in Kiobel.99 The court decided that corporations are not subject to
the law of nations, and therefore victims cannot bring causes of action in a tort for breach
of customary international law under the ATS. The Court stated that the assessment of
the nature and scope of liability under ATS is subject to international law. It went on to
conclude that no international tribunal until now has found a corporation to be in breach
of the law of nations.100 On appeal to the US Supreme Court, the parties were directed to
supplement briefs addressing the following question: ‘Whether and under what circum-
stances the Alien Tort Statute allows courts to recognize a cause of action for violations
of the law of nations occurring within the territory of a sovereign other than the United
States’.101 The Supreme Court, relying on statutory construction, reasoned that ‘when
a statute gives no clear indication of an extraterritorial application, it has none’.102 The
Supreme Court also elaborated that in order to displace this presumption against extra-
territoriality the claimants must show that the claims touch and concern the territory of
the United States with sufficient force.103 However, on the facts of Kiobel the majority
reasoned that the plaintiffs did not displace the presumption against extraterritoriality
because their claims ‘occurred on the soil of a foreign sovereign state and none of the
conduct took place within U.S. jurisdiction’.104
97
Khulumani v Barclay Nat’l Bank Ltd., 504 F.3d 254, 2007 U.S.
98
Presbyterian Church of Sudan v Talisman Energy, Inc., 582 F.3d 244, 2009 U.S.
99
Kiobel v Royal Dutch Petroleum, 621 F. 3d 111, 2010 U.S. [hereinafter ‘Court of Appeal –
Kiobel’.
100
Ibid.
101
Supreme Court – Kiobel (n 93).
102
Ibid, p 1661.
103
Ibid, p 1663.
104
Ibid, p 1662.

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As a result of the limitations created by Kiobel, a successful path through ATS litiga-
tion is bound to be challenging. Perhaps it is safe to argue that where all relevant factors
to the dispute are outside the United States of America then the ATS will not have an
extra-territorial application. Moreover, even where the allegations touch and concern the
territory of the US they must do so with ‘sufficient force’, which makes displacing the
presumption against extra-territoriality very difficult. This is coupled with the fact that
the test of ‘touch and concern’ is a fact-based analysis,105 and without further clarification
from the Supreme Court of its meaning and boundaries, any application would lead to
inconsistent results and further uncertainty as to the outcome of the ATS litigation. For
example, in the case of Cardona v Chiquita Brands International, Inc. the eleventh circuit,
relying on Kiobel, dismissed a claim made under the ATS in relation to the complicity of
the appellant in relation to torture, death and personal injury occurring in Columbia.106
The court reasoned that based on the facts of the case there was no act constituting a
tort in terms of the ATS which ‘touched or concerned the territory of the United States
with any force’.107 This was so despite the defendant being a US corporation. The court
stated that the mere presence of the corporation in the US did not displace the presump-
tion against extra-territoriality.108 It appears from the case law post Kiobel that in order
to satisfy the test the Court must find a link between the alleged unlawful conduct and
the US corporate presence.109
However, there have been successful cases, such as in Al Shimari where the claimants
managed to convince the court that the allegations touched and concerned the US with
sufficient force.110 In the latter case, the court concluded that a number of factors were
sufficient to displace the presumption, such as, inter alia, the fact that the unlawful torture
of prisoners in Iraq occurred with the knowledge of the US-based firm, and was commit-
ted by US citizens who were employed by the defendant.111
The above analysis confirms that despite the door of ATS litigation still being open, the
‘touch and concern’ test applied in Kiobel by the lower courts remains ambiguous, leading
to the conclusion that at times it will be more effective to resort to alternative grievance
mechanisms, which are explored in section 4 of this chapter.
The next sub-section therefore will test the UNGPs’ approach to non-judicial grievance
mechanisms, and will explore the role of such mechanisms in strengthening the remedia-
tion of business-related human rights violations.
105
Al Shimari v CACI Premier Technology, Inc., 758 F.3d 516 (4th Cir. 2014), at pp 528–9.
106
Cardona v Chiquita Brands International, Inc., 760 F.3d 1185 (11th Cir. 2014).
107
Ibid, p 10.
108
Ibid. For a critical review of this decision see Anastasia Stylianou, ‘Unpeeling the Growing
Split Under the ATS: Cardona v. Chiquita Brands International, Inc’, Seton Hall Law (2016), http://
scholarship.shu.edu/cgi/viewcontent.cgi?article51713&context5student_scholarship (accessed 30
January 2017).
109
See Baloco v Drummond Co., 767 F.3d 1229, 1238 (2014).
110
Al Shimari (n 105).
111
Ibid, p 528.

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3.2 Business’s Responsibility to Engage in Non-judicial Grievance Mechanisms under

the UNGPs
Non-judicial dispute resolution mechanisms if designed well may be effective and in

some cases preferable to court litigation. Principle 25 of the UNGPs envisages a host of
non-judicial grievance mechanisms that the state can establish or work with businesses
to achieve.112 Corporations are also required to engage in non-judicial dispute resolution
mechanisms such as operational-level grievance mechanisms, mediation and binding
non-judicial processes. Furthermore, the Guide states that a company could remediate
harm it has caused through legitimate non-judicial processes, such as by providing ‘a fair
and independent process, being accountable, and producing outcomes that are consistent
with human rights’.113 This access includes procedural as well as substantive components,
namely that access should be proportionate, and that the quality of the outcome should
be one which gives effect to the victim’s human rights.114
There are therefore two types of non-judicial grievance mechanism which are envisaged
under the UNGPs and the Guide. The first type can be described as an internalised oper-
ational-level grievance process, which essentially means that corporations should design
an internal grievance policy which can respond quickly and effectively to complaints by
those who have been affected or are likely to be affected by the corporation’s conduct. An
operational-level grievance mechanism is a formalised means for affected stakeholders to
raise concerns about any impact they believe a company has had on them, to seek redress.
The mechanism should help to identify problems early, before they escalate, and provide
solutions that include redress to anyone impacted by the corporation’s conduct. In the
context of the oil and gas sector this translates into the development of mechanisms at
the site level that can provide local solutions to local impacts.115 These mechanisms make
it possible for grievances, once identified, ‘to be addressed and for adverse impacts to be
remediated early and directly by the business, thereby preventing harms from compound-
ing and grievances from escalating’.116
The second type of non-judicial grievance mechanism is engaged externally by mapping
and working with external remediation processes, such as national human rights commis-
sions, local courts, an international finance institution with its own complaint mechanism,
or an OECD National Contact Point (NCP).117 This could entail engaging a mediator to
help the parties resolve the dispute, or employing an independent third party to evaluate
112
UNGPs (n 1), Principle 25.
113
EU Oil and Gas Guide (n 2). See also Communication from the Commission to the European
Parliament, the Council, the European Economic and Social Committee and the Committee of the
Regions, ‘A Global Partnership for Poverty Eradication and Sustainable Development after 2015’,
Com(2015) 44, Brussels 5 February 2015, p 12.
114
UNGPs (n 1).
115
EU Oil and Gas Guide (n 2).
116
UNGPs (n 1) commentary to Principle 29.
117
See OECD (2011), OECD Guidelines for Multinational Enterprises (OECD Publishing
2011). Section I, part II, http://dx.doi.org/10.1787/9789264115415-en. Adhering countries are
asked to establish NCPs, which will be responsible for ‘undertaking promotional activities, han-
dling enquiries, and contributing to the resolution of issues that arise relating to the implementa-
tion of the Guidelines in specific instances’.

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the dispute and render a final and a binding award. Despite the EU’s commitment to
OECD guidelines, the Council of the European Union called on the Commission and
Member States to actively participate in the OECD’s efforts to strengthen the capacity of
NCPs within the EU and in the EU’s partner countries.118
Both types of dispute process can complement each other, typically by engaging first
with the operational level grievance mechanism, escalating it to mediation if the opera-
tional level does not succeed, and finally escalating it to binding arbitration should the
conciliatory process prove to be unsuccessful. It is envisaged under Principle 31 of the
UNGPs that all types of grievance mechanisms should be legitimate, accessible, predict-
able, transparent, and rights-compatible, as well as a source of continuous learning,
engagement and dialogue.119 These values are very important and should assist in shaping
a dispute resolution process that can complement judicial processes, and one which would
support the fulfilment of human rights.120
So far most stakeholders have endorsed the first type.121 Such actions have perhaps
been able to generate a business culture which is more compatible with internationally
recognised human rights.122 Such mechanisms are managed at no cost to the complain-
ants, so thus can be deemed accessible, and where practicable resolve disputes quickly.
However, there are two important reservations to pursuing such resolutions. Firstly, the
reality on the ground is that oil and gas companies are much more experienced than
claimants (victims) when it comes to the use of non-judicial dispute resolution. Practice
tells us that negotiation is the preferred type of dispute resolution among oil and gas
companies.123 It is therefore not surprising to find that oil and gas corporations have
mainly invested efforts in strengthening their operational-level grievance mechanisms,
in contrast to their minimal efforts to engage with external neutral non-judicial griev-
ance mechanisms. For example, IPIECA, a global oil and gas industry association
for environmental and social issues, with a large pool of members that includes key
global gas and oil companies, recommends to its members the use of a community
operational-level grievance mechanism similar to that envisaged under the UNGPs.124
There is no clear policy on how to engage with external bodies. However, the IPIECA
118
Council Conclusions on Business and Human rights (n 44).
119
UNGPs (n 1) Principle 31 of the UNGPs.
120
UNGPs (n 1) Commentary to Principle 31.
121
See EU Oil and Gas Guide (n 2), and numerous grievance mechanisms issued by oil and gas
corporations; a key document by the International Petroleum Industry Environmental Conservation
Association (IPIECA), ‘Community Grievance Mechanisms in the Oil and Gas Industry: A Manual
for Implementing Operational-Level Grievance Mechanisms and Designing Corporate Frameworks’
(January 2015) http://accessfacility.org/sites/default/files/IPIECA%20-%20Community%20Grievance
%20Mechanisms%20in%20the%20Oil%20and%20Gas%20Industry.pdf (accessed 10 January 2017).
122
See Reporting Framework, http://www.ungpreporting.org/. See also the ‘implementation
hub’ for key tools, guidance and examples of uses of the UN Guiding Principles by companies
(i.e. human rights due diligence), governments and others: https://business-humanrights.org/en/
discover-big-issues (accessed 13 January 2017).
123
Margaret Ross, ‘Dispute Management and Resolution’, in Greg Gordon, John Paterson
and Emre Üşenmez (eds), Oil and Gas Law: Current Practice and Emerging Trends (Dundee
University Press 2014), at para 18.17.
124
IPECA launches Community Grievance Mechanism toolbox, 6 May 2014, http://www.ipieca.
org/news/ipieca-launches-community-grievance-mechanism-toolbox/ (accessed 30 January 2017).

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Community Grievance Mechanism allows the complainant to appeal the decision of

the case handler to an Appeal Committee which is appointed and managed by the same
corporation.125
Secondly, operational-level grievance processes struggle to comply with the require-
ment of legitimacy envisaged under Principle 31 of the UNGPs. In particular, they do
not conform to the fundamental principle of impartiality which is so important in allow-
ing any dispute resolution mechanism to provide access to justice and equality before the
adjudicator.126 Furthermore, there is a risk that the dispute outcome is influenced by an
‘interest-based’127 approach, in the sense that the parties will aim to reach an outcome
which is satisfactory to the parties, and thus inevitably, there will be cases where the full
enjoyment of human rights are compromised. The issue of legitimacy will be revisited in
section 4.3 of this chapter.
4. MAKING THE CASE FOR EXTERNAL AND BINDING NON-

JUDICIAL GRIEVANCE MECHANISMS IN THE OIL AND
GAS SECTOR
The UNGPs emphasise that the implementation of the access to a remedy pillar is highly
contextual.128 In particular, Principle 30 envisages multi-stakeholder and other collabo-
rative initiatives as a way of incorporating effective grievance mechanisms. Because the
operational-level grievance mechanism cannot effectively resolve all disputes, external
non-judicial grievance mechanisms could become handy at different times in the com-
pany’s business cycle, i.e. from business development to new project asset, to base busi-
ness operation, to decommissioning and divestment.129 However, because much already
has been written about the role of mediation, the next part of this chapter will focus on
the role of external and binding non-judicial grievance mechanisms as effective grievance
mechanisms for the resolution of business-related human rights disputes arising in the
oil and gas sector.
125
Ibid, Rules 6.6 and 6.7 of the Community Grievance Mechanism Template Procedure.
126
UNGPs (n 1), the legitimacy criterion under Principle 31 is understood to demand the
impartiality of the tribunal. It states ‘. . . that the parties to a grievance process cannot interfere
with its fair conduct . . .’.
127
For further discussion of the ‘right interest’ approach in the context of business and human
rights, see Caroline Rees, ‘Mediation in Business-Related Human Rights Disputes: Objections,
Opportunities, and Challenges’ (2010) Harvard Kennedy School, https://www.hks.harvard.edu/m-
rcbg/CSRI/publications/workingpaper_56_rees.pdf (accessed 20 January 2017).
128
UNGPs (n 1), Principle 17(b) states that the human rights due diligence will ‘vary in com-
plexity with the size of the business enterprise, the risk of severe human rights impact, and the
nature and context of the operation’.
129
See Figure 3 of the IPIECA Human Rights Due Diligence Process, a practical guide to
implementation for oil and gas companies, p 7, http://www.ipieca.org/resources/good-practice/
human-rights-due-diligence-process-a-practical-guide-to-implementation-for-oil-and-gas-companies/
(accessed 10 January 2017).

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4.1 Accessible and Consensual Binding Non-judicial Dispute Resolution
This section advocates making greater use of unilateral arbitration for resolving business-
related human rights disputes between victims and corporations operating in the gas and
oil sector. Unilateral arbitration means that the participation in arbitration (procedure),
and the award made by the arbitral tribunal (outcome), are only binding on the company.
Therefore, aggrieved individuals will not lose the right to approach the courts at any time
during the proceedings, and will have the choice of rejecting or accepting the arbitral
award (the outcome of the proceedings). The key challenge to this is that arbitration is
only possible where the parties have agreed to arbitrate existing or future disputes.130 The
challenge is that most victims of business-related human rights violations would have had
no contractual relationship with the company before the harm has arisen.
However due to the special nature of the oil and gas sector it should be possible to
satisfy the consensual requirement of arbitration. Before it is possible for oil and gas
companies to explore, produce, refine or transport crude oil, the company must seek first
the permission to do so from the host state.131 Companies usually obtain this permission
through the grant of a licence by the state, or operate under contractual terms included
in a Production-Sharing Agreement (PSA).132 These licences or contractual agreements
will inevitably be overseen by a Petroleum Act applicable in the host state, or equiva-
lent legislation. Our central argument is that the grant of the licence should be made
conditional on the corporation’s commitment to submit to binding dispute resolutions
administered by a permanent commission or an arbitral institution with a mandate to
adjudicate business-related human rights violations. This is akin to investment arbitra-
tion where the obligation to arbitrate by the state can be found in an applicable Bilateral
Investment Treaty.133 Another example is found in the Equator Principles, which operate
on a similar basis.134 Principle 6 of the Equator Principles requires the client in certain
types of projects to ‘establish a grievance mechanism designed to receive and facilitate
resolution of concerns and grievances about the Project’s environmental and social per-
formance’. Principle 6 stipulates that such grievance mechanisms should be transparent,
culturally sensitive and efficient in resolving grievances promptly and free of charge to
130
Jan Paulsson (1981), ‘Arbitration Unbound: Award Detached from the Law of its Country
of Origin’ 30(2) ICLQ 358, 367.
131
Greg Gordon, John Paterson and Emre Üşenmez, ‘Oil and Gas Law on the UK Continental
Shelf: Current Practice and Emerging Trends’, in Oil and Gas Law, Current Practice and Emerging
Trends (Dundee University Press 2014), p 5.
132
Ibid, p 66.
133
For example, see Article 13 of the Bilateral Investment Treaty between the Government
of the Hashemite Kingdom of Jordan and the Government of the Republic of Singapore (2004),
http://investmentpolicyhub.unctad.org/Download/TreatyFile/1755 (accessed 10 December 2016).
Similar obligations are already present in other multilateral treaties; Contracting Parties give their
unconditional consent under Article 26(3) of the Energy Charter Treaty to the submission of a
dispute to international arbitration or conciliation. See more http://www.energycharter.org/what-
we-do/dispute-settlement/overview/ (accessed 27 November 2016).
134
The Equator Principles III, June 2013, http://equator-principles.com/resources/equator_
principles_III.pdf (accessed 10 January 2016). It is a risk management framework, adopted by
financial institutions.

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users. Such mechanisms should not deny the aggrieved party access to judicial or admin-
istrative remedies. However, the Equator Principles do not go far enough, in that they do
not make the decision of the grievance body binding on the corporation; it is only offered
as a recommendation.135
4.2 Arbitration Can Deliver a Right-compatible Process
Principle 31 of the UNGPs states that both state- and non-state-based grievance mecha-
nisms should be ‘right compatible’, ‘ensuring that outcomes and remedies accord with
internationally recognized human rights’.136 There is often a tension between non-judicial
dispute resolution and the observation of human rights. The main criticism often made
of non-judicial dispute resolution is that it is frequently ‘interest based’ and therefore its
use is not always committed to the full evaluation and application of human rights.137
For example, in mediation the main task of the mediator is to bridge the interest of both
parties, which will entail in most cases a compromise. Human rights advocates argue that
adjudicative processes such as court litigation, are more ‘right-based’ processes.138 Others
do see mediation as being compatible with being ‘right based’ and that it could play a
significant role in complementing the role of the judiciary.139 Equally, the much-valued
operational-level grievance mechanism is seen as an ‘interest-based’ type of grievance
mechanism. For example, the IPIECA rules state that the case handler will attempt to
reach a resolution which is satisfactory to the company and the complainant. Thus the
culture of dispute resolution will force a compromise which will be acceptable to both
parties. Whilst this might be legitimate when parties have equal bargaining powers, in
most human rights violations the complainant will be under-financed and much weaker
than the corporation.
Arbitration operates differently. An arbitral tribunal appointed to resolve disputes
selects the applicable law based on the intention of the parties. Under most institu-
tional arbitration rules, the arbitrator must apply the rules which are agreed by the
parties to be the governing rules, or, in the absence of a choice, to select the rules the
arbitrator considers to be ‘most appropriate’.140 Because arbitration is consensual,
including the determination of the applicable law, the parties can agree in the arbi-
tral institutional rules that all existing and future disputes will be governed by the
applicable national law (of the host state), and the UNGPs. The UNGPs will have
a complementary or a corrective function,141 and guide the tribunal when evaluating
135
Ibid, Principle 6.
136
UNGPs (n 1) Principle 31(f).
137
Caroline Rees (n 127), p 5.
138
Ibid.
139
Ibid, pp 6–7.
140
See Article 21 of the International Chamber of Commerce (ICC) Rules of Arbitration,
http://www.iccwbo.org/Products-and-Services/Arbitration-and-ADR/Arbitration/Rules-of-arbitra
tion/ICC-Rules-of-Arbitration (accessed 31 January 2017).
141
Similar to Article 42 of the International Centre for the Settlement of Investment DISPUTES
(ICSID) – Washington Convention 1965. In Klockner v Cameroon, Ad Hoc Committee Decision,
May 3, 1985, the ad hoc committee found that international law under Article 42 of ICSID, in the
absence of an agreement between the parties, has a gap-filling and a corrective function. Though

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the law and making its decision. This means that where there is a gap in the national
law in giving effect to the human rights of the complainant, the UNGPs will fill that
gap, and where there is a conflict between the national law and the UNGPs, the latter
will supersede the former. Equally codes may have legal effects in arbitration.142 Thus
a parent oil and gas company could establish a code of conduct for its subsidiaries,
suppliers and business partners.143 This could make reference to the dispute resolution
mechanisms and oblige such entities to adhere to the ethical standards included in the
code.144
The flexible special nature of arbitration outlined above cannot be said to exist in
judicial and other non-judicial grievance mechanisms. We have highlighted that the
operational-level grievance mechanism does not naturally lead to a right-compatible
approach. Equally, despite the fact that mediation can push forward the values of the
UNGPs and can be right compatible,145 it cannot do so in the absence of full coopera-
tion by the corporation. Whilst court litigation is ‘right based’, courts are bound by
more restrictive conflict of law rules when determining the applicable law.146 The EU’s
Rome II Regulation establishes the applicable law for non-contractual obligations in
tort cases, including torts relating to human rights infringements.147 As a general rule,
the applicable law is that of the country where the damage occurred, irrespective of the
country in which the event giving rise to the damage occurred, and irrespective of the
country or countries in which the indirect consequences of that event occurred.148 It
can lead to the application of substantive laws of non-EU countries. Unlike in arbitra-
tion, where the tribunal can apply the rules chosen by the parties including non-state
rules, it is an established principle of EU conflict of laws that the reference to the
parties’ choice of ‘the law’ to govern a contract is a reference to the law of a country.149
it is important to note that it would be too simplistic to capture the debate concerning the role
of international law under Article 42 of ICSID in this footnote. See Emmanuel Gaillard and Yas
Banifatemi (2003), ‘The Meaning of “and” in Article 42(1), Second Sentence, of the Washington
Convention: The Role of International Law in the ICSID Choice of Law Process’ 18(2) ICSID
Review – Foreign Investment Journal, p 375.
142
For a literature survey focusing on the relationship between codes and national laws, see R
Jülich and H Falk (1999), ‘The Integration of Voluntary Approaches into Existing Legal Systems:
Literature Survey’ (Centre for Industrial Economics, WP-99/09/4), available at www.cerna.ensmp.
fr/; see also Halina Ward (2003), ‘Legal Issues in Corporate Citizenship’, International Institute for
Environment and Development (IIED), prepared for the Swedish Partnership for global respon-
sibility, pp 5–24, focusing on enforcement through litigation, http://pubs.iied.org/pdfs/16000IIED.
pdf (accessed 10 September 2016).
143
For general discussion see SP Sethi, Setting Global Standards and Guidelines for Creating
Codes of Conduct in Multinational Corporation (John Wiley & Son 2003).
144
See IPIECA, Oil and Gas Industry Association for Environment and Social Issues, http://
www.ipieca.org/about-us/ (accessed 11 December 2016).
145
See Caroline Rees (n 127).
146
Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008
on the law applicable to contractual obligations (OJ 2008 L177/6) [hereinafter ‘Rome I Regulation’].
147
Rome II Regulation (n 79).
148
Ibid, Article 4(1).
149
Lord Diplock in Amin Rasheed Shipping Corp v Kuwait Insurance Co [1984] AC 50 at 65.
See also Shamil Bank of Bahrain EC v Beximico Pharmaceuticals Ltd ([2004] 1 WLR 1784, [2004]
WLR 1784, [2004] EWCA Civ 19).

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It does not sanction the choice or application of a non-national system of law,150 such
as ethical codes or general principles of law.151 This can be extended to a choice of law
governing non-contractual obligations under Article 14 of the Rome II Regulation,152
which allows the disputants to select the law governing the tort (ex ante choice [14(1)],
and ex post choice [14(2)]).153 Victims as non-contractual parties cannot select the
law governing the tort before the tort is committed. It is plausible, however, that the
established commission entrusted with the dispute resolution (or arbitral tribunal)
includes the UNGPs, ethical codes and other non-state law as forming part of the law
applicable to contractual and non-contractual obligations.
4.3 Arbitration Can Increase Legitimacy
Arbitration as a remediation process is sanctioned by the host state and thus it is not seen
as an illegitimate extra-territorial interference by a foreign body in the affairs of the host
state.154 For example, an arbitral tribunal or a commission can approach a national court
with a request to compel the corporation to disclose evidence155 or to issue an interlocu-
tory measure ordering the company to remove a threat to the community or individu-
als which it is responsible for. The upshot of this is that controversies which happen in
Nigeria, concerning an oil spill which adversely impacted local communities there, would
be adjudicated locally, using local adjudicators. This could contribute to the development
of the law, and of a functioning civil justice system in the host state. This is particularly
important where the adjudication of such disputes form an important part of a national
conciliation process such as in the South African human rights litigation.156 For the
above reasons arbitrating in the host state is more likely to strengthen the legitimacy of
the process.
Finally, when engaging an external arbitral institution to resolve disputes it is widely rec-
ognised under international law and practice that the arbitrator must remain independent
150
See Richard Fentiman, International Commercial Litigation (Oxford University Press 2015)
para 5.60.
151
Ibid, para 5.66; Rome I (n 146) Recital 13 allows the incorporation of non-state rules into
the contract. However, these will be treated like any other terms of the contract, and their applica-
tion will be subject to the law applicable to the contract.
152
See Thomans Kadner Graziano, ‘Freedom to Choose the Applicable Law in Tort, Articles
14 and 4(3) of the Rome II Regulation’ in William Binchy and John Ahern (eds), The Rome II
Regulation and the Law Applicable to Non-Contractual Obligations: A New Tort Litigation Regime
(Leiden 2009) section V, http://biicl.org/files/5201_graziano_27-09-10_biicl_2.pdf (accessed 12
January 2017).
153
See Article 14 of Rome II Regulation (n 79).
154
Extraterritorial interference can be justified for example where the state has an interest in
regulating its citizens committing a tort in breach of the law of nations abroad. See Justice Martin’s
dissenting opinion in Cardona (n 106). Also the US Supreme Court has cautioned against inter-
ference with the foreign policy of the US where a court interferes in a tort occurring in another
sovereign state; Court of Appeal – Kiobel (n 99) p 6.
155
UNCITRAL Model Law on International Commercial Arbitration (1985), Article 27.
156
See Youseph Farah, ‘Toward a Multi-Directional Approach to Corporate Accountability’,
in Sabine Michalowski, Corporate Accountability in the Context of Transitional Justice (Routledge
2014).

LEAL-ARCAS_9781786431042_t.indd 332 08/09/2017 13:02

and impartial throughout the dispute process.157 Despite the test of impartiality varying
from one system to another, most systems agree that the arbitrator cannot be a judge of
her own cause, such as by having a financial interest in the outcome of the dispute.158 So,
arbitration is well equipped to provide an impartial resolution. It is however difficult to
say the same about the operational grievance mechanisms envisaged under the UNGPs.
Such processes cannot objectively be seen as impartial. It is naïve to think that all corpora-
tions or even a good proportion of them put the interests of others ahead of their own,
unless obliged to do so by an impartial external party. Moreover, given that corporations
are driven by self-interest, they may force a resolution on less skilled aggrieved victims
who are often desperate for redress. The inequality of bargaining powers between the
corporation and the victim means that the corporation is better placed for protecting its
own interest. Therefore, reparation might not be adequate.
5. CONCLUSIONS
This chapter has explored the limits of court litigation and non-binding alternative griev-
ance mechanisms in providing an effective remedy for victims. The discussion showed that
there is a significant gap between the policy imperatives of the EU in ensuring an effective
remedy and the reality on the ground. Court litigation particularly presents procedural
and substantive obstacles which seem to be on the rise following the ATS limitation post
Kiobel. Thus, better access to justice for victims of corporate abuse should be the starting
point for a much more ambitious roadmap for the EU and Member States in order to
address the legal and practical barriers faced by victims.
Therefore, the authors advocate that unilateral arbitration can provide a more flexible,
cost effective, right-based and legitimate grievance process for victims of human rights
violations occurring within the oil and gas sector. Participation in such a process and its
outcome should only be binding on the corporation. However, in order to yield the full
potential of arbitration, more needs to be done in order to make arbitration more trans-
parent, so that it becomes a continuous source of learning, and one which engages further
with other forms of binding and non-binding grievance mechanisms.
The work has also identified that more research needs to be done in relation to two
matters. Firstly, it is important to assess what form the procedural rules which will guide
the envisaged tribunal should take, and how they could be compatible with human-rights
based complaints.159 Secondly, it is important that unilateral arbitration operates where
possible in the host state. To this end it is significant to assess how the envisaged arbitral
tribunals can communicate with the national court and other non-binding grievance
157
UNCITRAL Model Law (n 155) Article 12. In England and Wales the duty of the arbitra-
tor to remain impartial was drawn from the cases relating to the impartiality of the judge and a civil
servant. See R v Gough [1993] AC 646 at 670; Porter v Magill [2002] 2 AC 357. The latter adjusted
the test of impartiality in order for it to conform to Article 6 of the Human Rights Act 1998.
158
International Bar Association (IBA) Guidelines on the Conflicts of Interest in International
Arbitration, adopted by resolution of the IBA Council in 2014, General Principle 1.
159
Claes Cronstedt and Robert C Thompson, ‘An International Tribunal of Business and
Human Rights’, April 2015, http://www.l4bb.org/news/TribunalV5.pdf (accessed 30 January 2017).

LEAL-ARCAS_9781786431042_t.indd 333 08/09/2017 13:02

mechanisms, such as operational-level grievance processes and mediation, which are avail-
able for the victim to use when resolving human-rights-based complaints.
Further work should look into procedures to ensure that public interests are fulfilled,
in particular ‘transparency, amicus curiae participation, collective redress, specialized
arbitrators, financial assistance and oversight of the implementation of the award’.160
160
Human Rights in Business: Removal of Barriers (n 6), p 19.

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18. EU energy law in the maritime sector
Beatriz Huarte Melgar
1. INTRODUCTION
Maritime law is inevitably connected to energy, not only because ships, vessels and boats
need energy to operate, but also because energy products, such as oil or gas, are also
transported by sea. According to the International Chamber of Shipping, shipping is the
least environmentally damaging form of commercial transport because its contribution to
maritime pollution is possibly less than 10 per cent.1 However, due to the fact that 90 per
cent of global trade in goods is transported by sea, the shipping industry is an important
contributor to the world’s total greenhouse gas (GHG) emissions by causing around 2.5
per cent of total CO2 emissions.2
In spite of the eminently international character of maritime law, taking into account
that Europe is the region of the world that generates more commercial maritime traffic
(about 30 per cent of world exports and imports are from and to European countries),3 it
is interesting to analyse its relationship with European Union (EU) energy policy.
The Energy Union is founded on five pillars: security, solidarity and trust; the finalisa-
tion of the internal energy market; moderation of demand through energy efficiency; the
decarbonisation of the European energy mix; and technologies, research and innovation.4
Nevertheless, the chapter will focus on the decarbonisation dimension concerning mari-
time transport. In this regard, the European Commission delineated the decarbonisation
path through the 2020 Package (which, inter alia, aims at the reduction of GHG emissions
by 20 per cent from 1990 levels), the 2030 Framework (which, inter alia, aims at a binding
EU target of at least a 40 per cent cut in GHG emissions below the 1990 level) and the
2050 Roadmap (the reduction of GHG emission by 80 per cent from 1990 levels).5
This chapter aims at explaining the relationship between maritime and energy law from
1
International Chamber of Shipping, ‘Environmental Performance’, http://www.ics-ship
ping.org/shipping-facts/environmental-performance (accessed 12 September 2016).
2
Rafael Leal-Arcas, The European Energy Union: The quest for secure, affordable and sustain-
able energy (Claeys & Casteels Law Publishers, 2016), vol. 7, p. 129.
3
Manuel Carlier Lavalle and Gerardo Polo Sánchez, ‘Comercio Internacional y Tráfico
Marítimo’ in Miguel Pardo Bustillo and José-Esteban Pérez (eds), Economía del Sector Marítimo
(Fondo Editorial de Ingeniería Naval & Instituto Marítimo Español, 2009), p. 40.
4
European Commission, ‘Opening Speech – EU Energy Policy and Competitiveness’ (Press
release, 17 November 2014), http://europa.eu/rapid/press-release_SPEECH-14-1883_en.htm (accessed
12 September 2016).
5
European Economic and Social Committee and the Committee of the Regions, ‘A Roadmap for
moving to a competitive low carbon economy in 2050’ (8 March 2011), http://eur-lex.europa.
eu/legal-content/EN/TXT/PDF/?uri5CELEX:52011DC0112&from5EN (accessed 12 September
2016).
335
LEAL-ARCAS_9781786431042_t.indd 335 08/09/2017 13:02

a Eurocentric perspective; that is, how the EU implements energy measures to reduce
GHG emissions from the shipping sector. Thus, the chapter is divided into five parts.
Accordingly, after this brief introduction, section 2 will examine the EU strategy to reduce
emissions from the shipping sector. Section 3 will focus on the EU Integrated Maritime
Policy and its Blue Growth Strategy throughout the ocean energy and the seabed mining
sectors. Section 4 will analyse the inclusion of liquefied natural gas (LNG) in the field of
maritime transport and, finally, section 5 will conclude the chapter.
2. EU STRATEGY TO REDUCE EMISSIONS FROM THE

SHIPPING SECTOR
The EU purpose of reducing GHG emissions also applies to the shipping sector because,
even though shipping is in most cases more fuel-efficient than other transport sectors, its
greenhouse gas emissions are substantial and growing fast. Thus, as a first step, from 2018,
large ships using EU ports will be required to report their verified annual emissions and
other relevant information.6
According to the ‘Third IMO GHG Study 2014’, Maritime transport emits around
1000 million tonnes of CO2 annually and is responsible for about 2.5 per cent of global
greenhouse gas emissions.7 Depending on future economic and energy developments, it is
expected that shipping emissions will increase between 50 and 250 per cent by 2050, which
is not compatible with the goal of keeping the global temperature increase to below 2°C
compared to pre-industrial levels, which was internationally agreed in the Conference of
the Parties (COP)-21 in December 2015 in Paris.8
The International Maritime Organization (IMO) started working on the reduction
of GHG in 1997 based on the principles of ‘no more favourable treatment’ and non-
discrimination enshrined in MARPOL and other IMO Conventions. The entry into force
of amendments to Annex VI of MARPOL for the prevention of air pollution from ships
(the Energy Efficiency Design Index (EEDI) and the Ship Energy Efficiency Management
Plan (SEEMP)) on 19 May 2005 constituted important progress.9 These measures, and,
in particular, the EEDI, are expected to deliver a significantly reduced emissions increase
compared to frozen-technology scenarios (by 23 per cent by 2030 according to the
6
European Commission, Climate Action, ‘Reducing emissions from the shipping sector’,
http://ec.europa.eu/clima/policies/transport/shipping/index_en.htm (accessed 15 September 2016).
7
International Maritime Organization, ‘Third IMO GHG Study 2014’, http://www.imo.org/
en/OurWork/Environment/PollutionPrevention/AirPollution/Pages/Greenhouse-Gas-Studies-2014.
aspx (accessed 15 September 2016).
8
UNFCCC Paris Agreement (2015), http://unfccc.int/files/essential_background/convention/
application/pdf/english_paris_agreement.pdf (accessed 15 September 2016).
9
International Maritime Organization, ‘Prevention of Air Pollution from Ships’; MARPOL
Annex VI also regulates shipboard incineration, and the emissions of volatile organic compounds
(VOCs) from tankers. The main changes to MARPOL Annex VI are a progressive reduction glob-
ally in emissions of SOx, NOx and particulate matter and the introduction of emission control
areas (ECAs) to reduce emissions of those air pollutants further in designated sea areas. See http://
www.imo.org/en/OurWork/environment/pollutionprevention/airpollution/pages/air-pollution.aspx
(accessed 15 September 2016).

LEAL-ARCAS_9781786431042_t.indd 336 08/09/2017 13:02

EU energy law in the maritime sector 337
IMO 2011 study). However, as confirmed by the 59th Marine Environment Protection
Committee (MEPC) of the IMO,10 further action needs to be taken.11
It is clear that a worldwide approach to reducing GHG emissions is more effective than
a regional approach because climate change is a global concept. The European Union is
of this opinion and, therefore, it supports the leadership of the IMO in this regard.12 Since
ship owners and other operators are more likely to take measures to improve their vessels’
energy efficiency if these are based on accurate information provided by monitoring and
reporting schemes, discussions within the IMO now focus on a more gradual approach,
with monitoring, reporting and verification of emissions (MRV) as a first step, followed
by further efficiency measures for existing ships and market-based measures in the mid-
to-long term.13 Reliable information on the effectiveness of technologies in improving
energy efficiency also reduces the financial risk for investors. Moreover, an MRV system
could also increase the pressure for the removal of other market barriers, such as a split of
incentives between ship owners and operators, by providing clarity on energy efficiency,
emissions sources and abatement potential because it provides robust and comparable
data to set emission reduction targets and to assess the progress of maritime transport
towards a low carbon economy.14
Accordingly, in 2013 the European Commission set out a strategy for progressively inte-
grating maritime emissions into the EU’s policy for reducing its domestic GHG emissions,
which consists of three steps: firstly, monitoring, reporting and verification of CO2 emis-
sions from large ships using EU ports; secondly, GHG reduction targets for the maritime
transport sector; and thirdly, other measures, including market-based measures, in the
medium to long term.15 It is interesting to note that this European system is intended
to lay the foundations for a global system. The proposed rules in 2013 support a phased
approach to the establishment of global energy efficiency standards for existing ships, as
proposed by the United States with the support of other members of the IMO. In the
event that a global system is created, EU legislation will adapt to it.16
In relation to that, Regulation (EU) 2015/757 of the European Parliament and of the
Council of 29 April 2015 was adopted on the monitoring, reporting and verification of
carbon dioxide emissions from maritime transport, amending Directive 2009/16/EC (the
10
Report from 59th MEPC meeting, paragraph 4.92.
11
European Commission, Communication from the Commission to the European Parliament,
the Council, the European Economic and Social Committee and the Committee of the Regions –
Integrating maritime transport emissions in the EU’s greenhouse gas reduction policies, Brussels, 28
June 2013, COM(2013) 479 final, p. 4.
12
European Commission, ‘Time for international action on CO2 emissions from shipping’
(2013), p. 2, http://ec.europa.eu/clima/policies/transport/shipping/docs/marine_transport_en.pdf
13
Ibid., p. 2.
14
June 2013, COM(2013) 479 final, p. 5.
15
Ibid.
16
European Commission, ‘Maritime transport: first step to reduce emissions’ (Press Release,
Brussels, 28 June 2013), http://europa.eu/rapid/press-release_IP-13-622_en.htm (accessed 17 Septem
ber 2016).

LEAL-ARCAS_9781786431042_t.indd 337 08/09/2017 13:02

MRV Regulation). This Regulation requires ships over 5000 gross tonnes calling at EU
ports from 1 January 2018 to collect and later publish verified annual data on CO2 emis-
sions and other relevant information. In addition, it foresees a number of implementing
and delegated acts paving the way for its proper and timely implementation in order to
help companies fulfil their monitoring obligations in a harmonised way, to further define
verification rules, and to set up an accreditation process for MRV verifiers.17 As part of
the preparatory phase leading to the adoption of these legal acts at the end of 2016, the
European Commission has set up an expert consultation process to deliver a set of recom-
mendations on further defining technical rules for cargo monitoring for ‘other ships types’
(Implementing Act); setting additional rules on verification and accreditation (Delegated
Act); assessing the need for updating Annexes I & II in the light of international rules and
standards or scientific and technical developments and, if needed, recommending pos-
sible changes (Delegated Act, if required); and setting relevant monitoring and reporting
templates and technical rules for submission, applicable to companies and to verifiers
(Implementing Acts).18
Market-based measures (MBMs) can effectively remove the market barriers, espe-
cially the split of incentives, e.g. by implementing the polluter-pays principle. They
have the potential to overcome market barriers regarding the access to finance, pro-
vided that potential revenues generated are channelled to ensure the support of private
finance to the sector. Depending on the level of contribution or the target level, an
MBM can create a strong incentive to achieve economy-wide absolute emission reduc-
tions in a cost effective way.19 Thus, there are three options of MBMs that can be
emphasised:20
● A contribution-based compensation fund under which a voluntary contribution

(in €/t CO2) would be paid into the fund. The contribution would be dependent on
the emissions by the ship covered by the regulation. This voluntary instrument can
only be successfully implemented if a complementary instrument (e.g. speed limits,
an emissions trading scheme, etc.) is set up and fund participation is foreseen as a
voluntary opt-out from the complementary instrument.
● A target-based compensation fund based on establishing a unique target for all
ships covered by the regulation. The contractual agreement would require the
payment of a membership fee, which supports investments in ship efficiency, as well
as provisions in case of collective overshooting of the target.
● An Emissions Trading System (ETS), which would mean each ship has to surrender
allowances at the end of the compliance period corresponding to its emissions of
the previous year.
17
18
Ibid.
19
June 2013, COM(2013) 479 final, p. 7.
20
Ibid., p. 8.

LEAL-ARCAS_9781786431042_t.indd 338 08/09/2017 13:02

The EU ETS works on the ‘cap and trade’ principle. A cap is set on the total amount of
certain greenhouse gases that can be emitted by installations covered by the system. The
cap is reduced over time so that total emissions fall. Within the cap, companies receive or
buy emission allowances they can trade with one another as needed. They can also buy
limited amounts of international credits from emission-saving projects around the world.
The limit on the total number of allowances available ensures that they have a value. After
each year a company must surrender enough allowances to cover all its emissions, oth-
erwise heavy fines are imposed. If a company reduces its emissions, it can keep the spare
allowances to cover its future needs or else sell them to another company that is short of
allowances. The EU ETS is positive because trading brings flexibility that ensures emis-
sions are cut where it costs least to do so.21
The EU ETS is now in its third phase (2013–2020), which is characterised by the
following:
● A single EU-wide cap on emissions that allows companies to receive or buy emis-
sion allowances which they can trade as needed;
● Auctioning22 as the default method for allocating allowances (it puts into practice
the principle that the polluter should pay), which means that businesses have to buy
an increasing proportion of allowances through auctions;
● The inclusion of more sectors and gases, such as: carbon dioxide (CO2) from power
and heat generation, the energy-intensive industry sectors (oil refineries, steel works
and production of iron, aluminium, metals, cement, lime, glass, ceramics, pulp,
paper, cardboard, acids and bulk organic chemicals) and from commercial aviation;
nitrous oxide (N2O) from the production of nitric, adipic, glyoxal and glyoxlic
acids; and perfluorocarbons (PFCs) from aluminium production;
● 300 million allowances have been set aside in the New Entrants Reserve to fund
the deployment of innovative renewable energy technologies and carbon capture
and storage through the NER 300 programme (one of the world’s largest funding
programmes for innovative low-carbon energy demonstration projects. The pro-
gramme is conceived as a catalyst for the demonstration of environmentally safe
carbon capture and storage (CCS) and innovative renewable energy sources (RES)
technologies on a commercial scale within the European Union).23
The EU ETS is the world’s first and biggest international emissions trading system,
accounting for over three-quarters of international carbon trading. For that reason, it is
interesting to note that the European Commission intends to expand the ETS to the ship-
ping industry because this sector is a growing source of GHG emissions that are causing
21
European Commission, Climate Action, ‘The EU Emissions Trading System (EU ETS)’,
http://ec.europa.eu/clima/policies/ets/index_en.htm (accessed 17 September 2016).
22
It is governed by Commission Regulation (EU) No 1031/2010 of 12 November 2010 on the
timing, administration and other aspects of auctioning of greenhouse gas emission allowances
pursuant to Directive 2003/87/EC of the European Parliament and of the Council establishing a
scheme for greenhouse gas emission allowances trading within the Community.
23
European Commission, Climate Action, ‘The EU Emissions Trading System (EU ETS)’,
http://ec.europa.eu/clima/policies/ets/index_en.htm (accessed 17 September 2016).

LEAL-ARCAS_9781786431042_t.indd 339 08/09/2017 13:02

climate change. In this regard, according to the European Commission, the IMO and the
UNFCCC have failed to include emissions from shipping in reduction commitments;24
therefore, the European Union may try to include the shipping industry under the
current EU GHG reduction regime.25 In relation to that, the European Commission in
its report entitled ‘Technical support for European Action to Reducing [sic] Greenhouse
Gas Emissions from International Maritime Transport’ (December 2009) had included
in Annex B (‘EU’s competencies to regulate international shipping emissions’) thereof
the potential inclusion of the shipping industry into the EU ETS as long as it conforms
with the EU’s international obligations, including the WTO agreements and UNCLOS.26
In 2012 a new Directive was agreed to reduce emissions from shipping resulting from
the combustion of marine fuels with a high sulphur content; it was the so-called Directive
2012/33/EU of the European Parliament and of the Council of 21 November 2012 amend-
ing Council Directive 1999/32/EC as regards the sulphur content of marine fuels, which
aimed to reduce air pollution. In spite of the efforts made by the European Union, it is
essentially a pre-emptive global approach that comprises shipping in emissions trading
schemes, and which means to include the UNFCCC Parties as well as the IMO Parties,
so that a more efficient and effective response to climate change mitigation can be given.
3. THE EU INTEGRATED MARITIME POLICY
The history of Europe cannot be understood without the seas and oceans. They are a
source of wealth, but at the same time, they are also a source of conflicts over use in a
context of globalisation and climate change. Thus, the importance of issues related to the
sea and evidence of an increasing degradation of the marine environment and coastal
regions prompted European authorities to develop an integrated maritime policy (IMP),
which aims to support the sustainable use of oceans and seas and the establishment of
a coordinated, coherent and transparent decision-making process for European poli-
cies affecting the various maritime sectors. This regional approach is the most relevant
concerning safety and maritime security, the organisation of maritime transport, eco-
systems, partnerships with neighbouring countries of the EU, and fisheries and coastal
management.27
The precedent of the IMP can be found in the European Commission Green Paper
entitled ‘Towards a Future Maritime Policy for the Union: A European Vision for the
Oceans and Seas’,28 whose origin was the European Commission Communication of
24
25
Rafael Leal-Arcas, The European Energy Union: The quest for secure, affordable and sustain-
able energy (Claeys & Casteels Law Publishers, 2016), vol. 7, p. 130.
26
European Commission, ‘Technical support for European action to reducing Greenhouse
Gas Emissions from international maritime transport’ (December 2009), http://ec.europa.eu/envi
ronment/air/transport/pdf/ghg_ships_annexes.pdf (accessed 17 September 2016).
27
José Manuel Sobrino Heredia, ‘La Politique Maritime Intégrée de l’Union Européene et les
Bassins Maritims Européens’, 01 Paix et Sécurité Internationales, pp. 14, 13–32 (2013).
28
COM(2006) 275 final.

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2005 about the definition of an IMP within the strategic objectives for 2005–2009.29 The
Green Paper’s aim was to achieve sustainable development by reconciling the economic,
social and environmental dimensions of the exploitation of the seas and oceans.30 Later,
in 2007 a Blue Book on this policy entitled ‘Conclusions from the Consultation on a
European Maritime Policy’ was published, which was accompanied by a detailed action
plan, regarding, in particular, sea transport, employment, scientific research, fisheries and
the protection of the marine environment.31
One of the first significant actions within the IMP was the adoption of the Marine
Strategy Framework Directive in June 2008, whose purpose is to protect more effectively
the marine environment across Europe and which provides for the creation of a common
maritime area, developing a strategy for the period 2008–2018.32 With the Marine
Strategy Framework Directive, it is possible to manage the seas and oceans sustainably.
Sustainability is a pre-condition for developing the maritime economy and is driving
advanced technologies that strengthen Europe’s long-term competitiveness.33
Coherence, coordination and regionalisation are the key elements of this strategy. But,
in principle, it should also ensure that these features are better articulated with other
European policies, not only maritime ones, and in particular with territorial cohesion
policy. Accordingly, the EU provides funding for the political priorities in the Integrated
Maritime Policy under the Regulation (EU) No 508/2014 of the European Parliament and
of the Council of 15 May 2014 on the European Maritime and Fisheries Fund,34 which
establishes in Article 6(1)(e) the increase of energy efficiency as a Union priority. Thus, the
main contributions of the IMP to the growth and economy of the maritime economy have
taken place in the following sectors: maritime transport, energy, shipbuilding, fisheries
and aquaculture, and Blue Growth.
Concerning maritime transport, in 2011, the European Commission adopted a White
Paper for Transport, which further specifies the orientations of the Maritime Transport
Strategy until 2018: the ability to provide cost-efficient maritime transport services; the
long-term competitiveness of the EU shipping sector; and the creation of seamless trans-
port chains for passengers and cargo across transport modes.35 Furthermore, the Directive
29
COM(2005) 73 final.
30
EUR Lex, ‘Maritime Policy Green Paper’, http://eur-lex.europa.eu/legal-content/EN/TXT/
HTML/?uri5URISERV:l66029&from5FR (accessed 20 September 2016).
31
SEC (2007)1278.
32
Directive 2008/56/EC of the European Parliament and of the Council of 17 June 2008 estab-
lishing a framework for community action in the field of marine environmental policy, OJ L 164,
25.6.2008, pp. 19–40.
33
European Commission, ‘Progress of the EU’s Integrated Maritime Policy – Report from
the Commission to the European Parliament, the Council, the European Economic and Social
Committee and the Committee of the Regions’ (Publications Office of the European Union,
COM(2012) 491 final), p. 3, http://ec.europa.eu/maritimeaffairs/documentation/publications/docu
ments/imp-progress-report_en.pdf (accessed 20 September 2016).
34
Regulation (EU) No 508/2014 of the European Parliament and of the Council of 15 May
2014 on the European Maritime and Fisheries Fund and repealing Council Regulations (EC) No
2328/2003, (EC) No 861/2006, (EC) No 1198/2006 and (EC) No 791/2007 and Regulation (EU) No
1255/2011 of the European Parliament and of the Council, OJ L 149, 20.5.2014, pp. 1–66.
35

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on reporting formalities entered into force in 2010, which aims to simplify and harmonise
the administrative procedures applied to maritime transport by establishing a standard
electronic transmission of information and by rationalising reporting formalities for ships
arriving in and ships departing from European Union (EU) ports.36 Moreover, in 2011
the European Commission proposed new guidelines for Trans-European Networks to
broaden the role of the Motorways of the Sea as the main European corridors. Through
multi-annual calls, the Commission is leading the way in reducing the environmental
impact of transport and increasing transport efficiency.37
In relation to energy, taking into account that wind energy contributes to reaching a
20 per cent share of energy from renewable sources by 2020, the EU’s Strategic Energy
Technology Plan aims to work on a long-term approach to technology development and
demonstration. Furthermore, the Research Framework Programme and the Intelligent
Energy Programme support the development of wind and oceans energy technology,
which contributes significantly to growth in coastal regions.38 In this regard, in 2013
Regulation (EU) No 347/2013 of the European Parliament and of the Council of 17
April 2013 on guidelines for trans-European energy infrastructure was adopted,39 which
attempts to develop and foster the interoperability of priority corridors and areas of
trans-European energy infrastructure, such as the North Sea Offshore Grid and the Baltic
Energy Market Interconnection Plan.40 This Regulation follows the TEN-E Guidelines
(Decision No 1364/2006/EC of the European Parliament and of the Council of 6
September 2006 laying down guidelines for trans-European energy networks) for trans-
European energy networks transporting electricity and gas, which were essential for the
effective operation of the internal energy market in particular and the internal market
in general. It is intended that users have access to higher-quality services and a wider
choice as a result of the diversification of energy sources, at more competitive prices.
Closer links should therefore be established between national markets and the EU as a
36
Directive 2010/65/EU of the European Parliament and of the Council of 20 October 2010 on
reporting formalities for ships arriving in and/or departing from ports of the Member States and
repealing Directive 2002/6/EC, OJ L 283, 29.10.2010, pp. 1–10.
37
38
Ibid., p. 6.
39
Regulation (EU) No 347/2013 of the European Parliament and of the Council of 17 April
2013 on guidelines for trans-European energy infrastructure and repealing Decision No 1364/2006/
EC and amending Regulations (EC) No 713/2009, (EC) No 714/2009 and (EC) No 715/2009, OJ
L 115, 25.4.2013, pp. 39–75.
40

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whole. Accordingly, TEN-E played a crucial role in ensuring the security and diversifica-
tion of supply. Access to TEN-E also helped to reduce the isolation of the less-favoured,
island, landlocked or remote regions, thus strengthening territorial cohesion in the EU.
The interconnection of TEN-E also promoted sustainable development, in particular by
improving the links between renewable energy production installations and using more
efficient technologies, thus reducing losses and the environmental risks associated with
the transportation and transmission of energy.41
With regard to shipbuilding, the initiative ‘LeaderSHIP’ fosters competitiveness based
on EU technological leadership to address challenges such as climate change, air pollu-
tion, energy efficiency and the development of offshore activities. In this regard, from 1
January 2015 EU Member States have to ensure that ships in the Baltic, the North Sea
and the English Channel are using fuels with a sulphur content of no more than 0.10 per
cent. Higher sulphur contents are still possible, but only if the appropriate exhaust clean-
ing systems are in place. The basic legislation for regulating sulphur emissions from ships
was Directive 1999/32/EC. To include provisions of Annex VI of IMO’s Marine Pollution
Convention (MARPOL 73/78), Directive 1999/32/EC was amended by Directive 2012/33/
EC, which designated the Baltic Sea, the North Sea and the English Channel as sulphur
emission control areas (SECAs) and limited the maximum sulphur content of the fuels
used by ships operating in these sea areas to 1.5 per cent. The fuel standards also applied
to passenger ships operating a regular service outside the controlled areas. However,
even at the time of adoption, it was widely recognised that these standards would not be
enough to address the air pollution impacts of shipping.42 As has been explained above,
shipping is an international industry; therefore, environmental, security and safety stand-
ards are better developed by the International Maritime Organization (IMO), i.e., in an
international multilateral way, not only at the European level.
Regarding fisheries and aquaculture, the European Maritime and Fisheries Fund tries
to improve sustainability and the performance of small-scale coastal fisheries to promote
aquaculture, to support job creation in maritime communities and to deliver cost-
efficiency in maritime affairs. In this regard, Article 41 of Regulation (EU) No 508/2014
provides funding to mitigate the effects of climate change and to improve the energy
efficiency of fishing vessels. Likewise, Article 48 thereof establishes funding to increase
energy efficiency and promote the conversion of aquaculture enterprises to renewable
sources of energy. Nevertheless, fisheries vessels are also affected by the European strategy
to reduce GHG emissions through the use of liquefied natural gas (LNG), which will be
analysed in section 4 of this chapter.
Within the several policies covered by the IMP, noteworthy is the Blue Growth Policy,
which is a long-term strategy to support sustainable growth in the marine and maritime
sectors as a whole to achieve the goals of the Europe 2020 strategy. The ‘blue’ economy
represents roughly 5.4 million jobs and generates a gross added value of almost €500
billion a year. Hence, Blue Growth will drive a second phase of the Integrated Maritime
41
EUR Lex, ‘Trans-European energy networks’, http://eur-lex.europa.eu/legal-content/EN/
TXT/?uri5URISERV%3Al27066 (accessed 20 September 2016).
42
European Commission, Environment, ‘Air pollutants from maritime transport’, http://
ec.europa.eu/environment/air/transport/ships.htm (accessed 20 September 2016).

LEAL-ARCAS_9781786431042_t.indd 343 08/09/2017 13:02

Policy to achieve a healthy maritime economy that delivers innovation, growth and sus-
tainability for European citizens. However, further growth is possible in a number of areas
which are highlighted within the strategy: aquaculture, coastal tourism, marine biotech-
nology, ocean energy and seabed mining. In line with its purpose, this chapter will focus
on the following areas: ocean energy and seabed mining.
3.1 Ocean Energy
Ocean energy technologies are currently being developed to exploit the potential of tides
and waves as well as differences in temperature and salinity. The development of this
emerging sector would not only help to achieve the renewable energy and greenhouse gas
reduction targets, but it could fuel economic growth through innovation and create new,
high-quality jobs.43
In the Communication of the European Commission on Blue Energy in 2014, it was
stated that marine renewable energy (offshore wind and ocean energy) presents the EU
with an opportunity to generate economic growth and jobs, enhance the security of its
energy supply and boost competitiveness through technological innovation, as well as
contributing to the EU’s long-term greenhouse gas emission reduction goals by 80–95
per cent by 2050.44
The ocean energy resources available globally exceed the present and projected future
European energy needs; accordingly, exploiting these resources would help to mitigate EU
dependence on fossil fuels for electricity generation and enhance energy security, which
may be particularly important for island nations and regions, where ocean energy can
contribute to energy self-sufficiency and replace expensive diesel-generated electricity.
Moreover, Pan-European supply chains of ocean energy could develop as the industry
expands, involving both innovative SMEs and larger manufacturing companies with
relevant capabilities in, for example, shipbuilding or mechanical, electrical and maritime
engineering, but also environmental impact assessment or health and safety manage-
ment.45 In addition, ocean energy can help to balance out the output of other renewable
energy sources such as wind energy and solar energy to ensure a steady aggregate supply
of renewable energy to the grid.
However, ocean energy today is an infant industry, within which wave and tidal stream
technologies are relatively more developed than other technologies. There are currently
10MW of installed wave and tidal stream capacity in the EU, which is almost a three-fold
increase from 3.5MW four years ago. Located in the UK, Spain, Sweden and Denmark,
these projects are mostly pre-commercial, demonstrating the reliability and survivability
of tested devices.46
43
European Commission, Maritime Affairs, ‘Ocean Energy’, http://ec.europa.eu/maritimeaf-
fairs/policy/ocean_energy/index_en.htm (accessed 28 September 2016).
44
European Commission, ‘Blue Energy – Action needed to deliver on the potential of ocean
energy in European seas and oceans by 2020 and beyond’ (COM(2014) 8 final, 20 January 2014), p.
2, http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri5CELEX:52014DC0008&from5EN
45
Ibid., p. 3.
46
Ibid., p. 4.

LEAL-ARCAS_9781786431042_t.indd 344 08/09/2017 13:02

Another important form of ocean energy is offshore floating wind power. The deepen-
ing offshore coastal areas on the Atlantic seabed make offshore turbines with fixed foun-
dations too expensive; hence, a floating platform that is anchored to the seabed could be
a more cost-effective solution in those waters. Currently, there are two offshore floating
wind demonstration projects in operation, in Portugal and Norway.47
At the EU level, the Renewable Energy Directive and the Emissions Trading System
have provided the necessary regulatory framework. Nonetheless, since 2008 the Strategic
Energy Technology (SET) Plan48 has been instrumental in accelerating the development
and deployment of low-carbon energy technologies. Moreover, the Regulation on guide-
lines for trans-European energy infrastructure seeks to tackle the infrastructural challenge
by defining integrated offshore electricity grid development as a priority.49
Nevertheless, there are some challenges remaining, which concern, notably, grid con-
nection issues, supply chain developments and operation and maintenance under harsh
weather conditions. Thus, the following issues can be mentioned:
● Technology costs are currently high and access to finance is difficult;

● Expanding and strengthening the EU’s transmission grid infrastructure, offshore
but also on land and across borders, is necessary to accommodate future volumes
of ocean energy and transport the output to centres of demand;
● There is inadequate access to suitable port facilities and a lack of specialised vessels
for installation and maintenance;
● Complex licensing and consenting procedures can delay projects and raise costs, so
it is fundamental to integrate ocean energy into national maritime spatial plans;
● More research and a better exchange of information on environmental impacts are
necessary to understand and mitigate any adverse effects ocean energy installations
may have on marine ecosystems;
● Due to the economic climate, several governments have substantially scaled back
grant and revenue support for renewables.
Consequently, overcoming these challenges will be key for the future development of
the ocean energy sector and its ability to deliver high volumes of low carbon electricity
to Europe through instruments such as the EERA joint programme, the ocean energy
ERA-Net and Horizon 2020. Accordingly, the European Commission has recently issued
guidance on best practice for renewable energy support schemes, which not only argues for
a stronger emphasis on the principle of cost-effectiveness, but also stresses that support
scheme design should foster technological innovation. The guidance therefore allows for
47
energy in European seas and oceans by 2020 and beyond’ (COM(2014) 8 final, 20 January 2014),
p. 4, http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri5CELEX:52014DC0008&from
5EN (accessed 28 September 2016).
48
COM(2009) 519, 7 October 2009.
49
energy in European seas and oceans by 2020 and beyond’ (COM(2014) 8 final, 20 January 2014), p.
5, http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri5CELEX:52014DC0008&from5EN

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projects of commercial-scale deployment and thereby recognises the need for a targeted
support framework for technologies such as ocean energy.50
3.2 Seabed Mining
Pursuant to the World Trade Organization (WTO), between 2000 and 2010 there was an
annual increase of about 15 per cent in the price of many non-energy raw materials, prin-
cipally as a result of consumer demand in emerging economies,51 which may cause a risk
of supply shortage for several of these materials, including those identified as critical to
Europe’s economy.52 Therefore, seabed mining is important to ensure security of supply
and to fill a gap in the market where either recycling is not possible or inadequate, or the
burden on terrestrial mines is too great.
As a result of that and owing to advances in technology as well as concerns over security
of supply, mining companies have started to consider what the sea can provide. Thus, the
exploitation and mining of minerals, other than sand and gravel, from the sea have just
begun. Most current activity is in shallow water. Accordingly, it is expected that by 2020,
5 per cent of the world’s minerals, including cobalt, copper and zinc could come from the
ocean floors. This could rise to 10 per cent by 2030. Likewise, the global annual turnover
of marine mineral mining can be expected to grow from virtually nothing to €5 billion in
the next 10 years, and up to €10 billion by 2030.53
These kind of operations are currently mostly located within areas under national juris-
diction (exclusive economic zones and the continental shelf) where it is easier to transport
ores to land, but there are also opportunities outside jurisdictional marine areas. In these
areas, the International Seabed Authority (ISA), as the entity responsible for organising
and controlling activities, including monitoring all mineral-related activities, shall act to
protect the marine environment in line with the provisions of UNCLOS, to which the EU
and all its Member States are contracting parties.54
In order to implement these operations, funding plays an important role, so that
European companies can be competitive in research and development in extraction tech-
niques, as does the ability to obtain licences in international waters and robust measures
to avoid harming unique ecosystems.55 In this regard, as an example, it is interesting to
mention the prospections that the United Kingdom (UK) is doing in the search for oil
and gas in its territorial waters; in particular, in the fishing area known as ‘Gran Sol’,
which has caused concern to many fishing vessels of other nationalities, in particular the
50
energy in European seas and oceans by 2020 and beyond’ (COM(2014) 8 final, 20 January 2014),
pp. 5–6, http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri5CELEX:52014DC0008&from
5EN (accessed 28 September 2016).
51
WTO (2010), ‘Trade growth to ease in 2011 but despite 2010 record surge, crisis hangover
persists’ (PRESS/628, 7 April 2011).
52
COM(2011) 25 final and its accompanying staff working document.
53
European Commission, ‘Blue Growth – Opportunities for marine and maritime sustainable
growth’ (COM(2012) 494 final, 13 September 2012), p. 10, http://ec.europa.eu/maritimeaffairs/
policy/blue_growth/documents/com_2012_494_en.pdf (accessed 4 October 2016).
54
Ibid.
55
Ibid., p. 11.

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Galician fleet (Spain), that fish in the Gran Sol area. To smooth the way for companies
aspiring to gain a licence, the UK Government announced in 2016 the mapping of some
40,000 square kilometres that occupy mainly two major areas: the Mid-North Sea High,
between the British Isles and the rest of Europe, and the Rockall Trough, including
Hatton Bank (Gran Sol).56
Regulations governing deep seabed mining activities,57 whose operations would be
controlled from a floating platform on the sea surface, depend on whether they take place
inside or outside the jurisdictional waters of a sovereign state. Thus, the 1982 United
Nations Convention on the Law of the Sea (UNCLOS) distinguishes between deep-sea
mining in: (a) maritime zones under the jurisdiction of coastal States (including the terri-
torial sea, exclusive economic zone and continental shelf); and (b) the seabed, ocean floor
and subsoil beyond national jurisdiction (which is defined in Article 1 of UNCLOS as
the ‘Area’). Coastal States have exclusive sovereign rights to explore the seabed of mari-
time zones under their jurisdiction and to exploit the natural resources located there (as
has been shown in the example of the United Kingdom), including mineral resources, in
accordance with their own legislation. As regards the EU Member States, such legislation
must give effect to obligations created under EU law; in relation to that can be highlighted
the Directive 94/22/EC of the European Parliament and of the Council of 30 May 1994
on the conditions for granting and using authorisations for the prospection, exploration
and production of hydrocarbons.58 In addition, the second sentence of paragraph 16 of
the Directive 2013/30/EU of the European Parliament and of the Council of 12 June
2013 on the safety of offshore oil and gas operations and amending Directive 2004/35/
EC, reads as follows:
However, not all exploratory offshore oil and gas operations are covered by existing Union
requirements on public participation. This applies in particular to the decision-making that aims
or could lead to exploration operations being commenced from a non-production installation.
However, such exploration operations may in some circumstances potentially have significant
effects on the environment and the decision-making should therefore be the subject of public
participation as required under the Aarhus Convention.
56
Adrián Amoedo, ‘Londres acota 40.000 kilómetros cuadrados para buscar más petróleo y
gas en Gran Sol’, Faro de Vigo (Vigo, 5 April 2016).
57
Deep seabed mining has been arousing interest since the 1960s but no commercial mining
activity has yet begun. However, in the last decade interest has increased.
58
In this regard, it is interesting to mention the Proposal for a Regulation of the European
Parliament and of the Council establishing a framework on market access to port services and
financial transparency of ports (COM(2013)0296 – C7-0144/2013 – 2013/0157(COD)), as well as
the Proposal for a Directive on procurement by entities operating in the water, energy, transport
and postal services sectors (COM/2011/0895 final) because they relate to the changing energy land-
scape and growing societal and environmental pressure. Thus, as an example, Amendment 34 of
the Proposal for a Regulation on Ports, Recital 25 states: ‘Port infrastructure charges may vary, for
example, in order to promote short sea shipping and to attract waterborne vessels having an envi-
ronmental performance or energy and carbon efficiency of the transport operations, notably the
off-shore or on-shore maritime transport operations, that is better than average. This should help
to contribute to the environmental and climate change policies and the sustainable development of
the port and its surroundings notably by contributing to reducing the environmental footprint of
the waterborne vessels calling and staying in the port’.

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All rights in the mineral resources of the Area are ‘vested in mankind as a whole’.
Accordingly, the International Seabed Authority (ISA), an intergovernmental body estab-
lished under UNCLOS, is responsible for regulating deep-sea mining in the Area. ISA
has the mandate to organise and control activities in the Area, particularly with a view to
administering the resources of the Area, to regulating seabed mining and to ensuring the
protection of the marine environment in the Area in relation to such activities.59
Regarding the environmental impact, there is a lack of understanding; nevertheless,
from the European fishing perspective, the opinion of Europêche (the representative body
for fishermen in the European Union) can be highlighted. It noted that major areas have
been closed to fishing for reasons of environmental protection; for that reason, Europêche
urged the European Commission to apply at least the same strict environmental standards
to the mining industry’s exploration and extractive activities; accordingly, areas closed to
fishing should also be closed to other activities such as oil and gas exploitation and seabed
mining.60 This opinion reflects the explained concerns of the fishing vessels that operate
in the Gran Sol area with regard to the UK prospections.
4. MARITIME TRANSPORT AND LNG
As already explained above, the magnitude of the oceans is an advantage because it allows
that up to 90 per cent of global freight is done by boat; however, such activity, which uses
up to 10 per cent of the world’s oil, has serious environmental problems. Thus, according
to the IMO, sulphur oxide (SOx) emissions are rising to 15 per cent of the world’s total
emissions and between 18 and 30 per cent of the emissions of nitrogen oxides. CO2 is
also another problem in this case: although the percentage is smaller compared to other
components, its mere presence also affects the greenhouse effect.
In this context, the maritime industry has long sought alternatives to the use of oil
and its derivatives as a source of sustainable energy.61 Thus, liquefied natural gas (LNG)
stands as the best option because it is safe and its implementation does not require
large investments in equipment, infrastructure or engines. It also has competitive costs
compared to alternatives based on petroleum. In addition, it is environmentally friendly
as it reduces emissions of sulphur oxides (SOx), nitrogen oxides (NOx), carbon dioxide
(CO2) and particulate matter.62
Conscious of the desirability of giving a boost to its environmental strategy, the
59
Commission Staff Working Document, ‘EU stakeholder survey on seabed mining summary
of responses’ (SWD(2015) 119 final, 9 June 2015), p. 17, http://ec.europa.eu/dgs/maritimeaf
fairs_fisheries/consultations/seabed-mining/doc/swd-2015-119_en.pdf (accessed 4 October 2016).
60
Ibid., p. 25.
61
The EU Programme ‘Horizont 2020’, which was established by Regulation (EU) No
1290/2013 of the European Parliament and of the Council of 11 December 2013 laying down
the rules for participation and dissemination in ‘Horizon 2020 – the Framework Programme for
Research and Innovation (2014–2020)’ and repealing Regulation (EC) No 1906/2006, intended,
inter alia, to promote research on alternative fuels for vehicles, such as electricity, hydrogen or
natural gas.
62
Gabriel Morales, ‘Gas natural licuado: el futuro del transporte marítimo sostenible’, El
Español (Madrid, 18 July 2016). This conclusion was also reached at the 21st Conference of the

LEAL-ARCAS_9781786431042_t.indd 348 08/09/2017 13:02

European Commission is fostering the use of LNG for the shipping sector.63 As an
example, it can be mentioned that the European Commission has selected the ‘CORE
LNGas hive’ project to promote the use of LNG as the usual fuel in shipping and to
support the deployment of LNG infrastructure for maritime transport and ports opera-
tions along the Spanish and Portuguese sections of the Atlantic and Mediterranean Core
Network Corridors in line with the corresponding Corridor Work Plans. Until 2020, the
goal is to develop an integrated, safe and efficient logistics chain in the Iberian Peninsula
for the supply of liquefied natural gas as fuel in the transport sector, especially maritime
transport.64 The initiative benefits from the aid mechanism ‘Connecting Europe Facility’
for the development of the Trans-European Transport Network, and receives European
funds worth €16.65 million.65
According to the European policy of using alternative and less polluting fuels in
shipping in order to minimise dependence on oil and to mitigate the environmental
impact of transport, the Directive 2014/94/EU of the European Parliament and of the
Council of 22 October 2014 on the deployment of alternative fuels infrastructure was
adopted.66 Within the framework of Directive 2014/94/EU, the following LNG provi-
sions were determined (see Articles 3 and 6 of the Directive): (1) Member States must
ensure through their national strategic framework that a reasonable number of LNG
stations are provided in inland ports by 31 December 2030, so that LNG ships can freely
move around within the Trans-European Transport Network (TEN-T); and (2) Member
States must designate those inland ports, which have to provide access to LNG fuelling
stations.
However, even though many guidelines and codes are under development, LNG
Parties to the UN Framework Convention on Climate Change (COP21) held in Paris in December
2015.
63
To read more on European gas markets and gas security see: Manfred Hafner and Simone
Tagliapietra, The Globalization of Natural Gas Markets: New Challenges and Opportunities for
Europe (Claeys & Casteels Law Publishers, 2013), vol. 6.
64
Information about natural gas and LNG:
Natural gas is an important source of energy and a cleaner fossil fuel. It is mainly composed of
methane, the simplest hydrocarbon molecule, which gives the natural gas significant safety ben-
efits and reduced emissions compared to other fossil fuels.
Liquefied natural gas (LNG) is natural gas in liquid state, after a process of liquefaction or
cooling to about -162°C, for easy storage and transportation. LNG is odourless, colourless, non-
toxic and non-corrosive.
Natural gas becomes liquefied natural in the gas liquefaction plants from where it is trans-
ported to LNG terminals. In LNG terminals it returns to its gaseous state (regasification), and
is incorporated into the pipelines and distribution to the end consumer (mainly for industrial
purposes, power plants and commercial and domestic demand). This is the traditional chain for
LNG. (See http://corelngashive.eu/es/lng/ [accessed 12 October 2016].)
65
European Commission, Innovation and Networks Executive Agency, ‘CORE LNGas
hive – Core Network Corridors and Liquefied Natural Gas’, https://ec.europa.eu/inea/en/
connecting-europe-facility/cef-transport/projects-by-country/multi-country/2014-eu-tm-0732-s
66
Directive 2014/94/EU of the European Parliament and of the Council of 22 October 2014 on
the deployment of alternative fuels infrastructure, OJ L 307, 28.10.2014, pp. 1–20.

LEAL-ARCAS_9781786431042_t.indd 349 08/09/2017 13:02

unkering is not regulated yet, which harms investments due to the lack of legal security.
b
Illustratively, there are no regulations for the following points: definition of the LNG
bunkering process; LNG bunkering procedures; LNG ship to delivering facility inter-
faces; LNG bunker port operations; LNG bunkering safety distances; LNG bunkering
risk assessment and risk acceptance criteria; LNG bunkering during loading/unloading
and passenger embarking/disembarking; LNG bunker related emergency plans; LNG
fuel sampling; LNG fuel measurement; and environmental requirements.67
Nonetheless, today there are many pilot experiences concerning the bunkering of LNG
in maritime transport. In the North of Europe, for more than a decade, there have been
vessels using LNG as fuel, although, since there is no mains supply, refuelling is associ-
ated with various kinds of traffic. That is, either vessels using LNG as fuel are boats that
cover regular lines and always refuel at a base point where a specific infrastructure for
the specific case is developed, or the supply of LNG is ‘mobile’ in the form of tankers or
barges that carry the fuel to where it is required.68
As already discussed above, currently the bodies responsible for standardisation are in
the process of developing many of the rules and regulations that will apply in the future
to the field of LNG bunkering. However, it is important to note the following regulatory
framework at the international and European levels:69
(a) The IMO 2009 ‘Interim Guidelines on Safety for Natural Gas-Fuelled Engine
Installations in Ships’, which establish interim guidance for facilities of internal
combustion engines in ships using natural gas as fuel (either dual-fuel engines or
pure gas engines) and for gas storage facilities on board (both gaseous and liquid).
Article 1.1.3 of the RESOLUTION MSC.285(86) states: ‘The Interim Guidelines
are applicable to new ships. Application to existing ships should be decided by the
Administration to the extent it deems necessary’;
(b) The IMO ‘International code of safety for ships using gases or other low-flash point
fuels’ (IGF Code), developed by the Maritime Safety Committee 78, establishes
interim guidelines for all ships (except ships covered by the IGC Code gas tankers)
using fuels with a low flashpoint (natural gas, butane, propane, ethanol, methanol,
hydrogen and others), including ships with natural gas engines, and it is expected
that it will come into force in 2017;
(c) The SOLAS, International Convention for the Safety of Life at Sea, 1974;
(d) The STCW, International Convention on Standards of Training, Certification and
Watchkeeping for Seafarers, 1978;
(e) The ISPS Code (International Ship and Port Facility Security Code, 2003), which
presents general principles to protect ships and port facilities that should be consid-
ered in the design of terminal LNG bunkering;
67
L. Simmer, S. Pfoser and O. Schauer, ‘Liquefied Natural Gas as a Fuel in Inland Navigation:
Barriers to be overcome on Rhine-Main-Danube’, Journal of Clean Energy Technologies, 4(4),
295–300 (2016), p. 298.
68
Julio de la Cueva, Ministerio de Fomento del Gobierno de España/Ministry of Development
of the Spanish Government, ‘Estudio sobre el suministro de GNL a buques mediante camión’, p. 8
(September 2014).
69
Ibid., pp. 9–19.

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(f) The Technical Committee 67 (TC-67) of the International Organization for

Standardization (ISO) is responsible for materials, equipment and offshore struc-
tures for petroleum, petrochemical and natural gas;
(g) The SIGTTO (Society of International Gas Tanker and Terminal Operators), has
published several guidelines and recommendations related to the transfer and han-
dling of LNG, which, while they do not have standard range, as this organisation
brings together private companies in the gas sector, are considered by the ISO and
IMO;
(h) Directive 2014/94/EU of the European Parliament and of the Council of 22 October
2014 on the deployment of alternative fuels infrastructure, OJ L 307, 28.10.2014,
pp. 1–20, which provides that Member States shall ensure the installation of LNG
refuelling points for sea and river transport with public access in all seaports and
river ports;
(i) Several regulations of the European Committee for Standardization, such as: EN
1160:1996, ‘Installations and equipment for liquefied natural gas. General charac-
teristics of liquefied natural gas’; EN 1474-1:2008, ‘Installations and equipment for
liquefied natural gas. Design and testing of marine transfer systems. Part 1: Design
and testing of transfer arms’; or EN 1474-2:2008, ‘Installations and equipment for
liquefied natural gas. Design and testing of marine transfer systems. Part 2: Design
and testing of transfer hoses’;
(j) Recommendations of the European Maritime Safety Agency (EMSA), such as the
2013 ‘Guidelines for systems and installations for supply of LNG as fuel to ships’;
(k) Recommendations of the Swedish Marine Technology Forum;
(l) Guidelines of the classification societies for the use of natural gas as fuel in ships,
based on the interim guideline of the IMO Guidelines MSC.285 (86).
Until now LNG had been used primarily on merchant ships, and the most impor-
tant regulation to apply on the structural conditions to be met by ships carrying LNG
(including those that use it as fuel) is the IMO IGC Code ‘International Code for the
Construction and Equipment of Ships Carrying Liquefied Gases in Bulk’. This code
applies to the ships built after 1 July 1986, that, regardless of size, carry liquefied gases
whose vapour pressure exceeds 2.8 absolute bar at a temperature of 37.8°C.70 However,
fishing vessels, in particular trawlers, would like to use LNG as a fuel source. The problem
for small ships and fishing vessels is that LNG storage tanks are very large. The option
for these smaller vessels is to use the cryogenic LNG (-162°C); the drawback is that its
installation is quite expensive.
As can be observed, LNG is the fuel of the future for the shipping sector in the
European Union and it is intended to be so also at the international level. However, it is
still necessary to develop relevant regulations and to provide funding to reduce the costs
on converting to a new energy source, so that economic operators think of LNG as a
viable option.
70
Julio de la Cueva, Ministerio de Fomento del Gobierno de España/Ministry of Development
of the Spanish Government, ‘Estudio sobre el suministro de GNL a buques mediante camión’, p. 34
(September 2014).

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5. CONCLUSIONS
Maritime traffic is fully interconnected with the energy sector. Thus, even though ship-
ping is in most cases more fuel-efficient than other transport sectors, its greenhouse gas
emissions are substantial and growing fast because, according to the IMO, about 90 per
cent of goods are transported by sea.
In spite of the fact that a global approach to reduce GHG emissions is more effective
than a regional one, the European Union has taken seriously the issue of energy efficiency
within the shipping sector, and, on the basis of the IMO conventions, the EU is develop-
ing several policies to create a more efficient and more environmentally friendly energy
policy that provides energy independence and energy security for the European Union.
However, the ambitious EU decarbonisation targets face several challenges that will need
to be solved through the development of specific regulations and funding.
Energy is a shared competence between the European Union and its Member States
(energy efficiency is an EU competence whereas renewable energy is a Member State’s
competence). In this regard, while the 2020 Package is a successful strategy concerning
the EU energy policy and its climate goals, because the targets had a binding nature, the
2030 Framework represents a step back due to the fact that some of the targets of the
2020 Package became voluntary. In any case, the efforts made by the EU in the energy field
of the shipping sector should be taken into account with projects like the EU Strategy to
reduce emissions from the shipping sector, the EU Integrated Maritime Policy and the
introduction of LNG into maritime transport.
While the EU has a high energy dependence on Russia, the main LNG producers
are Qatar, USA and Australia. Thus, the change from fossil fuels into renewable energy
sources and into LNG represents not only a step forward for the EU climate change
targets, but also an important path for European energy security. In this respect the Trans
Adriatic Pipeline should be highlighted, by which the project promoters (including the
European Union) hope to deliver Caspian gas to Europe via pipelines spanning Turkey,
Greece and Albania, reaching its final destination in southern Italy via a sub-Adriatic
pipeline. Consequently, the shipping sector (also supported by the IMO at the interna-
tional level) plays an important role in European energy policy to promote and achieve
EU energy security as well as EU climate goals.

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19. A (legal) challenge to privacy: on the
implementation of smart meters in the EU and
the US
Max Baumgart*
1. INTRODUCTION
The generation and supply of variable renewable energies from wind and solar power pose
a challenge for every country and state that decides to increase renewable energy’s contribu-
tion to its energy mix. It jeopardizes the safety of the electricity grid if unexpected energy
levels lead to an overload of electricity in the grid.1 Due to their ability to communicate
directly with the meter operator, smart meters enable almost real-time capture of power
consumption and power production data.2 They help network operators to regulate the
flow of electricity3 and thus become a significant element for an intelligent power grid.4
* This chapter is an updated version of Max Baumgart, ‘A (Legal) Challenge to Privacy: On

the Implementation of Smart Meters in the EU and the US’ [2017] Renewable Energy Law and
Policy Review (RELP), 19, and partly based on Max Baumgart, ‘Smart Meters – intelligent-
effizientes Energiemanagement oder unzulässiger Eingriff in die Privatsphäre? Eine Beurteilung
der Vereinbarkeit der Einführung von intelligenten Stromzählern mit der EU-Grundrechtecharta’
[2016] Recht der Energiewirtschaft (RdE), 454. With it, the author would like to contribute to Prof
Rafael Leal-Arcas’s (Queen Mary University of London) research project Wisegrid, grant agree-
ment No 731205, funded by the EU’s Horizon 2020 programme.
1
See Sabine Schulte-Beckhausen/Carmen Schneider/Thorsten Kirch, ‘Unionsrechtliche
Aspekte eines “EEG 2.0”’ [2014] Recht der Energiewirtschaft (RdE), 101, 104.
2
Jan Dinter, ‘Das Gesetz zur Digitalisierung der Energiewende – Startschuss für Smart
Meter? Ein Überblick über den Referentenentwurf’ [2015] EnergieRecht Zeitschrift für die
gesamte Energierechtspraxis (ER), 229, 229; see also Luisa Albrecht, Intelligente Stromzähler als
Herausforderung für den Datenschutz – Tatsächliche und rechtliche Betrachtung (Heymanns 2015),
14, with reference to Bundesnetzagentur, ‘“Smart Grid” und “Smart Market”. Eckpunktepapier der
Bundesnetzagentur zu den Aspekten des sich verändernden Energieversorgungssystems’, www.bun
desnetzagentur.de/SharedDocs/Downloads/DE/Sachgebiete/Energie/Unternehmen_Institutionen/
NetzzugangUndMesswesen/SmartGridEckpunktepapier/SmartGridPapierpdf.pdf ?__blob5publ
icationFile (accessed 4 July 2017), 11.
3
See Jan Dinter, ‘Das Gesetz zur Digitalisierung der Energiewende – Startschuss für Smart
Meter? Ein Überblick über den Referentenentwurf’ [2015] EnergieRecht Zeitschrift für die gesamte
Energierechtspraxis (ER), 229, 229.
4
See Luisa Albrecht, Intelligente Stromzähler als Herausforderung für den Datenschutz –
Tatsächliche und rechtliche Betrachtung (Heymanns 2015), 1; see on the role of smart meters
in a so-called smart grid also Claudia Eckert/Christoph Krauß, ‘Sicherheit im Smart Grid.
Herausforderungen und Handlungsempfehlungen’ [2011] Datenschutz und Datensicherheit (DuD),
535, 535ff; on the purpose of a smart grid, see Nicole Angenendt/Katharina Vera Boesche/Oliver
Helge Franz, ‘Der energierechtliche Rahmen einer Implementierung von Smart Grids’ [2011] Recht
der Energiewirtschaft (RdE), 117, 118.
353
LEAL-ARCAS_9781786431042_t.indd 353 08/09/2017 13:02

However, smart meters also allow suppliers to offer load-dependent or daytime-dependent

tariffs,5 which favours grid regulation through economic incentives.6
One can thus deduce that smart meters are a solution for the problems associated with
the increasing generation and supply of variable renewable energies, but they also create
challenges themselves, particularly with regard to data protection.7 These challenges are
cultivated by different characteristic load profiles of electrical equipment, and an analysis
of the usage data permits, under certain conditions, conclusions about the individual’s
personal lifestyle.8
Two European Union law directives oblige the EU Member States to guarantee imple-
mentation of smart meters into private households. The present chapter aims to show
that there are already fundamental concerns regarding the legality of these directives
with regard to the right to privacy, which derives from the EU Charter of Fundamental
Rights, Article 7. It is doubtful whether the obligation to implement almost EU-wide
interoperable and intelligent meters is proportional under European Union law, given
the networking of millions of households, the resulting significant potential for misuse
by third parties and the danger for the essential fundamental right of respect for private
life and housing. Furthermore, it is necessary to give an overview of the implementation
of smart meters in the United States of America in order to put the implementation of
smart meters into a more general context.
This investigation is limited to the obligation to introduce smart meters in consumer
households, as there the monitoring risk will be particularly high. Additionally, as a result
5
Eoghan McKenna/Ian Richardson/Murray Thomson, ‘Smart meter data: Balancing con-
sumer privacy concerns with legitimate applications’ [2012] Vol. 41, Energy Policy, 807, 811;
Jan Dinter, ‘Das Gesetz zur Digitalisierung der Energiewende – Startschuss für Smart Meter?
Ein Überblick über den Referentenentwurf’ [2015] EnergieRecht Zeitschrift für die gesamte
Energierechtspraxis (ER), 229, 230; draft of the Federal Ministry of Economics and Energy,
‘Entwurf eines Gesetzes zur Digitalisierung der Energiewende’, www.bmwi.de/BMWi/Redaktion/
PDF/P-R/referentenentwurf-gesetz-digitalisierung-energiewende,property5pdf,bereich5bmwi201
2,sprache5de,rwb5true.pdf (accessed 4 July 2017), 1; Joel B. Eisen and others, Energy, Economics
and the Environment (4th edn, Foundation Press 2015), 904 and 907.
6
Luisa Albrecht, Intelligente Stromzähler als Herausforderung für den Datenschutz –
Tatsächliche und rechtliche Betrachtung (Heymanns 2015), 106ff, with reference to Ecofys/EnCT/
Becker Büttner Held, ‘Einführung von lastvariablen und zeitvariablen Tarifen’, www.ecofys.com/
files/files/ecofys_2009_einfuehrung_last-_u_zeitvariabler%20tarife.pdf (accessed 4 July 2017),
41; Joel B. Eisen and others, Energy, Economics and the Environment (4th edn, Foundation Press
2015), 903.
7
See also Luisa Albrecht, Intelligente Stromzähler als Herausforderung für den Datenschutz –
Tatsächliche und rechtliche Betrachtung (Heymanns 2015), 1ff; Christian Beckel/Leyna Sadamori/
Thorsten Staake/Silvia Santini, ‘Revealing household characteristics from smart meter data’ [2014]
Vol. 78, Energy, 397, 409; and Eoghan McKenna/Ian Richardson/Murray Thomson, ‘Smart meter
data: Balancing consumer privacy concerns with legitimate applications’ [2012] Vol. 41, Energy
Policy, 807, 807ff.
8
See Luisa Albrecht, Intelligente Stromzähler als Herausforderung für den Datenschutz –
Tatsächliche und rechtliche Betrachtung (Heymanns 2015), 299 with reference to Ulrich Greveler/
Benjamin Justus/Dennis Löhr, ‘Hintergrund und experimentelle Ergebnisse zum Thema “Smart
Meter und Datenschutz”’, http://1lab.de/pub/smartmeter_sep11_v06.pdf (accessed 04 July 2017).
See also Nancy J. King/Pernille W. Jessen, ‘For privacy’s sake: Consumer “opt outs” for smart
meters’ [2014] Computer Law & Security Review, 530, 532.

LEAL-ARCAS_9781786431042_t.indd 354 08/09/2017 13:02

A (legal) challenge to privacy 355
of the importance of smart meters as emphasized here, this analysis is also limited to
solving the problems deriving from smart meters in the electricity sector.9 This chapter
first presents the technical characteristics and functions of smart meters and describes
their introduction through EU law. Afterwards, the compatibility of the duty standard-
ized in EU secondary legislation with the EU Charter of Fundamental Rights will be
examined. The chapter then briefly describes legal concerns about smart meters in the
United States, gives a conclusion and summary, and ends with describing what further
research has to be done.
2. TECHNICAL CHARACTERISTICS AND FUNCTIONS OF

SMART METERS
Smart meters link two sets of information: the amount of power consumption and the
elapsed time of consumption.10 The term ‘smart meter’ can refer to both such meters with
the ability for and without bidirectional communication.11 Smart meters fulfil a variety
of functions. Consumers can utilize smart meters to track their energy consumption in
detail and thus identify potential savings.12 Moreover, the electrical current can be read
more easily, since it is not necessary for the meter operator to send a person to read the
meter and the consumer does not have to convey the meter reading to the supplier when
the option of remote reading is taken.13 For network operators, smart meters enable better
and safer network management, as the supply and withdrawal of electricity can be regu-
lated more precisely by almost real-time recording of consumption and generation.14 In
9
Smart meters would also be conceivable in other energy fields, e.g. a gas or water meter, see
Luisa Albrecht, Intelligente Stromzähler als Herausforderung für den Datenschutz – Tatsächliche und
rechtliche Betrachtung (Heymanns 2015), 7, with reference to Steffen Benz, ‘Energieeffizienz durch
intelligente Stromzähler – Rechtliche Rahmenbedingungen’ [2008] Zeitschrift für Umweltrecht
(ZUR), 457, footnote 8.
10
See also Katrina Fischer Kuh, ‘Personal environmental information: The promise and
perils of the emerging capacity to identify individual environmental harms’ [2012] Vanderbilt Law
Review, 1565, 1566.
11
See also Luisa Albrecht, Intelligente Stromzähler als Herausforderung für den Datenschutz –
Tatsächliche und rechtliche Betrachtung (Heymanns 2015), 5ff.
12
Ulrich Greveler/Peter Glösekötter/Benjamin Justus/Dennis Löhr, ‘Multimedia Content
Identification Through Smart Meter Power Usage Profiles’, https://www.nds.rub.de/media/nds/
veroeffentlichungen/2012/07/24/ike2012.pdf (accessed 04 July 2017), 1; Eoghan McKenna/Ian
Richardson/Murray Thomson, ‘Smart meter data: Balancing consumer privacy concerns with
legitimate applications’ [2012] Vol. 41, Energy Policy, 807, 810; see also Nancy J. King/Pernille
W. Jessen, ‘For privacy’s sake: Consumer “opt outs” for smart meters’ [2014] Computer Law &
Security Review, 530, 531; and Joel B. Eisen and others, Energy, Economics and the Environment
(4th edn, Foundation Press 2015), 900ff.
13
See also Jan Dinter, ‘Das Gesetz zur Digitalisierung der Energiewende – Startschuss für
Smart Meter? Ein Überblick über den Referentenentwurf’ [2015] EnergieRecht Zeitschrift für die
gesamte Energierechtspraxis (ER), 229, 229.
14
Eoghan McKenna/Ian Richardson/Murray Thomson, ‘Smart meter data: Balancing con-
sumer privacy concerns with legitimate applications’ [2012] Vol. 41, Energy Policy, 807 (810);
Jan Dinter, ‘Das Gesetz zur Digitalisierung der Energiewende – Startschuss für Smart Meter?
Ein Überblick über den Referentenentwurf’ [2015] EnergieRecht Zeitschrift für die gesamte

LEAL-ARCAS_9781786431042_t.indd 355 08/09/2017 13:02

practice, this is particularly valuable for recording power generation in smaller electricity
plants, since the power generation of large plants can already be precisely determined.15
In addition to offering tariffs that are dependent on the load or time of use, smart meters
can switch electrical devices on and off, depending on the price level of the electricity.16 If
an intelligent meter is also equipped with a remote control function, it offers the advan-
tage that power generation and consumption can be directly reduced or increased for the
purpose of network control.17
3. SMART METERS IN EU LAW

According to different understandings of the concept of smart meters, EU law also offers
two sources for their introduction by the Member States.18
Firstly, under Energy Efficiency Directive, Article 9, Paragraph 1,19 Member States
shall ensure that, under certain conditions, final customers for electricity, natural gas,
district heating, district cooling and domestic hot water are provided with competitively
priced individual meters that accurately reflect the final customer’s actual energy con-
sumption and that provide information on actual time of use.20 The provision does not
state that these meters must be integrated into a communications network.
Secondly, Internal Market in Electricity Directive, Annex I, Paragraph 2, Subparagraph
1, Sentence 1,21 requires the Member States to ensure the implementation of intelligent
metering systems that shall assist the active participation of consumers in the electricity
Energierechtspraxis (ER), 229, 229; Joel B. Eisen and others, Energy, Economics and the Environment
(4th edn, Foundation Press 2015), 903; see also Nancy J. King/Pernille W. Jessen, ‘For privacy’s sake:
Consumer “opt outs” for smart meters’ [2014] Computer Law & Security Review, 530, 531.
15
Energierechtspraxis (ER), 229, 229; Ulrich Greveler/Peter Glösekötter/Benjamin Justus/Dennis
Löhr, ‘Multimedia Content Identification Through Smart Meter Power Usage Profiles’, https://
www.nds.rub.de/media/nds/veroeffentlichungen/2012/07/24/ike2012.pdf (accessed 04 July 2017), 1.
16
Energierechtspraxis (ER), 229, 230.
17
Ibid., 229ff. See also Joel B. Eisen and others, Energy, Economics and the Environment (4th
edn, Foundation Press 2015), 921.
18
See regarding the predecessor provisions and Directive 2004/22/EC which generally
requires a visual display for measuring instruments, Luisa Albrecht, Intelligente Stromzähler als
Herausforderung für den Datenschutz – Tatsächliche und rechtliche Betrachtung (Heymanns 2015),
19ff.
19
on energy efficiency, amending Directives 2009/125/EC and 2010/30/EU and repealing Directives
2004/8/EC and 2006/32/EC (Text with EEA relevance), OJ L 315, November 14th 2012, pp. 1–56.
20
See also Jan Dinter, ‘Das Gesetz zur Digitalisierung der Energiewende – Startschuss für
Smart Meter? Ein Überblick über den Referentenentwurf’ [2015] EnergieRecht Zeitschrift für die
gesamte Energierechtspraxis (ER), 229, 230.
21
cerning common rules for the internal market in electricity and repealing Directive 2003/54/EC
(Text with EEA relevance), OJ L 211, August 14th 2009, pp. 55–93.

LEAL-ARCAS_9781786431042_t.indd 356 08/09/2017 13:02

supply market.22 Per Internal Market in Electricity Directive, Annex I, Paragraph 2,

Subparagraph 5, Member States, or any competent authority that they designate, shall
ensure the interoperability of those metering systems. Smart meters that are introduced
based on the Internal Market in Electricity Directive must therefore be equipped with
bidirectional communication capability.
If meters are introduced not only based on Energy Efficiency Directive, Article 9,
Paragraph 1, but also in accordance with the Internal Market in Electricity Directive, pur-
suant to the Energy Efficiency Directive, Article 9, Paragraph 2, Character (b), Member
States shall ensure the security of the smart meters and data communication, and the
privacy of final customers, in compliance with relevant Union data protection and privacy
legislation. Therefore, they must comply in particular with the general data protection
directive23 and the directive on privacy and electronic communications.24
4. AN ASSESSMENT OF THE COMPATIBILITY OF THE

INTRODUCTION OF SMART METERS WITH EU CHARTER
OF FUNDAMENTAL RIGHTS, ARTICLE 7
4.1 Applicability and Scope of the Application of the EU Charter of Fundamental

Rights, Article 7, in Contrast to the EU Charter of Fundamental Rights, Article 8
The EU Charter of Fundamental Rights, Article 7,25 protects (at least) all natural persons
against impairments to private life and to their homes.26 Private life is the area that con-
cerns only oneself.27 So the term private life includes the protection of privacy, which also
includes the protection of home, although the protection of home is listed separately in
22
See also in regard to the directive, Jan Dinter, ‘Das Gesetz zur Digitalisierung der
Energiewende – Startschuss für Smart Meter? Ein Überblick über den Referentenentwurf’ [2015]
EnergieRecht Zeitschrift für die gesamte Energierechtspraxis (ER), 229, 230; see also Oliver Franz/
Katharina Vera Boesche, in Franz Jürgen Säcker (ed), Berliner Kommentar zum Energierecht, Band
1 Halbband 1 (3rd edn, CH Beck 2013) § 21i EnWG, marginal reference number 1.
23
Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on
the protection of individuals with regard to the processing of personal data and on the free move-
ment of such data, OJ L 281, November 23rd 1995, pp. 31–50. This directive will be replaced on 25
May 2018 through Regulation (EU) 2016/679 of the European Parliament and of the Council of 27
April 2016 on the protection of natural persons with regard to the processing of personal data and
on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection
Regulation) (Text with EEA relevance), OJ L 119, May 4th 2016, pp. 1–88.
24
cerning the processing of personal data and the protection of privacy in the electronic communica-
tions sector (directive on privacy and electronic communications), OJ L 201, July 31st 2002, pp.
37–47.
25
EU Charter of Fundamental Rights, Article 7 states: ‘Respect for private and family life.
Everyone has the right to respect for his or her private and family life, home and communications’,
Charter of Fundamental Rights of the European Union, OJ C 364, December 18th 2000, p. 1, 10.
26
Ino Augsberg, in Hans von der Groeben/Jürgen Schwarze/Armin Hatje (eds), Europäisches
Unionsrecht (7th edn, Nomos 2015), Art. 7 GRC marginal reference number 10.
27
See Norbert Bernsdorff, in Jürgen Meyer (ed), Charta der Grundrechte der Europäischen
Union (4th edn, Nomos 2014), Art. 7 marginal reference number 19; Ino Augsberg, in Hans von der

LEAL-ARCAS_9781786431042_t.indd 357 08/09/2017 13:02

the EU Charter of Fundamental Rights, Article 7.28 Home means the geographic area
that therefore affects only oneself because it is removed from the general access.29 This
includes basements.30
In contrast, the EU Charter of Fundamental Rights, Article 8, provides for the protec-
tion of personal data. It protects any information relating to a natural person.31 However,
the protections granted by EU Charter of Fundamental Rights, Article 8, only apply
to data processing operations.32 Due to the fact that both articles reflect the European
Convention on Human Rights (ECHR), Article 8,33 it has to be admitted that, while
making this legal argument, drawing a clear distinction between Articles 7 and 8 of the EU
Charter of Fundamental Rights is difficult;34 it could also be noted that the considerations
at stake should be based on a right which is drawn from both Articles 7 and 8 of the EU
Charter of Fundamental Rights.35 These articles are strongly connected.36
As long as EU legal norms therefore do not expressly include data processing,
in particular permission for data collection, only the application of EU Charter of
Groeben/Jürgen Schwarze/Armin Hatje (eds), Europäisches Unionsrecht (7th edn, Nomos 2015),
Art. 7 GRC marginal reference number 5.
28
Albrecht Weber, in Klaus Stern/Michael Sachs (eds), Europäische Grundrechte-Charta.
Kommentar (CH Beck 2016), Art. 7 marginal reference number 10.
29
Thorsten Kingreen, in Christian Calliess/Matthias Ruffert (eds), EUV/AEUV. Das Verfassung
srecht der Europäischen Union mit Europäischer Grundrechtecharta. Kommentar (5th edn, CH Beck
2016), Art. 7 GRCh marginal reference number 9.
30
Hans D. Jarass, Charta der Grundrechte der Europäischen Union. Kommentar (3nd edn, CH
Beck 2016), Art. 7 marginal reference number 22.
31
Norbert Bernsdorff, in Jürgen Meyer (ed), Charta der Grundrechte der Europäischen Union
(4th edn, Nomos 2014), Art. 8 marginal reference number 15; Ino Augsberg, in Hans von der
Art. 8 GRC marginal reference number 7.
32
Kirsten Bock/Malte Engeler, ‘Die verfassungsrechtliche Wesengehaltsgarantie als abso-
lute Schranke im Datenschutzrecht’ [2016] Deutsches Verwaltungsblatt (DVBl), 593, 595; Ino
Augsberg, in Hans von der Groeben/Jürgen Schwarze/Armin Hatje (eds), Europäisches Unionsrecht
(7th edn, Nomos 2015), Art. 8 GRC marginal reference number 11; Norbert Bernsdorff, in Jürgen
Meyer (ed), Charta der Grundrechte der Europäischen Union (4th edn, Nomos 2014), Art. 8 mar-
ginal reference number 16.
33
See Jeanne P.M. Bonnici, ‘Exploring the non-absolute nature of the right to data protec-
tion’ [2014] Vol. 28, International Review of Law, Computers & Technology, 131, 137, and Gloria
González Fuster/Raphaël Gellert, ‘The fundamental right of data protection in the European
Union: In search of an uncharted right’ [2012] International Review of Law, Computers &
Technology, 73, 74.
34
For detail on the difference and the relationship of the two provisions, Orla Lynskey,
‘Deconstructing data protection: The “added-value” of a right to data protection in the EU legal
order’ [2014] International and Comparative Law Quarterly, 569, 569ff.
35
See for different approaches on where to localize the right to data protection, Jeanne
P.M. Bonnici, ‘Exploring the non-absolute nature of the right to data protection’ [2014] Vol. 28,
International Review of Law, Computers & Technology, 131, 138.
36
See Jeanne P.M. Bonnici, ‘Exploring the non-absolute nature of the right to data protec-
tion’ [2014] Vol. 28, International Review of Law, Computers & Technology, 131, 137, and Gloria
González Fuster/Raphaël Gellert, ‘The fundamental right of data protection in the European
Union: In search of an uncharted right’ [2012] Vol. 26, International Review of Law, Computers &
Technology, 73, 77, with reference to ECJ, Decision of 09 November 2010, Joined Cases C-92/09
and C-93/09, ECLI:EU:C:2010:662, paragraph 47.

LEAL-ARCAS_9781786431042_t.indd 358 08/09/2017 13:02

Fundamental Rights, Article 7, comes into consideration related to these norms.37 The
provisions at stake only concern the implementation of the meters.
One could argue that it is not the EU Charter of Fundamental Rights, Article 7, but
the EU Charter of Fundamental Rights, Article 8, which applies here, because of the fact
that the Energy Efficiency Directive, Article 9, Paragraph 2, Character (b), refers to the
general data protection directive and the directive on privacy and electronic communica-
tions when it comes to the introduction of smart meters because of the Energy Market
Directive. The latter regulates the admissibility of data processing. However, the specific
risk situation of the introduction of smart meters is less visible in data processing itself,
but in the fact that the meters are to be introduced almost everywhere. Legal issues there-
fore are at stake already before the data processing begins. Therefore, it is EU Charter of
Fundamental Rights, Article 7, which applies here.
4.2 Impairment of the EU Charter of Fundamental Rights, Article 7
An impairment of the EU Charter of Fundamental Rights, Article 7, exists in particular

when the freedom of a person is actively limited by the Union or its institutions.38 Energy
Efficiency Directive, Article 9, Paragraph 1, constricts this freedom by requiring Member
States to ensure that under certain circumstances all final users have to install a smart
meter and therefore by requiring that the smart meter be physically installed in people’s
homes. In that regard, the directive leaves the Member States no discretion. For a Member
State it is only possible to comply with the directive by passing laws to mandate smart
meter installation and by creating national obligations to tolerate the installation.39 This is
an abridgement of freedom emanating from the European Union. Also, the reservation of
implementation of smart meters under the condition that ‘in so far as it is technically pos-
sible, financially reasonable and proportionate in relation to the potential energy savings’
does not open any scope for implementation or even a political discretion. The obligation
to implement smart meters is fully verifiable by the courts.
In regard to the installation obligation on the grounds of Internal Market in Electricity
Directive, Annex I, Paragraph 2, customers are additionally subjected to – at any time
37
See for the assumption of a violation of the EU Charter of Fundamental Rights, Article 8,
since the underlying directive permitted data processing, ECJ, Decision of 08 April 2014, joined
cases C-293/12 und C-594/12, ECLI:EU:C:2014:238, paragraph 36. Referring to this, Kirsten
Bock/Malte Engeler, ‘Die verfassungsrechtliche Wesengehaltsgarantie als absolute Schranke im
Datenschutzrecht’ [2016] Deutsches Verwaltungsblatt (DVBl), 593, 596.
38
Ino Augsberg, in Hans von der Groeben/Jürgen Schwarze/Armin Hatje (eds), Europäisches
Unionsrecht (7th edn, Nomos 2015), Art. 7 GRC marginal reference number 12; regarding the
question who is addressed by the fundamental rights, see Ino Augsberg, in Hans von der Groeben/
Jürgen Schwarze/Armin Hatje (eds), Europäisches Unionsrecht (7th edn, Nomos 2015), Art. 7 GRC
marginal reference number 11; and Ino Augsberg, in Hans von der Groeben/Jürgen Schwarze/
Armin Hatje (eds), Europäisches Unionsrecht (7th edn, Nomos 2015), Art. 51 Abs. 1 GRC.
39
The ECJ does not even differentiate anymore between the Member States’ obligation to
transform the directive into national law and between the national obligation which is based
on the directive, see ECJ, Decision of 08 April 2014, joined cases C-293/12 and C-594/12,
ECLI:EU:C:2014:238, paragraph 34. There the ECJ states: ‘As a result, the obligation imposed by
[. . . the] Directive [. . .] constitutes in itself an interference with the rights guaranteed by Article
7 of the Charter’.

LEAL-ARCAS_9781786431042_t.indd 359 08/09/2017 13:02

– access from outside, due to the interoperability of the meter. According to what was
said above in the context of the Energy Efficiency Directive, also the possibility of an
economic assessment of the introduction of the measuring systems, as stated in Internal
Market in Electricity Directive, Annex I, Paragraph 2, Subparagraph 1, Sentence 2, is
only an introductory condition which is fully verifiable by the court and does not give any
implementation discretion.
Thus, Energy Efficiency Directive, Article 9, Paragraph 1, and Internal Market in
Electricity Directive, Annex I, Paragraph 2, constitute impairments of the rights guaran-
teed by the EU Charter of Fundamental Rights, Article 7.
4.3 Justification
4.3.1 General conditions for a justification
4.3.1.1 No impairment of the essence The EU Charter of Fundamental Rights, Article

52, Paragraph 1, Sentence 1, provides that any limitation on the exercise of the rights
and freedoms recognized by this Charter must respect the essence of those rights and
freedoms. The essence would not be respected if the restriction on the fundamental right
threatens the right’s existence.40 The existence of EU Charter of Fundamental Rights,
Article 7, is threatened in its existence if ‘decision space [is missing], in which people can
develop in personal, individual autonomy’.41 That is not the case when ‘the directive does
not permit the acquisition of knowledge of the content of the electronic communications
as such’.42 So it is here: neither the Energy Efficiency Directive nor the Internal Market
in Electricity Directive expressly permits the acquisition of the data collected by smart
meters as such. The question of whether acquisition is permitted is only a matter of the
Privacy Directives.
4.3.1.2 Reservation of statutory powers, recognisability of purpose and scope The EU

Charter of Fundamental Rights, Article 52, Paragraph 1, Sentence 1, also requires that
any limitation on the exercise of the rights and freedoms recognised by this Charter must
be provided for by law. A limitation is provided by law if it is due to a legally binding
Union act.43 The Energy Efficiency Directive and the Internal Market in Electricity
Directive are binding Union acts (TFEU, Article 288, Paragraph 3).
40
Ferdinand Wollenschläger, in Armin Hatje/Peter-Christian Müller-Graff (eds), Europäisches
Organisations- und Verfassungsrecht (EnzEuR Bd. 1) (Nomos 2016), § 8 marginal reference
number 78; Philipp Terhechte, in Hans von der Groeben/Jürgen Schwarze/Armin Hatje (eds),
Europäisches Unionsrecht (7th edn, Nomos 2015), Art. 52 GRC marginal reference number 7.
41
Translated from Kirsten Bock/Malte Engeler, ‘Die verfassungsrechtliche Wesengehaltsgarantie
als absolute Schranke im Datenschutzrecht’ [2016] Deutsches Verwaltungsblatt (DVBl), 593, 595.
42
ECJ, Decision of 08 April 2014, joined cases C-293/12 and C-594/12, ECLI:EU:C:2014:238,
paragraph 39.
43
Thorsten Kingreen, in Christian Calliess/Matthias Ruffert (eds), EUV/AEUV. Das
Verfassungsrecht der Europäischen Union mit Europäischer Grundrechtecharta. Kommentar (5th
edn, CH Beck 2016), Art. 52 GRCh marginal reference number 62; Philipp Terhechte, in Hans
von der Groeben/Jürgen Schwarze/Armin Hatje (eds), Europäisches Unionsrecht (7th edn, Nomos
2015), Art. 52 GRC marginal reference number 6.

LEAL-ARCAS_9781786431042_t.indd 360 08/09/2017 13:02

The underlying act has also to reveal its purpose and scope.44 These conditions are
met. Energy Efficiency Directive, Article 1, Paragraph 1, Subparagraph 1, states that
this directive establishes a common framework of measures for the promotion of energy
efficiency within the Union in order to ensure the achievement of the Union’s 2020 20%
target on energy efficiency and to pave the way for further energy efficiency improve-
ments beyond this date. Internal Market in Electricity Directive, Annex I, Paragraph 2,
Subparagraph 1, Sentence 1, provides that the introduction of smart meters shall assist
the active participation of consumers in the electricity supply market. This is intended
to assist in achieving also the objective of completing the internal electricity market that
is laid down in the preamble to the directive. The purpose of the introduction of smart
meters can thus be identified in both directives. The scope of the introduction of smart
meters based on Energy Efficiency Directive, Article 9, Paragraph 1, can be identified
because the provision contains specific conditions for their adoption. The scope of the
introduction of smart meters based on the Internal Market in Electricity Directive can be
identified through its Annex I, Paragraph 2, Subparagraph 4, which requires that where
roll-out of smart meters is assessed positively, at least 80% of consumers shall be equipped
with intelligent metering systems by 2020.
4.3.1.3 No concern about the proportionality of Energy Efficiency Directive, Article

9, Paragraph 1 According to the EU Charter of Fundamental Rights, Article 52,
Paragraph 1, Sentence 2, a further condition is that, subject to the principle of propor-
tionality, limitations may be made only if they are necessary and genuinely meet objectives
of general interest recognised by the Union or the need to protect the rights and freedoms
of others. An objective of general interest is an interest protected by Article 3 TEU or
a special provision of the Treaties.45 The promotion of energy efficiency is, according to
TFEU Article 194, Paragraph 1, Character (c), the objective of the Union. Therefore,
it is an interest protected by a particular provision of the Treaties and is consequently a
recognized objective of general interest.
‘The principle of proportionality requires that acts of the EU institutions be appro-
priate for attaining the legitimate objectives pursued by the legislation at issue and do
not exceed the limits of what is appropriate and necessary in order to achieve those
objectives’.46 An act is meant to be appropriate if it is a ‘useful tool’ to achieve the
44
Ulrich Becker, in Jürgen Schwarze (ed), EU-Kommentar (3rd edn, Nomos 2012), Art. 52
GRC marginal reference number 4; Philipp Terhechte, in Hans von der Groeben/Jürgen Schwarze/
Armin Hatje (eds), Europäisches Unionsrecht (7th edn, Nomos 2015), Art. 52 GRC marginal refer-
ence number 6.
45
See Explanation on Article 52, Explanations relating to the Charter of Fundamental Rights,
OJ C 303, December 14th 2007, p. 2 (32). Regarding this see also Philipp Terhechte, in Hans von
der Groeben/Jürgen Schwarze/Armin Hatje (eds), Europäisches Unionsrecht (7th edn, Nomos
2015), Art. 52 GRC marginal reference number 9. Albrecht Weber, in Klaus Stern/Michael Sachs
(eds), Europäische Grundrechte-Charta. Kommentar (CH Beck 2016), Art. 7 marginal reference
number 23, only sees the reasons mentioned in ECHR, Article 8, para. 2, as being sufficient to
justify an impairment of the EU Charter of Fundamental Rights, Art. 7. Under this assumption,
it would be conceivable that energy efficiency could turn out to be a completely unsuitable goal.
46
paragraph 46.

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objective.47 The link between the time and the amount of electricity consumption makes
it possible to identify energy saving potentials.48 So, it is a ‘useful tool’ and therefore
appropriate for the achievement of the objective pursued by the directive of promoting
energy efficiency.
A measure is necessary when it is confirmed to be ‘strictly necessary’,49 the question of
necessity also encompassing the adequacy of the act.50 If the data collected by a smart
meter is accessible to different persons, the privacy of the individual is restricted.51 The
introduction of smart meters based on Energy Efficiency Directive, Article 9, Paragraph
1, requires, as stated above, no integration into a communications network. The group
of persons to whom the collected data will be accessible is therefore limited. The require-
ment of Energy Efficiency Directive, Article 9, Paragraph 1, therefore does not involve
any significant risk potential. It is only conceivable that family members could also have
access to the data; EU Charter of Fundamental Rights, Article 7, requires the legislature
to protect private life and the home from third-party access,52 but other family members
can already follow most of what is done in the home by virtue of their staying there.
They are therefore already included as family members in the private sphere. Remaining
uncertainties regarding the monitoring of other family members in the home appear to
be justifiable due to their inclusion in the private sphere and with regard to the goal of
energy efficiency that serves the common good.
Ultimately, therefore, there are no doubts as to the proportionality of Energy Efficiency
Directive, Article 9, Paragraph 1.
47
Ibid., paragraph 49.
48
Ulrich Greveler/Peter Glösekötter/Benjamin Justus/Dennis Löhr, ‘Multimedia content iden-
tification through smart meter power usage profiles’, https://www.nds.rub.de/media/nds/veroef
fentlichungen/2012/07/24/ike2012.pdf (accessed 04 July 2017), 1; Joel B. Eisen and others, Energy,
Economics and the Environment (4th edn, Foundation Press 2015), 900ff.
49
paragraph 52.
50
Philipp Terhechte, in Hans von der Groeben/Jürgen Schwarze/Armin Hatje (eds), Europäisches
Unionsrecht (7th edn, Nomos 2015), Art. 52 GRC marginal reference number 8; Hans D. Jarass,
Charta der Grundrechte der Europäischen Union. Kommentar (3nd edn, CH Beck 2016), Art. 7
marginal reference number 37.
51
tification through smart meter power usage profiles’, https://www.nds.rub.de/media/nds/veroeffen
tlichungen/2012/07/24/ike2012.pdf (accessed 04 July 2017), 7. If the measurement is carried out in
two-second intervals, it is in principle possible to conclude the TV programme or other audio-visual
content, see Greveler et al., ibid .
52
Kommentar (CH Beck 2016), Art. 7 marginal reference number 5; Ino Augsberg, in Hans von der
Art. 7 GRC marginal reference number 11; Norbert Bernsdorff, in Jürgen Meyer, Charta der
Grundrechte der Europäischen Union (4th edn, Nomos 2014), Art. 7 marginal reference number
17; Hans D. Jarass, Charta der Grundrechte der Europäischen Union. Kommentar (3nd edn, CH
Beck 2016), Art. 7 marginal reference number 32; see also in relation to the obligation to adopt an
effective data protection concept under the EU Charter of Fundamental Rights, Article 8; Indra
Spiecker genannt Döhmann/Markus Eisenbarth, ‘Kommt das “Volkszählungsurteil” nun durch
den EuGH? – Der Europäische Datenschutz nach Inkrafttreten des Vertrags von Lissabon’ [2011]
JuristenZeitung (JZ), 169, 172.

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4.3.1.4 Concerns about the proportionality of Internal Market in Electricity Directive,

Annex I, Paragraph 2 However, there are concerns regarding the proportionality of
Internal Market in Electricity Directive, Annex I, Paragraph 2. The internal electricity
market is part of the internal market. The objective of establishing an internal market
is expressly set out in Article 3 TEU. Therefore, the realization of the internal electricity
market is a recognized objective of general interest. In particular, the introduction of
smart meters, which can provide a more detailed assessment of electricity consumption
to network operators, helps to ensure security of supply by allowing network operators to
control their network more effectively.53 The introduction of interoperable smart meters
is thus a ‘useful tool’ for the directive’s goal of realizing the internal electricity market.
However, it is questionable whether this measure is also necessary. If the data collected
by a smart meter is accessible to others, the privacy of the individual is restricted.54 In
accordance with the Internal Market in Electricity Directive, Annex I, Paragraph 2,
Subparagraphs 4 and 5, at least 80% of all consumers in the European Union should
have communication-capable meters. This almost EU-wide introduction of interoperable
meters offers a high potential for misuse by (unauthorized) third parties; large amounts of
data are a target for hacker attacks.55 The almost EU-wide rollout of smart meters exposes
not only individuals but also the entire population. The EU Charter of Fundamental
Rights, Article 7, establishes a duty on the part of the Union to protect private life and
homes from access by third parties.56 It is questionable whether the protection provided
for by the Union is sufficient. The ECJ requires that
the EU legislation in question must lay down clear and precise rules governing the scope and
application of the measure in question and imposing minimum safeguards so that the persons
53
Meter? Ein Überblick über den Referentenentwurf’ [2015] EnergieRecht Zeitschrift für die
gesamte Energierechtspraxis (ER), 229, 229; Joel B. Eisen and others, Energy, Economics and the
Environment (4th edn, Foundation Press 2015), 903.
54
tification through smart meter power usage profiles’, https://www.nds.rub.de/media/nds/veroeffen
tlichungen/2012/07/24/ike2012.pdf (accessed 04 July 2017), 7. If the measurement is carried out in
two-second intervals, it is in principle possible to conclude the TV programme or other audio-visual
content, see Greveler et al., ibid.
55
See concerning this also, Andreas Mihm, ‘Breite Front gegen digitale Stromzähler’, in
Frankfurter Allgemeine Zeitung of 26 March 2016, www.faz.net/aktuell/wirtschaft/energiepoli
tik/gesetz-zur-digitalisierung-der-strombranche-weckt-widerstand-14145210.html (accessed 04
July 2017), 21.
56
Kommentar (CH Beck 2016), Art. 7 marginal reference number 5; Ino Augsberg, in Hans von der
Art. 7 GRC marginal reference number 11; Norbert Bernsdorff, in Jürgen Meyer (ed), Charta der
Grundrechte der Europäischen Union (4th edn, Nomos 2014), Art. 7 marginal reference number
17; Hans D. Jarass, Charta der Grundrechte der Europäischen Union. Kommentar (3nd edn, CH
Beck 2016), Art. 7 marginal reference number 32; see also in relation to the obligation to adopt
an effective data protection concept under EU Charter of Fundamental Rights, Article 8, Indra
Spiecker genannt Döhmann/Markus Eisenbarth, ‘Kommt das “Volkszählungsurteil” nun durch
den EuGH? – Der Europäische Datenschutz nach Inkrafttreten des Vertrags von Lissabon’ [2011]
JuristenZeitung (JZ), 169, 172.

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[. . .] have sufficient guarantees to effectively protect their personal data against the risk of abuse
and against any unlawful access and use of that data.57
Energy Efficiency Directive, Article 9, Paragraph 2, Character (b), when introducing

smart meters based on the Internal Market in Electricity Directive, refers only to the rel-
evant EU legislation on data protection and privacy; however, the specific risk potential
of communicable intelligent meters is not regulated at any point. In order to counteract
the specific risk potential, the EU law must itself contain appropriate rules which deter-
mine that the measuring devices to be installed can only record in the absolutely neces-
sary measuring interval and the firmware of the devices be adapted in such a way that it
performs a statistical summary of the data before the transmission.58 Although it has to
be admitted that if a customer can opt out of the implementation obligation, this cost is
carried by the public while these customers still profit from other people who are imple-
menting smart meters,59 it is another option, that the directives give customers the right
to opt out of the obligation to implement smart meters. As these provisions are missing,
it must be assumed that the directive is not limited to what is strictly necessary. Even if
Energy Efficiency Directive, Article 9, Paragraph 2, Character (b), may be interpreted as
meaning that the provision also refers to EU Charter of Fundamental Rights, Article 7,
this reference could not overcome the concerns as to the legality of the introduction of
smart meters under the Internal Market in Electricity Directive; the EU would otherwise
be able to escape its protection obligation resulting from EU Charter of Fundamental
Rights, Article 7, and to pass it on to the Member States. Consequently, Internal Market
in Electricity Directive, Annex I, Paragraph 2, cannot be seen as being limited to what is
strictly necessary until EU law provides that all technically possible measures are taken to
exclude systematic monitoring from the outset.
4.3.2 Interim results

The EU Charter of Fundamental Rights, Article 7, applies on the implementation of
smart meters through EU law. Energy Efficiency Directive, Article 9, Paragraph 1, and
Internal Market in Electricity Directive, Annex I, Paragraph 2, constitute impairments
of the rights guaranteed by the EU Charter of Fundamental Rights, Article 7. Both
directives do not impair the essence of the fundamental right. The impairment of the EU
Charter of Fundamental Rights, Article 7, is based on a legally binding EU act and the
directives’ purpose and scope is recognizable. Whereas there are no concerns about the
proportionality of Efficiency Directive, Article 9, Paragraph 1, concerns exist regarding
the lawfulness of Internal Market in Electricity Directive, Annex I, Paragraph 2, due to
a lack of protection.
57
ECJ, Decision of 08 April 2014, case C-293/12, ECLI:EU:C:2014:238, paragraph 54.
58
See for this technical proposition Ulrich Greveler/Benjamin Justus/Dennis Löhr, ‘Hintergrund
und experimentelle Ergebnisse zum Thema “Smart Meter und Datenschutz”’, http://1lab.de/pub/
smartmeter_sep11_v06.pdf (accessed 04 July 2017), 5.
59
Nancy J. King/Pernille W. Jessen, ‘For privacy’s sake: Consumer “opt outs” for smart meters’
[2014] Computer Law & Security Review, 530, 532; Megan McLean, ‘How smart is too smart?
How privacy concerns threaten modern energy infrastructure’ [2016] Vol. 18, Vanderbilt Journal of
Entertainment & Technology Law, 879, 887.

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5. SMART METERS IN THE UNITED STATES
Concerns regarding smart meters exist not only in the European Union but also in the
United States of America. Interestingly, sometimes health is the primary concern of the
public, not privacy.60 Privacy concerns derive from the public’s dismay at the disclosure of
personal information.61 One could inquire: shall the public’s privacy be protected through
opt-out options for individual customers from installation obligations or is it adequate
to only protect personal data when it is being acquired and processed? This question is
linked to the matter of how a significant balance of privacy issues and the goals of a new
electricity and energy framework can be created.62
Legal considerations regarding the business of privacy in US law concern the US
Constitution’s Fourth Amendment.63 It states as follows:
The right of the people to be secure in their persons, houses, papers, and effects, against unrea-
sonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon
probable cause, supported by Oath or affirmation, and particularly describing the place to be
searched, and the persons or things to be seized.
The Fourth Amendment, as clearly outlined in the Constitution, protects the public
against unreasonable state interventions. Therefore, the academic discussion in the US
focuses mainly on the interrogation of the odds of a potential government overreach in
which law enforcement might discover about illegal behavior or use the data as evidence.64
The US Supreme Court has ruled that if data is willingly revealed to third parties, then
there is no right to data protection under the Fourth Amendment.65 This salient deci-
sion constituted the widely so-called ‘third-party doctrine’.66 Consequently, this doctrine
evokes the question of whether smart meter data is willingly revealed: ‘Thus, under the
third-party doctrine, consumers seemingly have no reasonable expectation of privacy in
the smart meter data contained in electric utility records either’.67 The third-party doc-
trine is under paramount critique; the question is raised whether the third-party doctrine
should be replaced by a so-called ‘doctrine of consent’.68 The cause of this predicament
60
conEdison, Advanced Metering Infrastructure Business Plan of 15 October 2015, http://
nyssmartgrid.com/wp-content/uploads/Con-Ed-AMI-Business-Plan.pdf (accessed 04 July 2017),
13.
61
Megan McLean, ‘How smart is too smart? How privacy concerns threaten modern energy
infrastructure’ [2016] Vol. 18, Vanderbilt Journal of Entertainment & Technology Law, 879, 881
and 885.
62
Ibid., 893.
63
Of course, there are also state constitutional protections involving privacy.
64
infrastructure’ [2016] Vol. 18, Vanderbilt Journal of Entertainment & Technology Law, 879, 885ff.
65
Smith v. Maryland, Decision of 20 June 1979, 442 U.S., 735 (743ff); see Megan McLean,
‘How smart is too smart? How privacy concerns threaten modern energy infrastructure’ [2016] Vol.
18, Vanderbilt Journal of Entertainment & Technology Law, 879, 888.
66
infrastructure’ [2016] Vol. 18, Vanderbilt Journal of Entertainment & Technology Law, 879, 888.
67
Ibid., 890.
68
Ibid., 890.

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is due to two underlying assumptions by the third-party doctrine: ‘first, that there was a
choice to disclose information to a third party; and second, that the consent to disclose
information to a third party remains viable even if the third party permits the govern-
ment, to whom no consent was given, to access the data’.69 It remains disputable if this
consent also means consent to third party actions like a search of home.70 In addition, it is
questionable whether consumers truly have a ‘choice’: if the matter in question is whether
to implement a smart meter or to forego retail electric service,71 then the legal value of
the consent may be dubious in comparison to other cases. In the author’s opinion, the
assumption of no reasonable expectation of privacy should require a qualified choice,
thus a choice between alternatives of service, not just a yes or no. In a case of the use of
thermal imaging to detect a marijuana plantation, the US Supreme Court deemed it to
be equivalent to entering an individual’s home and therefore as compromising their right
to privacy.72 Meanwhile, in the case of the Naperville Smart Grid Initiative, a federal dis-
trict court concluded that there was no reasonable expectation of privacy and therefore
no protection through the Fourth Amendment of smart meter data.73 Despite all these
legal considerations, smart meter data risks great vulnerability due to a possible lack of
protection under the US Constitution; it, then, may be the responsibility of the legislator
to enact protection.74
Similar to the European Union, where the implementation of smart meters is both an
issue at the supranational as well as at the national level, the implementation of smart
meters in the US is an issue both at the federal and the state level. The obligation to install
smart meters is generally imposed on consumers through their local energy utilities.75 The
activity of these energy utilities is overseen by state-level public utilities commissions.76
Following years of unregulated use of smart meters in the US, the federal Congress enacted
the Energy Independence and Security Act of 2007. This milestone in s mart-meter-related
69
Ibid., 890.
70
Ibid., 890.
71
Ibid., 893. Note in some cases, as in the case of California, consumers who opt out do not
face this dilemma. They continue to receive the service but must pay a nominal fee for use of ana-
logue meters.
72
Kyllo v. United States, Decision of 11 June 2001, 533 U.S. 27 (40); see Megan McLean, ‘How
smart is too smart? How privacy concerns threaten modern energy infrastructure’ [2016] Vol. 18,
Vanderbilt Journal of Entertainment & Technology Law, 879, 888.
73
See Megan McLean, ‘How smart is too smart? How privacy concerns threaten modern
energy infrastructure’ [2016] Vol. 18, Vanderbilt Journal of Entertainment & Technology Law,
879, 891ff with reference to the case. See therefore the Final Judgement in Naperville Smart Meter
Awareness v. City of Naperville, Decision of 26 September 2016, Case 1:11-cv-09299 (Northern
District of Illinois). See for a summary of another case dealing with smart meters, Nancy J. King/
Pernille W. Jessen, ‘For privacy’s sake: Consumer “opt outs” for smart meters’ [2014] Computer
Law & Security Review, 530, 535, referring to the Maine Supreme Judicial Court’s decision of 12
July 2012 Friedman and others v. Public Utilities Commission.
74
infrastructure’ [2016] Vol. 18, Vanderbilt Journal of Entertainment & Technology Law, 879, 893ff
and 900ff.
75
Nancy J. King/Pernille W. Jessen, ‘For privacy’s sake: Consumer “opt outs” for smart meters’
[2014] Computer Law & Security Review, 530, 533.
76
Ibid., 533.

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law required the National Institute of Standards and Technology (NIST) to draft a
framework for the implementation of two-way communication capable smart meters.77
The National Institute of Standards and Technology then drafted the NIST Framework
and Roadmap for Smart Grid Interoperability Standards.78 Nevertheless, the states also
considered the implications of the implementation of smart meters in a serious manner.79
As an example, California leads in addressing smart meter privacy.80 In 2013, California
enacted a bill entitled: ‘Privacy: customer electrical or natural gas usage data’.81 The leg-
islative counsel’s summary of the bill states:
[this] bill would prohibit a business from sharing, disclosing, or otherwise making acces-
sible to any 3rd party a customer’s electrical or natural gas usage data without obtaining
the express consent of the customer and conspicuously disclosing to whom the disclosure
will be made and how the data will be used. The bill would require a business and a nonaf-
filiated 3rd party, pursuant to a contract, to implement and maintain reasonable security
procedures and practices to protect the data from unauthorized disclosure. The bill would
prohibit a business from providing an incentive or discount to the customer for accessing the
data without the prior consent of the customer. The bill would require a business to take
reasonable steps to dispose that customer data within its custody or control when the data is
no longer to be retained by the business, as specified. The bill would authorize a customer to
bring a civil action for actual damages not to exceed $500 for each willful violation of these
provisions.82
It should be noted that both enacted federal and state laws concerning smart meters,
in majority, refer to the protection of the data already collected by smart meters.83 On
one hand, in contrast to EU law,84 different states within the US offer a sector-specific
solution that can address and eventually troubleshoot the issues emanating from smart
meters better than the EU’s data protection concept. On the other hand, however, also
in the US the absence of nationwide opt-out options should be noted.85 Finally, it is
77
Energy Independence and Security Act of 2007 Section 1305.
78
The NIST Framework and Roadmap for Smart Grid Interoperability Standards, Release
1.0., is available at https://www.nist.gov/sites/default/files/documents/public_affairs/releases/smart
grid_interoperability_final.pdf (accessed 04 July 2017), see also p. 23 of the document. Joel B. Eisen
and others, Energy, Economics and the Environment (4th edn, Foundation Press 2015), 898ff; and
Joseph P. Tomain/Richard D. Cudahy, Energy Law in a Nutshell (2nd edn, West 2011), 404ff.
79
See for state-specific concepts, Megan McLean, ‘How smart is too smart? How privacy con-
cerns threaten modern energy infrastructure’ [2016] Vol. 18, Vanderbilt Journal of Entertainment
& Technology Law, 879, 894ff, and for a summary, Nancy J. King/Pernille W. Jessen, ‘For pri-
vacy’s sake: Consumer “opt outs” for smart meters’ [2014] Computer Law & Security Review,
530, 535.
80
See Nancy J. King/Pernille W. Jessen, ‘For privacy’s sake: Consumer “opt outs” for smart
81
See http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id5201320140AB1274
(accessed 04 July 2017).
82
Assembly Bill No. 1274, http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id5
201320140AB1274 (accessed 04 July 2017).
83
84
Ibid., 533.
85
Ibid.

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argued that there should be regulation of data distribution in lieu of the regulation of
installation.86 In this context, it has to be stated that the risk derives not only from the
government but predominantly from third parties through unlawful assessment of data
once collected. Taking this into account, the regulation of installation and therefore the
availability of opt-out mechanisms for consumers should be strongly recommended. In
light of the disadvantages and costs for the public, these opt-out mechanisms do not have
to be cost-free.87
6. CONCLUSION AND SUMMARY

Smart meters offer a way to address challenges created by the growing production and
availability of variable renewable energies (including wind and solar), but smart meters
also create problems with respect to data protection. Under EU law, two legal bases for the
implementation of smart meters can be distinguished: the first is referred to in the Energy
Efficiency Directive and the second is referred to in the Internal Market in Electricity
Directive, Annex I. The installation of smart meters has two objectives: on the one hand, it
aims to promote energy efficiency; on the other hand, if the intelligent meters are equipped
with the capability of interoperability, they are intended to promote the internal electric-
ity market. However, there are concerns about this interoperability: the EU Charter of
Fundamental Rights, Article 7, protects a private space for social life and communica-
tions, while Article 8 protects personal data in terms of how it is processed and the extent
to which individuals are able to access such data. The EU Charter of Fundamental Rights,
Article 7, requires EU legislators to create adequate data protection concepts. Therefore,
legislators can only justify impairment of rights by implementing such data protection
concepts. Smart meters can collect data from which it is possible to derive information
about private behaviour. Such data collection occurs when smart meters are installed in
private homes. It is questionable, given the networking of millions of households, the
resulting significant potential for misuse by third parties and the danger to the essential
fundamental right of respect for private life and homes, whether the obligation to install
interoperable and intelligent meters in almost all households in the EU is proportional
under European Union law. At present, there is some evidence that the Union has failed
to fulfil its protection mandate under the EU Charter of Fundamental Rights, Article 7.
Ultimately, the EU legislator should therefore adopt an area-specific protection concept,
solely in the interests of the development of electricity networks, which contains detailed
rules to remove the concerns about the legality of interoperable smart meters. At present,
both in the EU and the US, protection against the risks that are emanating from smart
meters are more or less tackled through legal provisions that only concern data processing.
86
infrastructure’ [2016] Vol. 18, Vanderbilt Journal of Entertainment & Technology Law, 879, 901ff.
87
meters’ [2014] Computer Law & Security Review, 530, 536ff.

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7. KNOWLEDGE GAPS AND FURTHER RESEARCH
Further research should focus on all the above-mentioned issues: What is the relation
between the EU Charter of Fundamental Rights’ Articles 7 and 8? How far can we derive
from these provisions an obligation for the European Union to protect the individual’s
privacy and data? When and where does the EU Charter of Fundamental Rights, Article
7, versus the EU Charter of Fundamental Rights, Article 8, apply? Where exactly are the
gaps in terms of protection in the Privacy Directives and the, soon to be in force, General
Data Protection Regulation? Finally, a detailed, sector-specific protection concept which
tackles the risks evolving from smart meters and balances their disadvantages and advan-
tages, should be drafted. It shall regulate both smart meter installation and data process-
ing and distribution.

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20. Paris Agreement: the evolution of international
law standards in the post-ontological framework
Antonio Morelli
1. INTRODUCTION
Hanging in the balance between an increasing energy demand and environmental spill
overs, the international community was impelled to secure a universal commitment on
climate change. In this light, in December 2015 the world celebrated the adoption of the
Paris Agreement1 on climate change within the 21st Session of the Conference of the
Parties, the so-called COP 21. It is now time for its implementation. Indeed on Friday,
April 22, 2016, 174 states and the European Union joined in the signing the Agreement,
during a ceremony convened by UN Secretary-General Ban Ki-Moon in New York. We
are now in a transitional moment before the new regime embedded in the Paris Agreement
will actually take place. Hitherto, 191 countries have signed the deal.2 Indeed, this is the
very first universal agreement on climate change, and it represents a major diplomatic
success that entails a real opportunity to give a twist to the energy sector worldwide.
The Paris Agreement consists of a global action plan with the long-term goal of
avoiding dangerous climate change. The deal is embedded in five major goals.3 First,
mitigation strategies, limiting the global average temperature rises to well below 2°C
above pre-industrial levels, and limiting the increase to 1.5°C, under Article 2(1)(a).
Second, establishing a transparency system and a global stock-take, providing a system
of accountability. Third, providing an adaptation system, in order to support countries’
transition to dealing with climate impact. Fourth, instituting a loss and damage system, to
facilitate the recovery from climate impact. Fifth, creating a support mechanism, capable
of easing the path towards a clean and resilient future. To become legally binding, the
Agreement needed to be joined by at least 55 countries, which together represent at least
55 per cent of the total global greenhouse emissions. With the European Union agreeing
to the ratification on October 5, 2016, 75 countries could join the deal. The established
threshold being met, the Agreement entered into force, 30 days later, on November 4,
2016.4
1
UNFCCC/CP/2015/L.9/Rev.1 (‘Paris Agreement’).
2
See United Nations Framework Convention on Climate Change, Status of Ratification of
Paris Agreement, available online at http://unfccc.int/paris_agreement/items/9444.php.
3
See Elizabeth Burleson, Paris Agreement and Consensus to Address Climate Challenge,
ASIL Insights, Vol. 20, Issue 8 (March 29, 2016), available online at: https://www.asil.org/insights/
volume/20/issue/8/paris-agreement-and-consensus-address-climate-challenge.
4
The first session of the Conference of the Parties serving as the Meeting of the Parties
to the Paris Agreement (CMA1) was held in Marrakech, in November 2016, on the occasion of
COP 22. See Report of the Conference of the Parties serving as the meeting of the Parties to the
Paris Agreement on the first part of its first session, held in Marrakech from 15 to 18 November
370
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Paris Agreement: the evolution of international law standards 371
Unprecedentedly, the Paris Agreement paves the way for an evolution of international
policy agenda in climate change, in the framework of a global platform crucial for con-
sensus. The paradigms of a new climate regime, along with the forecasts for investments in
the energy market, have brought new questions to be answered and new challenges to be
solved. In this picture, the proliferation of conventional instruments, along with the rise of
new actors in the international community, requires finding new ad hoc tools and strate-
gies adapted to each context. Thus, if it is too soon to clearly foresee the real impact of
the Paris Agreement on Climate Change, it is certain that the deal adopted at the COP21
represents a landmark in the evolution of international law standards.
This chapter therefore proceeds as follows: section 2 traces the picture of the post-
ontological framework of Tom Franck’s scholarship. This analysis is meant to assess the
paradigm of international law through the effectiveness of the procedures and results.
This framework constitutes the fil rouge that leads the chapter, as it allows analysis of
the innovations embedded in the Paris Agreement, seeking coexistence instead of colli-
sion in the classic dichotomy between sources and actors of international law. Section 3
explores the combination of binding and non-binding provisions of international law, in
order to promote universality in the standards on climate change and create a juridical
framework capable of facilitating political negotiation and fostering implementation.
Section 4 finally illustrates the multi-stakeholder approach undertaken in Paris, in order
to combine the contribution of state and non-state actors in the solution of one of the
most prominent global challenges: climate change.
2. THE PARIS AGREEMENT IN TOM FRANCK’S POST-

ONTOLOGICAL FRAMEWORK: NEW TOOLS FOR
MEASURING THE EFFECTIVENESS OF THE CLIMATE
DEAL
2.1 Climate Negotiations: The Need to Answer a Complex Legal Issue
The narrative on the negotiation of the Paris Agreement allows us to rethink the
most genuine principles of international law and to benchmark their impact on the
current international community. Applying the doctrine of the late Thomas Franck, it
is possible to analyse the Agreement in the light of the post-ontological era,5 in order
to better understand the core principles of international law that are touched on and
questioned by COP 21. In turn, this fil rouge allows us to scrutinise the solutions and
the actors that come into play in the Paris Agreement. The post-ontological framework
is a doctrine that goes beyond the traditional inquiries into international law, about
what international law is. Instead, it purports to give an analysis of the effectiveness,
2016, document FCCC/PA/CMA/2016/3, Agenda sub-item 2(e), status of ratification of the Paris
Agreement. Moreover, on the status of ratification, see generally United Nations Framework
Convention on Climate Change, Status of Ratification of Paris Agreement, available online at
http://unfccc.int/paris_agreement/items/9444.php.
5
See Thomas Franck, Fairness in International Law and Institutions (Oxford, Clarendon
Press, 1995), 6.

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the enforceability and the understanding of international legal sources.6 This approach
allows us to measure the power, the breadth and the novelty of the agreement in the
international arena. In a world that is facing new complex global issues, traditional
solutions can no longer fail to reflect the rapidly evolving trends of the international
community. Consequently, it is paramount for scholars to ask questions on the effi-
cacy of the answers at stake. Climate change represents an outstanding challenge, the
solutions to which, for many years, appeared to be stalled in form, and ineffective in
substance.
In this picture, classical ontological inquiries on international law seem to be obsolete.
Particularly, the metaphysical era of international law no longer represents the factual
reality of international relations and, as a result, there is no longer any need to justify
the essence, and existence, of the international legal system. In the post-ontological era,
international law is real and it serves as a concrete tool for solving concrete compelling
problems.7 Therefore, in Tom Franck’s framework, international lawyers should be able to
overcome the boundaries of defensive ontology based on meaning and purpose, as they
are deemed to move the real and positive ground of the international legal system, and
hence inquire, through a critical approach, into the so-called ‘flat little empirical question’
of Foucault, mainly based on functioning and results.8
2.2 New Challenges and Solutions in the Post-Ontological Framework
The Paris Agreement constitutes the beacon in modern international law for finding
results based on the coincidence, instead of collision, of all the elements at stake. Indeed,
it fosters the harmonisation of a dual array of legal sources, as the collaboration of all
the relevant actors.
That public international law is a sphere operated and governed by sovereign states
does not mean that governments are the only agents subject to its rules. In this light,
obligations arising under public international law should and shall inform, directly and
indirectly, the activity of all the different players involved in the subject matter touched on
by the international provision.9 In this perspective, the difference is core between binding
and non-binding sources of international law and state and non-state actors involved in
6
See Iain Scobbie, ‘Tom Franck’s Fairness’, EJIL, Vol. 13, No. 4, 909–25 (2002). But see
Duncan B. Hollis, ‘Why State Consent still Matters’, Berkeley Journal of International Law, Vol.
23, 137–9 (2005) (‘[R]ecent developments suggest that the pronouncement of a post-ontological age
was premature. Issues as diverse as terrorism, hegemony, and globalization all demonstrate that the
international lawyer cannot yet dispense with the question of what makes international law “law”
and where one looks to find it’).
7
See Euan MacDonald, International Law and Ethics After the Critical Challenge: Framing
the Legal within the Post-Foundational (Leiden, Martinus Nijhoff Publishers, 2011), 222.
8
Michel Foucault, Deux Essais sur le Sujet et le Pouvoir, in Dits et Ecrits, Tome IV, 233 (Paris,
Gallimard, 1994), mentioned in Mario Prost, The Concept of Unity in Public International Law
(Oxford, Hart Publishing, 2012), 132.
9
See David Bilchitz, ‘A Chasm Between “Is” and “Ought”? A Critique of the Normative
Foundations of the SRSG’s Framework and Guiding Principles’, in Human Rights Obligation of
Business: Beyond the Corporate Responsibility to Respect? (Surya Deva and David Bilchitz, eds,
Cambridge, Cambridge University Press, 2013), 111–14.

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the COP 21 negotiations. There is a compelling evolution of social expectations that not
only state actors, but also private agents should respect environmental and human rights
standards. As a consequence, different regimes will be applicable to different actors,
depending on the status and the role they have under international law. This is a way to
foster compliance through a nuanced array of instruments and players in order to solve
complex legal problems and find effective solutions.10
2.3 Subsuming the Paris Agreement in the Post-Ontological Framework
There is no doubt that there is compelling public opinion and scientific consensus, which
is reflected in a consolidated awareness amongst the major countries, that halting climate
change is simply not an option anymore, but a necessity. In the past three decades, envi-
ronmental protection has risen as a priority in global politics. This is the ineluctable conse-
quence of an economy driven by highly material and energy-intensive production, which
has triggered environmental threats and degradation. The consequences have impacted
human health and economic well-being, with socio-economic costs.11 If countries world-
wide do not undertake global action to limit the increasing average global temperature,
exceeding pre-industrial levels by 5°C is foreseen. Nonetheless, negotiating solutions rep-
resents an endemic problem when it comes to climate change.12 Indeed, as most human
activities deal somehow with CO2 emissions from fuel combustion or land use change,
from global to local scale, states alone cannot provide solutions for the negotiating table.
In Paris the international community decided to give a twist to climate change through
an integrated process that demonstrated a renewed management in addressing the
problem. The target set at COP 21, in Paris, is a major step in avoiding catastrophic con-
sequences on a global scale, thus preserving fundamental rights, such as the right to life,
health, food, water and sanitation, etc.13 In order to achieve this target, the Agreement
combined binding and non-binding sources, through the contribution of sovereign states
10
See Justine Nolan, ‘Refining the Rules of the Game: The Corporate Responsibility to
Respect Human Rights’, Utrecht Journal of International and European Law, Vol. 30, No. 78, 7
(2014) (outlining the importance of combination of public and private regulation to foster corpo-
rate compliance across boundaries).
11
See Jenni Kauppila, ‘Transnational Advocacy Networks in International Climate Policy,
The Challenge of Raising the Voices of the Marginalised Effectively Without Compromising their
Legitimacy’, in International Climate Change Law and Policy: Cultural Legitimacy in Adoption and
Mitigation (Thoko Kaime, ed., Oxon and New York, Routledge, 2014), 138 (addressing climate
change as the ‘most serious and best known global environmental problem’, which has been
addressed at the international political level by the UNFCCC, with the Kyoto Protocol a milestone
for global commitment).
12
See Frank Biermann, Bernd Siebenhuner, Steffen Bauer, Per-Olof Busch, Sabine Campe,
Klaus Dingwerth, Torsten Grothmann, Robert Marschinski and Mireia Tarradell, ‘Studying
the Influence of International Bureaucracies: A Conceptual Framework’, in Managers of Global
Change: The Influence of International Environmental Bureaucracies (Frank Biermann and Bernd
Siebenhuner, eds, Cambridge, MA, MIT Press, 2009), 37, 53 (analysing the role of international
bureaucracies in complex negotiation situations, whilst offering their services as neutral mediators).
13
UN OHCHR, Climate Change: UN Expert Welcomes Historic Paris Agreement, but
Calls Upon States to Scale up Efforts to Meet the 1.5 Celsius Degrees Target (Geneva, April
21, 2016) (expressing the statements of John Knox, UN Special Rapporteur on Human Rights

LEAL-ARCAS_9781786431042_t.indd 373 08/09/2017 13:02

and non-states actors, setting the pace for the evolution of international law standards
and global governance.
The interpretation of the structure of the deal, considering the mandatory scope and
enforceability of law-making production, along with the actors involved, is reflected,
in turn, in the methodological choices of COP 21. Indeed, whether the combination of
binding and non-binding poles of COP 21 constitute a strength or a weakness depends on
whether the interpreter carries out an analysis based on a formal or substantive approach.
Following a path that has been opened in the sector of business and human rights,14 the
Paris Agreement pictures a grey zone between black and white paradigms in international
law.15 In turn, it strikes a balance between endogenous and exogenous elements of inter-
national law, on the basis of the importance of the subject matter it addresses.
The main challenge of the Paris Agreement is to bridge the gap between two different
sets of poles:
(a) the harmonisation of binding and non-binding regulatory sources of international

law;16
(b) the corroboration of a multi-stakeholder dialogue, between state and non-state
actors in international law.17
The post-ontological framework serves as the fil rouge that leads the analysis, as it sheds
light on these two aspects of the international legal narrative embedded in the Paris
Agreement. From this perspective, the deal represents the commitment of the interna-
tional community to bridging classical dichotomies in international law, through the
coexistence of sources and actors. This is a strategy that aims to find an effective universal
solution, capable of combining the different poles and interests at stake. Indeed, the Paris
Agreement, through its combination of sources, allows an evaluation of the results on the
basis of contents achieved.18 In other words, it is possible to move from a formal analysis
to a substantial analysis of the deal, evaluating its effectiveness in providing clear solutions
to a compelling global problem.
From this perspective, the Paris Agreement can be subsumed under Tom Franck’s
post-ontological framework, as it opened a path in finding alternative solutions to such
problems, seeking prompt effectiveness and enforceability.
To demonstrate how the Paris Agreement reaches its goal, it is paramount to recon-
struct the legal ground of the deal, through a study of its sources and players, in order to
and Environment), available online at: http://www.ohchr.org/EN/NewsEvents/Pages/DisplayNews.

aspx?NewsID519850&LangID5E.
14
See infra section 3.3 ‘Lessons learned from international human rights law’.
15
See Bennett Freeman, ‘To What Extent can Voluntarism Provide Answers?’, Wilton Park
Conference on Business and Human Rights: Advancing the Agenda, 7 (October 11, 2005) (finding a
‘sparkling grey zone’ between black and white poles, thus between imperative tools and voluntarism).
16
See infra section 3, ‘The Paris Agreement: the successful combination of binding v. non-
binding sources of international law’.
17
See infra section 4, ‘State and non-state actors’ participation at COP 21: keys to the success
of the Paris Agreement’.
18
See Andrew T. Guzman, ‘A Compliance-Based Theory of International Law’, 90 Cal. L. Rev.
1823 (2002) (focusing on the analysis of substantive content of international provisions).

LEAL-ARCAS_9781786431042_t.indd 374 08/09/2017 13:02

shed light on an evolving sphere of international law that is still blurred by an undefined
perimeter. In this post-ontological era, the Paris Agreement traces a new frontier, with the
aim of finding concrete solutions to outstanding global problems.
In this light, the analysis that follows will shed light on the way the Paris Agreement
draws the perimeter of the evolving sphere of international law. Hence, it is paramount to
focus on the diplomatic combination at COP 21 of endogenous and exogenous elements for
the achievement of an effective legal solution. Section 3 will focus on the combination of
binding and non-binding sources of international law. Section 4 will embrace a multi-stake-
holder approach in climate change, with the rise of non-state actors in international law.
3.
THE PARIS AGREEMENT: THE SUCCESSFUL
COMBINATION OF BINDING V. NON-BINDING SOURCES
OF INTERNATIONAL LAW
The political debate on whether the Paris Agreement consists only of words and promises
or is an effective commitment comes into the legal arena in terms of a transposed dichot-
omy between binding versus non-binding sources of international law. This strategy,
resulting from the failure of the previous ‘cap and trade’ system, raised scepticism, both
at the international and domestic level, concerning the actual enforcement of the instru-
ment. Nonetheless, COP 21 constitutes a major diplomatic success, bringing forth the first
universal deal on climate change. Indeed, finding consensus, the international community
could come together to codify in a shared document the goal of preserving our environ-
ment from irremediable alterations of greenhouse gases harms and fossil combustion: in
other words, to stop global warming.19
On the divide between voluntary initiatives and mandatory standards, the Paris
Agreement combines binding with non-binding sources of international law. Even in a
criticised context, the deal borrows lessons learned from the international human rights
system, thus providing effective solutions, encouraging responsibility whenever possible,
ensuring accountability whenever necessary.20
3.1 Binding and Non-Binding Instruments of International Law: A Success in

Climate Negotiations?
The legal nature of the Agreement represented a core topic in the debate that surrounded
the negotiations.21 As a result, the provisions of the deal resulted in a heterogeneous
19
See Samantha Page, ‘No, The Paris Agreement Isn’t Binding. Here’s Why That Doesn’t
Matter, Think Progress’ (December 14, 2015) (reporting negative and positive theses on the out-
comes of the Paris Agreement) http://thinkprogress.org/climate/2015/12/14/3731715/paris-agree
ment-is-an-actual-agreement/.
20
Conference on Business and Human Rights: Advancing the Agenda (11 October 2005), 6.
21
See Justin Worland, ‘What to Know About the Historic “Paris Agreement” on Climate
Change’, Time (December 12, 2015) available online at http://time.com/4146764/paris-agreement-cli
mate-cop-21/.

LEAL-ARCAS_9781786431042_t.indd 375 08/09/2017 13:02

c ombination of legal sources, both binding and non-binding, that respectively come into
play depending on the elements at stake.
To put it bluntly, the Paris Agreement represents one of the first universal international
treaties to use such a dual standard of legal sources, thus relying on both binding and
non-binding instruments of international law, and mainstreaming an emerging hybridism
in law-making.22
The architecture of the Paris Agreement renders it a flexible instrument that combines
legally binding and non-binding elements.23 The classification between binding and non-
binding instruments can be found in the long lasting dichotomy between hard law and soft
law in international law-making. The discrimen between the two instruments relies on the
different effects of the rule, being imperative in the prior case, and voluntary in the latter.
On one hand, binding sources serve many useful functions. First of all, they are con-
crete operative obligations that promote the certainty of law. Particularly, they impose
uniformity in the standards amongst the countries that adopted them, thus avoiding
any discretionary deviation that may affect voluntarism.24 The imperativeness of those
sources crystallises certain values of the international community through a codification
process in hard law. They are justiciable and enforceable, as they provide mandatory
mechanisms, which are the teeth that indenture the signatory states to them.25
On the other hand, non-binding provisions are the expression of a peculiar legal tech-
nique, generally classified under soft law, to be intended as the ultimate result of volun-
tarism. Particularly, these provisions, even if they do not have a legally binding force as
such, may still produce legal effects. According to their drafters, these can be indirect or
practical effects, related to their legal scope, and aiming to influence the conduct of all
the relevant players.26 With regard to non-binding instruments, there is a sort of tension
between the intention of the drafter and the result of the provision. Indeed this is an
instrument that, despite being non-mandatory, aims to produce alternative effects in order
22
See David M. Trubek, Patrick Cottrell and Mark Nance, ‘Soft Law, Hard Law and European
Integration: Toward a Theory of Hybridity’, University of Wisconsin Law School Legal Studies
Research Paper Series 10002, 2–3 (2005) (studying the increasing attention to the combination
of the use of hard law and soft law in the European Union context); see also Kerstin Jacobsson,
‘Between Deliberation and Discipline: Soft Governance in EU Employment Policy’, in Soft Law
and Governance and Regulation: An Interdisciplinary Analysis (Ulrika Mörth, ed., Cheltenham and
Northampton, MA, Edward Elgar, 2004).
23
See Daniel Bradlow, ‘What Paris Climate Deal Can Teach us about Solving the World’s
Most Complex Problems’, The Conversation (December 17, 2015), available online at: https://the
conversation.com/what-paris-climate-deal-can-teach-us-about-solving-the-worlds-most-complex-
problems-52162.
24
See René Jean Dupuy, The Protection of the Environment and International Law (Leiden,
Sijthoff, 1975), 623–7.
25
See David M. Trubek, Patrick Cottrell and Mark Nance, ‘Soft Law, Hard Law and European
Integration: Toward a Theory of Hybridity’, University of Wisconsin Law School Legal Studies
Research Paper Series 10002, 1 (2005).
26
See generally Richard R. Baxter, ‘International Law in Her Infinite Variety’, The International
and Comparative Law Quarterly, Vol. 29, Issue 4, 549 (1980); see also Linda Senden, Soft Law in
European Community Law (Oxford, Hart Publishing, 2004), 133; G.M. Borchardt and K.C. Wellens,
‘Soft Law in European Community Law’, ELRev, 14, 267 (1989); Tadeusz Gruchalla-Weisierski, ‘A
Framework for Understanding Soft Law’, 30 McGill L.J. 37, 41 (1984).

LEAL-ARCAS_9781786431042_t.indd 376 08/09/2017 13:02

to still have a relevant quasi-legal scope.27 Particularly, states do not accept them in their
entirety as mandatory statements of what binding instruments command. It is clear that
if they did the dichotomy in analysis would automatically crumble. Instead, they trigger
a positive action, in shaping states’ expectations towards a compliant behaviour.28
The dichotomy of binding and non-binding sources of international law is harmonised
in the Paris Agreement through a balance between imperativeness and voluntarism. This
hybrid strategy allows promoting the universality of the standard embedded in the deal,
without hindering the raising of a commitment towards climate change. It aims to achieve
effective solutions in dealing with problems that are technically, economically and politi-
cally complex, promoting a progressive development on the matter.
In this picture, the combination of dual standards emphasises inclusion of all relevant
actors, whose engagement is key in enriching substantive discussion. Hence, the multi-
lateral forum created in Paris fosters harmonisation of legal provisions, in order to make
them coexist instead of collide, seeking their effective application, instead of abstract
codification, thus balancing juridical form and political reality.29
3.1.1 Finding legal tools for complex political challenges

If it is true there is an endemic hardship in every treaty negotiation process, climate change
represents a very delicate matter, where diplomatic and political exchanges are extremely
burdensome. Indeed, at this stage, which represents an ex ante momentum, states cannot
clearly see the real scope of the obligations to be undertaken, nor the risks that are at
stake later, in the ex post momentum, during the implementation of this international
obligation.
For these reasons, negotiations for binding texts always lead to undefined provisions,
which are the cause of hardship in negotiations and the effect of weak conventional obli-
gations. As a result, international treaties resort to vague language de jure, which leaves
their respective obligations hard to be enforced de facto. When it comes to the negotiations
on climate change, these have been at a dead end for many years, for this precise reason:
a political negotiation stalled in the juridical form.
International doctrine studies the phases of the treaty-making process in order to
analyse the multifaceted ways in which bilateral or multilateral consent is formed or
hindered. With regard to deadlocks or prolonged negotiations, scholars usually refer to
long-lasting, and generally fruitless, attempts for the achievement of an international
legally binding treaty. This is a process that tends to run aground at two different phases
of the treaty-making process, namely the signature and the ratification of the agreement.30
27
See Olufemi Elias and Chin Lim, ‘General Principles of Law, Soft Law and the Identification of
International Law’, Netherlands Yearbook of International Law, Vol. 28, 3–49 (1997); see also Francis
Snyder, ‘Soft Law and Institutional Practice in the European Community’, in The Construction of
Europe: Essays in Honour of Emile Noël (Stephen Martin, ed., Dordrecht, Springer, 1994), 197, 200.
28
Andrew T. Guzman and Timothy L. Meyer, ‘International Soft Law’, Berkeley Journal of
Legal Analysis, 2, 1-1-2010, 171–208 (studying the role of soft law mechanisms, embedded in the
ICJ advisory opinions).
29
1823 (2002) (illustrating formal and substantial dichotomy in international law).
30
See generally Stefan Persson, ‘Deadlocks in International Negotiations’, Cooperation and
Conflict, Vol. 29, No. 3, 211 (1994); see also Christian Downie, The Politics of Climate Change

LEAL-ARCAS_9781786431042_t.indd 377 08/09/2017 13:02

The issue of negotiation deadlock reflects its complexity, especially when it is related
to global pressing problems of the international community, where collective action is
needed. Climate change represents a clear-cut example of this phenomenon. Indeed,
even if the goal is clear, the lack of clear procedural rules in the climate change regime
has contributed to rendering multilateral negotiations particularly complex and long.31
3.1.2 Hardship in climate negotiations

Some international scholars classify hardship in negotiating a climate agreement based
on five reasons. This classification serves to clarify the challenges underlying the climate
regime between negotiators, in order to assess the lessons learned and the step forward
purportedly taken in Paris.
First, this is the result of the twofold position in which each country finds itself with
regard to the problem. In fact, not only does each country play its own fundamental role
in the achievement of a common goal, but it also benefits from the compliance in emis-
sions’ reduction of other countries.32
Second, climate change is not just the result of states’ action, rather it is the result of
most human activity, in which a plurality of actors are involved. As a result, all these
actors’ instances must be taken into account at the negotiation stage.33
Third, climate change triggers concerns not only on a global environment, but also on
a development basis. Specifically, the issue arises in the dichotomy between developed
Negotiations: Strategies and Variables in Prolonged International Negotiations (Cheltenham

and Northampton, MA, Edward Elgar, 2014), 5; see also Christian Downie, ‘Prolonged
International Environmental Negotiations: The Roles and Strategies of Non-State Actors in the
EU’, International Environmental Agreements: Politics, Law and Economics, Vol. 16, No. 5,
739–55 (2016); Carsten Daugberg and Alan Swinbank, Ideas, Institutions, and Trade: The WTO
& the Curious Role of EU Farm Policy in Trade Liberalization (Oxford, Oxford University Press,
2009); Larry Crump and William Zartman, ‘Multilateral Negotiation and the Management of
Complexity’, International Negotiation, Vol. 8, 1–5 (2003); Pamela Chasek, ‘A Comparative
Analysis of Multilateral Environmental Negotiations’, Group Decision and Negotiation, Vol.
6, No. 5, 437–61 (1997); Pamela Chasek, Earth Negotiations: Analyzing Thirty Years of
Environmental Diplomacy (Tokyo, United Nations University Press, 2001); William Zartman and
Maureen Berman, The Practical Negotiator (New Haven, Yale University Press, 1982).
31
See Christian Downie, The Politics of Climate Change Negotiations: Strategies and Variables
in Prolonged International Negotiations (Cheltenham and Northampton, MA, Edward Elgar,
2014), 5 (stating how consultations rounds of COP Presidents on a clear regulatory framework
almost stalled the process, without providing effective solutions to the problem); see also Robert
Falkner, Hannes Stephan and John Vogler, ‘International Climate Policy after Copenhagen:
Towards a “Building Blocks” Approach’, Global Policy, Vol. 1, Issue 3, 252–62 (October 2010)
(expressing the hardship of Kyoto Protocol in establishing a climate regime, after a prolonged
struggle to muster the established threshold for ratification); Elisabeth Corell and Michele M.
Betsill, ‘Analytical Framework: Assessing the Influence of NGO Diplomats’, in NGO Diplomacy:
The Influence of Nongovernmental Organizations in International Environmental Negotiations
(Elisabeth Corell and Michele M. Betsill, eds, Cambridge, MA, MIT Press, 2008), 19–42.
32
See Christian Downie, The Politics of Climate Change Negotiations: Strategies and Variables
2014), 6.
33
See Gareth Porter, Janet Welsh Brown et al., Global Environmental Politics (Boulder, CO and
Oxford, Westview Press, 3rd edition, 2000), 35–78, analyzing the roles of non-State actors, from
international organizations, to NGOs and corporations in the environmental arena.

LEAL-ARCAS_9781786431042_t.indd 378 08/09/2017 13:02

and developing countries. As the former have benefitted from intensive carbon-based
production, the latter have interpreted carbon restriction as a barrier to their economic
growth. This issue’s reverberations negatively impacted on the negotiations, as it rendered
the balance particularly delicate, thus hindering the achievement of consensus.34
Fourth, the complexity of climate change variables makes the analysis a slippery slope.
Indeed, it is particularly difficult to foresee the exact long-term impact of each variable
related to the problem, as scientific data intersect economic values, generating uncertain
provisions. This is a constant trade-off between long-run gains and short-term costs that
complicates negotiations on a political level.35
Fifth, the risk of permanent and irreversible changes in the marine and atmospheric
environment makes every decision particularly delicate.36
Nonetheless, in order to achieve a common goal on climate change, negotiations are
necessary. As a result, at COP 21, in order to ease the achievement of a shared consensus
amongst all member states, a step ahead was deemed necessary. Based on lessons learned
in the UNFCCC context, it was possible to present new diplomatic instruments, for more
rapid and effective solutions. This has been a trade-off of juridical form for pragmatism,
which eventually was met with the consent of all the negotiators in Paris, opening the talks
to new standards in the sphere of international law and global governance. Indeed, one of
the greatest innovations of the Paris Agreement was overcoming procedural issues with
prolonged negotiations for the realisation of a shared binding text. Rather, the Agreement
created a successful combination of binding and non-binding provisions that resulted in
a universally accepted treaty. The first one on climate change.
3.2 Pledge for Action
The evolution of regulatory capacity and governance strategies for a climate regime sheds
light on how nation-states and their nationally determined contributions integrate into
the international framework following the Paris Agreement targets. On a global scale, the
Paris Agreement frames a schedule in which each country provides a national contribu-
tion every five years. This contribution is intended to grow over time, to foster mitigation,
adaptation and resilience, with the ultimate aim of reducing greenhouse gas emissions.37
34
Lawrence Susskind, Environmental Diplomacy: Negotiating More Effective Global Agreements,
3–10 (1994), mentioned in Christian Downie, The Politics of Climate Change Negotiations:
Strategies and Variables in Prolonged International Negotiations (Cheltenham and Northampton,
MA, Edward Elgar, 2014), 6.
35
Nicholas Stern, ‘The Economics of Climate Change’, The Stern Review, 92ff (2007), men-
tioned in Christian Downie, The Politics of Climate Change Negotiations: Strategies and Variables
2014), 7.
36
International Panel on Climate Change (IPCC), Climate Change 2013: The Physical Science
Basis, Working Group I Contribution to the Fifth Assessment of the Intergovernmental Panel on
Climate Change, 53 (2013), mentioned in Christian Downie, The Politics of Climate Change
Negotiations: Strategies and Variables in Prolonged International Negotiations (Cheltenham and
Northampton, MA, Edward Elgar, 2014), 7.
37
COP 21, Government pledges, available online at: http://www.cop21.gouv.fr/en/government-
pledges/.

LEAL-ARCAS_9781786431042_t.indd 379 08/09/2017 13:02

In this framework, Intended Nationally Determined Contributions (INDCs) represent

the ambition of each country in emissions reduction, given its circumstances, capabilities
and priorities.38 In turn, these standards have to be implemented by governments at the
national level in order to create adaptive capacity in national economies, in compliance
with the objectives of the Paris Agreement.
3.2.1 From a top-down to a bottom-up approach in climate negotiations

In this framework, COP 21 was framed to overcome the juridical and political stall
in climate negotiations. Indeed, from 1992, the idea that animated the negotiators in
the UNFCCC context had been structured on a top-down approach. Science defined
global caps on emission; governments negotiated and implemented those caps in climate
negotiations.
Due to such approach, negotiations on climate change have been at a standstill for
many years. Concretely, during the phase of the formation of bilateral or multilateral
consent between sovereign states, deadlocks or prolonged negotiations hindered the
achievement of a global effective commitment in the international community.39
The multilateral forum created in Paris with COP21 tried to overcome the procedural
stall of the traditional approach in climate negotiation, in order to achieve substantive
outcomes, in order to make them coexist instead of collide, seeking their effective applica-
tion, instead of abstract codification, thus balancing juridical form and political reality.40
As a result, the strategy embedded in Paris fostered the harmonisation of the political
needs of each country. Therefore, on the basis of lessons learned in the UNFCCC context,
it was possible to present new diplomatic strategies, for more rapid and effective solutions.
With regard to the innovations of the COP 21, following a trend already present in the
Copenhagen Climate Change Conference (COP 15) in 2009,41 a shift was purported in
38
For a further analysis on INDCs and submitted INDCs, the UNFCCC provides details for
transparency and understanding, available online at: http://unfccc.int/focus/indc_portal/items/8766.
php; see also World Resources Institute, ‘What is an INDC’, available online at: http://www.wri.org/
indc-definition.
39
See generally Stefan Persson, ‘Deadlocks in International Negotiations’, Cooperation and
Conflict, Vol. 29, No. 3, 211 (1994); see also Christian Downie, The Politics of Climate Change
Negotiations: Strategies and Variables in Prolonged International Negotiations (Cheltenham
and Northampton, MA, Edward Elgar, 2014), 5; Christian Downie, ‘Prolonged International
Environmental Negotiations: The Roles and Strategies of Non-State Actors in the EU’,
International Environmental Agreements: Politics, Law and Economics, Vol. 16, No. 5, 739–55
(2016); Carsten Daugberg and Alan Swinbank, Ideas, Institutions, and Trade: The WTO and
the Curious Role of EU Farm Policy in Trade Liberalization (Oxford, Oxford University Press,
2009); Larry Crump and William Zartman, ‘Multilateral Negotiation and the Management of
Complexity’, International Negotiation, Vol. 8, 1–5 (2003); Pamela Chasek, ‘A Comparative
Analysis of Multilateral Environmental Negotiations’, Group Decision and Negotiation, Vol.
6, No. 5, 437–61 (1997); Pamela Chasek, Earth Negotiations: Analyzing Thirty Years of
Environmental Diplomacy (Tokyo, United Nations University Press, 2001); William Zartman and
Maureen Berman, The Practical Negotiator (New Haven, Yale University Press, 1982).
40
1823 (2002) (illustrating formal and substantial dichotomy in international law).
41
The Copenhagen Climate Change Conference, representing the 15th session of the Conference
of the Parties to the UNFCCC, took place in Copenhagen and was hosted by the Government of

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the diplomatic negotiation strategies. The role of each country in reducing greenhouse
gas emissions is no longer to be defined as the result of a top-down approach, but instead
the result of a voluntary bottom-up standard. In other words, in UNFCCC negotiations,
a multilateral consensus is now to be reached through a renovated model of the climate
treaty-making process.
3.2.2 The ‘pledge and review’ model: legal tools for diplomatic needs
As part of the COP 21 results, this model facilitated the construction of a legal frame-
work around nation-states’ pledges for the mitigation of greenhouse gas emissions. This
model represents a renovated system in which governments are able to propose or pledge
actions, policies and goals unilaterally.42 Concretely, pledges can be realised in many differ-
ent forms: ‘targets versus 1990 or 2005 base year emissions, percentage improvements in
the CO2-to-GDP ratio, percentage abatement versus a “no-policy” reference case, a peak
year for national emissions, renewable power goals, energy efficiency goals, afforestation
goals, etc.’.43
In this picture, the pledged system can be interpreted as a fair compromise to reach
a dual objective: the achievement of clear NDCs to be implemented at domestic level,
along with a faster ratification process for the climate agreements at the international
level.44 This system creates fertile ground for countries to respect their commitments
and to foster ambitions for the future.45 This represents a cost-effective solution that
facilitates success in the negotiation and implementation phases of climate regime,
thus satisfying the needs of a plurality of actors. First, governments can better foresee
the real scope and the risks of their obligations, as they are pledging on a voluntary
base.46 Second, environmental advocates are satisfied that such assessments can
enable the gradual increase of national ambition. Third, business actors are provided
with a clearer framework, as they can adjust corporate strategies to preserve their
competitiveness in the market.47 In this context, all the relevant stakeholders will be
Denmark in December 2009. The information is available online at: http://unfccc.int/meetings/copen

hagen_dec_2009/meeting/6295.php.
42
See Joseph E. Aldy and William A. Pizer, ‘Comparability of Effort in International Climate
Policy Architecture’, The Harvard Project on Climate Agreements, Discussion Paper, 3 (January
2014).
43
See Joseph E. Aldy, William A. Pizer and Keigo Akimoto, ‘Comparing Emission Mitigation
Effort’, Duke Environmental and Energy Economics Working Paper Series Organized by the
Nicholas Institute for Environmental Policy Solutions and the Duke University Energy Initiative,
Working Paper EE 15-02, 4 (June 2015).
44
See Elinor Ostrom, ‘A Behavioral Approach to the Rational Choice Theory of Collective
Action: Presidential Address’, American Political Science Review, Vol. 92, No. 1, 1–22 (1998); see
also Marina Cazorla and Michael Toman, ‘International Equity and Climate Change Policy’, in
Climate Change Economics and Policy: An RFF Anthology (Washington, DC, Resources for the
Future Press, 2001).
45
Joseph E. Aldy, Alan J. Krupnick, Richard G. Newell, Ian W.H. Parry and William A. Pizer,
‘Designing Climate Mitigation Policy’, Journal of Economic Literature, Vol. 48, No. 4, 903–34
(2010).
46
See Daniel Bradlow, ‘What Paris Climate Deal Can Teach us about Solving the World’s Most
Complex Problems’, The Conversation (December 17, 2015).
47
See infra, section 4.

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able to critique a given country’s pledge as inadequate, or, instead, to foster greater
action.
3.3 Lessons Learned from International Human Rights Law
Through the harmonisation of binding and non-binding instruments of international law,

it has been possible to promote the universality of the standard without weighing down
the current process of building a commitment on climate change. This has been a strategy
aimed at obtaining a rapid and universal answer to an impending problem.
The Paris Agreement represents the commitment of the international community in
finding an effective universal solution, capable of combining the different poles and
interests at stake. This is a solution that fits perfectly in the post-ontological framework
of Tom Franck. Indeed, the Paris Agreement, through its combination of sources, allows
an evaluation of the results on the basis of contents achieved.48 In other words, it is pos-
sible to move from a formal analysis to a substantial analysis of the deal, evaluating its
effectiveness in providing clear solutions to a compelling global problem.
The use of non-binding instruments can be considered as a lesson learned from inter-
national human rights law. In fact, in this field, the role of non-binding instruments has
to be intended not only in a soft law perspective, but also in terms of lex ferenda. In this
light, it is undisputed that non-binding instruments serve as a fertile ground in the forma-
tion of established customary law. In other words, this is a phenomenon that allows the
international community to develop a non-binding regime, to be intended as a precursor
or as a supplement to further binding instruments of hard law.49
3.3.1 Voluntarism in the progressive development of international legal standards

With regard to the Paris Agreement, in the face of the recourse to non-binding sources of
international law within the Paris Agreement, several parties raised criticisms as early as
the travaux preparatoires. This reaction has to be understood as scepticism to the volun-
tarism underlying the deal, which provides no mandatory target and allegedly determines
an instrument empty of action, without teeth.50 In particular, the deal has been deeply
criticised for only reaching an acknowledgment on climate change, without taking any
binding measures for actually tackling it.
Nonetheless, the need for the recourse to this legal technique is usually to be found in
the drafters’ needs for flexibility and rapidity. Non-binding instruments can be adopted in
a faster time frame, while they also better reflect the constant evolution of certain sectors
in international law, climate change being one of these.51 From this perspective, reverting
to pure binding instruments may result in a backlash effect, due to a time loophole. In
48
1823 (2002) (focusing on the analysis of substantive content of international provisions).
49
See Dinah L. Shelton, ‘Normative Hierarchy in International Law’, The American Journal
of International Law, Vol. 100, No. 2, 291 (2006).
50
See Graciela Chichilnisky and C.J. Polychroniou, ‘Paris COP21 Climate Agreement is
Bound to Nothing: What is the Solution?’, E-International Relations (December 29, 2015).
51
See René Jean Dupuy, The Protection of the Environment and International Law (Leiden,
Sijthoff, 1975), 623–7.

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fact, if achieved prematurely, imperative solutions tend to be too broad to be workable

and too restrictive to be covered. As a result, it should not appear paradoxical if the
outcome entailing non-binding sources may provide more precise and clearer language
that is easier to understand and to monitor. Moreover, not being mandatory, these are
less risk-averse instruments that allow the governments to undertake important steps that
otherwise would never be taken.
3.3.2 Universal standards for public accountability and sound governance

The lessons learned from business and human rights show that non-binding provisions
do not entail a lack of obligation tout court, as they still generate expectations on the
international community, along with a moral suasion.52 In time, these instruments can
generate applicative practice that, in the long run, may become customs or may be subject
to codification in hard law.53 They form bridges over legal commands with purely politi-
cal statements, and they contribute in the evolutionary process of building support and
culture amongst all the relevant actors around the subject matter.54 Seen in this light, the
whole legal and social framework will derive direct energy from non-binding instruments.
Indeed, non-binding provisions potentially have a universal breadth. From this perspec-
tive, voluntarism fosters inclusion, embracing more participants in the solution of global
problems. This takes place through the participation of all the relevant players, from
national governments to business boards, from civil society to local communities. In other
words, this is a way for international advocacy to enforce governments’ accountability; to
promote sound governance on the basis of credibility.55
As a result, the lack of purely binding mechanisms in the Paris Agreement does
not frustrate the goals designed in Paris. The deal triggers other instruments, arising
under soft law or state international practice,56 in order to fill those legal and political
52
See John G. Ruggie, ‘Global Governance and “New Governance Theory?” Lessons from
Business and Human Rights’, Global Governance, Vol. 20, 5–17 (2014); see also Andrew T.
Guzman and Timothy L. Meyer, ‘International Soft Law’, Berkeley Journal of Legal Analysis,
Vol. 2, 1-1-2010, 171–208 (studying the role of soft law mechanisms, embedded in the ICJ advi-
sory opinions); but see Bennett Freeman, ‘To What Extent can Voluntarism Provide Answers?’,
Wilton Park Conference on Business and Human Rights: Advancing the Agenda, 6 (11 October
2005).
53
See Michael Bothe, ‘Legal and Non Legal Norms: A Meaningful Distinction in International
Relations?’, Netherlands Yearbook of International Law, Vol. 11, 65–95 (1980).
54
Andrew T. Guzman and Timothy L. Meyer, ‘International Soft Law’, Berkeley Journal of
Legal Analysis, 2, 1-1-2010, 171–3.
55
See Mary Robinson, ‘Advancing Economic, Social, and Cultural Rights: The Way
Forward’, Human Rights Quarterly, Vol. 26, No. 4, 866–9 (Mary Robinson served as UN High
Commissioner for Human Rights, from 1997 to 2002, highlighting the added value of a naming
and shaming formula in progressing human rights protection, from a legal, doctrinal and advocacy
perspective); see also Margaret E. Keck and Kathryn Sikkink, Activists Beyond Borders (Ithaca,
NY, Cornell University Press, 1998); James Meernik, Rosa Aloisi, Marsha Sowell and Angela
Nichols, ‘The Impact of Human Rights Organizations on Naming and Shaming Campaign’,
Journal of Conflict Resolution, Vol. 56, No. 2, 233, 240 (2012); R. Charli Carpenter, ‘Setting the
Advocacy Agenda: Theorizing Issue Emergence and Non-Emergence in Transnational Advocacy
Networks’, International Studies Quarterly, Vol. 51, No. 4, 99–120 (2007).
56
See Amanda Murdie and Johannes Urpelainen, ‘Why Pick on Us? Environmental INGOs
and State Shaming as a Strategic Substitute’, Political Studies, Vol. 63, 353–4 (2015).

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gaps in global environmental governance. This is a way to remind the major players
in climate change that effectiveness is achieved even through the implementation of
binding and non-binding instruments, with the ‘court of public opinion’ having a major
role in it.57
From this perspective, COP 21 not only plays a major role in enhancing the relevance
of soft-law instruments in international law, but also requires the combined action of
all the major participants, in order to successfully deal with one of the more complex
international problems. In other words, through a multi-stakeholder approach, the Paris
Agreement is trying to achieve universality in climate change standards. In this light, the
participation of state and non-state actors is revealed as a potential factor for success with
regard to the effectiveness of the deal.
4. STATE AND NON-STATE ACTORS’ PARTICIPATION AT COP

21: KEYS TO THE SUCCESS OF THE PARIS AGREEMENT
The analysis of international law in a post-ontological framework allows us to rethink the

traditional schemes, to abandon the constraints of a defensive orthodoxy that have for
so long inhibited an evolution of the discipline.58 The traditional Westphalian model that
characterised international relations from the 17th to the 19th century appears now to
be obsolete.59 Indeed, the modern international community does not respond to a state-
centric approach anymore, with new actors emerging, and the witnessing of the gradual
erosion of states’ sovereignty.60
The model followed in Paris triggers new approaches to the problems and the needs
of the international community. Following the analysis on the sources embedded in the
Paris Agreement, between binding and non-binding provisions, at this point it is para-
mount to shed light on the principal actors that contributed to the adoption of the deal.
The analysis carried out so far has demonstrated how in the context of the Tom Franck’s
post-ontological era, effective juridical solutions are tailored to new problems. This
model seeks to overcome political and legal impasse, thus achieving substantial results
through renewed legal forms, capable of embracing all the stakeholders involved.61 From
this perspective, the outcomes of COP 21 constitute an opportunity to consider sub-
stantive analytical arguments, relating to the participation of non-state actors in public
decision-making processes, for the achievement of effective and inclusive solutions to
global problems.
57
Conference on Business and Human Rights: Advancing the Agenda, 8 (11 October 2005).
58
Thomas Franck, Fairness in International Law and Institutions (New York, Oxford University
Press, 1995), 6.
59
See Leo Gross, ‘The Peace of Westphalia, 1648–1948’, American Journal of International
Law, Vol. 42, 20–41 (1948) (expressing the established opinion amongst international lawyers on
individuating the origin of international law with the Peace of Westphalia, 1648).
60
See Mario Prost, The Concept of Unity in Public International Law (Oxford, Hart Publishing
2012), 131–2.
61
Duncan B. Hollis, ‘Why State Consent still Matters’, Berkeley Journal of International Law,
Vol. 23, 137–9 (2005).

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4.1 The Rise of New Actors in the Modern International Community
In the modern international community new actors have appeared on the stage and
affirmed their own relevance in international law. Specifically, the traditional scholarship
in the field, with regard to the post-national framework, under the force of globalisa-
tion, studies the influential weight of private actors, along with the erosion of national
sovereignties. As these factors have reshaped the traditional paradigms in the process of
formation and implementation of international law,62 the analysis will therefore touch on
the role of non-state actors, through the contribution of multinational corporations, in
the model of the UNFCCC and the outcome of the Paris Agreement.
4.1.1 The increasing participation of the private sector and the evolving frontiers of
international law
The dichotomy between the needs of the international community and the tools offered
by international law illustrates the current stagnation in providing effective solutions to
global problems.63 From this perspective, the Paris Agreement presents a progressive
development in international law, promoting new successful practices in the approach to
climate change. In other words, the Paris Agreement offers elements of modernity in the
orthodoxy of the Westphalian state-centric normative system and operates a Copernican
revolution in approaching global problems through the engagement of all the relevant
subjects in the field.
International doctrine has long discussed the topic of the subjectivity of non-state
actors in international law, being an ontological aspect of this matter. Theories have been
developed, to try to frame the role of these particular subjects, who, although silent spec-
tators, still play a major and active role in international law.64 Under the classical doctrine,
only sovereign states are subjects in international law, whilst non-state actors are subjects
only in domestic legal systems. As a result, the state is the necessary element interposed
between the international and domestic spheres.65
62
See, e.g., Phillip Trimble, ‘Globalization, International Institutions and the Erosion of
National Sovereignty’, Mich. L. Rev., Vol. 95, 1944–6 (1997); see also Jack Goldsmith, ‘Sovereignty,
International Relations Theory, and International Law’, Stan. L. Rev., Vol. 52, 959, 959 (2000).
63
problems-52162.
64
See generally Ian Brownlie, Principles of Public International Law (7th edn, Oxford
University Press, 2008), Chapter 25, 26; Antonio Cassese, International Law (2nd edn, Oxford
University Press, 2005), 142–50; Malcom N. Shaw, International Law (7th edn, Cambridge
University Press, 2014), 257–9.
65
With regard to non-state actors, traditionally, doctrine in the field refers to international
organisations, multinational corporations, non-governmental organisations and individuals. The
international subjectivity of these categories has been debated in several works of scholarship.
On this point, see generally Andrea Bianchi, ‘The Fight for Inclusion: Non-State Actors and
International Law’, in From Bilateralism to Community Interest: Essays in Honour of Judge Bruno
Simma (Ulrich Fastenrath et al., eds, Oxford, Oxford University Press, 2011), 39 (analysing the doc-
trine of subjects in international law); see also W. Michael Reisman et al., ‘The New Haven School:
A Brief Introduction’, Yale J. Int’l. L., Vol. 32, 575, 577 (2007).

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Nonetheless, an historically oriented approach demonstrates that since the time of the
Dutch West India Company, in the 17th century, business enterprises have been operating
beyond the national borders of their state of incorporation and have played an outstand-
ing role in shaping the spheres of international relations and international law.66 This
phenomenon generated the so-called effect of the ‘privatisation’ of international law,
which entails the participation of private actors, alongside political institutions, in law
production and enforcement.67
In more recent times, the process of globalisation facilitated the expansion of the
influential weight of private actors, along with an erosion of national borders. Such a
phenomenon has reshaped the very bases of international law, tracing new regulation
production and enforcement methods.
A robust scholarly analysis has studied and illustrated the evolution of such a trans-
boundary phenomenon, determining the slight evanescence of national sovereignty,
whilst trying to define the perimeter of this evolving sphere of international law.68
4.1.2 Evolving frontiers in the treaty-making process

With regard to law production, attention has been systematically dedicated to compara-
tive analysis on the implications of regulations coming from the public or the private
sector.
Specifically, with regard to law-making process in modern times, international scholars
are divided between models of centralised and decentralised law.69 Centralised law stems
from the intangibility of sovereignty and reflects the proliferation of a statutory system,
which mainly operates through the codification of treaties. Nonetheless, the need for more
rapid instruments, in a continuously evolving international framework, determined an
inversion of such a trend.70 Indeed, advanced economies represent hectic contexts, with
66
See generally Jeffrey L. Dunoff, Steven R. Ratner and David Wippman, International Law
Norms, Actors, Process: A Problem Oriented Approach (2nd edn, New York, Aspen Publishers, 2006).
67
See Paul Stephan, ‘Privatizing International Law’, Virginia Law Review, Vol. 97, 1573, 1575
(2011); see also Jack Goldsmith, ‘Sovereignty, International Relations Theory, and International
Law’, Stan. L. Rev., Vol. 52, 959, 959 (2000).
68
See generally Phillip Trimble, ‘Globalization, International Institutions and the Erosion of
National Sovereignty’, Mich. L. Rev., Vol. 95, 1944 (1997); Kenneth W. Abbott, ‘Commentary:
Privately Generated Soft Law in International Governance’, in International Law and International
Relations: Bridging Theory and Practice (Thomas J. Biersteker et al., eds, Oxon and New York,
Routledge, 2007), 166; Jörg Kammerhofer, ‘Law Making by Scholarship? The Dark Side of 21st
Century International Legal “Methodology”’, in Select Proceedings of the European Society of
International Law (James Crawford and Sarah Nouwen, eds, Volume 3, Oxford, Hart Publishing,
2010); Jean D’Aspremont, ‘International Law-Making by Non-State Actors: Changing the Model
or Putting the Phenomenon into Perspective?’, in Non-State Actor Dynamics in International Law:
From Law-Takers to Law-Makers (Math Noortmann and Cedric Ryngaert, eds, Oxon and New
York, Routledge, 2010), 171; Jan M. Smits, Private Law 2.0: On the Role of Private Actors in a Post-
National Society (Maastricht University, 2010).
69
See Robert D. Cooter, ‘Structural Adjudication and the New Law Merchant: A Model
of Decentralized Law’, Int’L Rev. L. & Econ., Vol. 14, 215 (1994); see also Robert D. Cooter,
‘Decentralized Law for a Complex Economy: The Structural Approach to Adjudicating the New
Law Merchant’, U. Pa. L. Rev., Vol. 144, 1643, 1646 (1996).
70
See Claire Cutler, ‘Critical Reflections on the Westphalian Assumptions of International Law
and Organizations: A Crisis of Legitimacy’, Review on International Studies, Vol. 27, 133–50 (2001).

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plural subjects, whose needs are difficult to negotiate and regulate quickly and with con-
ventional instruments. As a result, this hiatus started eroding legal centrism, reaffirming,
in turn, the importance of decentralised law, which begins with contracts and customs. In
this context, law generated through private actors’ engagement is more likely to respond to
innovations and technology, thus harmonising the regulation and interaction of market
actors. Mutatis mutandis, this phenomenon reflects the medieval trade system, regulated
through the so-called lex mercatoria.
In this context, lawmakers have to adapt to the evolving needs of the international
community, interpreting the emerging needs of a plurality of actors involved in the treaty-
making process.71
4.2 Non-State Actors’ Engagement in Climate Change Negotiations
Studying the role of non-state actors in crafting international law, multilateral forums
constitute a valid example to assess the multi-stakeholders approach to global challeng-
es.72 In this light, sovereign states have facilitated the participation of business actors
within state delegations, in cases in which universal standards were at stake. As a result,
state governments have included corporate participants in their missions before interna-
tional organisations73 or international summits.74
With regard to an active participation of business entities in the international decision-
making process, the sphere of climate change has served so far as a successful framework
for coordination between public and private actors. In fact, UNFCCC institutionalised
these trends in order to promote the participation of non-state actors in the interna-
tional community through an active role in the decision-making process. This is a way to
harmonise the involvement of all the mayor players implicated in the problems at stake,
whose contribution is deemed necessary in the achievement of more efficient and fitting
solutions. In turn, the latter will be better absorbed, not only within domestic systems,
but also within corporations, through ad hoc business models and strategies.75 The Paris
Agreement in particular, constitutes the result of this process.
71
See Julie Mertus, ‘Considering Non-State Actors in the New Millennium: Toward Expanded
Participation in Norm Generation and Norm Application’, New York U. J. Intl. L & Policy, Vol. 32,
537 (1999–2000) (analysing the paradigms of the doctrine of subjects, through the social fabric and
structure of international law and international relations, the limits of which become increasingly
more blurred).
72
See Daniel Bradlow, ‘What Paris Climate Deal Can Teach Us About Solving the World’s
problems-52162 (developing new arrangements in global governance to allow multi-stakeholder
responses to global problems).
73
See Jose E. Alvarez, ‘Are Corporations “Subjects” of International Law?’, Santa Clara
Journal of International Law, Vol. 9, No. 1, 5 (2011).
74
See Erika R. George, ‘The Enterprise of Empire: Evolving Understandings of Corporate
Identity and Responsibility’, in The Business Landscape and Human Rights Landscape: Moving
Forward, Looking Back (Jena Martin and Karen E. Bravo, eds, Cambridge, Cambridge University
Press, 2005), 19, 28.
75
See Eric A. Posner, ‘Law, Economics, and Inefficient Norms’, U. Pa. L. Rev., Vol. 144, 1697,
1722–3 (1996); see also Joyce Wong and Ryan Schuchard, Adapting to Climate Change: A Guide

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4.2.1 Business entities from law-takers to law-makers

The framework pictured hitherto shows how the regime of business participation in the
treaty-making process represents an expanding sector that has not yet been systematised.
Indeed, the participation of market actors in the treaty-making process has only been
circumstantial to specific agreements, without reaching a systemic solution. In other
words, there is no ad hoc policy for an accreditation regime for business entities that has
been developed in international law.76 Nevertheless the proliferation of the conventional
sources in international law renders this approach obsolete, with new treaties becoming
increasingly sophisticated.77
The existent scholarship in this field illustrates how the participation of private actors
in the conventionally based production of international law occurs in two different
sectors: with regard to private law treaties and beyond private law treaties.78 In the latter
case, business participation tends to be more controversial, given possible gaps between
public interests and market prerogatives. Nonetheless, the potential features between state
and non-state actors balance the effects of externalities. In other words, this model entails
a rational approach in intergovernmental and supranational law-making processes, which
allows it to craft better social and economic solutions.79
In a broader picture, this phenomenon reflects the evolution of non-state actors from
law-takers to law-makers, as a way of fostering the dialogue and interaction between differ-
ent players in the international community.80 This is the result of the experience of the Paris
Agreement, where non-state actors participated as relevant stakeholders in the process.
for the Consumer Products Industry (BSR, 2010) (reporting on climate risk in 2009 by 62 consumer
products companies); M.S.V. Prasad and B. Sandhya Sri, ‘Corporate Response to Climate Change:
What do Stakeholders Expect’, Australasian Accounting Business and Finance, Vol. 2, Issue 3, 67
(2008) (analysing the effect of stakeholders in Indian corporations).
76
See Melissa J. Durkee, ‘The Business of Treaties’, UCLA L. Rev., Vol. 63, 264, 282 (2016).
77
See Kal Raustiala, ‘NGOs in International Treaty-Making’, in The Oxford Guide to Treaties
(Duncan B. Hollis, ed., Oxford, Oxford University Press, 2012), 150, 161.
78
See Melissa J. Durkee, ‘The Business of Treaties’, UCLA L. Rev., Vol. 63, 264, 291 (2016)
(analysing the framework of the ‘business of treaties’, and typologising business participation in
two major clusters: with regard to private law treaties and beyond private law treaties, when public
interests may be at stake).
79
Jochen Von Bernstorff, ‘Non-State Actors in Law-making and in the Shaping of Policy:
On the Legality and Legitimacy of NGO Participation in International Law’, Study for the
Preparation of the Kondrad-Adenauer-Foundation’s Conference on International Law (November
2007), 6; see also G.F. Schuppert, ‘The Changing Role of the State Reflected in the Growing
Importance of Non-State Actors’, in Global Governance and the Role of Non-State Actors (Gunnar
Folke Schuppert, ed., Nomos, 2006), 203, 211 (determining the emerging role of non-state actors
in new international and supranational regulation structures).
80
Cedric Ryngaert, ‘State Responsibility and Non-State Actors’, in Non-State Actor Dynamics
in International Law: From Law-Takers to Law-Makers (Math Noortmann and Cedric Ryngaert, eds,
Oxon and New York, Routledge, 2010), 163, 183; see also Paul B. Stephan, ‘Privatizing International
Law’, Va. L. Rev., Vol. 97, 1573, 1577 (2011) (presenting a cost-benefit study on the participation of
non-state actors in the treaty-making process); Peter J. Spiro, ‘NGOs in International Environmental
Lawmaking: Theoretical Models’ (Temple University Legal Studies Research Paper Series, Research
Paper No. 2006-26, 2006), 2, 3, http://ssrn. com/abstract5937992 [http://perma.cc/ZS8C-8AWQ]
(measuring the influence of non-state actors in law-making processes).

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4.2.2 Non-state actors in the United Nations Framework Convention on

Climate Change (UNFCCC)
On the procedural ground, with regard to non-state actors’ participation, concerns arise
especially when it comes to business involvement, as some values of general interest may be
trumped. Indeed, the downgrading of private participation in public law-making may result
in a democratic deficit and lack of transparency.81 Consequently, the international practice is
slowly regulating this field, in order to integrate private entities’ participation as a functional
element in the rationalisation decision-making process. Specifically, administrative regula-
tion is implementing the new standards within international organisations and multilateral
summits, such as the UNFCCC, in order to proceduralise non-state actors’ participation. As
a result, this process is carried out through international secretariats and subordinate bodies
that aim to create clearing moments for multi-stakeholders’ dialogue, in order to provide
better solutions in the preparation and implementation of international regulations.82
As recent studies carried out during the UNFCCC negotiations point out, more than
800 of the largest registered companies worldwide have been shown to be favourable to
an agreement on climate change.83 In this context, companies encourage governments
worldwide to set up a clear regulatory framework, in order to accelerate the pace for a low
carbon economy at domestic and international level. Hence, this represents a momentum
for constructing a dialogue. This is the ground for the identification of common interests,
thus setting the path towards consensus for all the relevant players. In turn, with regard to
climate protection, this is an opportunity to build up an efficient framework for govern-
ment and business strategies, to implement public-private partnerships, to foster green
investments on a global scale.84
In this framework, companies have been interested in participating in COP negotia-
tions, as they request precise regulation, claiming clear objectives on the core topics on
climate change. In order to pursue the long-term goal of global net zero greenhouse
gas emissions by the end of the 21st century, companies are calling for a fine-tuning at
81
See Peter K. Yu, ‘Six Secret (and Now Open) Fears of ACTA’, SMU L. Rev., Vol. 64, 975,
987 (2011) (regarding the approaches in treaties’ negotiations).
82
See Jeffrey S. Lantis, The Life and Death of International Treaties: Double-Edged Diplomacy and
the Politics of Ratification on Comparative Perspective (Oxford, Oxford University Press, 2009), 84;
see also Linda C. Reif, ‘Environmental Policy: The Rio Summit Five Years Later’, in Canada Among
Nations 1998: Leadership and Dialogue (Fen Osler Hampson and Maureen Appel Molot, eds, Toronto,
Oxford University Press, 1998), 269 (expressing the influence of non-state actors on Canadian foreign
policy in the 1992 Earth Summit in Rio de Janeiro, and later in the UNFCC framework, with regard
to the Kyoto Protocol. In the formation and implementation process, the influence of non-state actors
allowed the social and economic concerns in environmental protection to be better addressed).
83
CDP, ‘Business and the Paris Agreement, Corporate Support for a Global Agreement on
Climate Change’, CDP Policy Briefing, 1 (11 October 2015) (carrying out an analysis of business
strategies in reducing greenhouse gas emissions. Amongst the international players, the Coca-Cola
Enterprises takes a clear standing against climate change, in the pursuit of a common long-term
goal: ‘We believe that such a deal should include a clear and credible long-term goal, together with
ambitious national commitments from all countries, clear and transparent accounting mechanisms
and a timetable to revisit the goal to ensure that it is in line with climate science’).
84
Climate Change’, CDP Policy Briefing, 2 (11 October 2015), https://www.cdp.net/Documents/
policy/corporate-support-global-agreement-on-climate-change.pdf.

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the international and domestic level. This is a way to address corporate ambitions in a
common direction, in the effort to set the pace for greenhouse gas abatement.
4.2.3 Non-state actors at COP 21: Drafting the Paris Agreement

With regard to non-state actors’ participation in climate negotiations, this analysis takes
place in two different moments: an ex ante phase, in which it is possible to analyse the
role of business in the law-making process; and an ex post phase, in which it is possible
to analyse the future enforcement of the provisions embedded in the Paris Agreement.
In an ex ante phase, during negotiations, non-state actors participated at COP 21 in the
capacity of observers, including three different kinds: the United Nations Systems and its
Specialised Agencies, non-governmental organisations (NGOs), and intergovernmental
organisations (IGOs). The business sector took part in the last category.85 Moreover, in
the preliminary stages to COP 21, a broad and powerful alliance of business and investors
committed to climate action. Indeed, more than 400 business leaders worldwide gathered
at the Lima-Paris Action Agenda, focus on business in Paris in December 2015, calling
for a clear and effective agreement on climate change, and demonstrating the commit-
ment of the business sector in advancing the climate change agenda towards a low-carbon
economy.86 The business leaders represented companies from 30 economic sectors and
65 different territories, with the aim of setting targets and working with policy makers to
address climate action. This work has consisted in a steady activity ensuring policy posi-
tions, actions and outcomes.87 In particular, the contribution of these players happens
to be extremely relevant in their commitment to reducing carbon emissions and energy
consumption.
Indeed, the ex ante commitment in the negotiations reflects the ex post enforcement
of the agreement. From this perspective, the challenge entailed with climate change trig-
gers, at the corporate level, the business strategies that will be implemented for the next
decade. These are strategies that aim to reduce greenhouse gas emissions, whilst easing the
transition to a low-carbon economy with climate-resilient solutions.88 In this framework,
private entities are demonstrating their own commitment in finding practical solutions for
a sustainable future, in compliance with international environmental standards.
This agenda is a way for business entities to actively foster sustainable growth in both
developed and developing countries, through the collaboration of the policy makers.
85
The information regarding the observer organisations is provided by United Nations
Framework Convention on Climate Change (UNFCCC), available online at: http://unfccc.int/
parties_and_observers/observer_organizations/items/9524.php.
86
UNFCCC Newsroom, ‘Global Business Community Comes to Paris with Solutions for
Taking on the Climate Challenge Across the Board’, Press Release (December 8, 2015).
87
Ibid.
88
World Economic Forum, ‘Open Letter from CEOs to World Leaders Urging Climate Action’
(November 23, 2015) (The World Economic Forum has been a major player in fostering public-
private cooperation, leading the private sector towards a stronger commitment to climate change,
to secure a better world for all of us. In this framework, facilitated by the World Economic Forum,
the CEOs of 79 different multinational corporations declared: ‘Climate change is one of the biggest
global challenges that will shape the way we do business now and in the coming decades’). The com-
plete text of the declaration expressing the executives’ commitment is available online at: https://
www.weforum.org/agenda/2015/11/open-letter-from-ceos-to-world-leaders-urging-climate-action/.

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This represents a multi-stakeholder response in the implementation of a framework of

global measures on mitigation, adaptation and finance, under the standards of the Paris
Agreement. In order to capture the commitment to climate action of the different players
involved in the process, the United Nations launched an ad hoc initiative, NAZCA (Non-
State Actors Zone on Climate Change). This is a global platform that was launched in
2014 under the Peruvian Presidency of COP 20, which served as a central tool in building
momentum and support during the COP 21 negotiations, and hence in the achievement
of the Paris deal. Now, in the aftermath of COP 21, this programme encourages and
monitors the evolution of climate action, by tracking the action and the mobilisation
necessary to implement the Paris Agreement. At the time of writing, 2,364 cities, 167
regions, 2,090 companies, 448 investors and 236 civil society organisations have com-
mitted to the programme, determining its immediate success.89 From this perspective, all
the relevant players are working to design new sustainable global standards that are to
be internalised in business policies, operations and practices, and implemented in their
respective countries.
4.3 Private Participation for Better International Governance
The analysis carried out so far allows us to study and illustrate the implications of the
Paris Agreement in the progressive evolution of international law. With this vision, the
deal undertakes a multi-stakeholder approach, taking into account the rise of new relevant
players in the field, in order to create a new successful regime. To be precise, the private
sector, through the contribution of business entities, was revealed to be a fundamental
counterpart to the public sector, balancing the instances and the outcomes related to the
problem at stake. Through this mechanism, COP 21 consecrated the need for a combina-
tion of the different relevant actors concerned with the multifaceted aspects of climate
change.90
4.3.1 The multi-stakeholder approach to a climate regime strategic agenda

The rise of the practice of private participation in international law-making has facili-
tated better international governance in the solution of complex problems. This is a way
through which the private sector assumes a public role in the international legal regime,
addressing decision-making in a pluralist direction.91 When it comes to the fundamental
89
The global platform NAZCA, ‘Accelerating Climate Action’ is available online at: http://
climateaction.unfccc.int/.
90
problems-52162.
91
In the international literature, legal sociology studies the role of business corporations, as
non-state actors, producing or influencing global regulation. See generally Peter Newell, Climate
for Change: Non-State Actors and the Global Politics of the Greenhouse (Cambridge, Cambridge
University Press, 2000); see also Virginia Haufler, A Public Role for the Private Sector: Industry
Self-Regulation in a Global Economy (Washington, DC, Carnegie Endowment, 2001); Gregory
Shaffer, ‘How Business Shapes Law: A Socio-Legal Framework’, Conn.L.Rev., Vol. 42, 147 (2009)

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values of the international community, the contribution of private actors in the law-
making process has been revealed to be a successful system, as it encourages innovations.
As with the Paris Agreement the international community has committed to halt
global warming, there is a mutual and constant collaboration between governments and
companies. Such a commitment entails an effective reduction in CO2 emissions, to be
implemented at national level by party states, and to be incorporated, in turn, into busi-
ness strategies at the corporate level.92
In this light, the business sector has been asking for a strategic agenda, embedding a
precise accounting mechanism. Specifically, this is a benchmarking process that collects
clear data necessary for monitoring, reporting and verifying (MRV). The implementa-
tion of such a mechanism not only allows the measurement of global accomplishments,
but also provides a ground for sovereign accountability.93 Proceeding on a low carbon
economy, companies have been calling for clear standards in the spheres of mitigation,
adaptation and resilience. These standards have to be implemented, in turn, by govern-
ments at the national level in order to create adaptive capacity in national economies,
in compliance with national Intended Nationally Determined Contributions (INDCs).
Thus, clear rules and mechanisms are necessary to achieve carbon abatement and enforce
business strategies for energy efficiency at a global level.
4.3.2 Outcomes for business participation in the Paris Agreement: bridging the gap
between business and climate change
Addressing climate change at the corporate level is certainly an ambitious challenge that
may transform the global economy, through short-term decisions and a long-run vision.
This phenomenon reflects Schumpeter’s theory of ‘creative destruction’,94 as it entails a
(determining the influence of the private sector on the public sphere, shaping the sovereign deci-
sion-making and law-making processes).
92
UN OHCHR, ‘Climate Change: UN Expert Welcomes Historic Paris Agreement, but Calls
Upon States to Scale up Efforts to Meet the 1.5 Celsius Degrees Target’ (Geneva, April 21, 2016)
(expressing the concern of John Knox, Special Rapporteur on Human Rights and Environment,
regarding the Paris Agreement that: ‘the commitments pledged by Governments to date are insuffi-
cient to meet this global target’), available online at: http://www.ohchr.org/EN/NewsEvents/Pages/
DisplayNews.aspx?NewsID519850&LangID5E.
93
Climate Change’, CDP Policy Briefing, 2 (October 11, 2015), https://www.cdp.net/Documents/
policy/corporate-support-global-agreement-on-climate-change.pdf (taking into account the posi-
tion of different multinational corporations, with regard to the MRV mechanism. The Belgian
chemical group Solvay ‘urge[s] a strategic action agenda – supported by clear and consistent
policies and robust monitoring, reporting and verification (MRV) – that will complement business
efforts to stimulate innovation as well as collaborative actions across value chains, and to develop
and scale up alternative and renewable energy sources, promote energy efficiency, end deforesta-
tion and accelerate other low carbon options and technologies such as ICT’) (CDP is a not-for-
profit organisation that currently holds the ‘largest collection globally of primary climate change,
water and forest risk commodities information and puts these insights at the heart of strategic
business, investment and policy decisions’. For further information, consult: https://www.cdp.net/
en-US/Pages/HomePage.aspx).
94
Joseph Schumpeter, Capitalism, Socialism and Democracy (Routledge, 1942), 81 (describing
‘process of industrial mutation that incessantly revolutionizes the economic structure from within,
incessantly destroying the old one, incessantly creating a new one’).

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process of industrial evolution, which destroys old economic structures for the creation
of new ones. In fact, the business sphere is now on the verge of an economic revolution
that embraces productivity and growth, moving towards a sustainable future, increasingly
tailoring corporations’ strategies to public interests.95
Amongst the industry sector, the real production sphere tends to be proportionally
more receptive than the sphere of financial services, when it comes to business models’
adjustments. With this distinction in mind, resource scarcity and climate change will
constitute two different drivers in the evolution of global management.96 New models
and strategies are required in market economies that are increasingly changing at a faster
pace. It may appear counter-intuitive that corporations’ decisions may be green oriented
in a time of plummeting of fossil fuel; nonetheless there are short-, middle- and long-term
concerns that are guiding the future direction of business models and strategies. On the
one hand, from a short- and middle-term perspective, corporations’ decisions are driven
by adaptive expectations on the upcoming climate change regulation, to be implemented
in the framework of the Paris Agreement. The cap on emissions imposed by the treaty will
inevitably trigger higher costs for energy in the short and middle term. On the other hand,
from a long-term perspective, executives tend to consider the risk implied with climate
change to their global supply and value chains. As a result, this entails new strategies that
need to be focused on the supply of raw materials, business production and eventually
customers, in the pursuit of economic modernisation.97
There is no doubt that the climate change journey began in Paris, and it will entail risks
and opportunities. The Agreement sets ambitious targets for countries that will reflect
its own impact on corporations, at the domestic level. As a result, businesses are build-
ing climate change strategies and models to gain a competitive advantage in a changing
economic scenario, moving towards climate change action.98 In this framework executives
need to balance long-term perspectives with short-term needs, boosting business models
and strategies tailored to climate change action, in order to set a legacy for the resilience
of business, and for future generations. In this context, it is possible to assess that the
Paris Agreement was successful in its intention to solve a real-world problem by forging
a consensus around shared solutions.
95
CDP, Global Climate Change Report 2015, At the Tipping Point, CDP Report, 4 (October
2015) (written on behalf of 822 investors with US$95 trillion in assets), available at: https://
b8f65cb373b1b7b15feb-c70d8ead6ced550b4d987d7c03fcdd1d.ssl.cf3.rackcdn.com/cms/reports/
documents/000/000/578/original/CDP-global-climate-change-report-2015.pdf ?1470050331.
96
PWC, 19th Annual Global CEO Survey, Growth in Complicated Times (exploring the busi-
ness strategies and models of over 1,400 CEOs around the world in changing environment), avail-
able at: http://www.pwc.com/gx/en/ceo-agenda/ceosurvey/2016.html.
97
See UNFCCC Newsroom, ‘Global Business Community Comes to Paris with Solutions for
Taking on the Climate Challenge Across the Board’, Press Release (8 December 2015); see also
PWC, CEO Pulse on Climate Change, Countdown to a Deal on Climate Change: What Does this
Mean for Business Success?, PWC Global, available at: http://download.pwc.com/gx/ceo-pulse/
climatechange/index.htm.
98
See Lauren Hepler and Barbara Grady, ‘How Much Do Companies Really Care about
COP21?’, Green Biz (September 9, 2015); see also PWC, CEO Pulse on Climate Change, Countdown
to a Deal on Climate Change: What Does this Mean for Business Success?, PWC Global, available
at: http://download.pwc.com/gx/ceo-pulse/climatechange/index.htm.

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5. CONCLUSION
The purpose of this chapter is to shed light on the progressive evolution of the traditional
paradigms of international law fostered in the Paris Agreement. The post-ontological
framework of Tom Franck’s doctrine serves as the fil rouge to carry out an analysis based
on the effectiveness of the tools embedded in the Paris Agreement. In particular, the deal
opens the door to two outstanding phenomena in international law: on the one hand, the
successful harmonisation of binding and non-binding sources of international law; on
the other hand, there is the combination of the action of states and non-state actors in
the law-making process.
One of the greatest innovations of the Paris Agreement in the sphere of international
law and global governance is to overcome procedural issues, creating a successful and
heterogeneous combination of binding and non-binding provisions. Through the harmo-
nisation of those instruments, it is possible to promote the universality of the standard,
without weighing down the current process of commitment undertaken to solve the
problem of climate change.
Moreover, the Paris Agreement not only plays a major role in enhancing the harmonisa-
tion of sources, but also fosters the collaboration of all relevant actors in the field for a uni-
versal commitment. The dialogue between state and non-state actors was revealed to be
efficient and fruitful in the negotiation and implementation of the deal. In particular, this
is the corroboration in a multilateral framework of the commitment of governments and
business entities in climate change. Such a contribution is going to be extremely relevant
in their commitment to reducing carbon emissions and energy consumption. Therefore,
COP 21 represents a successful example of a collective effort: of an effective engagement
of state and non-state actors in the framework of a multi-stakeholder approach to global
governance.
As a result, this integrated process demonstrates how the international community
has managed to effectively deal with an extremely complex global problem, reaching
the first global agreement on climate change. This is a result of the effort to seek coex-
istence instead of collision in the classic dichotomy between the sources and actors of
international law. Indeed, the Agreement successfully combines binding and non-binding
sources, through the contribution of sovereign states and non-states actors, setting the
pace for the evolution of novel standards in international law. Now it is time to observe
the quantum leap in the impact of the deal.

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21. Social science as a starting point?
Michael Kattirtzi
1. INTRODUCTION
Social scientists often lament the relatively marginalised role that (non-economic) social
science plays in energy research and policy.1 The domain is characterised as dominated
by a ‘technoscientific’ paradigm, in which engineers, scientists, and economists have the
greatest influence over how a problem is framed and what policy solutions are put forward
to address it.2 In this way, the function of social science is often relegated to helping to
deliver the vision of engineers, economists, and scientists. In practice, social scientists are
typically enrolled to help build public acceptability for whatever technological fixes are
put forward.
In the context of the EU’s recent ratification of the Paris Agreement,3 and related
ambitious plans to achieve 1) a 27% improvement in energy efficiency and 2) a target of
27% of energy consumed to be sourced from renewables by 2030,4 it is worth considering
how the role of social science in energy policy might look different. What if research in
the social sciences were the starting point for policy development?
Drawing predominantly on the UK’s experience, this chapter explores how recent
research across the social sciences opens new possibilities for novel policy directions that
may enable member states to achieve the 2020 targets. It proceeds as follows. Section 2
focuses on energy efficiency and demand reduction, outlining three perspectives from
which novel policy initiatives can be developed. Section 3 then turns to the question of
social science’s role in energy generation issues, before section 4 considers how social science
can provide us with a more nuanced perspective on the whole energy system, and con-
cludes with some remarks on the value of institutionalising social science in government.
2. ENERGY EFFICIENCY AND DEMAND REDUCTION
The 1990s and early 2000s saw concerted efforts by successive UK governments to raise
awareness of the importance of energy efficiency through public information campaigns.
1
Sovacool, 2014; Stirling, 2014, p. 90; Minsch et al., 2012, p. 24.
2
Lutzenhiser and Shove, 1997.
3
Council Decision (EU) 2016/1841 of 5 October 2016 on the conclusion, on behalf of
the European Union, of the Paris Agreement adopted under the United Nations Framework
Convention on Climate Change. OJ L282/1.
4
Communication from the Commission to the European Parliament, the Council, the European
Economic and Social Committee, the Committee of the Regions and the European Investment Bank:
A Framework Strategy for a Resilient Energy Union with a Forward-Looking Climate Change Policy,
COM (2015) 80 final.
395
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In the 1990s, the Conservative Government ran Helping the Earth Begins At Home
(1991–c.1996), and Going for Green (1995–1998), followed by the Labour Government’s
Are You Doing Your Bit? campaign (1998–2001). These initiatives had much in common:
they aimed to inspire citizens to make positive changes in their everyday lives that could
help to reduce waste and mitigate against climate change. They were also based on the
assumption that by providing citizens with information about climate change, and some
practical advice about how they could take steps to reduce their carbon footprint, citizens
could be inspired to live greener lifestyles.
While the campaigns were considered to have had some success in terms of aware-
ness raising, none of them was found to be particularly effective at achieving significant
changes in what citizens do.5 The policymakers had fallen into the trap that social scien-
tists term the ‘deficit model’: that is, assuming that citizens’ actions and beliefs can be
straightforwardly dismissed on the grounds that they lack a sufficient understanding of
science, or some other property (such as trust in experts), to make an appropriate deci-
sion.6 As such, the policymakers incorrectly viewed citizens’ ideas and actions as easily
malleable to suit particular policy imperatives, without the need to change their own
priorities, processes or outputs.
Aware of the failings of campaigns that are premised on the deficit model, the UK gov-
ernment’s more recent efforts to promote energy efficiency and demand reduction have
moved to incorporate deeper understandings of citizens’ views, motivations, and actions.
This section considers three social science perspectives that have been used. While these
approaches have often been included at the end of the policymaking process, the case is
made for their early involvement.
2.1 Segmenting the Public
Segmentation models can help policymakers to improve policy design and delivery by pro-
viding a deeper understanding of the target audience for an initiative. The key principle is
that different groups of people make different choices for different reasons, and therefore
often respond differently to the same message.7 Viewed in this light, social research can
reveal insights about groups of people that can then be applied in the development of
initiatives that will engage them in a more meaningful way.
Segmentation models typically identify 5–15 distinct groups of people amongst a popu-
lation, with each segment sharing a set of characteristics. They are malleable tools, and
can vary considerably. Developed on the basis of quantitative and qualitative research
with participants from across a population, they are ultimately a product of the deci-
sions made by those who develop them.8 A population might be segmented on the basis
of survey responses to questions relating to attitudes to specific topics, values, reported
behaviours, and lifestyle choices, or demographic information such as location or age
of respondents. Jillian Anable has argued that for the purposes of policy development,
5
Hinchcliffe, 1996; House of Commons Environment Food and Rural Affairs Select Com
mittee, 2001.
6
Wynne, 2006.
7
Poortinga and Darnton, 2016, p. 222.
8
Darnton, 2004, p. 26.

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Social science as a starting point? 397
Table 21.1 DEFRA’s segmentation model for pro-environmental behaviours
Segment (portion of the population) General characteristics

Positive greens (18%) ‘I think we need to do some things differently to tackle
climate change. I do what I can and I feel bad about the
rest’
Waste watchers (12%) ‘“Waste not, want not”, that’s important, you should live
life thinking about what you’re doing and using’
Concerned consumers (14%) ‘I think I do more than a lot of people. Still, going
away is important, I’d find that hard to give up. . . well I
wouldn’t, so carbon offsetting would make me feel better’
Sideline supporters (14%) ‘I think climate change is a big problem for us. I suppose
I don’t think much about how much water or electricity I
use, and I forget to turn things off . . . I’d like to do a bit
more’
Cautious participants (14%) ‘I do a couple of things to help the environment. I’d really
like to do more . . . well, as long as I saw others were’
Stalled starters (10%) ‘I don’t know much about climate change. I can’t really
afford a car so I use public transport . . . I’d like a car
though’
Honestly disengaged (18%) ‘Maybe there’ll be an environmental disaster, maybe not.
Makes no difference to me, I’m just living my life the way
I want to’
Source: Summary reproduced from DEFRA, 2008, p. 8.
it is best to avoid presuming that certain demographic characteristics will form a basis
for segments. A more empirical approach is to ‘let the data speak for itself’, using factor
analysis to identify the relevant differences between groups of people pertaining to the
purposes of the segmentation model.9
It is instructive to consider an example. The UK’s Department for Environment, Food
and Rural Affairs commissioned a segmentation model in 2008, based on a recent quan-
titative survey asking citizens about their environmental attitudes and values and the con-
sumption choices they made.10 For example, the survey asked respondents to report the
extent to which they agree or disagree with statements such as ‘the Earth has very limited
room and resources’ and ‘people have a duty to recycle’.11 The resulting model identified
seven segments in the population, summarised in Table 21.1.
The value of any segmentation model is determined in its use. One way this model was
applied was to develop salient messages that could resonate with specific audiences.12
For instance, research revealed that the positive greens segment could potentially be per-
suaded to reduce the number of flights they take, while ‘waste watchers’ are more likely
9
Anable, 2003, p. 4.
10
DEFRA, 2008.
11
DEFRA, 2008.
12
Eppel et al., 2013.

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to adopt changes that reduce financial and/or environmental wastage as long as they are
not perceived as limiting one’s quality of life. By differentiating the population in this way,
policymakers can better predict how effective their initiatives can be, and what the likely
take-up of them will be.
The use of DEFRA’s segmentation model contrasts with a segmentation model pro-
duced by the Department of Energy and Climate Change (DECC) ahead of the launch
of the Green Deal initiative.13 DECC’s policymakers wanted a model to help inform the
marketing of the Green Deal scheme, which provided households with low-cost finance
to fund energy efficiency installations in their home. The policy was grounded on a pay-
as-you-save principle: households would borrow money to fund specific measures (such
as loft insulation or double glazing), and their cost would be repaid gradually, as financial
savings accrue from reductions in the households’ utility bills.
DECC’s Green Deal model was designed to help promote an initiative that had
already been designed and enshrined in legislation, whereas DEFRA’s segmentation
model was intended to be used in a more open-ended way. The late arrival of the
Green Deal segmentation model meant that it could not be utilised as the starting
point for designing policy ideas that would resonate with specific segments of society.
The model, which had been produced in 2013 a few months ahead of the launch of
the scheme, found that the Green Deal would appeal most to approximately 15% of
the UK population,14 with particularly high salience amongst ‘money savers’ who are
eager to adopt energy efficiency measures in order to save money, and ‘carbon savers’,
who could become interested in energy efficiency because they are already keen to
reduce their carbon footprint. Yet, as I have argued elsewhere,15 by the time the seg-
mentation model was created, the Green Deal had already been conceived as a scheme
that could appeal to every household in the UK, with economic impact assessments
estimating a maximum of 12 million measures being fitted by 2030.16 The initiative
failed to achieve significant numbers of installations in the 2.5 years of its operation,
and was closed to new applicants in 2015, by which time just 15,600 applications had
been approved.17
Of course, segmentation models have their limits. When constructing segmentation
models one must decide whether to produce many highly specific models to cater for
different kinds of actions (which can be costly), or to produce a single model that can
be applied across a diverse range of policy areas, but which forms segments by linking
seemingly disparate actions (for example reductions in air travel, eating less meat and
purchasing energy efficient products).18 The key lesson, however, is that in order to make
13
DECC, 2012.
14
The figure of 15% is calculated thus. The segmentation model was developed based on a
subset of respondents (representing 67% of the population) who reported they have a ‘need’ for
one of the insulation measures available under the Green Deal finance mechanism (DECC, 2012,
p. 4). Of this subset, 24% were categorised as ‘money savers’, and 20% were categorised as ‘carbon
savers’ – the two segments expected to have the greatest interest in the Green Deal.
15
Kattirtzi, 2016.
16
DECC, 2010.
17
DECC, 2015.
18
Barr, Gilg and Shaw, 2011, p. 714.

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the most out of segmentation models, they must be developed at an early stage, so that
they can inform policymakers’ decisions on who the initiative is targeted at, how it can be
made salient for them, and for what proportion of the population the scheme might have
salience. Only then can the economic costs and benefits of a new initiative be understood
and compared against alternatives.
2.2 Behavioural Studies
The next theoretical perspective for energy demand reduction policies is rooted in empiri-
cal studies of peoples’ behaviours. Citizens do not always make decisions that are aligned
with the achievement of broader societal targets, such as improvements in health or reduc-
tions in carbon emissions.19 The key principle is that through changes in the context in
which citizens consume products and services (also known as the ‘choice architecture’),
they can be persuaded to make better choices.
A great strength of behavioural studies is that they encourage policymakers to consider
the full range of instruments at their disposal. They exhort government to look beyond
standard instruments such as fiscal interventions, regulation, and information provi-
sion, and see a multitude of other ways in which consumers’ decisions can be influenced.
The literature is wide-ranging and summaries for policymakers abound.20 Ultimately,
behaviour change experts are concerned with changing consumers’ preferences while at
the same time maintaining their freedom to choose. As such, they espouse ‘light-touch’
interventions designed to influence choices without limiting consumers’ ability to choose.
As Richard Thaler and Cass Sunstein write, ‘To count as a mere nudge, the intervention
must be easy and cheap to avoid. Nudges are not mandates. Putting the fruit at eye level
counts as a nudge. Banning junk food does not’.21
A number of guides for translating behavioural models into applicable concepts for
policymakers have been developed in recent times. One useful example is MINDSPACE,
a useful mnemonic for nine concepts to consider when designing behavioural interven-
tions.22 These are summarised in Table 21.2.
Intriguingly, in recent times the UK government has taken to conducting its own
studies to test the effectiveness of policy ideas based on behavioural insights. Randomised
controlled trials have often been used to test the effectiveness of schemes that have been
informed by MINDSPACE concepts and other insights from the behavioural sciences.
Let us consider an example.
Taking inspiration from a behavioural trial conducted in Norway in 2013,23 the UK’s
Department of Energy and Climate Change and the Cabinet Office’s Behavioural Insights
Team designed a study in collaboration with a large national retailer, John Lewis PLC.
The study would test whether energy efficient goods could be made more salient for
consumers than the alternative through the use of extra information on product labels.
19
Thaler and Sunstein, 2008.
20
See, for instance, Thaler and Sunstein, 2008, Dolan et al., 2010, European Environment
Agency, 2013.
21
Thaler and Sunstein, 2008, p. 6.
22
Dolan et al., 2010.
23
Kallbekken et al., 2013.

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Table 21.2 MINDSPACE – a mnemonic for useful concepts for behavioural

interventions
Concept Explanation
Messenger We are heavily influenced by who communicates information
Incentives Our responses to incentives are shaped by predictable mental shortcuts
such as strongly avoiding losses
Norms We are strongly influenced by what others do
Defaults We ‘go with the flow’ of pre-set options
Salience Our attention is drawn to what is novel and seems relevant to us
Priming Our acts are often influenced by sub-conscious cues
Affect Our emotional associations can powerfully shape our actions
Commitments We seek to be consistent with our public promises, and reciprocate acts
Ego We act in ways that make us feel better about ourselves
Source: Reproduced from Dolan et al., 2010, p. 18.
Existing EU labels provide estimates of a given product’s annual energy use in kWh, but
the researchers hypothesised that this information might be too abstract for consumers.24
In line with the Norwegian study,25 the researchers sought to introduce a monetary
estimate of the ‘lifetime electricity running costs’ of a given product.26 Along with this,
staff were provided training to support consumers understand the labels and address any
questions.
The study involved 12 control stores and 19 intervention stores across the UK, and fea-
tured three types of products: washing machines, tumble dryers, and combined washer-
dryer appliances. It ran between September 2013 and June 2014. While there was found
to be no notable difference between the control and intervention groups for washing
machines or tumble dryers, the researchers did find a significant difference for washer-
dryers: the analysts claimed that the intervention ‘reduced the average annual energy
consumption of washer dryers by 0.7%’.27
The initiative was thereby considered a success, although it is not clear how many
purchases this amounts to. Furthermore, it is not clear why the intervention was more
effective amongst washer-dryers than regular washing machines and tumble dryers. The
researchers suggest that this might be because washer-dryers are the most energy-intensive
appliances in the study, and therefore the potential financial savings are more profound.
However, through focus groups conducted with staff, it also emerged that the information
was considered to be more salient to some groups than others – customers who were older,
had a higher income, and/or were considered ‘time poor’ were found to be less interested
in lifetime efficiency.28
24
DECC, 2014, p. 10.
25
Kallbekken et al., 2013.
26
DECC, 2014, p. 10.
27
DECC, 2014, p. 20.
28
DECC, 2014, p. 30.

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This latter point reveals a potential weakness in the behavioural framing of research on
energy demand reduction. While behavioural scientists reject the model of consumers as
perfectly rational actors, they remain committed to an assumption that the same interven-
tion can influence all types of consumers – for instance, that the same piece of information
could be salient and would be acted upon in the same way by all types of people in society.
This assumption is precisely what the advocates of segmentation models have challenged,
and has the potential to misguide policymakers by implying that schemes which may be
particularly effective amongst a subset of society could be straightforwardly scaled up for
all.29 The potential for behavioural studies to be combined with segmentation models to
test the effectiveness of different initiatives for different groups of people has been largely
untapped.
2.3 Social Practice Theory
In contrast to the previous two ways of understanding citizens’ energy use, social prac-
tice theorists do not focus on influencing consumer choices. Rather, they argue for a
deeper understanding of the broader social and material elements that sustain prac-
tices in society. According to Elizabeth Shove and colleagues,30 there are three key ele-
ments that underpin practices such as cooking or cleaning: ‘meanings’, ‘materials’, and
‘competencies’. ‘Meanings’ refer to the shared conventions, expectations, and ideas asso-
ciated with a practice. ‘Materials’ refer to physical objects, technologies, infrastructures,
as well as time schedules and regulations. Last, ‘competencies’ refer to the knowledge,
abilities, and skills required to ensure practices are enacted and reproducible. It is the
interaction of these e lements that combine to make it possible for practices to occur, and
it is these that must be addressed if a practice is to be decarbonised. An example will help
to illustrate the point.
Continuing with the theme of laundry from the previous section, practice theorists
would focus not on the point of purchasing a new appliance, but rather on how doing the
laundry is performed in the context of everyday life. Shove highlights multiple meanings
associated with using a washing machine and tumble dryer – such as feelings of cleanli-
ness and freshness.31 Ideas of freshness and cleanliness have changed over time – the
laundry machine is nowadays considered to set the highest standard of cleanliness, while
in recent memory information campaigns have dislodged the idea that high temperatures
are necessary to achieve this high standard. Turning to materials, Shove observed that
appliances such as washers and dryers are often conveniently located in or near one’s
home. Modern trends in clothing have also given rise to households possessing an ever-
increasing number of machine-washable clothing. In terms of competencies, Shove points
to the clear and highly prescriptive guidance in appliance manuals. Taken in combination,
these different meanings, materials, and competencies combine to enable the convenient
practices of using washers and dryers to thrive.
29
See Kattirtzi (2016) for an analysis of this assumption at play in the UK government’s Green
Deal and smart metering policies.
30
Shove, Pantzar and Watson, 2012, p. 22.
31
Shove, 2003, p. 403.

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Framed in this way, we can begin to wonder how the now commonplace practices
associated with doing the laundry might look different. One idea put forward by social
practice theorists is to consider the Code for Sustainable Homes, which encourages the
construction of a limited space for households to line dry their clothes. Shove et al. ponder
whether a larger line drying facility and a restriction on space for white goods such as
dryers might be more effective in promoting a shift away from the use of tumble dryers
altogether.32
One key strength of the practice theory approach is that it pays particular attention to
the context in which energy use occurs – kitchens, offices, businesses – and the conditions
which enable it to occur. In this way, practice theory has the potential to be especially
useful for developing initiatives that facilitate energy demand reduction where choice is
restricted or largely determined by context. Yet, policymakers wishing to apply social
practice theory must be cautious about making the same mistake discussed in the previ-
ous section – that is, assuming that the same initiative can achieve the same outcomes
across society. Doing so may result in an overestimation of the potential scale of an
initiative.
Social practice theorists are aware that practices may vary in a population. Not every-
body washes and dries clothes in the same way. However, the researchers reject the notion
of segmentation models, on the grounds that these place too much emphasis on indi-
vidual choice.33 Instead, they use surveys and qualitative interviews to identify ‘clusters
of practices’ in the same population.
Using the example of washing, Nicola Spurling and colleagues identify six clusters in
the UK population.34 The largest group (40%) was identified as the ‘simple daily show-
ering’ cluster – i.e. showering approximately every day. The next two biggest clusters
contained approximately 15% of the population. The ‘out and about showering’ cluster
refers to those who shower regularly outside the home, such as at the gym or at work after
cycling to get there. The ‘attentive cleaning’ cluster refers to groups who shower or bathe
approximately eight times per week, typically at home, and often for extended periods of
time. A small proportion of the population then fit into the next two categories – ‘low
frequency showering’ and ‘low frequency bathing’. These are the least resource-intensive
groups, as individuals typically shower or have a bath four times a week or less. These
practices are considered to be remnants of a period when regular showers and baths
were less common than they are today, and are associated with older people. Finally, the
smallest cluster was ‘high frequency bathing’. People in this group typically had a bath
on a daily basis. Intriguingly, this group typically comprises more disadvantaged people
in society who faced barriers to installing showers in their homes – for instance, they have
lower incomes than average, are more likely to be unemployed, and are also more likely
to rent than own their home.
The use of cluster analysis for practice theory is still at an early stage, but it promises
to open exciting possibilities for innovative approaches to policy design. Some sugges-
tions that the authors have put forward elsewhere include a better understanding of who
32
Spurling et al., 2013, p. 43.
33
Browne et al., 2014, p. 32.
34

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might benefit from a subsidy for shower installations or innovations designed for daily
showering.35
Finally, while behavioural approaches and practice theory are often treated in contrast,
features from both perspectives have been usefully combined in a report by the Scottish
government’s Environment Social Research Team. Andrew Darnton and Jackie Horne
aim to provide a comprehensive tool for policymakers and stakeholders to consider the
widest range of tools at their disposal, taking lessons from research in the behaviour
change and social practices veins. Importantly, the authors recommend that the tool is
used as the starting point for policymakers and stakeholders, so that the broadest array
of policy options can be conceived and a holistic approach can be planned prior to policy
development and delivery.36
3. ENERGY GENERATION
The UK has taken a wide range of steps to encourage investment in large-scale energy-
generating infrastructure.37 However, policymakers have sometimes been frustrated by
public protests or opposition, which have stalled the processes of policy construction and
project delivery.38 Such experiences have reportedly made some policymakers distrustful
of citizens – sometimes viewing their involvement as a potential barrier to development.39
A wealth of recent social science literature can help policymakers to understand why
opposition occurs, and thereby reconsider the starting point for energy generation poli-
cies. It is particularly striking from the literature that local opposition to energy develop-
ment proposals is ‘by no means inevitable’.40 While policymakers sometimes view the
public as prone to hardened opposition to science or development, as they are sometimes
characterised, a considerable body of research is showing that public reactions to energy
development projects are highly contingent on the processes by which policy is developed
and implemented. This section considers how social science can help policymakers to take
a fresh look at energy generation policies.
3.1 Policy Development
Successive UK governments’ approaches to energy policy have been characterised in

terms of a ‘decide-announce-defend’ model:41 politicians would decide to pursue a
particular course of action, announce it in anticipation of criticism from concerned
citizens and other opponents, and then defend it in response to those criticisms. In line
with social scientists’ calls for government to listen to citizens’ views and concerns at an
35
36
Darnton and Horne, 2013.
37
For instance, the creation of an electricity capacity market to stimulate investment, as part
of a larger electricity market reform (Toke, 2011).
38
Haggett, 2009.
39
MacKerron, 2009, p. 88.
40
Devine-Wright, 2011, p. 65.
41
Haggett, 2011, p. 24.

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early stage in the policymaking process, the early years of the New Labour Government
saw a shift away from the decide-announce-defend model. Ahead of the production of
the Energy White Paper in 2003,42 the government conducted an unprecedented level
of public engagement on energy policy in the UK. This involved meetings and confer-
ences with stakeholder groups such as academic experts and environmental NGOs;
focus groups with citizens; an online survey; deliberative dialogue events around the
country; and broader outreach events with schools.43 All of this went far beyond the
minimum legal requirement of producing a standard consultation exercise in which
any citizen or group can respond to set questions within a 12-week period. It was
described as an unprecedented step towards openness and transparency in UK energy
policy.44
In this new spirit of openness, the published document promised (in bold type) that
the government would conduct the ‘fullest public consultation’, and would also produce
a new White Paper before any decision on the role of nuclear power would be made.45 In
so far as any consideration was given to supporting the building of new nuclear power
plants, the outlook was negative, with two key issues highlighted: the problem of nuclear
waste disposal and the high level of investment required. The New Labour Government’s
work on the 2003 White Paper was underpinned by a crucial assumption: a belief that left
to their own devices, the markets would achieve greater diversity of energy sources, and
address the problems of energy security and climate change.46
By November 2005 however, Prime Minister Tony Blair was eager to revisit the issue.
In a context where oil and gas imports had become much cheaper and the diversity of
supply seemed threatened, he wanted to reframe nuclear power as a low carbon, high-
impact option. This time though, the government was hastier in its approach to policy
development.47 A spirit of urgency prevailed and no efforts were made to engage citizens
and stakeholders beyond the standard consultation. Moreover, the new consultation
exercise was narrowly conceived and cast nuclear power in a favourable light. There were
no questions about the viability or desirability of supporting new nuclear power plants in
principle, as part of the UK’s policy mix. Rather, there was only one question about new
nuclear power, and it was worded as follows: ‘The Energy White Paper left open the option
of nuclear new build. Are there particular considerations that should apply to nuclear as
the government re-examines the issues bearing on new build, including long-term liabili-
ties and waste management?’.48 In this way, the consultation exercise did not seek input
on whether nuclear power was a viable option amongst the alternatives on the table.49
Indeed many commentators have described the consultation exercise as little more
than a symbolic gesture,50 as the government had already decided to support new nuclear
42
Department of Trade and Industry, 2003.
43
44
45
Department for Trade and Industry, 2003, p. 61.
46
Kuzemko, 2014, p. 269.
47
48
DTI, 2006.
49
Johnstone, 2010, p. 95.
50
Johnstone 2010, p. 95; Teräväinen et al., 2011, p. 3436.

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power stations. In spring 2006, just after the nuclear consultation had closed and prior
to the publication of the government’s response to its consultation, Tony Blair claimed
that nuclear power would be back in Britain ‘with a vengeance’.51 In its haste to set a new
direction to address issues such as energy security, the government returned to a decide-
announce-defend model.
This approach ultimately led to an embarrassing court judgement and delays in the
policy process. Unsatisfied with the government’s policy processes, and particularly
disappointed by the lack of engagement and narrow framing of the consultation ques-
tion, Greenpeace opened legal proceedings at the Royal Court of Justice.52 In February
2007, Justice Sullivan ruled that the government had failed to deliver on its promise to
conduct the ‘fullest public consultation’, concluding that ‘the consultation process was
procedurally unfair; and that therefore the decision in the Energy Review that nuclear
new build “has a role to play” was unlawful’.53 The government was ordered to conduct
the consultation again, which it did. In practice however, the policymakers responded by
hardening their commitment to supporting new nuclear power plants, which can further
fuel mistrust and opposition.
The case of nuclear power in the UK illustrates some of the issues with the decide-
announce-defend model: failing to listen to opposing perspectives can stoke mistrust and
cause delays in the process. However, social scientists argue that there are additional (and
more profound) reasons for engaging citizens at an early stage than for the instrumental
purposes of taking a desired course of action with minimal resistance.
Alongside instrumental rationales for public engagement, Andrew Stirling identi-
fies two more rationales, which he terms ‘normative’ and ‘substantive’.54 He argues
that engaging the public in questions of policy is normatively the correct thing to do,
as citizens have a right to have a say in the policy development process. Moreover,
Stirling points out that citizens can often contribute in a valuable and substantive way
to the improvement of policy outcomes. The latter point hinges on two insights from
the literature on science and technology studies and related fields. First, it is increas-
ingly recognised that non-experts often possess knowledge which can supplement that
held by policymakers and their stakeholders, and might even bring it into question.
For instance, policymakers may know a great deal about the regulations concerning
the handling of nuclear material, but employees in a power plant might have useful
inside knowledge of how these regulations are applied in practice. Second, the critical
perspective of citizens can help to identify weak justifications and problematic assump-
tions. Such challenges can be useful for strengthening the basis on which decisions are
made.55
Intriguingly, in the area of nuclear waste management, the government appears to have
recognised the substantive reasons for public engagement. After local opposition had
scuppered plans to build an underground radioactive waste disposal facility at Sellafield in
Cumbria, policymakers recognised the value of early public engagement with concerned
51
Teräväinen et al., 2011, p. 3436.
52
Greenpeace v Secretary of State for Trade and Industry, [2007] EWHC 311, 120.
53
Ibid.
54
Stirling, 2008.
55
Irwin et al., 2013.

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citizens and stakeholder groups on the issue of radioactive waste disposal.56 Jason
Chilvers argues that with the rise of participation exercises on radioactive waste disposal
since 1997, significant progress had been made, particularly in terms of enabling citizens
to take part in the framing of issues of concern for scientists and policymakers, as well as
in defining the criteria on which options may be deemed acceptable.
More recently, a public engagement exercise in which members of the public were invited
at an early stage to inform the development of a White Paper on decision-making processes
regarding the geological disposal of nuclear waste57 has been praised by social scientists
and the citizens involved. The process was described by a researcher as a particularly
important example where policymakers have enabled citizens to substantially influence
decision-making processes in the DECC,58 and it is viewed as potentially setting a prec-
edent for policymakers working on policy development for energy infrastructure issues.
3.2 Placing Energy Infrastructures
Local citizens’ opposition to new energy developments is often derided as selfish, irra-
tional, and uninformed,59 but social science research has in recent years provided a deeper
understanding of the concerns and motivations of protestors, with important lessons for
policymakers. Summarising some of the key research in this area, Claire Haggett identi-
fies four insights from empirical studies on local opposition to onshore wind energy pro-
jects.60 First, it is often not the locality of a project per se that causes concern, but rather
its implication for the citizens’ perceptions of the value of the landscape. Consequently,
the size, design, and efforts taken to minimise impacts will be taken into account when
citizens form their views of a new development. Importantly, as Patrick Devine-Wright
points out, the narrative presented by project developers will also be important for
framing citizens’ responses. In the case of Llandudno in Wales, where an onshore wind
project was rejected by local citizens, the idea was seen as a large-scale industrial devel-
opment that did not fit the perception of the area as a place of outstanding beauty and
which could threaten tourism to the area. Yet, Devine-Wright shows how local citizens
also acknowledged the Victorian spirit of industrialism that had underpinned the crea-
tion of Llandudno, and that a renewable energy project could be made congruent with a
natural framing of the area – it might even attract ecotourism. As such, Devine-Wright
emphasises that earlier engagement with citizens could have positively influenced these
citizens’ views of the development and their willingness to see it happen.61
Second, local attitudes will be affected by perceptions of what constitutes appropriate
land use in the area.62 While it may be easy to imagine why wind turbines might be resisted
in areas that seem like idyllic rural settings, developers are sometimes surprised to find
they also face opposition where industrial buildings already exist. From the local citizens’
56
Chilvers, 2005, p. 239.
57
Icarus, 2015.
58
Sciencewise, 2016.
59
Cotton and Devine-Wright, 2011, p. 118.
60
Haggett, 2009, p. 301.
61
62
Haggett, 2009, p. 301.

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perspective however, the existing development might be seen as playing an important

economic function for the local community as a source of income and jobs, whereas an
externally owned wind farm might be viewed as contributing nothing positive for local
inhabitants. Thus, developers and policymakers cannot take it for granted that industri-
alised areas will be more accommodating than other areas. As an example, Catherine
Butler, Karen Parkhill, and Nick Pidgeon found that many interview participants near the
Hinkley Point power plant were critical of a proposal for an onshore development project
while holding more sanguine attitudes towards nuclear power.63 The researchers explain
that the nuclear power plant was familiar to these citizens, they trusted those operating it
to manage the health and safety risks appropriately, and they had direct experience with
it. By contrast, they believed wind power would not generate very much power and could
threaten the landscape, as well as posing environmental risks.
Third, local opposition is sometimes grounded in a perception that a development
project serves some global or national objectives, while disregarding the concerns of local
citizens.64 In the light of this, development proposals that seek to address local issues are
more likely to gain local support.
Finally, Haggett suggests that the question of who owns the technology and who seeks
to profit from it is also key, pointing out that sometimes protest groups position them-
selves against the developers themselves, who are perceived as profit-seeking outsiders.65
These points highlight that, with a deep understanding of the social and cultural
meanings associated with the places where development projects are proposed, an open
approach to the placement of energy infrastructures, which involves public engagement
and a willingness to negotiate, could achieve buy-in from a local community. While this
may well complicate the procedures for energy infrastructure projects,66 it offers hope that
suitable solutions for the siting of renewable energy projects are possible. Community
ownership models of renewable energy projects offer some light in this regard. Learning
from the importance of the question of ownership in past protests against onshore wind
developments, the UK government and the Scottish government have funded community-
based energy schemes, which empower local communities to fund and deliver their own
renewable energy source. Community-owned energy schemes have been found to be more
likely to succeed without opposition (although this is not true in all cases).67
3.3 Sociotechnical Transitions
So far we have considered energy generation as an issue distinct from consumption, but
of course the two are deeply interwoven: energy generation capacity expands to match the
expected growth in demand, while reductions in energy demand may curtail the immedi-
ate need for more energy generation. The sociotechnical transitions literature provides
a lens through which changes in the whole energy system can be usefully understood.
Researchers in this field aim to develop a framework for understanding past long-term
63
Butler, Parkhill and Pidgeon, 2011, p. 308.
64
Haggett, 2009, p. 301.
65
Haggett, 2009, p. 301.
66
67
Haggett and Aitken, 2015 p. 99.

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transitions towards sustainable systems, with lessons to be learned for the present.68 The
phrase ‘sociotechnical’ is used as it captures the notion that system-wide transforma-
tions rely not only upon the emergence of new technologies, but also upon new connec-
tions being made between networks of actors, markets, social and cultural meanings,
governance structures, and user practices.69
The Multi-Level Perspective70 is a particularly useful framework in the sociotechnical
transitions literature. It focuses our attention on three levels of change and how these
influence each other. At the niche level are novel technological innovations and practices,
which have the potential to challenge conventional ways of doing things.71 The next
level up is the regime level, which refers to a relatively stabilised alignment of regulatory
structures, stakeholders’ interests, technological configurations, research priorities, and
cultural meanings.72 In the energy system, regime actors might include large utility com-
panies, policymakers’ regulators, high-energy industries, and others with a stake or sup-
porting hand in the status quo. Finally, interacting with changes in the niche and regime
levels, are political, social or material changes at the landscape level, which are beyond the
control of actors operating at the regime or niche levels.73 These can include government
regulations and legislation, political and social trends, and significant events – anything
that influences the context in which the niche and regime actors operate.
Using this framework, Frank Geels and Johan Schot identify six types of transitions
that can occur.74 These can be useful to policymakers to understand how current efforts
to invoke a transition in the energy system compare with transitions that have taken
place in the past,75 or are happening in other countries today.76 Each type of transition
is described below.77
A ‘reproduction transition’ occurs when the landscape exerts no discernible influence
in a system, and the niche innovations are too weak to disrupt the status quo. The regime
remains ‘dynamically stable’: firms continue to compete and incremental changes may
occur in the way that technologies are used and in the way the system is configured, but
on the whole the regime is largely reproduced.
Second, there are ‘transformation transitions’, in which the landscape pressures do
challenge the conventional configurations, but the niche innovations are undeveloped
and the regime maintains control over the transition. Geels and Schot argue that outside
experts and/or campaigners play a key role in encouraging regime actors to respond to
the landscape pressures and visualise a new direction in this type of transition pathway.
Third, in conditions where niche innovations have developed but have not yet pene-
trated the regime, and, moreover, where sudden changes in the landscape place c ompeting
68
Kern and Smith, 2008, p. 4093.
69
Geels, 2010, p. 495.
70
Geels, 2004.
71
Geels, 2004, p. 912.
72
Geels, 2004, pp. 905–6.
73
Geels, 2004, p. 913.
74
Geels and Schot, 2007.
75
E.g. Arapostathis et al., 2013.
76
Geels et al., 2016.
77
Geels and Schot, 2007.

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ressures on the incumbents, then regime actors may begin to lose faith in the conven-
p
tional configurations. There is reluctance to defend the regime, with user preferences
changing and research investments for tackling the regime’s problems in decline. If, at
this time, no single niche innovation emerges as dominant, then uncertainty may ensue
until eventually one novel innovation becomes embedded in the regime, with new institu-
tions and practices forming around it. This scenario is described as ‘de-alignment and
re-alignment’.
The fourth type of transition takes place in a disruptive landscape similar to that
described in the de-alignment and re-alignment transition, but where there is a sufficiently
developed niche innovation ready to penetrate into the regime once disrupted. Prior to
the changes in the landscape, the regime actors may have been aware of minor problems
but had no reason to see a threat from niche innovations. This case is referred to as a
‘technological substitution’, with novel technologies and associated practices replacing
old ones in the regime.
The fifth type of transition is termed a ‘reconfiguration’ pathway. In conditions where
landscape pressures are low, regime actors might look to niche innovations to solve prob-
lems in the regime – perhaps to make technologies work more efficiently or to improve the
quality of service. However, these innovations might then open the door to reconfigura-
tions further down the line, particularly in the light of landscape pressures. Multiple niche
innovations may then come to dominate the regime through the incremental improve-
ments made by regime actors. As with the transformation transition, this type of transi-
tion is regime-led, but eventually comes to be dominated by the niche innovations that
were co-opted by the regime actors.
Last, Geels and Schot suggest that under conditions where landscape pressures grow
very gradually, a transition can take the form of a sequence of transitions. At times of
low landscape pressure, a transformation may give way to a reconfiguration, where regime
actors embed more and more innovations to solve regime issues. However, as the land-
scape pressures on the regime continue to grow, they may overwhelm the regime, with key
actors losing faith. Niche innovators may spot an opportunity to strive for a technologi-
cal substitution, or else there may be a prolonged period of uncertainty and competition,
eventually giving rise to a de-alignment and re-alignment transition.
Two key insights are particularly salient for policymakers considering the lessons to
be learned from the sociotechnical transitions literature. First, by taking the long view,
the sociotechnical transitions literature reveals multiple ways in which citizens’ actions
and beliefs can shape – and be shaped by – the energy system in which they partake.
Protests against government-backed infrastructures (such as against wind turbines in
the Netherlands in the 2000s)78 and loss of public trust in a resource79 have contributed
to pressures in the landscape, shaping the direction of transitions. Similarly, the success
of new innovations has often hinged on citizens buying into new visions of the future
(e.g. the rise of the electric tram in the late 19th century in the United States of America
was buoyed by public enthusiasm for electricity),80 or on consumers being sufficiently
78
Verbong and Geels, 2007, p. 1033.
79
E.g. following a town gas explosion in London, Arapostathis et al., 2013, p. 41.
80
Geels and Schot, 2007, p. 407.

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otivated to adopt novel routines and practices (as was the case in the 1870s when gas
m
holdings began to promote gas cooking appliances around the UK, which helped to
balance out the high evening demand associated with lighting services).81 Seen in this
light, the importance of understanding citizens’ views and actions is crucial for any suc-
cessful transition.
Second, the sociotechnical transitions literature highlights the diverse roles that gov-
ernment actors can play in influencing the shape of a transition. Government action can
influence the landscape – for instance, by developing regulations and policy initiatives that
place pressure on the regime actors and encourage niche innovations. Alternatively, the
government can strengthen the regime’s capacity to lead a transition. For path-dependent
reasons, different EU states have different transition pathways. According to Geels et al.,
Germany has actively encouraged a technological substitution transition in the electricity
system, by supporting niche innovations in decentralised wind generation (and later solar
photovoltaics) through the use of feed-in tariffs from as early as 1990.82 By contrast, the
authors characterise the UK’s electricity system as undergoing a transformative transi-
tion, with greater commitment to supporting large-scale infrastructure projects that are
compatible with the incumbent regime – such as nuclear power, shale gas exploration, and
research on carbon capture and storage – and with relatively weak support for decentral-
ised renewable capacity in comparison to Germany.83
The sociotechnical transitions literature thus provides policymakers with a neat
overview of how transitions occur and can be steered. Depending on the nature of the
transition envisioned, different degrees of emphasis might be placed on interventions at
the regime and niche levels. Furthermore, with diverse member states pursuing different
transition paths, the framework can help EU policymakers to consider the different needs
across the European community.
The preceding sections have highlighted the potential for social science to be used as
the basis from which energy policy initiatives are developed in EU member states. What
would it take for social science to be adopted as the starting point? It is striking that prior
to 2010, the UK’s civil service teams devoted to energy generation possessed zero social
scientists. More surprisingly, officials who have observed first-hand public opposition
unfold in the face of decide-announce-defend approaches to policy have expressed a sense
of powerlessness in persuading government ministers to adopt a more participatory and
engagement-based approach.
The grass is slightly greener in the domain of energy efficiency and energy demand.
In this policy area, the value of social science is increasingly recognised in the UK84 and
in the EU,85 particularly for engendering behaviour change. Yet, even here surprisingly
81
Arapostathis et al., 2013, p. 30.
82
Geels et al., 2016, p. 903.
83
Geels et al., 2016, p. 908.
84
Kattirtzi, 2016.
85
European Environment Agency, 2013.

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little attention is paid to the importance of social science at an early stage in policy
construction. For example, following the EU’s directive that smart meters should be
installed across member states pending a favourable economic impact assessment,86 UK
government economists estimated consumer savings would amount to approximately
£6.2 billion, corresponding to annual reductions in energy demand of around 2% over a
12-year period,87 before the department employed any social scientists who could provide
a deeper analysis of how behaviour change would be achieved.88
Given the scale of the challenges ahead, and the importance of citizens’ perceptions and
actions for every aspect of energy policy, more must be done to place social science at the
heart of policy construction. Academic researchers working on energy policy can play a
crucial role here, in considering how their work could be informed – or perhaps reframed
– through the lens of social science. The six perspectives identified in this chapter provide
some resources in this regard.
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PART IV
ENVIRONMENTAL AND
TECHNOLOGICAL ASPECTS

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22. EU Emissions Trading Scheme: preventing carbon
leakage before and after the Paris Agreement
Kati Kulovesi
1. INTRODUCTION
Launched in 2005, the European Union (EU) Emissions Trading Scheme (ETS) remains
the world’s most important greenhouse gas emissions trading scheme and flagship of
the EU’s climate policy. Throughout the scheme’s existence, carbon leakage has been a
concern for energy intensive industries included in the ETS. Carbon leakage essentially
refers to a situation where climate change mitigation policies lead to the growth of
greenhouse gas emissions in other economic sectors or countries. While the ETS seeks
to promote energy efficiency and innovation, steering the EU towards a low-carbon
economy, another key objective for the EU is to retain the competitiveness of European
industries – hence the importance of measures designed to prevent carbon leakage in
economic sectors included in the ETS.
When the ETS was launched in 2005, the EU was the only major climate policy player
with a price for greenhouse gas emissions. The situation is gradually changing, however.
Over the past decade, emissions trading schemes have been set up in various national and
sub-national jurisdictions, including sub-national schemes in China, Canada, Japan and
the US. In addition, China is planning to launch a nation-wide emissions trading scheme
in 2017. Still, emitting greenhouse gases to the atmosphere remains free in large parts of
the world. The question of carbon leakage therefore remains relevant in the context of
the ETS.
This chapter has been structured as follows:1 section 2.1 explains the basic function-
ing of the ETS. It highlights challenges related to the emissions cap and oversupply of
emission allowances. Section 2.2 focuses on carbon leakage in the context of the ETS,
including whether it is taking place. Section 2.3 provides an overview of existing measures
to prevent carbon leakage under the ETS, namely free allocation of emission allowances
based on harmonised rules and benchmarks. Section 3.1 reviews the debate on border
carbon adjustments (BCAs) in the EU over the past fifteen years, discussing recent pro-
posals to introduce them. Section 3.2 analyses the impact of the Paris Agreement on the
risk of carbon leakage in the EU, examining the extent to which this new global climate
treaty can be expected to level the playing field for European industries. Section 3.3
1
The discussion benefits from my previous work on the topic, including: K Kulovesi,
E Morgera and M Muñoz, ‘Environmental Integration and Multifaceted International Dimensions
of EU Law: Unpacking the EU’s 2009 Climate and Energy Package’ (2011) Common Market Law
Review 829; and K Kulovesi, ‘Real or Imagined Controversies? A Climate Law Perspective on the
Growing Links between the United Nations Framework Convention on Climate Change and the
World Trade Organization: A Climate Policy Perspective’ (2014) Trade Law and Development 55.
417
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focuses on proposals to reform the ETS for the fourth trading period in 2021–2030, with
a view to implementing the EU’s contribution to reducing greenhouse gas emissions by
at least 40% from 1990 levels by 2030 under the Paris Agreement.
The chapter concludes that the question of carbon leakage remains relevant in the EU
even after the conclusion of the Paris Agreement. While the Agreement can be expected
to step up global climate policy efforts, it falls short of levelling the playing field for
European industries. It is important to bear in mind, however, that there is currently no
evidence of carbon leakage having taken place as a result of the EU ETS. Furthermore,
the current system of free allocation can be criticised, inter alia, for being based on past
activity levels and allowing certain companies to obtain excess allowances as allocation
rules lack key dynamic aspects to better adjust free allocation to changes in produc-
tion. The current system may therefore reduce the incentive for low-carbon innovation
and investment. This chapter is also critical of proposals to strengthen carbon leakage
measures under the ETS. In particular, it argues that BCAs are not necessary from the
climate policy perspective. In addition, especially large-scale BCA schemes targeting the
manufacturing industry would be problematic for Europe’s trade relations and potential,
leading to legal challenges under World Trade Organization (WTO) law.
2. CARBON LEAKAGE RULES IN THE EU EMISSIONS

TRADING SCHEME
2.1 Brief Overview of the EU Emissions Trading Scheme
The EU ETS currently applies to the 28 EU Member States, Norway, Liechtenstein and
Iceland, as well as to aviation activities in these countries. It is a cap-and-trade scheme,
covering around 11,000 operators during the ongoing third trading period in 2013–2020.2
By creating a price for greenhouse gas emissions, the EU ETS has attempted to integrate
climate change considerations into the strategic thinking of the covered actors and to
create an incentive for investing in low-energy technologies in key sectors, including power
generation, iron and steel, chemicals, oil refineries, cement and other building materials, as
well as pulp and paper. The five industrial sectors included in the EU ETS cover around
90% of the ETS industrial greenhouse gas emissions.
Operators covered by the ETS must hold a permit to engage in activities covered by the
EU ETS Directive. A competent national authority issues the permit after it is satisfied
that the operator is capable of monitoring and reporting its greenhouse gas emissions.3
Each year, operators must surrender allowances (EU Allowances, EUAs) corresponding
to their monitored and verified greenhouse gas emissions during the previous year. A
failure to surrender the required amount of allowances results in a penalty.
2
The first trading period of the ETS ran from 2005 to 2007, as a ‘learning-by-doing’ phase,
with a focus on setting up the necessary institutions and procedures. The second trading period was
designed to run from 2008 to 2012 in parallel with the first commitment period under the Kyoto
Protocol to the United Nations Framework Convention on Climate Change.
3
Permit conditions and procedures were coordinated with Council Directive 96/61/EC of 24
September 1996 concerning Integrated Pollution Prevention and Control [1996] OJ L257/26.

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EU Emissions Trading Scheme 419
While the EU is often praised internationally for its ground-breaking emissions trading
scheme, the effectiveness of the ETS has been subject to a debate throughout the scheme’s
existence. One of the early concerns related to the method of allocating allowances to the
participating operators. In theory, the two main choices for allocating allowances are so-
called grandfathering (whereby allowances are distributed free of charge based on histori-
cal emissions) and auctioning (whereby participating installations are required to purchase
the necessary allowances). During its first two phases, the ETS mainly used grandfather-
ing with the vast majority of EUAs allocated for free through National Allocation Plans
(NAPs) drawn up by each Member State and notified to the Commission.4 Essentially,
there were no harmonised allocation rules, but each Member State decided the overall
amount of allowances and the criteria for allocating them during the first two trading
periods, with the Commission having the power to reject a NAP or a part of it.
The effectiveness and desirability of this allocation method was subject to debate as
Member States had an incentive to be overly generous with their allocations. Thus, in
2013, national emissions caps determined by the Member States were replaced by an
EU-wide cap that decreases by an annual linear reduction factor of 1.74%.5 In addition,
auctioning has been made the main method for the allocation of EUAs for the power
sector. For those industrial installations that are not subject to carbon leakage rules
(explained below), auctioning is being gradually increased, starting at 30% in 2013, and
reaching 70% in 2020 and 100% in 2027.6 For those industries facing a risk of carbon
leakage and receiving free EUAs, EU-wide allocation rules have been applied since 2013.
The harmonised allocation rules essentially rely on benchmarks related to greenhouse-gas
performance (see section 2.2).
In recent years, a key concern with the EU ETS has been the accumulation of excess
emission allowances. There are several contributing factors. One is the global economic
downturn starting in 2008, as a result of which greenhouse gas emissions in the sectors
covered by the ETS decreased more rapidly than expected and carbon prices fell corre-
spondingly.7 The architecture of the ETS meant that the drop had consequences for several
years even when the economy – and emissions – picked up: operators have been able to
carry over 5–8% of their unused allowances to the third trading period.8 Furthermore, in
4
Around 95% of allowances were allocated free of charge during the first phase and around
90% during the second phase. The Commission could reject the NAP or any aspect thereof on
the basis that it is incompatible with the criteria specified in the EU ETS Directive. See Art. 9 of
Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 estab-
lishing a scheme for greenhouse gas emission allowance trading within the Community and amend-
ing Council Directive 96/61/EC [2003] OJ L275/32.
5
Art. 9 of Directive 2009/29/EC of the European Parliament and of the Council of 23 April
2009 amending Directive 2003/87/EC so as to improve and extend the greenhouse gas emission
allowance trading scheme of the Community [2009] OJ L140/63. The linear factor was determined
based on the EU’s pledge to reduce emissions by 20% from 1990 levels by 2020 (i.e. by 14% from
2005 levels). The ETS sector will reduce emissions by 21% from 2005 levels by 2020, in other words,
more than non-ETS sectors.
6
Ibid., preambular para., 21.
7
‘EU ETS: Emissions fall more than 11% in 2009’ (Europa Rapid Press Release) IP/10/576,
18 May 2010.
8
Commission, ‘Communication from the Commission to the European Parliament,
the Council, the European Economic and Social Committee and the Committee of the

LEAL-ARCAS_9781786431042_t.indd 419 08/09/2017 13:02

some cases the current carbon leakage rules have led to over-protection; some operators
have also benefited from the fact that the benchmark data was relatively old at the time
of their establishment and the benchmarks have not been revised since.
In May 2010, the Commission acknowledged that the economic analysis underlying the
revisions made to the ETS for the third trading period was no longer valid. It suggested
‘recalibrating’ the ETS by setting aside EUAs originally intended for auction during the
beginning of the third trading period.9 Agreement on so-called ‘back-loading’ was eventu-
ally reached, according to which the Commission postponed the auctioning of 900 million
EUAs meant for auction in 2014–2106 until 2019–2020.10 Under this compromise, the
overall amount of EUAs to be auctioned during the third trading period was not reduced
but only the distribution of auctions over the third trading period was changed.
As a long-term solution, agreement has subsequently been reached on the establish-
ment of a market stability reserve.11 This mechanism aims to increase price stability in the
EU carbon market and maintain a carbon price that is in line with the EU’s climate policy
objectives. In accordance with the current agreement, the 900 million allowances subject
to the back-loading decision will be placed in the reserve. There are, however, proposals to
reduce this amount (see section 3.3). The market stability reserve will operate according to
pre-defined rules to trigger adjustments to the annual volumes of EUAs to be auctioned.12
It will address extremes in supply or demand, automatically withdrawing or increasing the
number of EUAs on the market.
2.2 EU ETS and the Question of Carbon Leakage
When taking the decision to establish the ETS, the EU hoped that its example would
inspire other countries to introduce a carbon price and that the carbon market will
gradually expand, including through interlinked emissions trading schemes.13 Indeed,
several other emissions trading schemes have been set up around the globe since the incep-
tion of the ETS in 2005. Key examples include schemes launched, inter alia, in China
(with several sub-national schemes expected to merge into a national scheme in 2017),
Kazakhstan, the Republic of Korea and New Zealand, as well as sub-national schemes in
Tokyo, Quebec and California.
Regions – Analysis of options to move beyond 20% greenhouse gas emission reductions and assess-
ing the risk of carbon leakage’ COM(2010)265 final, p. 3.
9
Ibid. According to the Commission, the unexpected drop in greenhouse gas emissions fol-
lowing the economic crisis means that the cost of complying with the 20% emission reduction target
is now lower, estimated at €48 billion rather than the previously estimated ‘at least €70 billion’.
10
Commission Regulation (EU) No 176/2014 of 25 February 2014 amending Regulation (EU)
No 1031/2010 in particular to determine the volumes of greenhouse gas emission allowances to be
auctioned in 2013–2020 [2014] OJ L56/11.
11
Decision (EU) 2015/1814 of the European Parliament and of the Council of 6 October 2015
concerning the establishment and operation of a market stability reserve for the Union greenhouse
gas emission trading scheme and amending Directive 2003/87/EC [2015] OJ L264/1.
12
Ibid., preamble, recital 5.
13
Kati Kulovesi, ‘Climate Change in the EU External Relations: Please Follow My Example
(or I Might Force You To)’ in E Morgera (ed.), The External Environmental Policy of the European
Union: EU and International Law Perspectives (CUP 2012).

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While the EU is no longer the only jurisdiction with an emissions trading scheme, the
world is far from establishing a global carbon price. For the poorest developing countries,
there are important equity concerns to be taken into account. And for the several emis-
sions trading schemes already in place, there are important differences in their design and
technical synchronisation would take years. The question of carbon leakage therefore
remains close to the surface in the context of the EU ETS.
Carbon leakage essentially refers to a situation where climate change mitigation policies
lead to the growth of greenhouse gas emissions in other economic sectors or countries.
The EU took the decision to launch the ETS and introduce a price for greenhouse gas
emissions during one of the ‘dark moments’ of international climate policy when the US
decided not to join the Kyoto Protocol. This gave rise to concerns over the competitiveness
of European industries in comparison with their American counterparts. In addition, the
Kyoto Protocol’s legal structure relied strongly on the principle of common but differ-
entiated responsibilities and respective capabilities (CBDR-RC). As a result, developing
countries, including China, India, Brazil, South Africa and other emerging economies,
were not subject to greenhouse gas emission reduction targets under the Protocol.
The risk of carbon leakage has been recognised since the early days of the ETS.
However, the question as to whether carbon leakage has actually been taking place as a
result of the ETS remains controversial. Recent studies by the European Commission
have not shown any significant carbon leakage as a result of the ETS. For example, in 2013
the Commission studied the impact of the ETS on ten key European industrial sectors
until the end of the second trading period in 2012. It found no evidence of carbon leakage
as defined by the ETS Directive.14 In preparing its 2015 proposal on ETS reform (see
section 3.3 below), the Commission looked into the so-called carbon cost pass-through
phenomenon in key industrial sectors in the EU.15 It examined whether the relevant indus-
tries are able to pass any of their carbon costs to the client further on in the value chain.
It concluded that all the industrial sectors analysed were able to pass some of their carbon
costs to their clients, even if quantifying the level of this remains very difficult. Given that
there has been no solid evidence of carbon leakage taking place as a result of EU climate
policies and most of European manufacturing industry is receiving EUAs for free, the
ETS has been criticised for being too generous with its support to European industries.16
One of the challenges relates to windfall profits, the argument being that companies are
being subsidised too generously for pollution and making profit from being able to sell
their excess free allowances.17
14
Ecorys et al., http://www.ecorys.com/news/ecorys-study-eu-ets-has-not-driven-industry-out-
europe?page54 (accessed 22 December 2016).
15
European Commission, Ex-post investigation of cost pass-through in the EU ETS: An analy-
sis of six sectors, November 2015, https://ec.europa.eu/clima/sites/clima/files/ets/allowances/docs/
ex-post_investigation_of_cost_en.pdf (accessed 22 December 2016).
16
On the effectiveness of the EU ETS, see Tim Laing, Misato Sato, Michael Grubb and Claudia
Comberti, ‘Assessing the Effectiveness of the EU Emissions Trading System’ (2013) Grantham
Research Institute on Climate Change and the Environment Working Paper 106, http://www.lse.
ac.uk/GranthamInstitute/wp-content/uploads/2014/02/WP106-effectiveness-eu-emissions-trading-
system.pdf> (accessed 20 December 2016).
17
Carbon Market Watch, ‘Industry Windfall Profits from Europe’s Carbon Market. How
Energy-intensive Companies Cashed in on Their Pollution at Taxpayers’ Expense’ (2016) Carbon

LEAL-ARCAS_9781786431042_t.indd 421 08/09/2017 13:02

2.3 Current Measures to Prevent Carbon Leakage in the EU ETS
The main measure to prevent carbon leakage under the EU ETS is the free allocation of
emission allowances to such sectors of the manufacturing industry that have been found
to be exposed to carbon leakage. In accordance with the ETS Directive, the Commission
regularly draws up a list of sectors exposed to carbon leakage. The current list is valid for
2015–2019 and covers around 170 sectors and around 97% of the EU’s manufacturing
emissions.18 Thus, most of Europe’s manufacturing industry currently benefits from free
allocation of EUAs as a result of the carbon leakage rules. The question can be raised
whether this conflicts with the objective of the ETS to drive low-carbon innovation and
investment; and whether the carbon leakage list should be made more selective in the future.
As mentioned above, harmonised EU rules have been applied to the free allocation of
emission allowances since 2013. The free allocation system relies on ex ante benchmarks
defined for individual sectors or sub-sectors based on their emissions performance, or on
the so-called fall-back approaches where optimum levels of efficiency have been deter-
mined for heat or fuel used.19 The objective of the benchmarking system is to allocate
free allowances ‘in a manner that provides incentives for reductions in greenhouse gas
emissions and energy efficient techniques’.20
The benchmarks were calculated for industrial products and intermediate products
traded between installations.21 This ambitious exercise of defining the benchmarks
entailed a calculation of a value reflecting the average greenhouse gas emission perfor-
mance of the 10% best performing installations in the EU in 2007–2008. The benchmark
could therefore initially be seen as an incentive for installations to emit only a certain
amount of carbon dioxide relative to production. However, as the benchmarks have not
been updated since 2008 their force in driving new investments and innovations is now less
certain in light of annual efficiency improvements by the operators.
In practice, the benchmarking system operates as follows. Taking steel production as an
example, the benchmark for hot metal is 1.328.22 For producing 100,000 tons of steel, an
installation would, in principle, receive 132,800 free allowances under the EU Emissions
Trading Scheme. However, in practice, the amount of free allowances during the ongoing
third trading period in 2013–2020 has been adjusted based on a cross-sectoral correction
factor that varies every year.23
Market Watch Policy Brief, http://carbonmarketwatch.org/wp-content/uploads/2016/03/Policy-

brief_Industry-windfall-profits-from-Europe%E2%80%99s_web_final-1.pdf (accessed 20 December
2016).
18
Commission Decision of 27 October 2014 determining, pursuant to Directive 2003/87/EC of
the European Parliament and of the Council, a list of sectors and subsectors which are deemed to
be exposed to a significant risk of carbon leakage, for the period 2015 to 2019 [2014] OJ L308/114.
19
Commission Decision of 27 April 2011 determining transitional Union-wide rules for har-
monized free allocation of emission allowances pursuant to Article 10a of Directive 2003/87/EC of
the European Parliament and of the Council [2011] OJ L130/1.
20
21
22
Ibid., Annex I: Product Benchmarks.
23
Commission Decision of 5 September 2013 concerning national implementation measures
for the transitional free allocation of greenhouse gas emission allowances in accordance with

LEAL-ARCAS_9781786431042_t.indd 422 08/09/2017 13:02

The cross-sectoral correction factor essentially ‘calibrates’ the annual free allocation
with the pre-determined decreasing emissions cap, implying an across-the-board reduc-
tion for all operators. The cross-sectoral correction factor was challenged by several
companies, claiming they had received fewer EUAs than their entitlement. Their chal-
lenge was successful in that in its preliminary ruling, the EU Court of Justice agreed that
the maximum amount of free allowances for 2013–2020 determined by the Commission
was invalid.24 One of the key reasons was that in calculating the cross-sectoral correction
factor, the Commission took account, at least in part, of the emissions of installations
covered by the allowance trading scheme before 2013 in determining the maximum annual
amount of allowances.25 As a result, the Court found that the amount does not meet the
requirements of subparagraph (b) of Article 10a(5) of the ETS Directive in that it is too
high.26 The Court gave the Commission a ten-month period to adopt the necessary meas-
ures to correct the factor.27
The current system of protecting European manufacturing industries through free allo-
cation of EUAs can also be criticised on the basis that certain companies have benefitted
from excess allowances and windfall profits. This has happened due to the fact that free
allocation is based on previous activity levels of an installation and not adjusted to match
the real production levels. Similarly, those installations that receive free allocation based
on the heat fall-back benchmark and that have converted from fossil fuels to biomass as
their source of energy have very low actual emissions but very generous free allocation
levels.
3. FUTURE CARBON LEAKAGE MEASURES IN THE EU ETS?
3.1 Debate on Border Carbon Adjustments in the EU
Even if there is no evidence of carbon leakage having taken place as a result of the ETS,
there have been some proposals over the years to strengthen the carbon leakage measures
in place under the ETS. Such proposals relate closely to one of the hot topics in the debate
on trade and climate change, namely the idea of border carbon adjustments (BCAs). The
basic idea underlying BCAs is to introduce a border tax on greenhouse gas emissions
or require importers to surrender a quantity of carbon permits. There is a lively debate
among scholars on whether BCAs could be designed in such a way that is compatible
Article 11(3) of Directive 2003/87/EC of the European Parliament and of the Council (2013/448/
EU) [2013] OJ L240/27.
24
Joined Cases C-191/14 and C-192/14 Borealis Polyolefine GmbH and OMV Refining &
Marketing GmbH v Bundesministerfür Land-, under Forstwirtschaf, Umwelt und Wasserwirtschaft,
Case C-295/14 DOW Benelux BV and Others v Staatssecretaris van Infrastructur en Milieu and
Others, and Joined Cases C-389/14, C-391/14 to C-393/14 Esso Italiana Srl and Others, Api
Raffineria di Ancona SpA, Lucchini in Amministrazione Straordinaria SpA and Dalmine SpA v
Comitato nazionale per la gestione della direttiva 2003/87/CE e per il supporto nella gestione delle
attività di progetto del protocollo di Kyoto and Others [2016] ECR.
25
Ibid., para. 95.
26
Ibid., para. 111.
27
Ibid.

LEAL-ARCAS_9781786431042_t.indd 423 08/09/2017 13:02

with World Trade Organization (WTO) law.28 I have highlighted elsewhere that the lively
academic debate on BCAs remains highly abstract in the absence of concrete examples;
against this background the ample attention given to BCAs seems disproportionate and
risks distracting attention from real-world conflicts between international trade and
climate policies.29
Nevertheless, the idea of introducing BCAs continues to surface from time to time,
including in the EU. For example, as this chapter was being finalised in late 2016, the
former French President Nicolas Sarkozy made a proposal to introduce a carbon tax
against US imports amid fears that the President-elect Donald Trump will pull the US
from the Paris Agreement.30 In addition, in December 2016, the environmental committee
of the European Parliament proposed to introduce BCAs in the clinker/cement sector in
the EU (see below). However, thus far, BCAs have not been implemented in practice and
despite proposals to introduce them, they also face a lot of opposition in the EU. Here, I
will focus on providing an overview of the main elements of the debate on BCAs in the
EU over the past fifteen years.
The idea of BCAs first gained traction in Europe in the early 2000s as the US announced
it would not be ratifying the Kyoto Protocol. The EU chose a different path, stepping up
its climate policy efforts and launching the ETS. Given concerns over carbon leakage, the
idea surfaced that the EU should target imports from the US to compensate for what it
saw as the US free-rider climate policy and to try to exert economic and diplomatic pres-
sure on the US to join international climate change efforts.31 The proposal of targeting
imports from the US never gained serious political backing in the EU. Instead, from 2007
onwards the focus shifted towards negotiations for a new global climate treaty and it was
hoped that a new Democratic administration in the US would also join the new treaty.
The possibility of including energy-intensive imports in the EU Emissions Trading
Scheme was, however, still mentioned in the context of the European Commission’s 2008
proposal to amend the ETS Directive as part of the 2009 Climate and Energy package.32
The Commission’s proposal alluded to the possibility of establishing ‘an effective carbon
equalisation system’ with the view of putting EU installations on a comparable footing
28
See, for example, Tracey Epps and Andrew Green, Reconciling Trade and Climate: How
the WTO Can Help Address Climate Change (Edward Elgar 2010) 56 and 122; L Tamiotti, ‘The
Legal Interface Between Carbon Border Measures and Trade Rules’ (2011) Climate Policy 1202;
S Monjon and P Quirion, ‘A Border Adjustment for the EU ETS: Reconciling WTO Rules and
Capacity to Tackle Carbon Leakage’ (2011) Climate Policy 1212; R Leal-Arcas, ‘Unilateral Trade-
related Climate Change Measures’ (2012) Journal of World Investment & Trade 888.
29
Kulovesi, note 1 above.
30
Ben Kentish, ‘Nicolas Sarkozy Promises to Hit America with a Carbon Tax if Donald
Trump Rips up Landmark Paris Climate Deal’, Independent (London, 15 November 2016), http://
www.independent.co.uk/news/world/europe/donald-trump-us-carbon-tax-nicolas-sarkozy-global-
warming-paris-climate-deal-a7418301.html (accessed 15 December 2016).
31
F Biermann and R Brohm, ‘Implementing the Kyoto Protocol Without the United States:
The Strategic Role of Energy Tax Adjustments at the Border’ (2005) Climate Policy 289. They
suggest that the EU should adjust energy taxes at the border, targeting non-European industrial-
ised countries, or, alternatively, that the ‘Kyoto coalition’ should target such countries that will not
ratify the Protocol.
32
For a comprehensive overview of the 2009 climate and energy package, see Kulovesi,
Morgera and Muñoz, note 1 above.

LEAL-ARCAS_9781786431042_t.indd 424 08/09/2017 13:02

with those from third countries.33 The system would have essentially meant requiring those
importing energy-intensive products to the EU to purchase allowances corresponding to
their greenhouse gas emissions during the manufacturing of the product. A final deci-
sion on possible further measures to address carbon leakage was postponed pending the
outcome of the UN Climate Change Conference in Copenhagen in December 2009.34 The
Commission was requested to review the situation in light of the outcome of the inter-
national negotiations, prepare a report by June 2010 and make ‘appropriate proposals’.35
In May 2010, the Commission provided the required report.36 The outcome of the
Copenhagen Conference had been largely a disappointment and a new global climate
treaty failed to materialise. The Commission’s report thus noted that given the uncertain-
ties surrounding international climate policy, the measures already in place to address
carbon leakage – free allowances and access to international offsets – remained justified.37
The Commission also discussed the idea of including imports into the ETS, noting that
similar proposals had been discussed in the US and that ‘obviously it would be desirable
for such initiatives to be taken together with such partners’.38
Indeed, around the same time, the idea of including imports in a planned federal cap-
and-trade scheme for greenhouse gas emissions received ample attention in the US. Barack
Obama had been elected as President at the end of 2008, re-engaging the US in global
climate change cooperation and making attempts to step up US federal climate policy
efforts. For a short while, between 2009 and 2011, it seemed conceivable that both the EU
and US would have strong greenhouse gas emissions trading schemes, requiring importers
from countries lacking equivalent climate policies to purchase emission allowances on the
basis of greenhouse gas emissions associated with imported goods and/or their production.
However, neither the EU nor the US scheme saw the light of the day. The Obama
Administration abandoned the plan for a federal cap-and-trade scheme relatively quickly,
in the face of strong national opposition. The EU Commission did not further develop
its proposal on including imports in the EU Emissions Trading Scheme. Its 2010 com-
munication emphasised that climate policies targeting imports raise ‘broader issues about
the EU’s trade policy and its overall interest in an open trade system’ and the measure
would ‘need to be very carefully designed to ensure that it is fully compatible with WTO
requirements’.39 Importantly, from the climate policy perspective, the Commission also
highlighted the considerable technical difficulties in defining ‘in detail the carbon content
of each individual category of goods’.40
Indeed, to implement a scheme targeting carbon intensive imports in a non-
discriminatory manner as required by WTO law, information would be needed on
33
Commission, ‘Proposal for a Directive of the European Parliament and of the Council
amending Directive 2003/87/EC so as to improve and extend the greenhouse gas emission allow-
ance trading system of the Community’ COM(2008)16 final.
34
Preambular paragraph 26 and Art. 10(b) of Directive 2009/29/EC, note 5 above, indicating
that the Commission should review the situation with respect to carbon leakage by 30 June 2010.
35
Ibid., Art. 10(b).
36
COM(2010)265, note 8 above, p. 11.
37
Ibid., pp. 11–12.
38
Ibid., p. 12.
39
Ibid.
40
Ibid.

LEAL-ARCAS_9781786431042_t.indd 425 08/09/2017 13:02

g reenhouse gas emissions and other production data in order to calculate the carbon
content of the covered imports credibly. It is likely that such data would need to be col-
lected relying on monitoring and reporting by companies located in third countries. It
would clearly be challenging for the EU to implement such a scheme outside its jurisdic-
tion. In comparison, European installations included in the ETS are obligated to monitor
and report their greenhouse gas emissions to the competent authorities each year, and the
reports are verified by independent third parties. The European Commission ensures the
final consistency of such reports. The violation of these reporting obligations results in
sanctions. A similar reporting scheme for foreign producers would be far more difficult
to implement from a technical, legal and diplomatic point of view. Such difficulties have
been apparent in the context of the EU Emissions Trading Scheme for aviation emis-
sions. Opposing their inclusion in the EU Emissions Trading Scheme, Chinese and Indian
airlines systematically violated European legislation requiring them to provide annual
greenhouse gas emissions data to the European Commission.41
In addition to the technical difficulty of complying with the non-discrimination
requirement under WTO law, BCAs are politically highly controversial under the WTO
and in international climate change negotiations under the United Nations Framework
Convention on Climate Change (UNFCCC). In light of such difficulties, the idea of
BCAs has mostly remained off the table in the EU in recent years.
The most practicable option for introducing BCAs under the EU ETS would seem
to be a limited scheme targeting goods or industry sectors where carbon content can
be reasonably assessed and technical difficulties could be overcome.42As the European
Commission noted in 2010, a system for including imports in the ETS ‘could at best only
be envisaged for a limited number of standardized commodities, such as steel or white
clinker used to make cement’.43 Indeed, the European cement industry has proposed a
BCA scheme targeting cement imports to the EU.44 Clinker is a product with a relatively
uniform production method. This makes it different in comparison with manufactured
goods where the energy intensity and other characteristics of products and their produc-
tion varies considerably, making greenhouse gas emissions difficult to estimate. A BCA
scheme covering clinker imports would therefore be technically very straightforward to
calculate and more feasible from the perspective of greenhouse gas emissions accounting.
At the time of finalising this chapter in December 2016, the environmental committee
of the European Parliament proposed to implement BCAs with respect to cement when
making a recommendation concerning ETS reform. The idea of introducing BCAs to
prevent carbon leakage thus continues to float around and surface from time to time in the
EU. A large-scale BCA scheme applicable to manufactured products remains, however, an
41
James Kanter, ‘EU Considers Emission Fines on Chinese and Indian Airlines’, New
York Times (New York, 16 May 2013), http://www.nytimes.com/2013/05/17/business/global/17iht-
emit17.html?pagewanted5all (accessed 20 December 2016).
42
Kulovesi, note 1 above.
43
COM(2010)265, note 8 above, p. 12.
44
The European Cement Association, ‘The Cement Industry Is Exposed to Carbon Leakage
Regardless of the Assessment Method Used and the Relevant Product Level’, 27 November 2013,
http://www.cembureau.eu/sites/default/files/documents/Doc%203023_2013-11-27_CEMBUREAU_
Carbon%20Leakage%20Position%20Paper%202.1.pdf (accessed 20 December 2016).

LEAL-ARCAS_9781786431042_t.indd 426 08/09/2017 13:02

unlikely prospect. Even the proposed limited BCA scheme for cement would need to clear
several political and technical hurdles in order to materialise in practice.
3.2 Impact of the Paris Agreement on the Carbon Leakage Debate in Europe
As seen above, one of the key motivations for the debate on carbon leakage in Europe
was the fact that the US never ratified the Kyoto Protocol and emerging economies were
not subject to emission reduction targets under the Kyoto regime. For many years, it was
hoped that a new global climate treaty would improve the situation and level the global
playing field with respect to climate change mitigation. This section analyses the Paris
Agreement, which was adopted in 2015 and entered into force in November 2016, focus-
ing on those elements that are relevant for carbon leakage.
One of the groundbreaking features of the Paris Agreement is that it relies much less
on the distinction between developed and developing countries than the UNFCCC and
its Kyoto Protocol. In addition, the Paris Agreement includes a new formulation of the
CBDR-RC principle. Article 4.3 of the Paris Agreement refers to CBDR-RC ‘in the
light of different national circumstances’. In other words, it can be argued that the Paris
Agreement places more emphasis on each country’s individual circumstances instead of
drawing a rather generic distinction between developed and developing countries even if
recognising their ‘respective capabilities’.
Compared to the Kyoto Protocol, the Paris Agreement is very different in that its
mitigation regime is largely the same for both developed and developing countries. The
Paris Agreement engages all Parties in climate change mitigation efforts through nation-
ally determined contributions (NDCs). It adopts a cyclical, long-term approach whereby
NDCs are regularly updated and made more ambitious at five-year intervals.45 The
Agreement provides, however, that developed countries should continue to undertake
economy-wide absolute emission reduction targets, while developing countries have more
flexibility in designing their NDCs.46
Given that it engages all Parties and lays more emphasis on countries’ individual cir-
cumstances, the Paris Agreement can be seen as levelling the playing field with respect
to climate change mitigation. All Parties to the Paris Agreement are also required to
regularly step up their climate policy efforts. According to Article 4.3, each successive
NDC must represent progression beyond the existing one, reflecting the Party’s ‘highest
possible ambition’ and the CBDR-RC in light of different national circumstances. The
requirement for each country to regularly enhance the ambitiousness of its climate policy
means that it will become increasingly difficult for industries to escape climate policies by
relocating production elsewhere.
Some also hope that Article 6.2 of the Paris Agreement will provide a foundation for
stepping up global cooperation on carbon pricing.47 Article 6.2 provides that Parties
to the Agreement may engage, on a voluntary basis, ‘in cooperative approaches that
45
Articles 4.3 and 4.9 of the Paris Agreement.
46
Article 4.4 of the Paris Agreement.
47
See, for example, International Emissions Trading Association, ‘A Vision for the Market
Provision of the Paris Agreement’ (2016), http://www.ieta.org/resources/Resources/Position_Pap
ers/2016/IETA_Article_6_Implementation_Paper_May2016.pd (accessed 20 December 2016).

LEAL-ARCAS_9781786431042_t.indd 427 08/09/2017 13:02

involve the use of internationally transferred mitigation outcomes towards nation-

ally determined contributions’. Countries with planned or existing emissions trading
schemes are seen as prime candidates for using this provision.48 In other words, inter-
national transfer of mitigation outcomes could take the form of transfers between
two interlinked emissions trading schemes.49 In this sense, the Paris Agreement can be
seen as facilitating links between emissions trading schemes and expanding the carbon
price signal to new jurisdictions. This is also a positive development from the point
of view of carbon leakage. It is further useful to note that Article 6.4 of the Paris
Agreement envisages the establishment of a mechanism to contribute to the mitigation
of greenhouse gas emissions. However, the scope of this new mechanism is yet to be
determined.50
Despite its many positive elements, the Paris Agreement does not signify the end of the
debate on carbon leakage in Europe. For one thing, Parties to the Paris Agreement play
a key role in determining how ambitious their contribution to the Agreement is. Some
NDCs are more ambitious than others. This means that in some countries, industries will
be subject to more stringent climate policies than in others. The Agreement also retains a
degree of differentiation between developed and developing countries. While it includes
a provision in Article 6 for strengthening global cooperation around carbon markets, this
is not the same as establishing a global carbon price. The recent US election result has
also cast a doubt over the global reach of the Paris Agreement. President-elect Donald
Trump pledged during his campaign to withdraw the US from the Paris Agreement.
While there are some legal complications,51 this unfortunate scenario is a realistic
possibility during Trump’s term of office.
3.3 Ongoing Reform of the EU ETS and Proposed Measures on Carbon Leakage
In January 2014, the Commission published a proposal on future EU climate policies for the
2021–2030 period.52 The aim of the proposed measures is to implement the EU’s intended
NDC under the Paris Agreement to reduce greenhouse gas emissions by at least 40% from
the 1990 levels by 2030. Relevant for the current focus on carbon leakage, the Commission
suggested that protection measures against carbon leakage should remain in place.53
48
Anna Laine, Tommi Ekholm, Tomi Lindroos, Hanna-Mari Ahonen, Roland Magnusson
and Kati Kulovesi, ‘Implementation of the Paris Agreement, Part I (mitigation, transparency and
cooperative approaches)’, Report Prepared for the Finnish Prime Minister’s Office, 25 August
2016, p. 45, http://www.ym.fi/pariisi2015 (accessed 20 December 2016).
49
IETA, note 47 above, p. 7.
50
Ibid., p. 8.
51
Kate Birmingham Bontekoe, ‘What Will a Trump Administration Mean for International
Agreements with the United States’, EJIL: Talk Blog Post (13 December 2016), http://www.ejiltalk.
org/what-will-a-trump-administration-mean-for-international-agreements-with-the-united-states/
52
Commission, ‘Communication to the European Parliament, to the Council, the European
Economic and Social Committee and the Committee of the Regions: A policy framework for
climate and energy in the period from 2020 to 2030’ COM(2014)15 final.
53
Ibid.

LEAL-ARCAS_9781786431042_t.indd 428 08/09/2017 13:02

However, the question of carbon leakage measures was left to be addressed in more detail
at a later stage of the legislative process.54
In July 2015, the Commission published a proposal to review the ETS for the period
2021–2030.55 Overall, the Commission proposed that the ETS sector should reduce its
greenhouse gas emissions by 43% compared to 2005 by 2030.56 The reform proposal
included new rules for addressing problems with the emissions cap. The Commission
proposed to increase the linear reduction factor to 2.2% per year from 2021 onwards as
compared to the current 1.74% annual reduction.57 This would correspond to an addi-
tional reduction of 556 million tonnes of carbon dioxide between 2021 and 2030 – roughly
equivalent to the annual emissions of the UK.58 As seen above (section 2.1), previous
problems with the cap were also addressed by creating a market stability reserve that will
automatically address extremes in the demand and supply of EUAs on the European
carbon market.
Concerning carbon leakage, the Commission identifies the need to continue safeguard-
ing the international competitiveness of the EU energy-intensive industries.59 First, the
Commission proposes to update the benchmarks to reflect technological progress and
capacities since the benchmarks were first calculated in 2008.60 As discussed above, energy
efficiency improvements and some innovations since the benchmarks were calculated
mean that they no longer serve as an incentive for industries to step up their performance.
Second, the Commission is proposing to align free allocation more frequently with pro-
duction data in order to increase the dynamic aspects of the free allocation.61 Third, the
Commission proposes to focus the system of free allocation of EUAs on those sectors
most at risk of relocating outside Europe. 62
The Commission’s proposal would also effectively remove the cross-sectoral cor-
rection factor, which has been applied to the free allocation of EUAs during the
ongoing third trading period. As seen above, the Court of Justice found that
the Commission’s calculation of the cross-sectoral correction factor was invalid and
the Commission had to adjust its calculations. Abolishing the cross-sectoral correc-
tion factor would arguably mean taking a more straightforward approach to the free
allocation of EUAs.
The Commission’s proposal also discusses compensation for indirect carbon costs (i.e.
costs related to greenhouse gas emissions passed on in electricity prices) in line with state
aid rules.63 Accordingly, Member States should partially compensate certain installations
in high-risk carbon leakage sectors or sub-sectors ‘where such support is proportionate
54
Ibid.
55
Commission ‘Proposal for a Directive of the European Parliament and of the Council
amending Directive 2003/87/EC to enhance cost-effective emission reductions and low-carbon
investment’ COM(2015)337 (final).
56
Ibid., p. 2.
57
Ibid.
58
Ibid.
59
Ibid.
60
Ibid.
61
Ibid.
62
Ibid.
63
Ibid., pp. 2–3.

LEAL-ARCAS_9781786431042_t.indd 429 08/09/2017 13:02

and necessary’ and the incentive to save energy is maintained.64 Thus far, such support
has been in the competence of the Member States, some of which have been more eager
than others to support their industries, leading to potential distortions in the single
market.
The Commission’s proposal also includes new support mechanisms to help the indus-
try and power sectors to meet the innovation and investment challenges resulting from
the transition to a low-carbon economy in Europe. This would see the establishment of
two new funds to support European industry.65 These include an ETS innovation fund
set up through earmarking EUAs to support innovation and an ETS modernisation
fund with a view to facilitating investment for modernising the power sector and wider
energy systems as well as boosting energy efficiency in the ten Member States with lower
incomes.
At the time of finalising this chapter, the ETS reform process was still ongoing.
The reform proposals are being debated both in the Council and in the Parliament. In
mid-December 2016 the environmental committee of the Parliament voted in favour of
backing a more ambitious reform of the ETS than that proposed by the Commission.66
The committee agreed to increase the linear reduction factor from the 2.2% proposed
by the Commission to 2.4%.67 The committee also agreed to create a ‘just transition
fund’ to help minimise the social costs associated with the transition to a green econo-
my.68 The committee also wishes to strengthen the market stability reserve by perma-
nently cancelling 800 billion EUAs from the reserve.69 However, the Parliament as a
whole is yet to approve these ideas. Moreover, in the Council, some Member States
have been far less ambitious about the ETS reform than the Commission, meaning
that negotiations will need to continue in 2017 and outlines of the compromise remain
difficult to predict.
4. CONCLUSIONS
This chapter concludes that the question of carbon leakage remains relevant in the
context of the EU ETS even after the entry into force of the Paris Agreement. While the
Agreement lays down the basic legal structures needed to step up global climate policy
efforts, it is far from establishing a global carbon price and levelling the playing field for
the manufacturing industry.
It is important to bear in mind, however, that there is currently no evidence of carbon
64
Ibid., p. 3.
65
Ibid.
66
Aleksandra Eriksson and Peter Teffer, ‘MEPs Agree on Future of Emissions Trading’,
EUObserver (Strasbourg/Brussels 15 December 2016), https://euobserver.com/environment/136291
67
Ibid.
68
Ibid.
69
‘MEPs Scale Up ETS Reform above Commission Proposal but Avoid Aligning It with Paris
Agreement’, Blue & Green Tomorrow (15 December 2016), http://blueandgreentomorrow.com/news/
meps-scale-ets-reform-commission-proposal-avoid-aligning-paris-agreement/ (accessed 22 December
2016).

LEAL-ARCAS_9781786431042_t.indd 430 08/09/2017 13:02

leakage having taken place as a result of the EU ETS. This chapter is therefore critical
of proposals to strengthen carbon leakage protection under the ETS, especially by intro-
ducing BCAs. BCAs are not necessary from the climate policy perspective. In addition,
especially large-scale BCA schemes targeting the manufacturing industry would be prob-
lematic for Europe’s trade relations, and potentially lead to legal challenges under World
Trade Organization (WTO) law.

LEAL-ARCAS_9781786431042_t.indd 431 08/09/2017 13:02

23. Energy and environment
József Feiler and Peter Vajda*
1. THE ENERGY TRILEMMA AND ITS RELATION TO

EXTERNAL COSTS
Environmental sustainability represents the third pillar of the so-called ‘energy trilemma’,
completing the triangle made up with energy security and energy equity.1 There is a broad
scientific consensus, however, that our current ways of generating and using energy are
not on a sustainable pathway and should the current trends in changes to the global
climate system continue (to which the energy sector is a very important contributor),2 the
consequences will be felt by everyone already in the very short term.3 In order to avoid
a scenario in the 21st century that would have devastating consequences for the entire
planet, its inhabitants as well as the global economy, it is thus imperative to strengthen
the sustainability pillar of the triangle, thereby promoting the efficient generation and use
of any form of energy – heat, power, or any form of fuels.
At the same time, it would be unrealistic not to count on energy consumers expecting
a stable and secure supply of energy at affordable prices. All around the world, including
in EU Member States, energy poverty inevitably leads to solutions that are not environ-
mentally sustainable.4 We shall therefore point out that the real price of energy goes well
beyond the pure material costs of the fuel, the infrastructure necessary for turning it into
* The views expressed in this chapter are those of the authors and do not necessarily represent
the views of either the European Climate Foundation or the Energy Community Secretariat.
1 World Energy Council (2016), p. 6; Kuzemko et al. (2016), p. 1.
2 According to the IPCC, electricity and heat production is responsible for one quarter of
the global emissions of greenhouse gases, while the category ‘other energy’ is responsible for an
additional 10 per cent.
3 There is scientific consensus on the fact that while extremely important, the current inter-
national legal framework is not sufficient to provide effective solutions to avoid devastating conse-
quences of changes to the global climate. As the International Energy Agency concludes in its 2016
Outlook, while countries are generally on track to achieve, and even exceed in some instances, many
of the targets set in their Paris Agreement pledges, this is only sufficient to slow the projected rise in
global energy-related CO2 emissions, but not nearly enough to limit warming to less than 2°C (IEA,
2016a, p. 2). In fact, it is foreseen that the path set by the initial round of nationally determined
contributions (NDCs) is consistent with an average global temperature increase of around 2.7°C
by 2100 and above 3°C thereafter (IEA, 2016a, p. 11).
4 The most important source of emissions in this segment is the household fuel combus-
tion sector, which often comprises any material with a calorific value, including (agricultural or
municipal) waste. According to the European Environmental Agency’s 2016 air quality report, the
four main reasons for the relatively high air pollutant emissions from residential wood combus-
tion are: the use of non-regulated stoves; combustion under non-optimal conditions (for example
improper burning/loading practices); inadequate maintenance of old or new stoves installed in
homes; and the use of non-standardised biomass and other materials as a fuel (EEA, 2016, p. 25).
432
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Energy and environment 433
heat and/or power and its transmission to the end consumer. The bare economic logic of
external costs needs to be engraved in the mind of the energy consumer in order to be able
to make a responsible decision.
In many countries around the globe, domestic reserves in fossil fuels are abundant and
therefore seemingly provide a cheap and easily accessible option for energy production.
At the same time, emission reduction comes at a price and therefore the discussion on
security of supply often focuses on fossil-fuel based energy generation by thermal power
plants. An argument that is often raised in the debate is that energy security based on
locally available resources shall be the primary concern of any policymaker, which would
also allow preserving or creating new jobs in the energy sector. In a democratic setting,
affordability also cannot be ignored and therefore sustainability is usually considered only
as a distant third. This approach, however, is very short-sighted and it is important that
other cost elements are brought into the discussion, namely the issue of external costs.
These are costs that are directly linked to the economic activity but are realised outside
the scope of the energy sector and are consequently not reflected in the energy price.5
Non-market costs (also referred to as welfare costs) are those associated with increased
mortality and morbidity (illness causing, for example, pain and suffering), degradation
of air and water quality and consequently ecosystems health, as well as climate change.
The external costs of unabated or not properly controlled emissions are tremendous
and these costs are borne by society as a whole – via health implications, premature deaths,
reduced crop yields, damage to buildings, forests, agricultural land and so on (market
costs).6 A prominent example of this bare economic logic is contemporary China, where
people in heavily polluted cities literally pay for clean air by buying canisters of imported
‘mountain breeze’ from the rural parts of the country as well as from abroad.7 People
unable to pay for the canisters are left to bear the external costs of pollution via impacts
on their own health.
In Europe, air pollution is the single largest environmental health risk. While air pollu-
tion is harmful to all populations, some people suffer more because they live in polluted
5 The economic concept of externalities (external costs) was developed by the British econo-
mist Arthur C. Pigou in his work The Economics of Welfare. In his words, ‘[I]t might happen, for
example, [. . .] that costs are thrown upon people not directly concerned, through, say, uncompen-
sated damage done to surrounding woods by sparks from railway engines. All such effects must be
included – some of them will be positive, others negative elements – in reckoning up the social net
product of the marginal increment of any volume of resources turned into any use or place’ (Pigou,
1920, Chapter II, paragraph 5, p. 108). Pigou justified government intervention via taxation with
the aim of internalising the external costs and thereby providing a price that reflects not only the
marginal private costs, but also the marginal social costs. This type of taxation is known as ‘the
Pigovian tax’ and is widely used in current taxation models mainly via excise duties. To that end, it
shall be noted that while excise duties are used on fossil fuels in all European countries, the amount
levied on coal, the most polluting source, is close to zero in all Member States with the exception of
Denmark, Finland and Sweden (European Commission, 2016, pp. 60–61).
6 According to estimates of the European Environmental Agency, the health impacts attribut-
able to exposure to air pollution were responsible for more than half a million premature deaths in
the EU-28, with PM2.5 (fine particulate matter) being by far the most important risk factor (EEA,
2016, p. 9).
7 See, for instance, http://edition.cnn.com/2015/12/15/asia/china-canadian-company-selling-
clean-air/index.html.

LEAL-ARCAS_9781786431042_t.indd 433 08/09/2017 13:02

areas and are exposed to higher levels of air pollution, or they are more vulnerable to the
health problems caused by air pollution.8 This holds especially true for populations living
in the vicinity of large combustion plants (thermal power plants), which operate without
effective measures to reduce their emissions of sulphur dioxide (SO2), nitrogen oxides
(NOx) and particulate matter (PM or dust, which is sub-classified into PM10 also known
as coarse particulates and PM2.5 or fine particulates).
The International Agency for Research on Cancer has classified outdoor air pollution
in general, as well as particulate matter as a separate component of air pollution mixtures,
as carcinogenic in relation to lung cancer.9 Coal-fired utilities remain one of the largest
anthropogenic sources of both SO2 and NOx, both of which lead to the formation of
acids in the atmosphere.10 The physical indicators of impact (premature deaths) as well as
their economic equivalents, accounting for healthcare costs, lost productivity and amenity
losses, are not accounted for when generating energy and thereby the external costs are
ultimately born by society as a whole.
Furthermore, air pollution has several important environmental impacts and may
directly affect vegetation, as well as the quality of water and soil and the ecosystem ser-
vices they support. SO2, NOx and ammonia (NH3) contribute to the acidification of soil,
lakes and rivers, causing biodiversity loss. In addition to causing acidification, NH3 and
NOx emissions also disrupt terrestrial and aquatic ecosystems by introducing excessive
amounts of nutrient nitrogen. This leads to eutrophication, which is an oversupply of
nutrients that can lead to changes in biodiversity and to the appearance of new, invasive
species.
Other important factors when addressing the issue of external costs are those induced
by changes to the local and global climate. There is no challenge in pointing to the role
of the energy sector’s contribution to the anthropogenic impact on our global climate
system – despite recent policy developments, global energy-related CO2 emissions are
likely to increase from 32.3 billion11 metric tons in 2012 to 35.6 billion metric tons in 2020
and, according to a business as usual scenario, to 43.2 billion metric tons in 2040.12 In
2014, electricity and heat production accounted for one quarter of global greenhouse gas
emissions and other energy-related emissions for an additional 10 per cent. Having thus
covered roughly one-third of the global greenhouse gas emissions one can feel that there
is an excessive focus on the energy sector – an imperative is there to make it carbon neutral
in developed countries if we aim for keeping global surface temperature change below the
2°C threshold. If we aim for a slightly more manageable future with a 1.5°C threshold (as
targeted also by the Paris Agreement), much more needs to be done.
In a world of growing global population, greenhouse emissions from other sectors (such
as agriculture) are more difficult to curtail, thus there is a common sense of having the
8 EEA (2016), p. 11.

9 IARC (2013b). Both factors are classified as Group 1 carcinogenicity. The Group 1 classifi-
cation is used where it is considered that the evidence of causality between an agent and an effect is
clear. The report also notes a positive association with an increased risk of bladder cancer.
10
IARC (2013a), p. 43.
11
This term is consistently used throughout in this chapter as defined on the short scale, i.e.,
one thousand million, or 109.
12
United States Energy Information Administration (2016), pp. 5–6.

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energy sector make the most aggressive change. The 450 ppm13 scenario of the IEA fore-
sees a nearly full decarbonisation of the power sector by 2040.14 Further research would
be very much necessary, with the aim of exploring the legal means to provide incentives
and catalysts for such a change and how to mitigate the social impacts of this transition.
In the following, we start with a brief assessment of the impacts and the real costs of
emissions from the energy sector and outline the legislative responses provided thus far
by EU environmental and climate law. We illustrate via a regional example, the Energy
Community, how this has a spill-over effect to EU neighbourhood policy and we raise
some questions about the technical and economic feasibility of the energy transition.
Finally, we outline certain proposals for future research, with particular regard to the
much needed interdisciplinary scientific approaches which are key to provide feasible
responses to the highly challenging environmental and climate-related problems that are
likely be the most difficult issues of the 21st century.
2. THE IMPACTS AND THE REAL COSTS OF EMISSIONS
The European Commission estimates that total health-related external costs of air pollu-
tion (from the ‘traditional pollutants’ of SO2, NOx, particulate matter and heavy metals)
in 2010 were in the range of €330–940 billion, including direct economic damages of €15
billion from lost work days, €4 billion from healthcare costs, €3 billion from crop yield
loss and €1 billion from damage to buildings.15
If we look at the costs of adapting to the changes in the global and local climate, we
can also see very prominent examples. If we take one of the most pressing climate-change-
related issues, namely sea-level rise, into account, we can see that average global flood
losses are projected to increase to US$52 billion by 2050, for projected socio-economic
change alone. With climate change and subsidence, present protection will need to be
upgraded to avoid unacceptable losses of US$1 trillion16 or more per year. Even if adap-
tation investments maintain constant flood probability, subsidence and sea-level rise will
increase global flood losses to US$60–63 billion per year in 2050.17
The impacts of greenhouse gas emissions are with us already. We can witness a one-way
shift of trends in global temperature beyond natural oscillations, as well as high altitudes
and polar regions where temperature anomalies are becoming the new normal in a faster
manner than predicted by global circulation models and increases in the temperature of
oceans. Social costs of carbon estimates are available and provide values with different
discount rates as far as the mid-century (see Table 23.1).
13
Parts per million. In 2013, the global concentration of carbon dioxide in the atmosphere
reached 400 ppm for the first time in recorded history, according to data from the Mauna Loa
Observatory in Hawaii (https://www.esrl.noaa.gov/gmd/ccgg/trends/full.html). Current atmospheric
CO2 values are more than 100 ppm higher than at any time in the last one million years.
14
IEA (2016b), p. 46.
15
European Commission (2013), pp. 18–19.
16
This term in consistently used throughout this chapter as defined on the short scale, i.e., one
million million, or 1012.
17
Hallegatte et al. (2013).

LEAL-ARCAS_9781786431042_t.indd 435 08/09/2017 13:02

Table 23.1 Revised social costs of CO2, 2010–2050 (in 2007 US$ per metric ton of
CO2)
Discount Rate 5.0% 3.0% 2.5% 3.0%

Year Avg Avg Avg 95th
2010 10 31 50 86
2015 11 36 56 105
2020 12 42 62 123
2025 14 46 68 138
2030 16 50 73 152
2035 18 55 78 168
2040 21 60 84 183
2045 23 64 89 197
2050 26 69 95 212
Note: There is extensive evidence in the scientific and economic literature on the potential for lower-
probability, but higher-impact outcomes from climate change, which would be particularly harmful to society
and thus relevant to the public and policymakers. The fourth column of values (under the 95th heading)
is thus included to represent the marginal damages associated with these lower-probability, higher-impact
outcomes. Accordingly, these values are selected from further out in the tail of the distribution of social cost
of CO2 estimates; specifically, these values correspond to the 95th percentile of the frequency distribution of
SC-CO2 estimates based on a 3 per cent discount rate. See https://www.epa.gov/sites/production/files/201612/
documents/sc_co2_tsd_august_2016.pdf, p. 3.
Source: Interagency Working Group on Social Cost of Carbon (2013).
The numbers seem to be in line with the anticipated carbon price in the planning of the EU
emission-trading regime.18 However, the expenses of climate change are more fundamental
than the plain social costs in US dollars. Climate change is capable of triggering positive
feedback loops in nature, which are tripped at various stages of warming with fast to slow
onset. One common feature of these is that they are capable of magnifying the human-
induced impacts of the trends from the accustomed linear or nearly linear line. The melting
of permafrost in the Siberian tundra can, in itself, release methane into the atmosphere
which is comparable to all anthropogenic greenhouse gas emissions since the beginning of
the first industrial revolution (that is, in the last slightly more than 200 years). Several of
such feedback loops interacting and reinforcing each other make the entire externality issue
look qualitatively different. Having feedback loops reinforcing each other can increase the
price of climate change beyond the limits of what can be ‘bought’ by economic tools.
18
According to the European Commission’s Impact Assessment on the EU ETS Directive,
‘[t]he price to be determined in the market is estimated to fall in a range of EUR 20 [. . .] to EUR
33 [. . .] per allowance (tonne of carbon dioxide equivalent). Those prices have to be situated at
the upper end of the likely price range, as the political agreement reached at the Sixth Conference
of the Parties in Bonn in July 2001 made a number of decisions that are likely to bring [. . .]
prices down. The allowance price that will arise on implementation of the Directive is obviously
dependent on the allocation decisions taken at Member State level and changes in other external
variables’ (European Commission (2001), point [26]). Experience of the past fifteen years clearly
confirms these findings, with the carbon price being steadily below €10 since mid-2011.

LEAL-ARCAS_9781786431042_t.indd 436 08/09/2017 13:02

Full decarbonisation of the energy sector is something which seems remote to many,
while we are living under an imperative to achieve it. But what is the timeframe for making
the shift? This question is essential for choosing the best available transition pathways,
and future research will explore this area with the aim of providing a business case for the
most rapid transition possible.
One way of finding the timeline is by looking into the global carbon budget and its
availability – which indicates that emissions related to the global energy sector have
to fall to zero level between 2040 and 2060 if we are to limit climate change to 1.5°C.
This figure also includes carbon removal technologies and does not guarantee that we
will meet those targets. The Intergovernmental Panel on Climate Change (IPCC) in its
recent synthesis report estimates carbon budgets for 1.5°C, 2°C and 3°C – which means
variations and trends in the perturbation of CO2 in the atmosphere, referenced to the
beginning of the industrial era. For each temperature limit, there are three budgets,
according to probability. The first budget provides a 66 per cent probability of staying
below the given temperature, the second a 50 per cent chance, and the third a 33 per
cent chance.19 The IPCC’s synthesis report presented the total carbon budget from the
beginning of the industrial revolution and said what was remaining, as of the begin-
ning of 2011. As of the beginning of 2011, the carbon budget for a 66 per cent chance
of staying below 1.5°C was 400 billion tonnes of CO2. Emissions between 2011 and
2015 mean this has almost halved to 205 billion tonnes. The result is that, as of the
beginning of 2016, five years and two months of current CO2 emissions would use up
the 1.5°C budget.
The combined components of the global carbon budget, illustrated in Figure 23.1 as a
function of time, for emissions from fossil fuels and industry and emissions from land-use
change, as well as their partitioning among the atmosphere, land and oceans, provide a
good picture of where action should be taken.20
Another indicator which gives us the time framework for action – on the level of
perception – is the climate departure index (also known as the point of no return of
climate as we know it), which already provides us with the time when it is too late to live
as before. This is an index that provides a sophisticated calculation of the year after which
the climate will become fundamentally different from historic climate variability in the
past 150 years. Under the business-as-usual scenario, this year is calculated to be 2047,
with large variations across the world, as illustrated in Figure 23.2.21
3. COMMAND-AND-CONTROL MEASURES VERSUS

MARKET-BASED INSTRUMENTS
As discussed above, environmental economics suggests that the external costs of various
activities are to be internalised, incorporated into the mechanisms of the real-world
19
IPCC (2014), pp. 63–4.
20
Le Quéré et al. (2016).
21
Mora et al. (2013) find that using 1860 to 2005 as the historical period, the index has a global
mean of 2069 (±18 years) for the near-surface air temperature under an emissions stabilisation
scenario, and 2047 (±14 years) under a ‘business-as-usual’ scenario.

LEAL-ARCAS_9781786431042_t.indd 437 08/09/2017 13:02

12
Fossil fuels and industry

Land-use change
8
Land
Atmosphere
Ocean
4
CO2 flux (GtC yr–1)
Emissions
Partitioning
–4
–8
–12
1880 1900 1920 1940 1960 1980 2000 2020
Time (yr)
Source: Le Quéré et al. (2016), p. 626, available at: http://www.earth-syst-sci-data.net/8/605/2016/.
Figure 23.1 Illustration of global carbon budget
economy, and the modified price signal will thereby help in getting the right responses.
The two main schools of economics dealing with externalities22 are translated into the
legal concepts of command-and-control measures and market-based instruments.
The relation between the energy and environment sectors is a perfect analytical ground
to investigate the efficiency of such measures. In European legislation, the Industrial
Emissions Directive23 (IED) is the classical example of command-and-control type
22
Apart from the Pigovian taxation model discussed above, another school of thought
emerged in the mid-20th century, which was conceptualised in the Coase theorem – although
Ronald H. Coase, Nobel Prize Laureate in Economics, himself stated that the theorem was very
loosely based on his essay ‘The Problem of Social Cost’ (1960) and that the ‘Coase theorem’ is
not about his work at all. The theorem states that if trade in an externality is possible and there
are sufficiently low transaction costs involved, bargaining will lead to a Pareto-efficient outcome
regardless of the initial allocation of property. Coase himself classified it as a ‘theoretical proposi-
tion’ because he considered that the transaction costs can never be sufficiently low in a real-world
situation to reach a Pareto optimum.
23
Directive 2010/75/EU of the European Parliament and of the Council of 24 November 2010
on industrial emissions (integrated pollution prevention and control), OJ L 334, 17.12.2010, pp.
17–119.

LEAL-ARCAS_9781786431042_t.indd 438 08/09/2017 13:02

439
N
The global mean year of climate departure is 2047. The mean for
W E the tropics (shown in the hatched area) is 2038, compared to
2053 for all other latitudes.
S 2020 2040 2060 2080 2100
Kilometres
0 2000 4000 8000 12000 16000 Year of climate departure
Source: Mora et al. (2013), available at: https://manoa.hawaii.edu/news/article.php?aId56034.

Figure 23.2 Climate departure mean years in selected cities
08/09/2017 13:02
measures, while the Emissions Trading Scheme Directive24 (ETS) and its related legisla-
tion are regulating greenhouse gas emissions via a market-based instrument. The two
directives are mutually exclusive and address different pollutants (SO2, NOx and dust in
the case of the IED and CO2 and other greenhouse gases in the case of the ETS).
The IED was adopted in 2010 as a recast of seven existing pieces of EU environmental
legislation, including the Large Combustion Plants Directive25 which imposed emission
limit values on SO2, NOx and dust from thermal power plants. Chapter III and Annex V
of the IED, imposing stricter emission standards, became the successor of the Large
Combustion Plant Directive (LCPD) as of 1 January 2016 for existing plants. New
plants have already had to meet the tightened requirements of the IED since January
2014.
The chapter on large combustion plants was one of the key topics of the negotiations
on the Commission’s proposal on the IED in the co-decision, and lengthy debates took
place both in the Council and in the European Parliament on this topic. A number of
Member States, in particular those heavily reliant on a prominent fossil fuel-based energy-
generating sector, were unsympathetic to the Commission’s proposal to tighten the emis-
sion limit values for plants with a rated thermal input of 50 MW or more. The original
idea in the Commission’s proposal of lowering the threshold to 20 MW for combustion
plants to be included in Annex I, and hence requiring the application of best available
techniques also for all plants between 20 and 50 MW, was discarded at a rather early stage
of the legislative process.26
In the first reading, this was the prime topic of debate, which is also reflected in the
Council’s Common Position.27 In the final version of the IED, several flexibility instru-
ments were introduced to address those concerns: the possibility of preparing a so-called
Transitional National Plan for existing plants for the period between 1 January 2016 and
30 June 2020; a limited lifetime derogation (opt-out) for existing plants;28 the possibility
of applying a desulphurisation rate rather than emission limit values for sulphur dioxide
for combustion plants firing indigenous solid fuels, and preferable treatment for plants
operating as small isolated systems (that is, on islands).29
The IED requires continuous monitoring of emissions of the pollutants covered
by its scope. Furthermore, it includes binding rules for the operator in cases of non-
24
Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003
establishing a scheme for greenhouse gas emission allowance trading within the Community and
amending Council Directive 96/61/EC, OJ L 275, 25.10.2003, pp. 32–46.
25
Directive 2001/80/EC of 23 October 2001 on the limitation of emissions of certain pollutants
into the air from large combustion plants, OJ L 309, 27.11.2001, pp. 1–21.
26
In 2015, the Medium Combustion Plants Directive (Directive (EU) 2015/2193) was adopted
– with that, this legal loophole was closed.
27
Position (EU) No. 1/2010 of the Council at first reading with a view to the adoption of a
Directive of the European Parliament and of the Council on industrial emissions (integrated pol-
lution prevention and control) (Recast), OJ C 107, 27.4.2010, pp. 106–7.
28
According to Article 30(2) of the Industrial Emissions Directive, combustion plants which
were granted a permit before 7 January 2013, or the operators of which have submitted a complete
application for a permit before that date, provided that such plants are put into operation no later
than 7 January 2014 shall be considered as existing plants.
29
Vajda (2016).

LEAL-ARCAS_9781786431042_t.indd 440 08/09/2017 13:02

compliance30 and requires the Member States to set up effective, proportionate and
dissuasive penalties31 applicable to infringements of the national provisions adopted
pursuant to the Directive. Therefore, under this framework, the incentive for the operator
is to avoid non-compliance and the penalties associated with it.
As regards market-based instruments, the flagship initiative of the EU is the ETS.
According to the European Commission, it is ‘a cornerstone of the EU’s policy to combat
climate change and its key tool for reducing greenhouse gas emissions cost-effectively’.32
Even moderate critics of the ETS, however, admit that in the real world and with particu-
lar regard to the energy sector, the incorporation of externalities faces major challenges.33
It is fair to concede that increased prices with artificially introduced cost elements are not
viewed favourably by those who either sell or buy energy products, thus incorporation of
externalities meets resistance in the economy from all sides. The scale of resistance in the
economy translates to political resistance, which can ultimately undercut the efforts to
internalise the marginal social costs. In the case of climate change associated with energy
production, there would be a steep increase of the costs internalised if policy tools became
effective.
One can argue that the story of the EU ETS scheme is one of design failures, where
external costs are not internalised, despite the aim of the system of a market-based instru-
ment to do so. It can be observed that necessary adjustments of the system were hindered
by political obstructions from some Member States, thus turning a tool into an obstacle
to other policy efforts to ramp up emission reduction in the ETS sector via the so-called
‘waterbed’ effect.
This phenomenon resulted in the situation that in the field of air quality, command-
and-control regulation (in particular the stricter emission standards of the IED) is more
effective in decarbonising the EU ETS sector than the emission-trading system itself,
simply by increasing the investment costs of either the construction of new fossil-fired
thermal power plants or retrofitting old ones, thereby indirectly putting a price tag on
coal, oil and gas and creating a stronger business case for alternative energy generation
facilities.
Would this mean that traditional command-and-control tools fit better for reducing
emissions from the energy sector than market based tools? Command-and-control tools
certainly have a validity in this sector as large-scale point source objects can be easily
monitored and controlled. The competitive edge of the market-based approach is sup-
posed to be that it is cheaper for the industry subject to the limitations. It remains to be
assessed whether the EU ETS in its current, rather complicated form still supports this
early argument. It was certainly easier to enact the original legislation for ETS than a
comparable command-and-control regime from the aspect of political resistance – but in
the past decade it has proven to be ineffective compared to command-and-control style
environmental legislation.
30
Article 8 of the IED.
31
Article 79 of the IED.
32
http://ec.europa.eu/clima/policies/ets_en.
33
Laing et al. (2013).

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4. AN EXAMPLE OF REGIONAL INITIATIVES IN EUROPE –

THE ENERGY COMMUNITY
In the Western Balkans and beyond, the Energy Community is one of the key drivers in
lowering emissions from the energy sector. The Energy Community Treaty brings together
the European Union with the six Western Balkans countries as well as with Moldova,
Ukraine and Georgia.34 The three key aims of this international treaty are establishing
solutions for an enhanced level of security of supply, creating conditions for the better
functioning of energy markets as well as increasing sustainability, thereby providing solu-
tions for each corner of the energy trilemma’s triangle.
When looking at the energy sectors of the Contracting Parties, one can see that the chal-
lenges discussed above are present in the region on a large scale. A study carried out in 2013
by the Energy Community Secretariat found that for most Energy Community Contracting
Parties, the benefits of implementing the requirements of the Large Combustion Plants
and Industrial Emissions Directives outweigh the costs more than 15 times.35 This remark-
able number, also confirmed by other studies in the region,36 clearly indicates that in the
Western Balkans and Eastern European countries, there is a major economic case for
emission reduction. Regardless, the discussion still focuses very much on installing new
coal-fired generation capacities, making use of the domestically available fuel.
Following from what we discussed above regarding the external costs of air pollution,
reducing emissions of SO2, NOx and dust results in a healthier and longer life for individu-
als in a better environment. Therefore, any investment in emission reduction – either via
emission abatement technologies, energy efficiency or alternative generation capacities – is
also an investment in the quality of life of the individual. Since emission reduction comes
at a price, and in many transition economies such as those of the Energy Community
Contracting Parties, citizens are very cost-sensitive, it is vital that these initiatives for emis-
sion abatement receive broad public support. Therefore, research in the educational field
would also be useful with the aim of finding creative and alternative means of communi-
cation to spread this message, especially amongst the socially vulnerable population who
are most likely not to consider environmental factors when making decisions r egarding
the generation and use of energy.
The Energy Community has as yet no binding legislation related to climate change,
although there are positive developments in this direction with the adoption of a
Recommendation on the implementation of the Monitoring Mechanism Regulation for
greenhouse gas emissions at the 2016 Ministerial Council.37 It is clear that since energy on
the one hand, and environment and climate change on the other, are in fact the two sides
of the very same coin, the Energy Community also has to embark on a pathway towards
decarbonisation of the energy sector.
34
Georgia signed the Accession Protocol on 14 October 2016 to become a fully-fledged member
of the Energy Community Treaty. This happened upon ratification of the Accession Protocol by the
Georgian Parliament on 24 April 2017.
35
Energy Community Secretariat (2013).
36
HEAL (2016).
37
Recommendation 2016/02/MC-EnC on preparing for the implementation of Regulation
(EU) 525/2013 on a mechanism for monitoring and reporting greenhouse gas emissions.

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Financing the electricity transition in South East Europe (and in many other parts of
the world) is also a challenge – while renewable potentials are significantly higher in this
region than in Northern Europe, this competitive edge is reduced and diminished by the
significantly higher cost of capital in the region.
5. IS IT REALISTIC TO EXPECT ALTRUISTIC BEHAVIOUR

FROM ENERGY COMPANIES? HOW TO MAKE THEM
INTERESTED IN TRANSITION
It has to be accepted that energy companies are profit-making entities – if they operate
in the market (some of them do not and are only subject to national regulation). At first,
they tried to deny the changing circumstances,38 then attempted to buy time by delaying
significant changes for adapting to the changed competitive situation, in order to maxi-
mize profits. Only a couple of years ago, such changes in the energy industry were still
hard to imagine – they have started nevertheless and are gaining importance. In today’s
Germany, for instance, we already see a significant fall in the share of energy giants in elec-
tricity production, with newcomers filling the gap who are of a different form and scale.
It is undoubtedly a transitional phase, with all the uncertainties that are always involved
in such periods, but the changes are already definitely present. The question is: how long
will they take and how will they be orchestrated?
Similar challenges lie ahead in both the technical and legal management of electricity
networks, including the parallel trends of localisation and new, wider types of coopera-
tion, with the underlying need for balancing intermittent renewables.
In our view, it is not altruistic behaviour which will drive this energy transition but the
framing of success and profit generation, as well as changes in patterns regarding what
creates good investment. Having climate change impacts in the current time horizon,
energy infrastructure investors can no longer deny the impact of climate change on their
profitability and even viability in their anticipated lifetime, or the time needed for receiv-
ing a sufficient return on such investment.
Looked at from a distance, defining pathways for the energy transition needs to factor
in the available time and financial resources for the transformation process. However,
there are vested interests which can distort this picture. From the perspective of economic
actors, it is a fully rational approach to maintain both interests and positions, thus under-
taking the minimum shift of profile necessary for adapting to changing circumstances. If
we look at the energy sector, one can conclude that interests in oil (and to a lesser extent,
in coal) can be shifted towards gas more easily than towards wind and solar generation,
and therefore gas could be more likely imagined as a bridging fuel in energy transition
than any other fossil fuel.
The current gas infrastructure in Europe is sufficiently developed for this bridging
38
It is a widely known practice that energy companies support think tanks, scientific papers
and/or policy briefs that would be sceptical about or would reject the linkages between greenhouse
gas emissions and climate change (see, for instance, Toleffson (2010) and Egan (2015)). This phe-
nomenon is widely linked to the concept externalities and is not specific to the energy sector; it can
be observed in every sector with a prominent externality element.

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period of the energy transition and resistant enough for multiple supply shocks, according
to recent studies and stress tests. However, it shall be noted that this does not hold true
for the South East European region, where further work would be needed to analyse the
optimal transition strategy which might include a greater role for gas development than
in the case of the EU.
Furthermore, it should be kept in mind that state actors influencing the energy transi-
tion process can have interests outside the long-term interests of transition, resulting in
state capture and satisfying rent seeking, which can motivate the preference for large-scale
infrastructures over distributed ones.
6. THE COMPLETE ENERGY TRANSITION – IS IT POSSIBLE

TO HAVE AN ENERGY MIX BASED ON RENEWABLES
ONLY?
Phasing out fossil fuels completely in a few decades seems to be an impossible task,
bearing in mind how much the energy sector as well as the global economy in general rely
on fossil fuels. In the case of the electricity generation segment of the sector, however, it
is easier to see the transition pathway. What is usually not welcome (or sometimes even
not understood) outside of the epistemic community dealing with climate change is that
moving away from fossil fuels is not a choice but an imperative.
The age of enlightenment and the technological revolutions of the industrial age
brought the connotation that humanity can develop and grow our economy without
any limitations, and that, whenever encountering a problem, it can always be resolved
with technological fixes. In the meantime, we have both forgotten about the sources of
our economy as well as the limits of these sources. These limits are brought back, to a
limited extent, by acknowledging externalities of the economic system, but that still fails
to acknowledge the plain reality that there are limited resources on Earth and that the life
support systems of the planet can only endure pollution and disturbance up to a certain
limit. It can be argued that the concept of sustainability which talks about the three
pillars of economy, society and environment is a false concept, as they are not parallel
and equal pillars, but, by the nature of these systems, embedded in each other. Having
such hard limits in front of us after centuries of the perception of unlimited growth is
hard to face and understand. Climate change and the impacts of the energy sector that
are contributing to it are just a segment – although clearly the most important one – of
the basic paradigm shift we are forced to live with. The sustainability of the life support
systems of the planet are challenged on several grounds, but those lie beyond the scope
of the energy sector.
Therefore, in our opinion, 100 per cent renewables is neither a possibility nor a utopia,
but rather a limitation we will have to live with. We have a few decades for preparing to
adapt to this striking new reality or face hardship for a long time with turbulence in all
three systems perceived as the pillars of sustainability. Thus the question is of a different
nature – how could we satisfy our needs with completely renewable electricity? This does
require significant amounts of research and change in the management of the economy,
which provides the boundary conditions to the electricity sector.
At the same time, this question also calls for a deeper examination of the relation

LEAL-ARCAS_9781786431042_t.indd 444 08/09/2017 13:02

between the ruling global economic paradigm, the need for a change to it, and the way
energy law could be a catalyst for that. Tomás Sedláček, in his groundbreaking work
Economics of Good and Evil, notes that ‘[e]ven the most sophisticated mathematical model
is, de facto, a story, a parable, our effort to (rationally) grasp the world around us’.39 He
takes a generally critical view of the current economic paradigm centred around growth
and indebtedness and notes that it was only in the late 18th century when today’s concept
of economics emerged as a mathematical science. Before then, he says, economics lived
within myths, religion, theology and philosophy. He embarks on an interesting journey to
investigate these origins and to reflect what they might mean for the economics of today.
He concludes that instead of viewing maximum growth as the goal of economic policy,
we should focus on pursuing reasonable levels of growth while minimising debt levels
around the world.
The energy sector is a showcase example of indebtedness, as (exponential) economic
growth since the first industrial revolution was, and still is, financed almost exclusively by
fossil fuels. Therefore, externalities and the future costs of climate change mitigation and
adaptation can be seen as a tremendous loan taken on the account of future generations,
who will be held responsible for paying the costs – with interest.
The European Commission’s Resource Efficiency Roadmap40 was a good step in the
direction of recognising this reinvented economic logic; however, with the inauguration
of the Juncker Commission in 2014, this initiative – along with many others – has fallen
victim to the continued pursuit of economic growth as an absolute priority. The Circular
Economy Package, which was adopted as a follow-up to the Roadmap and the Circular
Economy Strategy, only contains waste-related proposals, and discussions on these are
still underway in the Council and the European Parliament.41
In economic science, very interesting concepts are starting to develop along the same
lines of thought as conceptualised by Sedláček,42 which are however not new and there
is already extensive literature on the subject.43 However, as it does not fit with the ruling
paradigm, this school of thought is almost considered as heresy in economists’ circles, and
therefore it is very difficult to secure financing for such research.
7. CONCLUSIONS AND PROPOSALS
Whether talking about the effects of either global or local changes in climate, health
problems caused by air pollutants or the sustainability of our modern lifestyle in general,
39
Sedláček (2011), p. 6.
40
COM(2011)0571 final.
41
http://ec.europa.eu/environment/circular-economy/index_en.htm.
42
See to that effect, among others, Victor (2008), Stiglitz et al. (2009), Rogoff (2012), Antal and
van den Bergh (2013) and Antal (2014).
43
Meadows et al. carried out an assessment upon the mandate of the Club of Rome in the
late 1960s and published their findings in 1972. This was the first important study that indicated
the ecological perils of the unprecedented economic growth since the first industrial revolution.
In parallel, Georgescu-Roegen (1971) studied the Earth’s carrying capacity via mathematical and
statistical models.

LEAL-ARCAS_9781786431042_t.indd 445 08/09/2017 13:02

energy policies and the decisions taken therein always have a major impact. With its long
history in fossil fuel-based energy generation, the European Union had recognised the
environmental problems directly associated with these fuels already at an early stage (in
comparison with other global actors), which resulted in the development of end-of-the-
pipe style environmental legislation from the late 1970s.
Having environmental and climate science providing the framework, we can conclude
that a full transformation of our energy systems is inevitable – along with transformation
of other sectors in this time period globally. It is important to note that other sectors
also need transformation, as such transformations are capital intensive – which can limit
the availability of resources for energy systems transformation from public sources. The
planning and management of the transition requires, beyond political will, a significant
amount of research on the way the transition can be completed with the least cost and
highest efficiency.
The past thirty to forty years have seen a massive change in the way we think about
the generation and use of energy, and the health and environmental consequences that
are directly linked to it. Legislation at European level reflects this shifting mindset, and
this also has a spill-over effect to neighbouring regions via initiatives such as the Energy
Community or EU neighbourhood policy.
It has to be admitted that energy transition is always difficult – even the replacement of
the heating system of a family house is a major exercise, which requires a lot of planning
and a large-scale initial investment, and which might be a major burden for the family
budget. It therefore requires responsible thinking, commitment and a lot of work. In the
end, however, a much better result is to be expected and this is what should always be
borne in mind throughout the implementation of the project.
The European Union has already embarked on the pathway of energy transition and
the authors are convinced that in the mid- to long-term this will prove to be the right strat-
egy. After the historical political agreement in Paris, other major international actors have
started to follow suit, although many uncertainties remain and it is clear that much more
will be necessary than the intended nationally determined contributions delivered in the
Paris Summit.44 The current situation in other countries, in particular developing ones,
allows for them to leapfrog their respective energy transitions, similar to the process wit-
nessed in the telecommunications sector. This leapfrogging, however, has to be managed
properly in order to avoid shocks in the educational, social and employment spheres.
Based on the above, our proposals on future research are the following:
1. It is strongly recommended that further research is carried out on how to manage the
process of energy transition from a comprehensive policy point of view and on what
role EU energy, environmental/climate and economic law should play therein as a
catalyst.
2. Another interesting topic for future research could be exploring the linkages between
44
It is worth noting that the recent announcement of the United States to withdraw from the
Paris Agreement is not likely to have a significant effect on this process. On the contrary and as
it is already visible by now, this rather reinforces the message that much more needs to be done to
combat climate change.

LEAL-ARCAS_9781786431042_t.indd 446 08/09/2017 13:02

energy security (one of the prime targets of any sovereign country), lock-in scenarios
(with investing in even more coal- or other fossil-fuel-fired capacities that would, if
put online, continue dominating the energy sector of countries for many years and
perhaps even decades to come) and climate change as a security threat.
3. There is a pressing need for holistic research combining economic, legal, scientific
and social disciplines with the aim of finding alternatives to the current economic
paradigm and redefining the concept of economic growth, decoupling it from purely
GDP-based indicators. If we accept that endless economic growth is not possible on a
finite planet (which, in the authors’ opinion, is a must), we have to figure out creative
ways to avoid a collapse scenario, inevitably resulting in an all-lose situation.
4. Not independently from the above point, in search of an explanation of the problems
of the current global economic paradigm, research could also turn to a discipline
beyond law, namely medicine and addiction medicine in particular. The authors are
convinced that the global economy is currently addicted to two factors: economic
growth expressed in GDP and the fossil fuels that provide the foundations of this
growth. Coal and other fossil fuels may seem cheap for whatever (political or market-
based) reason that gives imprecise messages about the costs – this does not make them
more sustainable. Reserves may seem infinite and may indeed last for a couple more
decades, but depletion is inevitable at a certain point. If the addict is not to get clean,
he will look after his source of addiction until the very last bit is used up. The longer
we wait to replace fossil fuels in our energy mix, the harder the landing will become.
Assessing the application of practices and treatment solutions from addiction medi-
cine could potentially help us to develop smart solutions in the legal sphere, including
energy and economic law. We can only hope that recent political developments do not
reverse the trend of the addict getting clean.
5. Finally, in our opinion, we are all in this together. Therefore, we have no other option
than to embark on the most challenging task of emission reduction and energy tran-
sition, together with all partners (and competitors), despite political turbulence or
any other hindering factor. This is admittedly a very difficult task and the analogy
of a prisoner’s dilemma comes to mind, whereby game theory concludes it is always
better not to cooperate in a closed setting that involves no communication and just a
limited number of actors. At the same time, it was also concluded by the same theory
that, in the long run, cooperation always pays off better than self-isolation. Therefore,
our final proposal for future research is to combine long-term game theory with the
energy transition model and the toolkits of energy, environmental and economic law,
in the hope of finding mutually agreeable solutions for all stakeholders.
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24. Are smart grids the key to EU energy security?
Filippos Proedrou
1. INTRODUCTION
Deterioration of relations with Russia since 2014 has once again fuelled scepticism as to
the European Union’s energy security. Seen macroscopically, the energy security discourse
in the EU oscillates between threats of supply cuts, dependence on single external sup-
pliers, lack of diversification, high energy prices, perpetuation of fossil energy and the
subsequent inability to form a ground-breaking climate agenda that will decarbonize the
EU economy.1 The proposed Energy Union reflects these priorities by underlining secu-
rity of supply concerns, the further integration of the EU energy market, demand-side
policies, increased energy efficiency, decarbonization of the economy and further research
and innovation.2
In its most recent directive, issued on 30 November 2016, the so-called Winter Package,
the European Commission focuses on the internal market design with an emphasis on the
potential of citizens’ engagement, community energy, self-generation, distributed genera-
tion, and the creation of prosumers’ markets.3 This new approach puts the citizens at the
centre and is inward-looking in the sense that it aims to harness the potential of citizens’
resources to fulfil their energy needs. At the same time, it signals the gradual transition to
a new market, which introduces uncertainty and variability of both energy generation and
consumption, and thus calls for mechanisms to ensure flexibility at all times.
Smart grids have emerged as the omnipotent means to this systemic overhaul. Smart
grids are power networks that utilize two-flow transmission of both energy and informa-
tion with the help of digital technology.4 They optimize assets and operating efficiency,
operate resilience against physical and cyber-attacks, enable new markets, products
and services, and provide high quality electricity supply, including self-healing capacity
from power outages, supply–demand disequilibria and other disturbance events.5 Power
1
Dieter Helm, ‘The European Framework for Energy and Climate Policies’ (2014) Energy
Policy 64.
2
Kacper Szulecki et al., ‘Shaping the “Energy Union”: Between National Positions and
Governance Innovation in EU Energy and Climate Policy’ (2016) Climate Policy; Marco Siddi, ‘The
EU’s Energy Union: A Sustainable Path to Energy Security?’ (2016) The International Spectator 51, 1.
3
European Commission, ‘New Electricity Market Design: A Fair Deal for Consumers’ (2016)
Clean Energy for All.
4
Pravin P Varaiya, Felix F Wu and Janusz W Bialek, ‘Smart Operation of Smart Grid: Risk-
Limiting Dispatch’ (2011) Proceedings of the IEEE 99; Cherrelle Eid, Rudi Hakvoort and Martin
de Jong, ‘Global Trends in the Political Economy of Smart Grids: A Tailored Perspective on
“Smart” for Grids in Transition’ (2016) UNU-WIDER Research Paper wp2016-022. World Institute
for Development Economic Research.
5
Cédric Clastres, ‘Smart Grids: Another Step Towards Competition, Energy Security and
Climate Change Objectives’ (2011) Energy Policy 39, 5400.
450
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Are smart grids the key to EU energy security? 451
markets are hence emerging as powerful energy system integrators, with smart grids
being in the process of effecting sweeping changes across all stages of power generation,
transmission and reserve power and distribution, thus holding great promise for rendering
houses and buildings in general functionally smart and in this way substantially boosting
energy management, conservation and efficiency.6
Smart grids have been most prevalent in the EU, the US and China, albeit motivated
by different policy goals and thus streamlined to different purposes. In the case of the
EU, fulfilling climate goals and rendering energy more affordable, especially in light of
increased import dependency and ensuing high exposure to volatility of international
energy prices, lies behind smart grids’ development. In the US, on the contrary, such moti-
vations have been far from principal. The need to modernize an aging power system and
diminish power outages has led to the deployment of smart grids. In China, meeting the
surge in electricity demand, in conjunction with deteriorating air pollution and modest
climate goals, encouraged the development of smart grids.7
Smart grids, hence, should be seen as multivalent instruments that can be streamlined
to different policy goals, the combatting of climate change being just one of them and
apparent only in the European case.8 In other words, electricity markets are at the heart
of the energy transition and, as such, lend themselves to ‘the innovators’ and designers’
imagination producing market designs and outcomes better aligned with their political
and value preferences’.9
In this chapter, we briefly examine the challenges emanating from the need to design
the new market, and how this will impact on the three dimensions of EU energy security.
Will climate targets and the transition to a cleaner energy system be achieved through
the large-scale deployment of smart grids? Secondly, will smart grids enhance security
of supply, rendering (threats of) supply cuts and problematic access to energy a concern
of the past? Thirdly, will this be done at affordable/manageable costs for the European
consumers, also facilitating the European economy’s competitiveness? The following
sections aim to deal with each of these complex questions. In doing so, they also discuss
the critical trade-offs involved and existing barriers. The concluding section sums up the
findings and enumerates the critical issues that will determine the future impact of smart
grids deployment.
2. SUSTAINABILITY PROSPECTS AMIDST THE FOSSIL

INDUSTRY’S (AWAITED) RETORT
As far as the upstream, generation sector is concerned, smart grids inherently promote
renewable production (not least due to the priority dispatch mechanism) and integrate
different sources of power in the form of virtual power plants.10 In the downstream sector,
6
Matthias Wissner, ‘The Smart Grid – a Saucerful of Secrets?’ (2011) Applied Energy 88.
7
Eid, Hakvoort and de Jong (n 4).
8
Ibid.
9
Albert Bressand, ‘The Role of Markets and Investment in Global Energy’, in Andreas
Goldthau (ed.), The Handbook of Global Energy Policy (Wiley-Blackwell 2013) 25.
10
Jaap Jansen and Adriaan Van der Welle, ‘The Role of Regulation in Integrating Renewable

LEAL-ARCAS_9781786431042_t.indd 451 08/09/2017 13:02

the utilization of digital technology will allow European consumers to systematically

monitor their energy consumption, and adjust it to better fit their needs, either directly
or through their electricity provider. It is normal to expect that rationalization of energy
use will lead to energy conservation and efficiency, amounting to a substantial drop in
energy consumption and hence more sustainable energy use. Smart meters are the indis-
pensable revolutionizing device that allows for critical information on supply, demand,
transmission and real-time consumption to be generated, shared by stakeholders, and lead
to the efficient function of power markets.11 Other devices, such as in-home displays and
in-home automation are also expected to further improve the function of smart grids.12
Furthermore, and in a ground-breaking mode, smart grids will enable consumers
to become producers of energy themselves. On the one hand, this will translate into a
substantial increase of overall renewable power generation that should, accompanied by
energy conservation and efficiency, lead to a reduction in the quantities of fossil energy
imports. This indirect substitution of (mostly imported) fossil energy with clean fuels can
be a far-reaching game-changer. What is more, self-generation will allow energy to be
consumed at the place of its production, thus minimizing leakages and logistics-related
hurdles, taking pressure off the grid and locking in the consumption of renewable energy
as first in line.13 Smart grids can also support distributed generation (micro-generation),
thus realizing the ideal of community energy.
Increasing renewable energy production from individual, household and community
generators can also be linked to the development of storage batteries, crucially including
electric vehicles and in this way also extending to the transportation sector.14 This repre-
sents a crucial spill-over to one of the most polluting sectors of the European economy
and hence can substantially add to further emissions reductions and sustainable energy
use.
While the potential is immense, the deployment of smart grids faces several hurdles.
First of all, power markets remain behind the pace of renewable energy generation; their
regulation, secondly, remains behind the workings of the market and hence strives to deal
with the challenges it poses. An indicative example is that in many cases generation from
renewable energy has been either turned off (wind power) or just lost (solar power) due
to the weakness of the network to store it or balance the load.15
To add insult to injury, renewable energy generation was initially seen as an addendum
to the mainstream fossil energy and supported as such to hedge against supply security
risks and run-away climate change. To the extent it threatens to displace fossil energy,
though, the spectre of stranded fossil assets is bound to provoke strong resistance by
Energy: The EU Electricity Sector’, in Andreas Goldthau (ed.), The Handbook of Global Energy
Policy (Wiley-Blackwell 2013) 325.
11
Wissner (n 6); Soma Shekara Sreenadh Reddy Depuru, Lingfeng Wang and Vijay Devabhaktuni,
‘Smart Meters for Power Grid: Challenges, Issues, Advantages and Status’ (2011) Renewable and
Sustainable Energy Reviews 15.
12
13
Marilyn A Brown and Benjamin K Sovacool, Climate Change and Global Energy Security:
Technology and Policy Options (MIT Press 2011) 22.
14
Ibid 117; Sophia Ruester et al., ‘From Distribution Networks to Smart Distribution Systems:
Rethinking the Regulation of European Electricity DSOs’ (2014) Utilities Policy 31.
15
Wissner (n 6); Eid, Hakvoort and de Jong (n 4).

LEAL-ARCAS_9781786431042_t.indd 452 08/09/2017 13:02

incumbent power producers, as well as lead to the design of competitive market services.
The deployment of micro-LNG grids represents one such response and features as an
efficient way to monetize stranded gas in the near future, fiercely competing with renew-
able energy and smart grids. Crucially, for as long as battery technologies do not improve
to become available at a commercial scale, LNG micro-grids will present the essential
advantage of storage capacity.
The generously rewarded capacity mechanisms, moreover, through which EU member
states retain back-up capacity in case of an emergency, are considered a backdoor to fossil
energy, since they provide a strong rationale for coal- and gas-fired plants to continue their
life-cycle.16 Prioritizing storage capacity in sustainable forms (e.g., electric batteries, elec-
tric vehicles), functional interconnections with neighbouring power networks, real-time
congestion management and built-in flexibility, are all important schemes that can, most
forcefully in conjunction rather than separately, substitute for the capacity mechanism.17
They are also bound, however, to meet with resistance from fossil energy generators and
incumbents who profit from providing back-up capacity.
As a matter of fact, the advance of renewable generation has ironically been matched
with an increase in the consumption of coal in several cases. While renewable investments
have sent signals for depressed demand for oil and gas, their sub-optimal performance
and pricing have led to the return of coal as a preponderant source in the energy mix. The
German example amidst its Energiewende is indicative.18
A more general point regards the conclusion that the more electricity use expands in a
greater number of sectors, the energy carriers feeding the grid become all the more impor-
tant in terms of climate goals. Substituting oil and gas heating with electric heating, for
example, only adds to decarbonization goals in so far as the percentage of coal is kept to
a minimum and the electricity mix becomes greener. On the contrary, the return of coal
together with the expansion of electricity is a daunting combination that will only lead to
adverse results. Electric vehicles charged by coal-fired electricity, it should be stressed, go
against and undermine, rather than serve, sustainability and climate change mitigation
goals.
Furthermore, the entrenched EU first gas policy, with its emphasis on extensive gas
infrastructure (including gas pipelines from Russia, the Southern Gas Corridor, new links
with Caspian gas-producing states and a handful of LNG terminals) sits at odds with
ambitious smart grids deployment. It threatens to lock in gas use for the next decades,
thus applying the brakes to the full potential of renewable energy generation and hence a
rapid decarbonization agenda.19
The contemporary gas glut that makes gas prospects promising is to a significant extent
16
17
Varaiya, Wu and Bialek (n 4); Louis Boscán and Rahmatallah Poudineh, ‘Flexibility-
Enabling Contracts in Electricity Markets’ (2016) Oxford Energy Comment, The Oxford Institute
for Energy Studies 2.
18
Renn Ortwin and Jonathan Paul Marshall, ‘Coal, Nuclear and Renewable Energy Policies in
Germany: From the 1950s to the “Energiewende”’ (2016) Energy Policy 99.
19
Thomas Raines and Shane Tomlinson, ‘Europe’s Energy Union Foreign Policy Implications
for Energy Security, Climate and Competitiveness’ (2016) Chatham House: The Royal Institute of
International Affairs. Europe Programme/Energy, Environment and Resources.

LEAL-ARCAS_9781786431042_t.indd 453 08/09/2017 13:02

underpinned by the shale revolution. Shale gas, nevertheless, is drilled through horizontal
fracking, a method which not only leads to higher emissions than conventional gas, but
is also culpable in respect to dwindling water reserves, contamination of water tables and
the provocation of earthquakes.20 In all, while smart grids are a perfect fit for the EU’s
existing climate agenda and ensuing ambitions to speed up the decarbonization process
in the aftermath of the Paris Agreement that breathed life to a new paradigm of domesti-
cally driven climate action,21 a first gas policy seems to contravene and antagonize their
rapid deployment.
3. STRENGTHENING SUPPLY SECURITY AT THE MEMBER-

STATE LEVEL
Smart grids promise to enhance the European Union’s security of supply by means of
expanding power generation, facilitating energy use rationalization, efficiency and con-
servation, and partially substituting imported, often (perceived as) unreliable fossil energy
for locally-generated renewable energy.
Crucially, smart grids substantially contribute to the Union’s diversification agenda, in
terms of fuels, sources of supply, and routes of supply diversification. This way, overall
dependence on importers and ensuing vulnerability is curtailed, thus giving flesh and
bones to the Energy Union’s vision for low carbon security. 22 Together with, and further
building upon, the progressive completion of the single energy market, the deployment of
smart grids can hedge against supply risks in the least resilient southeast and central and
eastern European markets, which have suffered in the recent past from erratic unilateral
moves by producers (Russia) and been held hostage to producer-transit states controver-
sies (Russia-Ukraine).
Furthermore, smart grids should have a healing effect on the alleviation of energy
poverty and improve access to energy, principally by means of self-generation. Smart
grids also convey an additional advantage when it comes to the physical security of the
power grid. In contrast to the exposure and vulnerability of centralized power generation
and transmission structures to terrorist attacks, the decentralized nature of smart grids
renders any such endeavour meaningless.23 Last but not least, the designated use of elec-
tric vehicles as means of storage will strengthen congestion management of the power
markets, add to their resilience and in this way fortify security of supply.24
This having been said, for electricity markets to provide secure energy at all times,
20
Michael Bradshaw, Global Energy Dilemmas (Polity Press 2014) 61–7; David G Victor, ‘The
Gas Promise’ (2013) ILAR Working Paper 7, 21.
21
Robert Falkner, ‘The Paris Agreement and the New Logic of International Climate Politics’
(2016) International Affairs 92, 1114.
22
Caroline Kuzemko, Michael F Keating and Andreas Goldthau, The Global Energy Challenge:
Environment, Development and Security (Palgrave Macmillan 2015) 111; Filippos Proedrou, ‘EU
Energy Security Beyond Ukraine: Towards Holistic Diversification’ (2016) European Foreign Affairs
Review 21.
23
Brown and Sovacool (n 13).
24
Ruester et al. (14).

LEAL-ARCAS_9781786431042_t.indd 454 08/09/2017 13:02

either supply and demand should be constantly balanced, or adequate storage capacity is
essential. In particular, the intermittent nature of renewable energy has initially stressed
the need for storage and back-up capacity. As renewables penetrate further the energy mix
and are projected to become basic pillars of supply, more effort is placed on achieving the
constant balancing of supply and demand.
This balancing is treacherous and in the case of failure may result in reduced electric-
ity being on offer for certain time intervals, thus eventually endangering rather than
facilitating security of supply and access to energy. A number of market instruments,
which in many cases call for the active participation of consumers and are subsumed
under the umbrella term demand response management, and include, among others, real-
time pricing, decentralized control automation, load-shedding, self-rationing, scarcity
pricing, intra-day markets and new types of contracts, have been designed to address the
challenge.25
For now, the capacity mechanism survives even though the availability of generation
capacity across borders could lead to its drastic reduction. Poor infrastructural intercon-
nection and, most importantly, sub-optimal data availability, exchange and coordination,
mean that in many cases electricity does not flow where it is most needed. On the back of
this reality, member states often resort to national assessments and strategies to minimize
security of supply risks, in this way also further distorting the common market and going
back on its aspirations and potential.26 Germany’s energy policy and its impact on central
European markets is an illustrative case in point.27
4. AFFORDABILITY AND COMPETITIVENESS GAINS IN A

PROSUMERS’ MARKET IN THE MAKING
Smart grids call for massive investments across generation, transmission, distribution and
consumption levels, thus raising the question of the associated costs which will one way or
another be borne by European taxpayers. With the Union in stark need of massive energy-
related investments, their prioritization is a topical issue.28 The need to implement the
transition to low-carbon energy systems amplifies the demand for targeted investments,
but at the same time competes for funding with schemes to replace ageing infrastructure,
put in place new interconnectors and implement projects linking the common energy
market with external suppliers, especially in the gas sector. These projects are inscribed
within the diversification and liberalization agendas of the EU that are seen as crucial for
the EU’s security of supply.
It is imperative to stress though that diversification is rather costly (and hence has been
advanced very sluggishly and only marginally, even by its most vocal proponents, the east
25
Clastres (n 5).
26
David Buchan and Malcolm Keay, ‘EU Energy Policy – 4th Time Lucky?’ (2016) Oxford
Energy Comment. The Oxford Institute of Energy Studies.
27
David Buchan, ‘How to Create a Single European Electricity Market – and Subsidise
Renewables’ (2012) Centre for European Reform Policy Brief.
28
Andreas Goldthau and Benjamin K Sovacool, ‘The Uniqueness of the Energy Security,
Justice, and Governance Problem’ (2012) Energy Policy 41, 235.

LEAL-ARCAS_9781786431042_t.indd 455 08/09/2017 13:02

European member states), since it calls for multi-billion dollar investments on expensive
LNG terminals and (subsea) pipelines. Liberalization and third-party access clauses also
translate into less than full network capacity being utilized in many cases, thus also raising
the bill.29
Contrary to the aforementioned investments, which are merely a replica of business-
as-usual policies (hence retaining associated risks), smart grids can amount to as much
as a Green New Deal, with investments being channelled within the EU economy and
the harnessing of European generation potential, leading to increased employment and,
crucially, recycling the revenues to European prosumers (consumers who produce energy
themselves).30
To begin with, smart grids can bear the dual positive effect of, firstly, lowering energy
bills through self-generation and demand management, as well as, secondly, providing
prosumers with the additional income that will emanate from the energy sold to other
market players (such as energy aggregators, cooperatives and utilities). Since the poorest
part of the population spends a proportionately higher portion of its income on energy,
smart grids should have a soothing effect on their budget, allowing for an increase in their
purchasing power. This is crucial in the context of austerity-plagued Europe, since it can
boost aggregate demand. Smart grids can in this way also bear a corrective distributional
effect on European societies.31
Secondly, smart grids and the associated increase in renewable energy generation
emerge as an important shield from the vagaries and abrupt fluctuations of the inter-
national energy markets. Electricity delivered through integrated smart grids, on the
contrary, is expected to have low price volatility. To deliver on this goal, nevertheless, it
is essential that the system is optimized so that it can absorb at all times the renewable
energy generated, rather than have wind turbines switched off, or solar power lost, as
has been the case on several occasions. The end result can be improved finance for the
corporate sector, which can expedite the Union’s global competitiveness and offset the
trend of carbon leakage.32
For the time being, and absent any major breakthroughs in the field of electricity
storage, the established capacity mechanism generously rewards the generators for reserv-
ing capacity that can be channelled into the power grid at any moment to prevent disrup-
tions. This, however, besides compromising the EU’s climate policy by means of retaining
fossil energy generation, also translates into increased retail prices. The priority dispatch
mechanism, which ensures that renewables enter the market even if this translates into
higher prices, points to yet another trade-off, this time between sustainability and afford-
ability. The EU electricity market is thus fraught with a plethora of subsidies and ensuing
distortions to market signals that do not bode well for overburdened European house-
holds.33 On the other hand, the potential weakness in effectively managing the electricity
29
Yuri Yegorov, Franz Wirl and Jalal Dehvani, ‘Future of Natural Gas in EU: Will Geopolitics
Take Over Economics?’ (2015) IAEE Conference Paper, Antalya, Turkey 11.
30
Filippos Proedrou, ‘A New Framework for EU Energy Security: Putting Sustainability First’
(2016) European Politics and Society.
31
Ibid.
32
Ibid.
33
Buchan and Keay (n 25).

LEAL-ARCAS_9781786431042_t.indd 456 08/09/2017 13:02

load at all times may lead to higher prices, thus endangering the goal of access to energy
at affordable, manageable costs.34
The European Commission has traditionally taken a strong stance against subsidies,
and in this policy context aims to substitute the capacity mechanism with scarcity pricing
so that supply–demand dynamics are clearly reflected and the power markets are allowed
to work optimally. Indeed, balancing the power network through demand response man-
agement mechanisms is a cost-saver since it maximizes the efficiency of the network and
does away with the costly capacity mechanism. This could be ‘a triple win – encouraging
investment, enabling demand response and lessening the need for capacity mechanisms’.35
In practice, though, scarcity pricing is indistinguishable from monopoly pricing and
abuse of a dominant market position. In practical terms, the European Commission has
no competence to constrain member states’ governments and competition authorities
in the case of monopolistic pricing patterns. On the other hand, scarcity pricing sits at
odds with the politics and popularity of price controls. While the European Commission
aspires to create conditions of perfect competition, democratic politics and short electoral
cycles mandate a strong grip on energy prices as a means for governments to protect
themselves from popular discontent. Last but not least, an inherent contradiction in the
European Commission’s thinking is its ambition to have variable wholesale prices but
steady retail prices. It is hard to see how this friction can be resolved.36
In general, the regulatory architecture and the designated prosumers’ market draw from
mainstream neo-classical economics. In this perfect market paradigm, consumers are con-
sidered rational actors and utility maximizers, and no real-life time constraints and infor-
mation limitations are taken into account. Consumers, though, are only bounded rational
actors and operate in a complex world with actual time and information constraints.37
Education and consumer engagement schemes are hence indispensable, with an emphasis
on the most vulnerable social groups, such as seniors, if a fully-fledged prosumers’ market
is to be established and demand response management fully utilized. Demand response
management, especially real-time pricing, flexible contracts and intra-day markets, fur-
thermore, introduce us to a new electricity market where speculation and arbitrage tactics
will be inherent elements. This financialization of electricity markets is also expected to
meddle with supply-and-demand dynamics, at least in the margins.
In the liberalized EU energy market, furthermore, funding and ownership of the smart
grids is a pivotal issue. While it lies with the Distribution System Operators to invest,
this is to the benefit of suppliers and consumers who can rationalize their portfolios, and
authorities who can live up to their climate goals. As a consequence, some kind of com-
pensation will have to be granted to Distribution System Operators to provide a stimulus
for the fully-fledged roll-out of smart grids.38 Crucially, such compensation has be ‘fair’
and ‘efficient’, meaning not only that it does not surpass economic benefits to other actors
in the market chain, but also that it provides significant incentives for investments. It is
34
Ibid.
35
Ibid 3.
36
Ibid.
37
Tony Dolphin and David Nash (eds), ‘Complex New World: Translating New Economic
Thinking into Public Policy’ (2012) Institute for Public Policy Research.
38

LEAL-ARCAS_9781786431042_t.indd 457 08/09/2017 13:02

also essential that such compensation schemes are couched in a public goods provision
and sustainability-targeting language to justify the public expenses involved.39
This argument extends to the deployment of electric vehicles as storage batteries,
including recharging infrastructural investments, which will put upwards pressures on
total investments costs. Also, in juxtaposition to the traditional electricity networks and
fossil energy infrastructure, smart grids are vulnerable to cyber-attacks, this adding a
further layer of expenditure regarding their roll-out. Such costs have to be internalized
and justified as indispensable investments in a cleaner future. If cost-efficiency frame-
works do not justify such projects, cost-effectiveness ones definitely do.40
5. CONCLUSION
To wrap up, the deployment of smart grids emerges as the pivotal political economy issue
for the EU, as it stands in the nexus of energy, politics, markets and the transition to low-
carbon systems. The picture for now remains mixed.
On the one hand, smart grids are indeed emerging as all-powerful systems that can help
achieve all three principal energy security goals. Smart grids integrate renewable sources
in the system, advance overall renewable generation, including self-generation, enable
energy efficiency and conservation, and promise to achieve low carbon security by means
of decreasing the amount of imported fossil energy, in this way also lessening the impact
of the traditional geological, geopolitical and economic risks associated with oil and gas
markets, including exposure to volatile and sky-rocketing global energy prices. Further
co-benefits, such as the empowerment of citizens and a boost of aggregate demand, also
add to the strong case for the full roll-out of smart grids.
On the other hand, smart grids call for high upfront investments, the establishment of
operative markets that necessitate large-scale citizens’ engagement, incentivization and
education, as well as for taking into consideration the voluminous gap between textbook
economics and the economy’s actual workings. Moreover, while realizing the transition
to constantly balanced power loads by means of demand response management is highly
promising, it may also generate a handful of adverse results; it is thus essential to both
appropriately and in-time communicate these likely mishaps to European citizens, and
prepare matching compensatory policy tools.
This all having been said, at the time of writing the EU finds itself in a regulatory void
with a number of critical issues still to be decided. What will be the role of, and the division
of labour among, Transmission System Operators and Distribution System Operators,
in the new energy landscape? How is it possible to further facilitate cross-border power
systems’ coordination and achieve optimal load balancing at an EU-wide scale?
Moreover, how quickly and efficiently will integrated energy services companies emerge
to capitalize on the new developments and improve the function of the market? How will
39
Rolf Wüstenhagen and Emanuela Menichetti, ‘The Influence of Energy Policy on Strategic
Choices for Renewable Energy Investment’, in Andreas Goldthau (ed.), The Handbook of Global
Energy Policy (Wiley-Blackwell 2013) 376.
40
Brown and Sovacool (n 13).

LEAL-ARCAS_9781786431042_t.indd 458 08/09/2017 13:02

the fundamental human-rights-related issue of data privacy, security and management be

reconciled with the deployment of smart grids? Are feed-in tariffs, feed-in premiums, or
other policy tools the most appropriate ways to incentivize a boom in renewable energy
generation? In particular, will an EU-wide carbon tax, or a broader ecological tax reform,
be utilized to facilitate renewable energy generation? What will be the role of energy behe-
moths, energy aggregators, community cooperatives and self-generation in producing,
transmitting and distributing energy?
These issues merit close scrutiny and further research as the decision-making process
evolves. The new rules of the game will be determined by institutional infighting and
intense lobbying competition between the incumbent fossil industry and utilities on the
one hand, and the empowered renewable energy industry on the other, meaning that
research on the interplay of political forces within Brussels and European capitals is
indispensable.

LEAL-ARCAS_9781786431042_t.indd 459 08/09/2017 13:02

25. Renewable energy, waste management and the
circular economy in the EU: solar PV and wind
power
Feja Lesniewska
1. INTRODUCTION
As renewable energy sectors like solar PV, wind and modern biomass mature it is impor-
tant to focus on the environmental, social and economic impacts resulting from the system
infrastructure designs over the course of the entire life cycle. Renewables are perceived as
a clean alternative to the unsustainable fossil fuel economy that is based on a take-make-
dispose rationale, an alternative that can help meet international goals to prevent dangerous
anthropogenic climate change. It is imperative that these new energy systems do not perpet-
uate the traditional, established rationale under the guise of a green low-carbon economy.
One area that has received limited research attention by law and policy scholars is the
issue of end-of-life-cycle waste management in the solar PV and wind energy sectors.1 This
chapter provides an initial survey of the key issues within a broader context of resource
security in the EU. The chapter firstly introduces the growth in renewable energy capac-
ity in the EU as a consequence of climate and energy law and policy. Before providing
an overview of EU waste law a brief section highlights the key issues relating to solar PV
and wind turbine waste management. The following section documents amendments and
proposed revisions to EU waste law to address solar PV and wind turbine end-of-life-cycle
waste. The chapter concludes by considering how the circular economy concept offers a
new rationale to the use of material assets, and considers the value to the r enewable energy
sectors of PV solar and wind power of doing so.
2. EU RENEWABLES ENERGY POLICY
The provision of energy from renewable energy sources has increased significantly in the
EU since the late 2000s. The European Union has prioritised the goal of securing afford-
able and low-carbon energy as a basis for a green economy. It has set aspirational goals and
associated targets to launch an Energy Union beyond 2020.2 To encourage this transition
to a more secure, affordable and decarbonised energy system the EU adopted climate and
energy targets for 2020 and 2030, together with a long-term goal to reduce EU-wide green-
1
Modern bioenergy has received more attention on this issue in relation to debates on sustain-
ability criteria.
2
Noriko Fujiwara, ‘Overview of the EU Climate Policy Based on the 2030 Framework’, in
Raphael Heffron and Gavin Little (eds), Delivering Energy Law and Policy in the EU and the US: A
Reader (Edinburgh University Press 2016).
460
LEAL-ARCAS_9781786431042_t.indd 460 08/09/2017 13:02

Renewable energy, waste management and the circular economy 461
house gas emissions by 80–95 per cent below 1990 levels by 2050.3 In 2014 the EU set the
target to reduce greenhouse gas emissions by at least 40 per cent by 2030 from 1990 levels.4
Investing in and deploying renewable energy is key to achieving this goal. The present
Climate and Energy Package that is being implemented includes a target of 20 per cent for
EU energy consumption to be produced from renewable resources by 2020.5 This target
was revised in the 2030 EU Climate and Energy Package to 27 per cent.6
Directive 2009/28/EC on the promotion of energy from renewable sources was part of
the 2020 Climate and Energy Package.7 This translates the target of a 20 per cent share
of energy from renewable energy sources in overall EU energy consumption by 2020 into
individual targets for each Member State. The individual contributions were calculated
taking into account the Member States’ different starting points and potentials, including
the existing level of energy from renewable sources and the energy mix.8 For the purposes
of the Directive, ‘energy from renewable sources’ refers to energy from wind, solar, aero-
thermal, geothermal, hydrothermal and ocean energy, hydropower, biomass, landfill gas,
sewage treatment plant gas, and biogases.9 Each Member State was required to adopt a
national renewable energy action plan setting out its national targets for the share of renew-
able energy targets and the measures to be taken to achieve these national overall targets.10
The Renewable Energy Directive has promoted investment in renewable energy gen-
eration capacity. The EU-wide share of renewable energy increased from 14.3 per cent
in 2012 to 16.0 per cent in 2014.11 Yet at the Member State level renewable energy shares
vary widely, ranging from over 30 per cent of gross final energy consumption in countries
such as Finland, Latvia and Sweden, to less than 5 per cent in Luxembourg, Malta and the
Netherlands.12 Biomass, used for renewable heating and cooling, represents over half of
all gross final consumption of renewables in 18 Member States. However, the EU renew-
able electricity market sector grew fastest in 2013, driven by sustained growth especially in
the onshore wind and solar photovoltaic (PV) power technologies.13 In 2014, the EU had
the largest installed and connected solar PV capacity in the world (three times bigger than
China) and the largest wind power capacity globally.14 The increase in these renewable
energy sectors is set to continue as Member States aim to meet their targets.
3
European Commission, ‘Energy Roadmap 2050’ COM(2011) 885 final (15 December 2011).
4
Conclusions on 2030 Climate and Energy Policy Framework, SN79/14 (23 October 2014).
5
An Energy Policy for Europe COM(2007) 1 final; and Limiting Global Climate Change to 2
degrees Celsius – The Way Ahead for 2020 and Beyond COM(2007) 2 final.
6
Conclusions on 2030 SN79/14 (n 4).
7
Directive 2009/28/EC of the European Parliament and of the Council on the promotion of
the use of energy from renewable sources and amending and subsequently repealing Directives
2001/77/EC and 2003/30/EC [2009] OJ l 140/16.
8
David Langlet and Said Mahmoudi, EU Environmental Law and Policy (Oxford University
Press 2016) 256.
9
(n 7) Article 2.
10
(n 7) Articles 3 and 4.
11
Renewable Energy in Europe 2016: Recent Growth and Knock-on Effects (European
Environment Agency 2016) No 4/2016 10.
12
Ibid.
13
Ibid.
14
Ibid.

LEAL-ARCAS_9781786431042_t.indd 461 08/09/2017 13:02

3. WASTE STREAMS: SOLAR PHOTOVOLTAIC (PV) AND

WIND TURBINES
The global growth in renewable energy capacity will soon bring end-of-life-cycle waste
management issues to the fore. Planning ahead is necessary to firstly mange the existing
waste stream from established renewables, and secondly to also promote a circular closed
loop approach to the whole life cycle of products to contribute to a green economy.15
Countries need to undertake reforms of existing laws and also develop innovative policy
and regulation to meet these challenges. The stakes are high primarily because renewable
energy – including bioenergy – is far from ‘clean’. As the following section illustrates,
solar PV and wind turbines present environmental and social challenges that need to be
addressed at the end of their operating lifespan.
3.1 Solar PV
Solar PV energy is the third most important renewable energy in terms of installed capac-
ity. The importance to global energy supply of solar is expected to continue to increase
as the costs of technologies fall. Different scenarios expect that solar technologies will
provide between 7 and 18 per cent of the global electricity demand by 2030.16 Based upon
these scenarios, an estimated 7.3–9.5 million tonnes of end-of-life solar PV panels will
need to be dispensed with.17 This is a conservative estimate using the approximate lifespan
of a solar PV module of 25 years. However, new technologies with more efficient solar
PV panels are incentivising the replacement of old PVs prior to the end of their life cycle,
resulting in higher levels of waste than predicted.
Solar PV modules are considered a hazardous waste because of the metals they usually
contain.18 Cadmium, selenium, tellurium, gallium, molybdenum, indium and silicon are
some of the major elements used in these PV cells. As a consequence, there are risks from
solar PVs panels. If not disposed of correctly then hazardous materials could be released,
threatening human health and the environment.19 However, an additional consideration
that could incentivise improved waste management is the fact that several metals con-
tained in PVs are valuable. There are concerns over the future limits in the availability
of these elements. So, arguably, recycling is the most advisable end-of-life strategy to
save the raw materials for future production.20 However, the economics of recycling PVs
15
UNGA, The Future We Want A/RES/64/236 (21 to 22 June 2012); Elisa Morgera and
Annalisa Savaresi, ‘A Conceptual and Legal Perspective on the Green Economy’ (2013) Review of
European, Comparative & International Environmental Law 22(1), 14–28.
16
IRENA, REthinking Energy: Accelerating the Global Energy Transformation (International
Renewable Energy Agency 2017) IRENA, Abu Dhabi.
17
Veronique Monier and Mathieu Hestin, Study on Photovoltaic Panels Supplementing the
Impact Assessment for a Recast of the WEEE Directive, Final Report (14 April 2011), ENV.G. 4/
FRA/2007/0067 6.
18
Nicole McDonald and Joshua M. Pearce, ‘Producer Responsibility and Recycling Solar
Photovoltaic Modules’ (2010) Energy Policy 38(11), 7041–7.
19
Ibid.
20
Pablo Dias et al., ‘Recycling WEEE: Polymer Characterization and Pyrolysis Study for
Waste of Crystalline Silicon Photovoltaic Modules’ (2016) Waste Management 22–30.

LEAL-ARCAS_9781786431042_t.indd 462 08/09/2017 13:02

has proved a disincentive in some cases. A lack of appropriate recovery technology and
human capacity is a major obstacle to the safe recycling of PVs globally.21 This is a serious
concern because, without action, end-of-life waste from solar PVs will increasingly add
to an already significant global electric and electronic goods waste management problem
(including white goods like fridges and washing machines, as well as computers, mobile
phones and other devices), with much of the waste being exported to developing countries
and recycled illegally.22
3.2 Wind Turbines
Installed wind capacity globally has increased 50 times in the past two decades, from 7.7
gigawatts in 1997 to more than 371 gigawatts in 2014. At the end of 2015 Germany and
Spain were in the top five countries in the world for total installed wind power capacity.23
The growth in wind power generative capacity, like solar PV, is only set to increase in the
coming decades with the entry into force of the United Nations Framework Convention
on Climate Change’s Paris Agreement, in which multiple Parties have agreed to increase
renewable energy as a climate change mitigation strategy.
Wind turbines that are installed today will reach the end of their design life after 20
years. Not only is the number of wind turbines being installed increasing, so too is their
size. The scale of wind turbines has increased significantly since they were first introduced
in the late 1970s and early 1980s as a source of renewable energy. According to the Global
Wind Energy Council, by 2008 modern turbines were 100 times the size of those built in
1980.24 Over the same period, rotor diameters have also increased eightfold, with turbine
blades now frequently surpassing 60 metres in length. Given the increase in the adoption
of large-scale wind turbines, it is estimated that by 2034 over 225,000 tonnes of rotor blade
material will need to be recycled annually worldwide.25 This figure will be much greater
now given the increasing installation of large-scale onshore and off-shore wind turbines
globally.
The dismantling and disposal of wind turbines poses a range of waste issues. Although
the average recyclability across modern wind turbines components is approximately 80
per cent by mass (excluding the foundations), the composite wind turbine blades present
challenges for producers.26 Wind turbine blades are made from composite materials
consisting of steel, aluminium, copper, glass fibre, polyester, carbon fibre and epoxy.
Recycling complex composites is inherently difficult to do and consequently not cost
21
Songi Kim and Bongju Joeng, ‘Closed-Loop Supply Chain Planning Model for a Photovoltaic
System Manufacturer with Internal and External Recycling’ (2016) Sustainability 8(7), 596.
22
Shunichi Honda, Deepali Sinha Khetriwal and Ruediger Kuehr, Regional E-Waste Monitor:
East and Southeast Asia (United Nations University 2016).
23
GWEC, Global Wind Report Annual Market Update 2015 (Global Wind Energy Council,
Brussels, 2016).
24
GWEC, Global Wind Energy Outlook 2008 (Global Wind Energy Council, Brussels, October
2008).
25
Tim Joyce, ‘A World Made of Rotor Blades’, No Tech Magazine (8 February 2015), http://
www.notechmagazine.com/2015/02/a-world-made-of-rotor-blades.html.
26
Ruth Cherrington et al., ‘Producer Responsibility: Defining the Incentive for Recycling
Composite Wind Turbine Blades in Europe’ (2012) Energy Policy 47, 13–21.

LEAL-ARCAS_9781786431042_t.indd 463 08/09/2017 13:02

effective at current market rates. In Europe, for example, in 2011 most end-of-life wind
turbine blades were disposed of in landfill or burned in waste incineration plants.27 Such
end-of-life-cycle waste disposal has negative environmental and health impacts. It also
perpetuates inefficient natural resource use that is uneconomic and unsustainable in the
long term.
It is evident from the growth in the installation of solar PV and wind power that as the
first end-of-life phases approach, significant waste management will be required. Given
the EU’s significant installed capacity in wind and solar PV this is an issue that waste
regulators need to address by assessing the appropriateness of existing EU waste law and
considering if amendments are required, or indeed new specific regulation.
4. EU WASTE REGULATION
The EU has an extensive legal framework on waste management.28 The 1975 Framework
Directive on Waste (FDW) laid the foundation for EU waste law. It defined key concepts,
established major principles such as the waste hierarchy, and allocated responsibilities
between different actors: authorities, producers and households.29 Another important
Directive in terms of renewable energy end-of-life-cycle waste is the 1999 Landfill of
Waste Directive. The Directive requires Member States to draft a national strategy for the
implementation of measures to develop a whole life-cycle approach to waste management
and landfills.30 The Directive sets targets to progressively reduce the level of biodegrad-
able waste going to landfill and bans the landfilling of certain hazardous wastes.31 The
overall goal within the EU is to reduce the percentage volume and value of waste being
discarded in landfills. Additional Directives for specific waste streams were subsequently
developed as part of the 1975 FDW. These included the Packaging and Packaging Waste
Directive,32 the End-of-Life Vehicles Directive,33 and the Waste Electrical and Electronic
Equipment (WEEE) Directive.34 Each directive takes forward the FDW waste hierarchy
and extended responsibility principles.
In 2008 a new FDW developed the waste hierarchy and extended responsibilities, espe-
cially for producers. The Directive was based on Article 192(1) of the Treaty Framework
of the European Union. This commits the EU to the protection of the environment
and human health by preventing or reducing the adverse impacts of the generation and
management of waste and by reducing overall impacts of resource use and improving the
efficiency of such use.35 The 2008 Directive advanced the whole life cycle of products and
materials concept and encouraged the recovery of waste and use of recovered materials
27
Ibid.
28
Langlet and Mahmoudi (n 8) 283.
29
Framework Directive on Waste 75/442/EEC [1975].
30
Landfill of Waste Directive 99/31/EC Art 1 [1999].
31
EC Landfill Directive 99/31/EC [1999].
32
Directive 94/62/EC [1994].
33
Directive 2000/53/EC [2000].
34
Directive 2002/96/EC [2002] – recast as Directive 2012/19/EU [2012].
35
Ibid, Article 1.

LEAL-ARCAS_9781786431042_t.indd 464 08/09/2017 13:02

to develop end-of-life-cycle waste criteria for specified waste streams.36 Under the 2008
FDW, top priority should be given to prevention, followed by preparing for re-use, recy-
cling, and other recovery, including energy recovery. Disposal is the least desirable option
and at the bottom of the hierarchy.
The principle of responsibility is expanded under the 2008 FDW. The FDW places
responsibility for waste treatment on the original waste producer. Under Article 15,
Member States can ‘specify the conditions of responsibility and decide in which cases
the original producer is to retain responsibility for the whole treatment chain or in which
cases the responsibility of the producer and the holder can be shared or delegated among
the actors of the chain’.37 This includes that the original waste producer bears the cost
of waste management. Member States may encourage the design of products in order
to reduce their environmental impacts and the generation of waste in the course of the
production and subsequent use of products.38
The trend in the EU is towards the extension of extended producer responsibility to new
products, product groups and waste streams such as electrical appliances and electronics.39
However, the effectiveness of extended producer responsibility within Member States is
variable. Different national applications of the extended producer responsibility principle
lead to substantial disparities in the financial burden on economic operators. Having dif-
ferent national extended producer responsibility interpretations for waste electrical and
electronic equipment hampers the effectiveness of recycling policies. For that reason, in
2012 the Commission proposed that essential criteria needed to be laid down at the level
of the Union, and minimum standards for the treatment of waste electrical and electronic
equipment should be developed.40
Recently EU waste law has increasingly become part of a wider policy discourse
advancing a framework for sustainable production and consumption and the so-called cir-
cular economy. For example, as part of the Circular Economy Package, the Commission
has proposed the addition of an obligation to ensure that by 2030 the amount of munici-
pal waste put into landfill is reduced to 10 per cent of the total amount of such waste
generated.41 The implications of this new discourse framing are yet to fully be appreciated;
however, its significance is considered in the final section below.
5. RENEWABLES: AMENDING EU WASTE REGULATION
The EU has undertaken one substantive initiative in an effort to manage the increase in
end-of-life materials coming from both the solar PV and wind turbine renewable energy
sectors. This major initiative was an amendment to the WEEE Directive that set the
36
Framework Directive on Waste 2008/98/EC [2008].
37
Ibid, Article 15.
38
Ibid, Article 8.
39
OECD, Extended Producer Responsibility – see http://www.oecd.org/env/tools-evaluation/
extendedproducerresponsibility.htm.
40
Recital (6) WEEE (Waste Electrical and Electronic Equipment) Directive 2012/19/EU [2012].
41
Proposal for a Directive of the European Parliament and of the Council amending Directive
1999/31/EC on the landfill of waste (2 December 2015) COM(2015) 594 final.

LEAL-ARCAS_9781786431042_t.indd 465 08/09/2017 13:02

fundamental legal rules and obligation for collecting and recycling solar PV panels in the
European Union.
The WEEE Directive is particularly important in terms of the future management of
end-of-life-cycle waste from solar PV. The purpose of the WEEE Directive is to contrib-
ute to sustainable production and consumption of electric and electronic equipment.
Electric and electronic equipment often consists of numerous precious and scarce metals,
which makes recycling it meaningful economically and environmentally. The WEEE
Directive aims to reduce the amount of electrical and electronic equipment (EEE) being
produced and encourage reuse, recycling and recovery of discarded end-of-life products
so as to reduce the disposal of waste and to contribute to the efficient use of resources
and the retrieval of valuable secondary raw materials.42 The Directive is also intended to
improve the environmental performance of all operators involved in the life cycle of EEE,
for example producers, distributors and consumers, and, in particular, those operators
directly involved in the collection and treatment of waste EEE. Founded on the principle
of extended producer responsibility, the WEEE Directive requires that the original pro-
ducers of goods take back and recycle within the countries of the EU. The Directive places
responsibility for the associated costs of collection, treatment, recycling and recovery on
producers and distributors. End consumers must not face any additional cost at the time
of the disposal.
In January 2012, the European Parliament approved an updated version of the WEEE
Directive on collection targets.43 The amendment addressed the issue of solar PV waste
management. The recast WEEE Directive 2012/19/EU provides a legislative framework
for extended producer responsibility of PV modules at the European level. Most Member
States have revised EEE waste regulation to include solar PV in national law, for example
Spain44 and Italy.45 Under Italian regulation, in order to legally place their products on
the national market, producers of solar PV modules must register in the EEE National
Producers’ Register after joining a collective scheme or having established an individual
system approved by the competent authorities.46 Producers of solar PV modules must
organise and finance the collection and recycling of discarded solar PV modules indi-
vidually or through joining a collective scheme.47 This should create a market to stimulate
value for end-of-life solar PV panels, generating incentives for recycling operators to invest
in the sector throughout the EU, benefiting from the common market.
The principle of producer responsibility could be extended for manufacturers to recycle
wind turbine blades, as has been done so effectively with the WEEE Directive amend-
ment.48 If legislation is introduced within the wind energy industry it is likely to be similar
to end-of-life vehicles legislation that encompasses extended producer responsibility by
introducing set recycling and recovery targets for manufacturers. Independently, Member
42
WEEE (Waste Electrical and Electronic Equipment Directive) 2002/96/EC [2002].
43
WEEE (Waste Electrical and Electronic Equipment Directive) 2012/19/EU [2012].
44
Real Decreto 110/2015, de 20 de febrero, sobre residuos de aparatos eléctricos y electrónicos.
45
Decree n. 49/2014 Attuazione della direttiva 2012/19/UE sui rifiuti di apparecchiature
elettriche ed elettronice (RAEE).
46
Ibid.
47
Ibid.
48
Cherrington et al. (n 26) 24.

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States have adopted measures to deal with the problem of wind turbine blades landfill
dumping. Since 2005 Germany, for example, has enforced a landfill ban for untreated
municipal solid waste. As a result, materials with a high organic content, such as wind
turbine blades with an organic content of 3 per cent, are required to find alternative end-
of-life routes. A review of European waste management policy has shown that landfill
bans effectively divert waste from landfill and promote a drive towards energy recovery.49
Increasingly EU legislation discourages the disposal of waste to landfill, setting steeper
reduction targets, for example the 10 per cent target by 2030 included in the Circular
Economy Plan.50 Wind turbine manufacturers could take the initiative. To drive down
technology costs and increase systems’ efficiencies, manufacturers should invest in
research and development. This in the longer term will reduce any economic penalties
resulting from the enforcement of legislation.51
The interventions to date to address the problems associated with waste from the solar
PV and wind power renewable energy sectors continue approaches adopted by the EU
FDW. The amendments to the WEEE Directive to increase recycling of solar PV panels
and proposals to limit the discarding of wind turbine blades in landfills are important
steps to manage the end-of-life waste from these renewable energy sectors. Yet the regu-
lations fail to address the limitations of the ‘linear economy’, where waste is tolerated
alongside the environmental and climate change impacts. A new model is needed, and the
EU has begun that initiative with the Circular Economy Action Plan.
6. THE CIRCULAR ECONOMY: CLOSING THE RENEWABLE

ENERGY WASTE LOOP
The circular economy, also known as a ‘closed loop’ economy, is an industrial and social
evolutionary concept that pursues holistic sustainability goals through a culture of no
waste. In a circular economy, the end-of-life stage of products and materials must be
replaced by restoration.52
Reducing waste is at the core of the circular economy model: closing the loop.53 It is a
concept that recognises the continuous potential value of materials in an effort to reduce
resource inefficiency in production and consumption. A circular economy requires a
transformation of both production and consumption systems; the standard approach
for creation, fabrication and commerce of products. The EU is heavily dependent on
imported raw materials, especially metal ores and non-metallic minerals that are found in
49
Ibid.
50
Proposal for a Directive of the European Parliament and of the Council amending Directive
1999/31/EC on the landfill of waste (2 December 2015) COM(2015) 594 final.
51
Katherine Ortegon, Loring Nies and John Sutherland, ‘Preparing for End of Service Life of
Wind Turbines’ (2013) Journal of Cleaner Production 39, 191.
52
Irel Carolina De los Rios and Fiona Charnley, ‘Skills and Capabilities for a Sustainable and
Circular Economy: The Changing Role of Design’ (2016) Journal of Cleaner Energy Production 1,
14.
53
Communication from the Commission to the European Parliament, Closing the Loop – An
EU action plan for the Circular Economy, COM(2015) 614, Brussels 2.12.2015.

LEAL-ARCAS_9781786431042_t.indd 467 08/09/2017 13:02

EEE. The design of a product directly influences the way a value chain will be managed;
building circular, globally sustainable value chains inevitably signifies a fundamental
change in the practice of design.54
In 2017 the EU Commission will publish a report on critical raw materials and the cir-
cular economy with a view to developing material-efficient recycling of electronic waste,
waste batteries and other relevant complex end-of-life products.55 A monitoring frame-
work will also be proposed. With the rapid transition to renewable energy systems under
solar PV and wind set to increase with the 2030 EU Climate and Energy Package, greater
efforts need to be made to incorporate circular economy principles into systems infra-
structure design. The EU is leading the way, but there needs to be a coherent approach
if the loop of renewable energy waste from solar PV and wind turbines is to be closed in
the long-term.
7. CONCLUSIONS
End-of-life waste from solar PV and wind turbines is set to increase significantly as global
renewable energy capacity continues to expand, driven by international and national
climate change and energy priorities. The EU as a leader in both solar PV and wind power
capacity is starting to address the problem using its established FDW. Amendments to
the WEEE Directive in 2012 and subsequent reforms to Member States’ domestic law
has established extended producer responsibility to solar PV panel providers. New targets
to reduce landfill waste to 10 per cent of the total amount of waste generated are aimed
at incentivising the processing of materials higher up the waste hierarchy, for example
through recycling. However, a specific link to wind turbines is needed, including extended
producer responsibility for this to directly reduce the discarding of blades.
The EU’s law and policy interventions lack long-term vision. Despite the FDW’s
waste hierarchy principle, the Directive is based on and perpetuates a linear approach
to resource use. With an increasing world population, and rising material standards of
living, including renewable energy demand, the phenomenon of resource scarcity could in
the near future undermine the EU’s economic competitiveness, especially given its import
dependency on primary materials like metal ores. In the long term, policy- and law-makers
need to work alongside designers to achieve a circular economy, one in which the value
chain is sustainable and materially efficient. Incorporating this approach into the renew-
able energy sector including solar PV and wind turbines, as much as bioenergy, is needed
as soon as possible if a take-make-dispose rationale is to be avoided in the low-carbon
green economy. Achieving this will require investment not only in technical, engineering
and design aspects, but also in law and policy to develop systems that ‘close the loop’.
54
De los Rios and Charnley (n 52).
55
Annex 1 Communication from the Commission to the European Parliament, Closing the
Loop – An EU action plan for the Circular Economy, COM (2015) 614, Brussels 2.12.2015 3.

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26. The role of renewable energy law and policy in
meeting the EU’s energy security challenges
Penelope Crossley
1. INTRODUCTION
By any objective measure, the European Union (EU) has a serious energy security
problem. It is the largest importer of energy in the world1 and has consistently had
energy dependency rates of over 50 per cent for the past ten years,2 with very high levels
of market concentration among the few countries that supply the majority of the EU’s
energy imports.3 This makes the EU vulnerable in the event of supply shocks or price
volatility. However, the challenges with energy security are not homogenous across
the 28 EU Member States, as they have differing indigenous fossil fuel and renewable
energy sources, energy mixes and political and economic circumstances. Accelerating
the deployment of renewable energy to reduce energy import dependency and to diver-
sify the national energy mix is often mooted as a potential solution to this problem.4
However, given the scale of the problem and that energy policy is a shared competence
under Article 194 of the Treaty for the Functioning of the European Union, meeting the
disparate challenges faced by the EU-28 while managing their individual and collective
interests is likely to prove difficult.
Section 2 of this chapter will begin by examining the complex and multi-dimensional
nature of ‘energy security’, before considering how the EU’s definition of energy secu-
rity has changed over time. Section 3 will then analyse the energy security challenges
faced by the European Union, while section 4 will evaluate the role that renewable
energy has played to date in assisting to meet those challenges. Section 5 of the chapter
will then consider the development of European renewable energy law, with section
6 examining some of the recent developments within EU energy law and policy that
are most relevant to renewable energy and energy security. The chapter will conclude
in section 7 with an assessment of whether the proposed shift towards ‘coordinated
cooperation’ in renewable energy is likely to be the solution to the EU’s energy security
concerns.
1
Eurostat, ‘The EU in the world – energy’ (European Commission, 17 August 2016) http://
ec.europa.eu/eurostat/statistics-explained/index.php/The_EU_in_the_world_-_energy (accessed 12
December 2016).
2
Eurostat, ‘Energy Production and Imports’ (European Commission, 21 September 2016) http://
ec.europa.eu/eurostat/statistics-explained/index.php/Energy_production_and_imports (accessed 12
December 2016).
3
Ibid.
4
See e.g., Samantha Olz, Ralph Sims and Nicholai Kirchner, ‘Contribution of Renewables to
Energy Security’ (International Energy Agency, 2007).
469
LEAL-ARCAS_9781786431042_t.indd 469 08/09/2017 13:02

2. WHAT IS ENERGY SECURITY?
Energy security is a complex and multi-dimensional concept, whose characterisation is

highly context dependent. The International Energy Agency has defined energy security
to mean a situation where energy supply is ‘adequate, affordable and reliable’.5 Barton
et al. have defined it as ‘a condition in which a nation and all, or most, of its citizens
and businesses have access to sufficient energy resources at reasonable prices for the
foreseeable future free from serious risk of major disruption of service’.6 While, Jonsson
et al. have stated that ‘energy security’ may include ‘[. . .] aspects such as security of
supply, security of demand, affordability issues and revenues from energy, geopolitical
considerations associated with security and defense policy, other political risk factors,
economic risk factors and energy poverty, as well as technological and environmental
factors’.7 Yet even Jonsson’s very comprehensive definition, arguably fails to consider
the important aspects of competition law and international trade law given the key role
bilateral and multilateral trade deals play in securing supply.8 Thus, as can be seen by
these range of definitions, the definition of ‘energy security’ has long been contested,
with different parties advocating for the prioritisation of different elements, depending
upon the context in which the term is being used. Indeed, it is arguable that attributing
meaning to the term ‘energy security’ is a clear example of a situation in which defining
the problem is a politically mediated process, which also delimits the range of potential
solutions.
2.1 The EU Definition of ‘Energy Security’
The European Union has adopted a number of different definitions of ‘energy security’
over time, reflecting their increasing dependence on imported fossil fuels, their changing
policy focus and the growing volatility of international energy markets. In its 2000 Green
Paper, ‘Towards a European strategy for the security of supply’, the Commission adopted
a broad definition of ‘energy security’, stating, ‘energy supply security must be geared to
ensuring . . . [t]he 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’.9 More recently,
in its 2014 ‘In-depth study of European Energy Security’, the Commission departed
from its previous consideration of environmental concerns and sustainable development
within its definition of ‘energy security’, adopting the far narrower definition of energy
5
Ibid, 13.
6
Barry Barton et al. (eds), Energy Security: Managing Risk in a Dynamic Legal and Regulatory
Environment (Oxford University Press, 2004) 5.
7
Daniel K. Jonsson et al., ‘Energy Security Matters in the EU Energy Roadmap’ (January
2015) 6 Energy Strategy Reviews 48.
8
See e.g., Rafael Leal-Arcas, ‘How Governing International Trade in Energy Can Enhance EU
Energy Security’ (2015) 6(3) Renewable Energy Law and Policy 202; Rafael Leal-Arcas, Costantino
Grasso and Juan Alemany Ríos, Energy Security, Trade and the EU: Regional and International
Perspectives (Edward Elgar Publishing, 2015).
9
European Commission, Green Paper: Towards a European strategy for the security of
energy supply, COM(2000) 769 final, 29 November 2000.

LEAL-ARCAS_9781786431042_t.indd 470 08/09/2017 13:02

The role of renewable energy law and policy 471
security as the ‘uninterrupted access to energy sources at an affordable price’.10 This

change to the definition of ‘energy security’ adopted by the European Commission is not
a matter of mere semantics, but, as will be shown in this chapter, reflects the changing
direction of the European Union as to how it will address its energy security concerns.
This is shown by the increased emphasis given in the recent Energy Security Package
(2016) to improving the diversity of suppliers, supply routes and transport mechanisms
for imported gas, and international energy diplomacy, while reducing the emphasis given
in at least the short-term to increasing the deployment of indigenous sources of renew-
able energy.11 This may reflect the changing nature of the energy security problems faced
by the European Union.
3. THE ENERGY SECURITY CHALLENGES FACED BY THE

EUROPEAN UNION
While the problem of energy security is not unique to the European Union, the EU is the
third-largest consumer of energy in the world12 and the largest energy importer.13 This
means that global issues, which have led to an increased emphasis on energy security in
other countries, have had a pronounced effect within the EU. For example, there have been
growing concerns expressed about the vulnerability of Europe given the heavy depend-
ence on Russian oil and gas, particularly in light of past, and more recent, conflicts with
the Ukraine.14 Equally, the sectarian violence in parts of the Middle East such as Iraq
and Syria, concerns about Iran’s nuclear programme and events such as the Arab Spring
have led to anxieties about supply disruptions.15 Further issues are being created by the
‘grab for resources’ by China and India as they seek to secure access to foreign sources of
supply to meet their rising energy demand.16
Indeed in 2014, the EU imported 53.5 per cent of its total annual energy consumption,17
at a cost of over €1 billion per day.18 The dependence of the EU on energy imports is not
10
European Commission, ‘European energy security strategy – In-depth study of European
Energy Security’, SWD(2014) 330 final, 3.
11
European Commission, ‘European Energy Security Strategy’ COM(2014) 330 final, Brussels,
28 May 2014.
12
See n1.
13
Ibid.
14
See e.g., Karen Smith Stegen, ‘Deconstructing the “Energy Weapon”: Russia’s Threat to
Europe as Case Study’ (2011) 39(10) Energy Policy 6505; Philipp M. Richter and Franziska Holz,
‘All Quiet on the Eastern Front? Disruption Scenarios of Russian Natural Gas Supply to Europe’
(2015) 80 Energy Policy 177.
15
See e.g., Luca Franza and Coby Van Der Linde, ‘Geopolitics and the Foreign Policy
Dimension of EU Energy Security’ in Svein S. Andersen et al. (eds), Energy Union (Palgrave
Macmillan UK, 2017) 85–98.
16
Gawdat Bahgat, ‘Europe’s Energy Security: Challenges and Opportunities’ (2006) 82
International Affairs 961.
17
See n2.
18
European Commission 2016, Imports and Secure Supplies: Diverse, affordable and reliable
energy from abroad, http://ec.europa.eu/energy/en/topics/imports-and-secure-supplies (accessed 11
December 2016).

LEAL-ARCAS_9781786431042_t.indd 471 08/09/2017 13:02

a new phenomenon, with the EU consistently importing over 50 per cent of the energy it
has consumed annually since 2004.19 Further, despite considerable national differences in
energy import dependency rates, all EU Member States are now net energy importers.20
The reliance of the EU on energy imports is particularly pronounced for crude oil and
petroleum products (88.2 per cent dependency) and for natural gas (67.4 per cent depend-
ency), although both coal and other solid fuels, and uranium and other nuclear fuels,
have import dependency rates of over 40 per cent of total consumption.21 The extent
of the reliance on imported fuels is even more severe within the transportation sector,
with 94 per cent of transport within Europe being oil dependent, of which 90 per cent
is imported, making it highly vulnerable to supply shocks and price volatility.22 If either
of these events were to occur, they would present serious follow-on effects for all other
areas of the European economy. Despite the seriousness of these issues, the EU’s level of
energy import dependency is set to worsen over the coming years, with the EU predicted
to import 95 per cent of its total oil consumption, 85 per cent of its total gas consumption
and 60 per cent of its total coal consumption by 2030.23
While import dependency in and of itself is not a problem per se,24 the market
concentration of countries that supply fossil fuels to the EU and the growing global
demand for energy does represent a significant source of concern. In 2014, almost 70
per cent of the EU-28’s imports of natural gas, and 43.5 per cent of crude oil imports,
came from either Russia or Norway.25 Meanwhile, 70.7 per cent of solid fuels imported
into the EU originated in either Russia, Colombia or the United States.26 The extent
of the problem of energy import dependency becomes even starker when national
dependency rates are studied. In 2014, Malta recorded an energy import dependency
rate of 97.7 per cent, Luxembourg 96.6 per cent, Cyprus 93.4 per cent, Ireland 85.3 per
cent and Belgium 80.1 per cent,27 while a further six EU Member States were entirely
dependent on Russia for their natural gas supplies.28 These statistics highlight that EU
Member States are vulnerable to disruption either in the supply of specific fuels or
19
See n2.
20
Ibid.
21
Ibid.
22
G. Quinti et al., ‘European Distributed Renewable Energy Case Studies’ in Max Gruenig
and Patrizia Lombardi (eds), Low-carbon Energy Security from a European Perspective (Academic
Print, 2016) 170.
23
G. Cotella and S. Crivello, ‘The Macroregional Geopolitics of Energy Security: Towards a
New Energy World Order?’ in Max Gruenig and Patrizia Lombardi, Low-carbon Energy Security
from a European Perspective (Academic Press, 2016) 84.
24
See e.g. the discussion in n7, 49–50.
25
Eurostat, ‘Main origin of primary energy imports, EU-28, 2004–14’ (European Commission,
28 July 2016), http://ec.europa.eu/eurostat/statistics-explained/index.php/File:Main_origin_of_pri
mary_energy_imports,_EU-28,_2004%E2%80%9314_(%25_of_extra_EU-28_imports)_YB16.png
26
Ibid.
27
Eurostat, ‘Energy dependency in the EU’ (European Commission, 4 February 2016), http://
ec.europa.eu/eurostat/documents/2995521/7150363/8-04022016-AP-EN.pdf/c92466d9-903e-417c-
ad76-4c35678113fd (accessed 7 December 2016).
28
European Commission, ‘A Framework Strategy for a Resilient Energy Union with a
Forward-Looking Climate Change Policy’ COM(2015) 80 final, 25 February 2015, 2.

LEAL-ARCAS_9781786431042_t.indd 472 08/09/2017 13:02

from specific suppliers. The European Commission has identified the less integrated
and interconnected regions of the Baltic States and Eastern Europe as particularly
vulnerable in this regard.29
Within these highly energy import dependent and the less integrated and intercon-
nected countries, diversifying the energy mix may be beneficial. Such a move would lessen
‘technological risks, secure additional reliability benefits, support the expansion of the
renewable energy industry, spread the local benefits around geographically, advance less
mature technologies so that they are less costly when other lower-cost technology poten-
tial is tapped out, or respond to the expressed preferences of the public’.30 It would also
help the European Union to meet their ambitious target of achieving an 80 to 95 per cent
reduction in greenhouse gas emissions compared to 1990 levels by 2050.31 These benefits
would not be confined to the countries that increase their proportion of renewable energy
within their national energy mix but may also provide benefits to neighbouring countries,
if the EU’s planned electricity interconnection target of 15 per cent between EU countries
by 2030 is met.32
However, as shown in Table 26.1 the 28 EU Member States are not homogenous, with
huge disparities evident in the fuel mix used and the levels of energy dependence between
different Member States.
In contrast to the highly energy import dependent countries, in 2014 Estonia only
imported 8.9 per cent of its total energy consumption, while Denmark imported 12.8 per
cent and Romania 17 per cent.33 Further, Siddi has noted that ‘some member states, most
notably Hungary, do not show particular concern for the EU’s dependence on Russian
energy supplies and feel that the Energy Union could be a hurdle to future deals with
Russia’.34 He also notes that ‘due to the current low prices of fossil fuels and the costs of
transition to a low carbon economy, many of the EU’s East European members consider
the decarbonisation of their economy unaffordable and are reluctant to endorse policies
in favour of renewable energy and energy efficiency’.35 This is likely to be a particular
problem for countries such as Estonia, Poland, the Czech Republic and Bulgaria, for
whom coal is a key fuel source for electricity generation.36 This may increase resistance
to any steps taken to try and either softly converge or harmonise the regulatory support
mechanisms used to encourage the increased deployment of renewable energy, as research
has shown that within Europe, ‘the larger a country’s carbon emissions, the smaller
29
European Commission, ‘European Energy Security Strategy’ COM(2014) 330 final, 28 May
2014, 2.
30
Robert C. Grace, Deborah A. Donovan and Leah L. Melnick, When Renewable Energy
Policy Objectives Conflict: A Guide for Policymakers (National Regulatory Research Institute, 2011)
4, http://regulationbodyofknowledge.org/wp-content/uploads/2013/09/Grace_When_Renewable_
Energy.pdf (accessed 3 January 2017).
31
European Commission, Energy Roadmap 2050, COM(2011) 885 final, 15 December 2011, 2.
32
to 2030’ COM(2014) 15 final, Brussels, 22 January 2014.
33
See n27.
34
Marco Siddi, ‘The EU’s Energy Union: A Sustainable Path to Energy Security?’ (2016) 51
Italian Journal of International Affairs 131, 132.
35
Ibid.
36
Ibid.

LEAL-ARCAS_9781786431042_t.indd 473 08/09/2017 13:02

Table 26.1 The levels of energy dependency among the EU Member States, their share
of energy from renewable sources in their gross final consumption of energy
and their 2020 renewable energy target
Energy Share of energy Share of energy from Renewable energy

dependency, from renewable renewable sources target for 2020b
2014a sources in gross final in gross final
consumption of consumption of
energy, 2004b energy, 2014b
EU 53.5% 8.5% 16% 20%
Belgium 80.1% 1.9% 8% 13%
Bulgaria 34.5% 6.2% 18% 16%
Czech Republic 30.4% 5.9% 13.4% 13%
Denmark 12.8% 14.9% 29.2% 30%
Germany 61.4% 5.8% 13.8% 18%
Estonia 8.9% 18.4% 26.5% 25%
Ireland 85.3% 2.4% 8.6% 16%
Greece 66.2% 6.9% 15.3% 18%
Spain 72.9% 8.3% 16.2% 20%
France 46.1% 9.4% 14.3% 23%
Croatia 43.8% 23.5% 27.9% 20%
Italy 75.9% 6.3% 17.1% 17%
Cyprus 93.4% 3.1% 9% 13%
Latvia 40.6% 32.8% 38.7% 40%
Lithuania 77.9% 17.2% 23.9% 23%
Luxembourg 96.6% 0.9% 4.5% 11%
Hungary 61.1% 4.4% 9.5% 13%
Malta 97.7% 0.1% 4.7% 10%
Netherlands 33.8% 2.1% 5.5% 14%
Austria 65.9% 23.3% 33.1% 34%
Poland 28.6% 6.9% 11.4% 15%
Portugal 71.6% 19.2% 27% 31%
Romania 17% 17.0% 24.9% 24%
Slovenia 44.6% 16.1% 21.9% 25%
Slovak Republic 60.9% 6.4% 11.6% 14%
Finland 48.8% 29.2% 38.7% 38%
Sweden 32% 38.7% 52.6% 49%
United Kingdom 45.5% 1.2% 7.0% 15%
Sources: a Eurostat, ‘Energy dependency in the EU’ (European Commission, 4 February 2016),
http://ec.europa.eu/eurostat/documents/2995521/7150363/8-04022016-AP-EN.pdf/c92466d9-903e-
417c-ad76-4c35678113fd. b Eurostat, ‘Renewable energy in the EU’ (European Commission, 10
February 2016), http://ec.europa.eu/eurostat/documents/2995521/7155577/8-10022016-AP-EN.
pdf/38bf822f-8adf-4e54-b9c6-87b342ead339.
their commitment to renewables tends to be’.37 These factors explain why for many EU
countries, energy policy and energy security are predominantly considered to be national
37
Antio Marques, Jose Fuinhas and J.R. Pires Manso, ‘Motivations Driving Renewable
Energy in European Countries: A Panel Data Approach’ (2010) 38 Energy Policy 6877, 6833.

LEAL-ARCAS_9781786431042_t.indd 474 08/09/2017 13:02

c oncerns. It also explains why the EU’s stated aim in tackling their energy security con-
cerns of ‘. . . a more collective approach through a functioning internal market and greater
cooperation at regional and European levels, in particular for coordinating network
development and opening up markets, and second, in a more coherent external action’,38
is likely to be challenging. This issue was identified by Gruenig et al. when they stated:
the diversification of energy sources and imports and the promotion of self-reliance are at the
core of EU energy strategies, but the way in which directives are filtered down to Member States
and regions makes it difficult to achieve these diversification and self-reliance goals [. . .] The
process for achieving this is still evolving and the result is far from being achieved.39
4. THE DEVELOPMENT OF EU RENEWABLE ENERGY LAW
Within Europe, countries have traditionally exercised national sovereignty over the field
of energy law and policy. Indeed, prior to the ratification of the Lisbon Treaty in 2009,
the EU did not have a ‘shared competence’ between the Union and the Member States in
the field of energy.40 Instead, it had to rely on more general shared competences, such as
those relating to the internal market and the environment, in order to exert indirect influ-
ence over the energy sector. This lack of a specific shared competence affected the options
available to the European Parliament and European Commission when they began to
tackle energy security and support the accelerated deployment of renewable energy.41
4.1 The History of the Renewable Energy Directives42
The origins of the first attempt to create an EU renewable energy law are found within
the 1995 Energy White Paper43 and the 1996 Green Paper, ‘Energy for the Future’. The
latter document argued for ‘a stable and Community wide framework for renewable
energy sources’.44 Then, in 1997, the Commission outlined the first common European
policy strategy dealing with renewable energy, in which it proposed the establishment of
38
European Commission, ‘European Energy Security Strategy’, COM(2014) 330 final, 28 May
2014, 3.
39
M. Gruenig, P. Lombardi and B. O’Donnell, ‘Challenging the Energy Security Paradigm’
in Max Gruenig and Patrizia Lombardi (eds), Low-carbon Energy Security from a European
Perspective (Academic Press, 2016) 7.
40
Treaty on European Union [2009] OJ C 115/13; Treaty on the Functioning of the European
Union [1992] OJ C 115/199.
41
David Jacobs, Renewable Energy Policy Convergence in the EU: The Evolution of Feed-in
Tariffs in Germany, Spain and France (Ashgate Publishing, 2012), 29.
42
Sections 3.1 and 3.2 are derived in part from the chapter on ‘The future development of
regulatory support mechanisms – unification, harmonisation, convergence, divergence or regula-
tory competition?’ in Penelope Crossley, Renewable Energy Law: An International Assessment
(Cambridge University Press, 2017 (forthcoming)).
43
Commission of the European Communities, An Energy Policy for the European Union,
COM(95) 682 final, 13 December 1995.
44
Commission of the European Communities, Energy for the Future: Renewable Sources of
Energy, COM(96) 576 final, 20 November 1996, 28.

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a non-legally binding goal of doubling the share of renewable energy to 12 per cent by
2010.45 The first draft of what would later become the Renewable Energy Directive was
released in October 1998. The draft Directive proposed that a Europe-wide quota-based
green certificate scheme be established and that the use of feed-in tariffs (FITs) to encour-
age the deployment of renewable energy be prohibited.46 This proposal was strongly
supported by some of the early adopters of green certificate schemes, such as the United
Kingdom;47 however, it also faced staunch opposition from both Germany and Spain,
which both had FIT schemes in place.48 This opposition was compounded in 2001 when
the European Court of Justice held in PreussenElektra v Schleswag49 that the German
feed-in law, which the Commission had referred to the Court for its assumed breach of
European competition law and the principles governing the liberalisation of the European
electricity market, was not incompatible with EU law.
These factors led to the final version of the 2001 Directive on Electricity Production
from Renewable Energy Sources.50 This Directive fixed indicative renewable energy
targets for each Member State to achieve by 2010 but in accordance with the principle
of subsidiarity; Member States were able to select the most appropriate support mecha-
nism to achieve those targets. The support schemes adopted by Member States were to
be reviewed in accordance with Article 4 of the Directive by 2005, and if necessary, be
‘accompanied by a proposal for a Community framework with regard to support schemes
for electricity produced from renewable energy sources’.51
In December 2005, the review into the support schemes adopted by the Member States
to support renewable electricity was delivered,52 which formed the basis of the revisions
that were eventually incorporated into the 2009 Directive. In 2007, a target of 20 per cent
of energy consumption to come from renewable energy sources by 2020 was approved.53
This became a central tenet of the 2009 Directive, which abrogated the 2001 Directive.54
In an early leaked draft of the 2009 Directive, the Commission proposed unrestricted
45
European Commission, Energy for the Future: Renewable Sources of Energy – White Paper
for a Community Strategy and Action Plan, COM(97) 599 final, 26 November 1997, 10.
46
Francesc Morata and Israel Solorio Sandoval (eds), European Energy Policy (Edward Elgar,
2012) 75–6.
47
Roger Hildingsson, Johannes Stripple and Andrew Jordan, ‘Governing Renewable Energy in
the EU: Confronting a Governance Dilemma’ (2012) 11 European Political Science 18, 21.
48
Ibid; see n46, 79.
49
[2001] EUECJ C-379/98.
50
Directive 2001/77/EC of the European Parliament and of the Council of 27 September 2001
on the promotion of electricity produced from renewable energy sources in the internal electricity
market [2001] OJ L 283.
51
Directive 2001/77/EC of the European Parliament and of the Council of 27 September 2001
on the promotion of electricity produced from renewable energy sources in the internal electricity
market [2001] OJ L 283 Art 4(2).
52
European Commission, The support of electricity from renewable energy sources, COM(2005)
627 final, 7 December 2005.
53
European Renewable Energy Council, Renewable Energy in Europe: Markets, Trends and
Technologies (Routledge, 2010) 4.
54
the promotion of the use of energy from renewable sources and amending and subsequently repeal-
ing Directives 2001/77/EC and 2003/30/EC (Text with EEA relevance) [2009] OJ L 140.

LEAL-ARCAS_9781786431042_t.indd 476 08/09/2017 13:02

certificate trading in guarantees of origin (GO).55 This was strongly opposed by a number
of countries, particularly those with FIT schemes,56 which they felt would be undermined
by this move. Thus prior to the introduction of the 2009 Directive, the EU Member
States had strongly resisted all attempts to have a harmonised approach to the regulatory
support schemes across all Member States. Indeed, the opposition to the attempts by the
EU to harmonise the support schemes was so strong that it led to the inclusion of Recital
25 within the 2009 Directive, which states:
Member States have different renewable energy potentials and operate different schemes of
support for energy from renewable sources at the national level [. . .] For the proper function-
ing of national support schemes it is vital that Member States can control the effect and costs
of their national support schemes according to their different potentials. One important means
to achieve the aim of this Directive is to guarantee the proper functioning of national support
schemes [. . .]57
4.2 The Renewable Energy Directive (2009)
The legal basis for the 2009 Directive differed from the 2001 Directive following the inser-
tion of Article 194 of the Treaty of the Functioning of the European Union (TFEU) in
2009.58 This Article enables the European Parliament and the Council to take any meas-
ures necessary to achieve the following objectives:
194 (1) In the context of the establishment and functioning of the internal market and with
regard for the need to preserve and improve the environment, Union policy on energy shall aim,
in a spirit of solidarity between 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.
However, the EU still does not have exclusive control of energy policy; rather, due to a
reservation inserted in Article 194(2) of the TFEU, they have shared competence with the
Member States to ‘legislate and adopt legally binding acts’.59 The reservation contained
in Article 194(2) explicitly states that any measures taken to achieve the objectives in
Article 194(1) ‘[. . .] shall not affect a Member State’s right to determine the conditions for
exploiting its energy resources, its choice between different energy sources and the general
55
See n41, 34. A ‘guarantee of origin’ means an electronic document which has the sole func-
tion of providing proof to a final customer that a given share or quantity of energy was produced
from renewable sources as required by Article 3(6) of Directive 2003/54/EC: Directive 2009/28/EC
of the European Parliament and of the Council of 23 April 2009 on the promotion of the use of
energy from renewable sources and amending and subsequently repealing Directives 2001/77/EC
and 2003/30/EC (Text with EEA relevance) [2009] OJ L 140, Art 2(j).
56
See n41, 34.
57
ing Directives 2001/77/EC and 2003/30/EC (Text with EEA relevance) [2009] OJ L 140, rec 25.
58
Treaty on the Functioning of the European Union [1992] OJ C 115/199.
59
Ibid, Art 2(2).

LEAL-ARCAS_9781786431042_t.indd 477 08/09/2017 13:02

structure of its energy supply’. Further, any measures that the European Parliament and
the Council take remain subject to the subsidiarity principle, which limits its interventions
within areas of shared competence to those where ‘Member States are unable to achieve
the objectives of a proposed action satisfactorily and added value can be provided if the
action is carried out at Union level’.60 Equally, Member States are only permitted to ‘exer-
cise their competence to the extent that the Union has not exercised its competence’,61 or
where ‘the Union has decided to cease exercising its competence’.62
Following the introduction of the current Renewable Energy Directive in 2009,63 the
European Union has been implementing the 2020 Energy Strategy,64 which defined the
EU’s energy priorities between 2010 and 2020. The key features of this strategy were
the reduction of greenhouse gases by at least 20 per cent on 1990 levels, an increase in
the share of renewable energy within the EU’s energy mix to at least 20 per cent of total
consumption, and improving energy efficiency by at least 20 per cent.65 Further, under
the Directive, each EU Member State has its own binding national targets to meet, with
the Member States able to decide on the design and implementation of their own regu-
latory support mechanisms within the framework of the 2009 Directive.66 There are a
number of reasons for this, including the differences in the indigenous renewable and non-
renewable energy sources in each country, the structure of the national energy markets,
and the varying legislative objectives adopted in the national renewable energy laws.
Further, instead of unrestricted GO trading, in the final 2009 Directive, Member States
are now able to engage in ‘flexible cooperation mechanisms’ such as the statistical trans-
fer of renewable energy produced in excess of their ‘mandatory’ national target to other
Member States.67 They are also now permitted to participate in joint projects and support
schemes,68 although these have not had wide uptake and Norway is scheduled to withdraw
from its current Joint Support Scheme with Sweden in 2020.69
60
Treaty on European Union [2009] OJ C 115/13, Art 5(3).
61
Treaty on the Functioning of the European Union [1992] OJ C 115/199, Art 2(2).
62
Ibid.
63
64
European Economic and Social Committee and the Committee of the Regions: ‘Energy 2020 – A
strategy for competitive, sustainable and secure energy’ COM(2010) 639, 10 November 2010.
65
Ibid.
66
See Table 26.1 for details of the national renewable energy targets for individual Member
States; Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on
67
ing Directives 2001/77/EC and 2003/30/EC (Text with EEA relevance) [2009] OJ L 140 Art 6.
68
Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the
promotion of the use of energy from renewable sources and amending and subsequently repealing
Directives 2001/77/EC and 2003/30/EC (Text with EEA relevance) [2009] OJ L 140 Arts 7–11.
69
Jesper Starn, ‘Norway Seeks to Quit Joint Renewable Subsidy System With Sweden’
(Bloomberg, 15 April 2016), https://www.bloomberg.com/news/articles/2016-04-15/norway-seeks-
to-quit-joint-renewable-subsidy-system-with-sweden (accessed 1 May 2016).

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A number of difficulties have been identified with the implementation of the 2009
Renewable Energy Directive. In particular, without aggressive action it is likely that
Luxembourg, the Netherlands and the United Kingdom may struggle to meet their 2020
renewable energy targets.70 If this occurs, then modelling conducted by ECOFYS in 2014
suggested that the EU may fail to meet its binding renewable energy target of 20 per cent
by 2020, with an anticipated share of between 18.5 per cent and 19.7 per cent of energy
coming from renewable energy sources, based on the currently planned and implemented
policies.71 Furthermore, some Member States failed to transpose the Directive in accord-
ance with the agreed timetable, prompting the European Commission to commence
infringement procedures against them,72 while others retrospectively altered their national
renewable energy laws and National Renewable Energy Action Plans, leading to a spate
of international arbitration claims within the sector.73 The ongoing challenges of admin-
istrative red tape, the slow approval and development of essential infrastructure needed
to support the increased deployment of renewable energy, as well as delays in connecting
new renewable energy generators, have also persisted in a number of Member States, with
only minor improvements over the life of the 2009 Directive.74
5. THE CURRENT STATUS OF RENEWABLE

ENERGY IN EUROPE
Despite these challenges, the 2009 Directive has been very successful in increasing the
uptake of renewable energy throughout the EU’s 28 Member States. Over one third
of Member States, including Bulgaria, the Czech Republic, Estonia, Croatia, Italy,
Lithuania, Romania, Finland and Sweden, have already met or exceeded their national
2020 targets.75 Denmark and Austria are also less than 1 per cent away from achieving the
requisite share of renewable energy as a proportion of the gross final energy consumption
to meet their national target.76
In 2014, the share of renewable energy as a proportion of the total energy consumed
within the 28 European Union Member States reached 16 per cent.77 Between 2004 and
70
European Environment Agency, ‘Renewable Energy in Europe 2016: Recent Growth and
Knock-on Effects’ (16 March 2016), http://www.eea.europa.eu/publications/renewable-energy-in-
europe-2016 (accessed 7 December 2016).
71
ECOFYS, ‘Renewable energy progress and biofuels sustainability’ (Report commissioned by
the European Commission, 10 November 2014) 50.
72
DG Energy, ‘Earlier energy infringement decisions’ (European Commission, 1 May 2016)
https://ec.europa.eu/energy/node/1874 (accessed 1 May 2016).
73
See e.g., Joseph M. Tirado, ‘Renewable Energy Claims under the Energy Charter Treaty: An
Overview’ (2015) 12(3) Transnational Dispute Management.
74
Rafael Leal-Arcas, Valentina Caruso and Raphaela Leupuscek, ‘Renewables, Preferential
Trade Agreements and EU Energy Security’ (2015) 4(3) Laws 472, 479.
75
Eurostat, ‘Energy from renewable sources’ (European Commission, 16 November 2016),
http://ec.europa.eu/eurostat/statistics-explained/index.php/Energy_from_renewable_sources#Instal
led_capacity_for_renewable_electricity_generation (accessed 7 December 2016).
76
Ibid.
77
Ibid.

LEAL-ARCAS_9781786431042_t.indd 479 08/09/2017 13:02

2014, the production of renewables within the European Union increased by 73.1 per
cent, making it the only primary source of energy to experience growth in its production
rates over this period.78 Aside from the benefits associated with diversifying the domestic
energy mix of Member States, the increased production of renewable energy within the
European Union was associated with avoided imported fuel costs of over €20 billion in
2014.79
While this growth trajectory suggests that the EU will achieve its 2020 renewable energy
target, in the aftermath of the global financial crisis a number of European countries
have either retrospectively amended their renewable energy laws or have made significant
changes to them going forward. This has led to the level of investment in the European
renewable energy sector declining by more than 50 per cent since 2011 to $48.8 billion.80
This may be contrasted with the current investment being made by China into its renew-
able energy sector, with the country recently announcing plans to invest $360 billion by
2020 to facilitate research and development, technological innovation and the future
development of its renewable energy sector.81 The impact of the reduction in the level of
investment available to the European renewable energy sector is evident in the decline in
the proportion of European installed capacity of renewable electricity generation (exclud-
ing hydropower) relative to the global installed capacity, which dropped from 44 per cent
in 2012 down to 35 per cent in 2015.82 This 9 per cent relative decline shows that the growth
of the European renewable energy sector is beginning to lag relative to the growth being
experienced in other countries and regions.83 This is especially evident when compared
to the rapid increase in the level of installed capacity for renewable electricity generation
(excluding hydropower) within China over the same period, which rose from 19 per cent
of global installed capacity to 25 per cent.84
Even with the declining investment in the sector, the EU still has one of the highest
penetrations of renewable electricity in the world, with 27.5 per cent of the EU-28’s gross
electricity consumption being generated using renewable energy sources.85 However, this
brings with it its own challenges, with the increasing penetration of intermittent and
decentralised energy making system balancing, grid stabilisation and ensuring reliability
of supply more difficult.86 It is these developments that have led some Member States to
78
Ibid.
79
European Commission, ‘Achieving global leadership in renewable energies’ (European
Commission, 30 November 2016), http://europa.eu/rapid/press-release_MEMO-16-3987_en.htm
80
European Commission, Commission Staff Working Document Impact Assessment,
Accompanying the document ‘Proposal for a Directive of the European Parliament and the Council
on the promotion of the use of energy from renewable sources (recast)’, Brussels, 30 November 2016
(SWD(2016) 418 final) 5.
81
Michael Forsythe, ‘Plans a Big Increase in Spending on Renewable Energy’, New York Times
(New York, 6 January 2017) A6.
82
Data extracted from REN21 Secretariat, ‘Renewables 2013 Global Status Report’ (REN21,
2013) 94 and REN21 Secretariat, ‘Renewables 2015 Global Status Report’ (REN21, 2015) 141.
83
Ibid.
84
Ibid.
85
See n75.
86
European Commission, Commission Staff Working Document, Impact Assessment,
Accompanying the document, Proposal for a Directive of the European Parliament and of the

LEAL-ARCAS_9781786431042_t.indd 480 08/09/2017 13:02

introduce capacity mechanisms for reserve power generation to ensure system a dequacy.87
This has caused concerns at the EU level, with the Commission’s impact assessment on a
number of significant reforms to the European energy sector stating that:
When uncoordinated and designed without a proper assessment of the appropriate level of
supply security, capacity mechanisms may risk affecting cross-border trade, distorting invest-
ment signals, affecting thus the ability of the market to deliver any new investments in con-
ventional and low-carbon generation, and strengthening market power of incumbents by not
allowing alternative providers to enter the market.88
It is within this context that there is now a renewed push at the EU level for greater col-
lective action in the field of energy policy. This could have serious implications for both
European renewable energy and energy security.
6. RECENT DEVELOPMENTS WITHIN ENERGY LAW AND

POLICY AT THE EU LEVEL AND THE IMPLICATIONS FOR
RENEWABLE ENERGY AND ENERGY SECURITY
Due to the limitations imposed by sharing competence over energy policy with indi-
vidual Member States, the EU has historically been forced to take a fairly reactive and
defensive position, with Member States exerting significant control over their own
domestic laws and policies within the framework of the relevant EU Directives and
Regulations. However, the Commission has recently been taking a much more proactive
approach, particularly in the context of growing energy security concerns, stating that
‘in an increasingly inter-connected electricity market, the lack of common approach
and coordination can seriously imperil security of supply across borders and danger-
ously undermine the functioning of the internal electricity market’.89 It has also noted
that ‘the continuation of unchanged policies would also seriously risk undermining
the realisation of the Union’s political ambition for world leadership in renewable
energy. In addition, it would forego the benefits of security offered by increasing energy
supply from indigenous sources [. . .]’.90 Thus the Commission seems to be taking the
approach that these challenges now need to be addressed collectively rather than by
individual Member States. To this end, the EU has recently developed a range of new
Council on common rules for the internal market in electricity (recast), Proposal for a Regulation
of the European Parliament and of the Council on the electricity market (recast), Proposal for a
Regulation of the European Parliament and of the Council establishing a European Union Agency
for the Cooperation of Energy Regulators (recast), Proposal for a Regulation of the European
Parliament and of the Council on risk preparedness in the electricity sector, Brussels, 30 November
2016 (SWD(2016) 410 final), 3–4.
87
Ibid, 5.
88
Ibid, 5–6.
89
Ibid, 6.
90
European Commission, Proposal for a Directive of the European Parliament and of the
Council on the promotion of the use of energy from renewable sources (recast) Brussels, 30
November 2016, COM(2016) 767 final, 2016/0382 (COD), 2.

LEAL-ARCAS_9781786431042_t.indd 481 08/09/2017 13:02

policies and proposals for collective action in the energy sector, including in the areas
of the Energy Union, electricity market design, energy efficiency, renewable energy,
climate change, energy security, the internal energy market and energy infrastructure.
The most relevant of these to renewable energy and energy security will be briefly
discussed below.
6.1 The 2030 Framework for Energy and Climate Change Policies
In 2014, the European Union unveiled its 2030 Framework for Energy and Climate
Change Policies.91 The key elements of this framework include:
● a binding EU target of at least a 40 per cent reduction in greenhouse gas emissions

by 2030 when compared to 1990 levels;
● a binding target to be achieved collectively by EU Member States of at least 27 per
cent of gross energy consumption to be supplied by renewable energy;
● an energy efficiency increase of at least 27 per cent to be reviewed by 2020 with a
potential increase of the target to 30 per cent by 2030; and
● the completion of the internal energy market by reaching an electricity interconnec-
tion target of 15 per cent between EU Member States by 2030.
The EU Member States have also agreed to facilitate the development of a number of
important infrastructure projects to enable the EU collectively to meet these objectives.
The Commission proposed three key indicators of energy security: the level of diversifi-
cation of energy imports and the share of indigenous energy sources used in energy con-
sumption; the level of deployment of smart grids and interconnections between Member
States; and the level of technological innovation.
The 27 per cent renewable energy target contained within the 2030 Framework has
been a key strategy to increase the share of indigenous energy sources within the Union’s
energy mix, and thereby reduce the EU’s level of energy import dependency. However this
target has been criticised by a number of non-governmental organisations, such as the
Climate Action Network (CAN) Europe, Greenpeace and WWF, as well as academics, for
its lack of ambition.92 It is estimated that the level of renewable energy as a proportion of
total energy consumption will reach 24.3 per cent by 2030, without any other regulatory
or policy interventions, and thus there is a view that the EU has not sought to ‘stretch’
itself sufficiently.93 Furthermore, even with this target of 27 per cent, the European
91
to 2030’ COM(2014) 15 final, Brussels, 22 January 2014, 4–8.
92
Climate Action Network (CAN) Europe, Greenpeace and WWF, Effective Governance for
the EU – 2030 Renewable Energy Target NGO Policy Recommendations (Position Paper, 2014);
David Buchan, Malcolm Keay and David Robinson, ‘Energy and Climate Targets for 2030: Europe
Takes its Foot off the Pedal’ [2014] The Oxford Institute for Energy Studies 3; Rafael Leal-Arcas,
Costantino Grasso and Juan Alemany Ríos, Energy Security, Trade and the EU: Regional and
International Perspectives (Edward Elgar Publishing, 2016), 255–6.
93
Rafael Leal-Arcas, Costantino Grasso and Juan Alemany Ríos, Energy Security, Trade and
the EU: Regional and International Perspectives (Edward Elgar Publishing, 2016), 256.

LEAL-ARCAS_9781786431042_t.indd 482 08/09/2017 13:02

Commission has identified that the trend towards ever-increasing levels of energy import
dependency will continue until at least 2030.94
However, without binding national targets, and with a lack of specific sectorial targets,
such as were evident in the 2009 Renewable Energy Directive, the path to achieving this
target and the consequences for Member States for failing to cooperate, are not clear. It
is also not known what the impact will be of the United Kingdom leaving the European
Union, nor the impact of the ‘leave’ campaigns that are gaining popularity in a number
of other EU Member States.95 However, any move by the European Union to impose
requirements that could be seen to threaten the energy sovereignty of individual Member
States may be domestically politically unpalatable. Meeting this target is also going to be
expensive, with current estimates that some €1 trillion of further investment in renewable
energy generation alone will be required over the period 2015 to 2030.96 However, the
European Commission, in their proposal for a revised Renewable Energy Directive, claims
that a failure to implement a more coordinated approach to the deployment of renewable
energy by continuing the nationally based support schemes would have even more serious
consequences for end-consumers. In particular, it has identified that such a move would
‘lead to less efficient deployment of renewable energy, a concentration of renewables
investments in three countries, and a 25 per cent increase in the average electricity prices
in 2030 compared to 2010’.97 There would also likely be knock-on effects in respect of the
European Union’s climate change targets under the Paris Agreement,98 which was ratified
by the European Union on 5 October 2016, and entered into force on 4 November 2016.
The resolution of these challenges remains to be seen.
6.2 The Energy Diplomacy Plan
On 20 July 2015, the Energy Diplomacy Plan99 was approved by the EU Foreign Affairs
Council, ‘aimed at strengthening common messages to enable the EU to “speak with
one voice” on major energy issues and to meet energy objectives in a spirit of solidar-
ity and common interest, instead of re-nationalising energy policies’.100 This plan is
94
Energy Security’, SWD(2014) 330 final, 28 May 2014, 93.
95
Kate Lyons and Gordon Darroch, ‘Frexit, Nexit or Oexit? Who Will Be Next to Leave the
EU’ (The Guardian, 27 June 2016), https://www.theguardian.com/politics/2016/jun/27/frexit-nexit-
or-oexit-who-will-be-next-to-leave-the-eu (accessed 7 December 2016).
96
(SWD(2016) 418 final), 6.
97
The Paris Agreement to the United Nations Framework Convention on Climate Change,
opened for signature 16 February 2016, UNTC 54113 (entered into force 4 November 2016).
98
(SWD(2016) 418 final), 7.
99
Vitas Mačiulis, Opinion of the European Economic and Social Committee on the ‘External
dimension of the EU’s energy policy’ [2016] OJ C 264/04, 32.
100
Ibid.

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primarily focused on the use of diplomacy to diversify the mix of non-renewable energy
sources, suppliers and routes. However, with its emphasis on increasing cooperation
with transit countries and key third country energy partners, strengthening the Energy
Community and managing the strategic engagement of the EU in energy-related multi-
lateral initiatives,101 it also suggests a shift away from the use of national energy security
approaches to a more collective approach.
6.3 The EU Energy Union
The Energy Union Package102 outlined five broad objectives:
1. to increase energy security, solidarity and trust;

2. to create a fully integrated European energy market;
3. to improve energy efficiency while moderating demand;
4. to decarbonise the economy; and
5. to support research, innovation and competitiveness.
Other features of this package are that it restates the importance of integrating the inter-
nal energy market, recalls the 27 per cent target for renewable energy of the 2030 energy
and climate strategy, and emphasises the importance of diversifying the mix of both fuel
sources and suppliers to ensure energy security. The Energy Union Package has been
criticised by some commentators for its approach to renewable energy.103 In particular,
it states that the ‘EU should become number one for renewables’,104 but fails to address
how the 2030 target will be implemented or where the additional investment will come
from that is required to meet both this target and the 2030 and 2050 European emissions
reduction targets.105
6.4 The Energy Security Package
The recently unveiled Energy Security Package106 is also focused on improving regional
cooperation, securing supplies in the event of disruption and discouraging nationally
focused emergency responses in favour of risk assessment and crisis management at the
European level. This package is predominantly focused on the role played by gas, includ-
ing increasing the transparency of gas contracts, improving gas efficiency and promoting
101
Ibid.
102
European Commission, Proposal for a Regulation of the European Parliament and of
the Council on the Governance of the Energy Union, amending Directive 94/22/EC, Directive
98/70/EC, Directive 2009/31/EC, Regulation (EC) No 663/2009, Regulation (EC) No 715/2009,
Directive 2009/73/EC, Council Directive 2009/119/EC, Directive 2010/31/EU, Directive 2012/27/
EU, Directive 2013/30/EU and Council Directive (EU) 2015/652 and repealing Regulation (EU)
No 525/2013, COM(2016) 759 final Brussels, 30 November 2016.
103
See n34, 138.
104
Ibid.
105
Ibid.
106
European Commission, ‘European Energy Security Strategy’ COM(2014) 330 final, Brussels,
28 May 2014.

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the greater deployment of LNG in Europe. This plan, along with the revised definition
of ‘energy security’ that the EU has adopted,107 suggests that a reduced emphasis is being
given to increasing the deployment of indigenous sources of renewable energy as an
energy security strategy in the short-term. Given the important role that renewable energy
is currently playing in reducing the dependence on energy imports, it is not currently clear
what the impact of this change of emphasis will have on the levels of support for increas-
ing the deployment of renewable energy.
7. CONCLUSION
Renewable energy sources will continue to play an important contribution in offsetting
at least some of Europe’s energy import dependency. However, without significant addi-
tional investment and a clear commitment from individual Member States to contribute
to the collectively binding target of 27 per cent of energy coming from renewable energy
sources by 2030, the role of renewable energy in supporting European energy security
may be limited. It is arguable that the recent developments in European energy law and
policy such as the 2030 Framework on Energy and Climate Change Policies, the Energy
Union Package, the Energy Security Package and the EU Energy Roadmap 2050 signal
yet another attempt by the European Union to take greater control over European energy
law and policy. Unlike previous attempts, which involved explicit attempts to harmonise
the regulatory support mechanisms used by the European Member States to support the
accelerated deployment of renewable energy, these latter efforts appear to be using a more
‘coordinated cooperation’ approach. Thus the EU is relying on soft convergence processes
rather than strict harmonisation. However, in an economically constrained and politically
difficult period for the EU, it is not clear that Member States will be willing to engage in
more collective action unless they view their own domestic energy security as threatened.
Indeed, the addition of the reservations contained in Article 194(2) of the TFEU suggests
that countries continue to zealously guard their ability to be able to make their own deci-
sions with regard to energy supply. This is likely to create a situation where those Member
States with the highest levels of energy import dependency and the lowest levels of inter-
connectedness, who are most vulnerable to supply shocks and price volatility, provide the
highest levels of support for these actions. Thus, it may be difficult to motivate all Member
States to engage in the collective action that will be needed to accelerate the uptake of
renewable energy and reduce the level of reliance on energy imports that contributes to
Europe’s energy security concerns.
107
Energy Security’, SWD(2014) 330 final, 3.

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27. Energy futures: new approaches to energy choices
David Elliott
1. INTRODUCTION: FUEL IN THE PAST AND IN

THE FUTURE
This chapter adopts a broad contextualising approach to the social, environmental and
technological choices that lie ahead in the sustainable energy field. It attempts to set the
scene for discussions of specific technological policies and programmes in the energy
sector, and in particular, focuses on a basic pathway choice that seems to be required
before more detailed technology choices can be made, whether in the EU or elsewhere.
The history of energy use has always been about choices, but with a key driver being the
selection and developing of sources which provided more concentrated forms of energy,
fuels with higher energy densities. These fuels usually delivered higher temperatures via
combustion, so as to drive machines for motive power or electricity generators. Even for
simple heating, fuels with high energy density have been preferred, so as to ease transport
and take up less storage space. Ease of access to the fuels of course modified our choices.
In many parts of the world, wood and biomass still represent large sources for heating
and cooking, despite being much bulkier and lower grade than fossil fuels. However,
where coal, oil or gas are available, they tend to dominate since they can be stored and
transported more easily, and usually yield much higher energy outputs per tonne. In terms
of electricity production, we have developed thermodynamic steam-based systems which
convert heat to generator shaft power via gas turbines, and the higher the temperature
that can be obtained, the more efficient the conversion system is overall. Combustion pro-
cesses can be enhanced by forced drafts and the steam that can be produced using this heat
can have its temperature raised in pressurised ‘supercritical’ systems. Some of the waste
heat can also be recycled and used to improve overall energy conversion efficiency further.
We have probably reached near the maximum thermodynamic conversion efficiency
possible with existing systems – supercritical steam generation, combined cycle gas tur-
bines, combined heat and power plants, and so on. That is true whatever the heat source.
Electricity generation using heat from nuclear fission, or even fusion, to raise steam, is
also thermodynamically limited. We have also come up against other limits. The global
reserves of fossil and fissile fuel are finite: we are using up ever-depleting stocks. The
energy conversion processes also have problems. Operating at high temperatures and pres-
sures involves safety risks. Harmful wastes are also produced, such as toxic gases, acid
emissions, and long-lived radioactive materials. Ever since we first started burning fossil
fuels, and indeed before then with wood, there have been resultant health and environ-
mental impacts. Some of these have been contained, for example via flue gas scrubbers
and the like, but it is hard to see how the main product of fossil fuel combustion, carbon
dioxide gas, can be dealt with, other than by capturing it and storing it. That can be done
to some extent, at a price, but it is an inelegant approach, something of a post hoc ‘botch’,
with a range of risks. Can we be certain that the vast amount of carbon dioxide that
486
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Energy futures: new approaches to energy choices 487
would be produced if we continued to burn off our fossil resources will stay put forever
in geological strata?
It would be preferable not to burn off our fossil resources, so as to avoid the linked
health and environmental impacts and crucially to limit climate change. Some look to
nuclear energy as a better option. In some ways that represents the ultimate step in our
search for high energy density fuels. Vast amounts of energy can be produced by the
fission or fusion of the atoms of suitable materials, so that the fuel volume per unit of
energy produced can be very small. Higher temperature fission reactors can have higher
energy conversion efficiencies and in theory fusion can generate very high temperatures,
although we have yet to develop technologies to exploit that. The down-sides of nuclear
are the costs and the risks. Fission has not proved to be as cheap as was at one time hoped,
and few would venture estimates for the costs of hypothetical fusion systems. What we
can say, from experience so far, is that whatever the technology, there will be unique risks
with nuclear systems, and dealing with these will add to the costs. The costs of fission will
also rise as fissile reserves deplete. The fuel resource for fusion plants may be cheaper and
larger, but even so, there may be risks and costs, and the question remains, do we want to
continue down this path of ever-increasing energy density (Smil, 2015).
The standard response is to say yes of course, and in fact there is no alternative.
Anything else represents a retreat back to less efficient systems. We abandoned water mills
and windmills long ago, as soon as coal became widely available. We have to continue in
that direction. However, increasingly, environmentalists have asked if that is really true.
They say a different approach can be adopted, based on using renewable energy resources,
not simply substituting them for existing energy sources, just plugged on to the same
system of use, but as part of a wider transition to a more sustainable approach to energy
supply and use (Heinberg and Fridley, 2016).
The main drawback of this approach is usually held to be the low energy density of
these diffuse energy sources. That means that large areas have to be used for energy col-
lection, resulting in conflicts with other land uses, as well as major environmental impacts.
The sources are also often variable, so that balancing systems have to be provided, adding
to the cost. Overall it is claimed that renewables cannot supply enough energy, reliably and
cost effectively, to meet our needs. Issues like this will be addressed later in this chapter,
but the simple response is that these problems and limitations can be dealt with and are in
any case less severe than those associated with continued reliance on conventional energy
options, especially those based on the combustion of fossil fuels. As Walt Patterson has
put it, we need to move beyond what he calls the ‘Age of Fire’ (Patterson, 2015).
2. THE NEW AND OLD APPROACHES
It hardly seems necessary to reprise the problems with conventional energy systems. Air
pollution from fossil fuel combustion has reached epidemic proportions in some Asian
cities, climate change driven by the resultant carbon dioxide emissions threatens ever
worse social, economic and health problems in the years ahead, while the risk of major
nuclear disasters remains a continuing concern. At the same time, the beginnings of an
alternative approach are emerging, with renewables supplying nearly a quarter of global
electricity. There are projections that this could expand to near 100% by 2050 and that

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heat and transport needs could also be met from renewables by then (Elliott, 2015a).
However, for that to happen would require the resolution of what some see as unsur-
mountable problems. Which is one reason why faith in the conventional approach, suit-
ably upgraded, remains strong.
While carbon capture and storage is sometimes seen as part of this approach, as already
indicated, the sequestration of emissions from fossil fuel combustion is a limited, short- to
medium-term, option, unlikely to allow us to use more than a fraction of the remaining
fossil fuel reserves. By contrast it is sometimes argued that nuclear energy can supply
us with energy into the far future, with fast neutron breeder reactors in effect extending
the uranium resource for perhaps centuries and the potential for fusion being effectively
unlimited.
So for the purposes of this chapter the ‘conventional approach’ is seen as essentially
one in which nuclear dominates, a scenario associated with the ‘Ecomodernisation’ per-
spective, in which advanced technology allows energy use, and economic and material
growth, to continue unconstrained (Brook et al., 2015). Renewable energy sources, most
of them being solar derived, are also effectively unlimited, and their use is the basis for
most ‘green’ energy scenarios, although, in most variants, growth in consumption of most
things is constrained.
These two polar opposites are explored in what follows, first by looking at what exactly
is proposed in terms of technology and society, and then by reviewing the problems of
each approach. In both cases, technical prescriptions are linked with social and economic
prescriptions, with, to some extent, the technologies that are selected both defining key
aspects of the social forms and also being defined by them.
Certainly low-growth decentralised societies are likely to choose and prefer very dif-
ferent technologies from those needed to support high-growth societies. However, that
may not always mean that there is a rigid and fixed pattern, with the two approaches
being polar opposites. There may be some overlap. So a subsequent section asks are they
mutually exclusive or can we have elements of both?
3. ECOMODERNISATION
The Ecomodernisation Manifesto produced by Professor Barry Brook and 17 others

sharing a similar perspective, presents a challenging view of a possible future. There is
a clear break with most of the established energy approaches, although the Manifesto
sees nuclear power as a key solution to global eco-ills. However, it also backs a range of
other technological and social choices, some of them quite radical, based on what Brook
et al. see as a progressive technological and social approach. ‘Deep green’ social change
approaches are rejected, along with ‘inefficient’ small-scale alternative community initia-
tives and reliance on renewables, which, solar apart, are depicted as mostly not up to it
and land intensive. Instead the Manifesto advocates a high-technology approach, aiming
to ‘decouple human development from environmental impacts’, by intensifying activities
such as agriculture and energy production in some areas and leaving others alone, as wild
zones. So, along with fast breeders, thorium and fusion, it talks of the adoption of verti-
cal farms and bio-engineered crops, with emerging plasma-arc torch technology that ‘can
almost completely recycle and recover materials from solid waste’.

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The Manifesto claims that:
Intensifying many human activities – particularly farming, energy extraction, forestry, and
settlement – so that they use less land and interfere less with the natural world is the key to decou-
pling human development from environmental impacts. These socioeconomic and technological
processes are central to economic modernization and environmental protection. Together they
allow people to mitigate climate change, to spare nature, and to alleviate global poverty. (p. 7)
So it backs ‘urbanization, agricultural intensification, nuclear power, aquaculture, and

desalination’, as processes ‘with a demonstrated potential to reduce human demands on
the environment, allowing more room for non-human species’.
By contrast, ‘suburbanization, low-yield farming, and many forms of renewable energy
production, generally require more land and resources and leave less room for nature’
(Brook et al., 2015). See Box 27.1 for some key assertions.
As can be seen, the Ecomodernisation approach clearly involves much more than
simply a major expansion of nuclear, although that in many ways symbolises its high
technology–high growth vision, in the same way as renewables symbolise the low growth
alternative ‘green’ vision.
4. RENEWABLE ENERGY AND ITS PROBLEMS
Reliance on renewables apart, the alternative approach is less easy to characterise, since
there are many variants, some with more or less emphasis on low or even zero economic
growth. However, a core assertion is that, given the necessary social changes, renewables
can supply all human energy needs, assuming energy demand can be managed appropri-
ately. In the most forceful variant of this view, continued energy and economic growth is
seen as possible via green technical fixes on both the supply and demand side, with only
marginal social changes being needed: the ‘sustainable growth’ view (GCEC, 2014).
This is likely to be anathema to deep green radicals, who sometimes warn that if we
do not make radical social changes voluntarily, they will be forced on us. They see the
growth of consumerist cultures and the global drive to economic expansion as the funda-
mental problem: societies and economies must be restructured, as well as the technologies
(Huesemann and Huesemann, 2011). They fear that, by offering an illusory ‘technical
fix’ way forward, the allure of renewables may even act as a diversion from making the
radical social and political changes that are needed. Certainly, on their own, it is claimed,
renewables will not suffice: radical social and economic change is also needed, including
a shift to low or zero growth economies (Dolack, 2015; Hickel, 2016). See Box 27.2.
The debate over the viability and desirability of zero or low growth continues (D’Alisa
et al., 2014; O’Neill, 2016), but even the radical deep greens accept that technologies like
renewables can be helpful as part of the basis for a new form of social organisation, and
possibly as part of the transition process. So whatever the wider political and economic
framework and prognosis, the implicit technological package is mostly broadly similar
across a range of ‘green’ views, although with key variations in emphasis and timing
depending on the social prescription. Deep green dencentralists will prefer a shift to
smaller-scale local-level technology, deployed in community settings, even if that is less
technically efficient, while others may be happy with larger systems, including wide-scale

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BOX 27.1 ECOMODERNISATION
Modernisation: ‘Too often modernization is conflated, both by its defenders and critics, with capital-
ism, corporate power, and laissez-faire economic policies. We reject such reductions. What we refer
to when we speak of modernization is the long-term evolution of social, economic, political, and
technological arrangements in human societies toward vastly improved material well-being, public
health, resource productivity, economic integration, shared infrastructure and personal freedom.’
(p. 28)
No limits: ‘To the degree to which there are fixed physical boundaries to human consumption, they
are so theoretical as to be functionally irrelevant. The amount of solar radiation that hits the Earth, for
instance, is ultimately finite but represents no meaningful constraint upon human endeavors. Human
civilization can flourish for centuries and millennia on energy delivered from a closed uranium or
thorium fuel cycle, or from hydrogen-deuterium fusion. With proper management, humans are at
no risk of lacking sufficient agricultural land for food. Given plentiful land and unlimited energy, sub-
stitutes for other material inputs to human well-being can easily be found if those inputs become
scarce or expensive.’ (p. 10)
More energy: ‘Plentiful access to modern energy is an essential prerequisite for human develop-
ment and for decoupling development from nature. The availability of inexpensive energy allows
poor people around the world to stop using forests for fuel. It allows humans to grow more food on
less land, thanks to energy-heavy inputs such as fertilizer and tractors. Energy allows humans to
recycle waste water and desalinate sea water in order to spare rivers and aquifers. It allows humans
to cheaply recycle metal and plastic rather than to mine and refine these minerals. Looking forward,
modern energy may allow the capture of carbon from the atmosphere to reduce the accumulated
carbon that drives global warming.’ (p. 20)
More technology: ‘Meaningful climate mitigation is fundamentally a technological challenge [. . .]

Even dramatic limits to per capita global consumption would be insufficient to achieve significant
climate mitigation. Absent profound technological change there is no credible path to meaningful
climate mitigation. [. . .] We are aware of no quantified climate mitigation scenario in which techno-
logical change is not responsible for the vast majority of emissions cuts.’ While it is admitted that
views differ, it is argued that ‘in the long run, next-generation solar, advanced nuclear fission, and
nuclear fusion represent the most plausible pathways toward the joint goals of climate stabilization
and radical decoupling of humans from nature’. (pp. 21–3)
Solar: ‘The scale of land use and other environmental impacts necessary to power the world on
biofuels or many other renewables are such that we doubt they provide a sound pathway to a zero-
carbon low-footprint future. High-efficiency solar cells produced from earth-abundant materials are
an exception and have the potential to provide many tens of terawatts on a few percent of the Earth’s
surface. Present-day solar technologies will require substantial innovation to meet this standard and
the development of cheap energy storage technologies that are capable of dealing with highly vari-
able energy generation at large scales.’ (p. 23)
Nuclear: ‘Nuclear fission today represents the only present-day zero-carbon technology with
the demonstrated ability to meet most, if not all, of the energy demands of a modern economy.
However, a variety of social, economic, and institutional challenges make deployment of
present-day nuclear technologies at scales necessary to achieve significant climate mitiga-
tion unlikely. A new generation of nuclear technologies that are safer and cheaper will likely be
necessary for nuclear energy to meet its full potential as a critical climate mitigation technology.’
(p. 23)
(Brook et al., 2015)

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BOX 27.2 A DEEP GREEN ANALYSIS
In their 2011 book Techno-fix, Michael and Joyce Huesemann challenged what they saw as ‘a
pervasive belief that technological innovation will enable us to continue our current lifestyle indefi-
nitely and will prevent social, economic and environmental collapse’. They say techno-optimism is
completely unjustified, and modern technology, in the presence of continued economic growth,
does not promote sustainability, but hastens collapse. Instead we need radical social change: ‘as
long as technology is used for control and exploitation, negative social and environmental effects
are inherently unavoidable’. Moreover, ‘while most environmental remediation technologies may be
able to address the pollution generated by previous technologies, they often create side-effects that
are worse than the original problem’. Their core belief is that ‘the causes of environmental problems
are not only polluting technologies but, more fundamentally, human overpopulation and continued
economic growth. Consequently, unless the relevant socio-cultural issues are addressed and the
size of the human population stabilized and reduced, and the materialistic consumer lifestyle largely
abandoned, there is little chance that our environmental problems will be solved or that we will
achieve sustainability in the future’ (p. 83).
(Hueseman and Huesemann, 2011)
grid integration, in order to optimise and balance energy resource use. For example,
adopting the former position, a recent Greenpeace global energy scenario assumed a
70:30 ratio of small to large technology, with the emphasis on local generation using PV
solar, smaller wind projects and biomass in rural areas, villages and towns (Greenpeace,
2015). Centralised generation and larger projects (large wind farms, offshore wind, wave
and tidal projects) would exist, but would be kept to a minimum.
Others have put more stress on larger projects like this, with long-distance supergrids
linking in resources possibly over very wide areas, making it possible to balance local
variations in supply and demand. This approach is arguably crucial when we come to
look at the options for cities. Although urban and suburban areas could generate much
of the energy they needed from roof-top solar and biomass wastes, given their high energy
use and spatial constraints, cities would be unlikely to meet all their energy needs from
renewables sited within their boundaries and would have to import some energy, possibly
a large fraction, from rural and offshore areas (Elliott, 2016a).
The technical specifics of the scenarios can thus vary, depending on the social model
adopted. There are also technical debates in terms of, for example, the right emphasis
on electricity production, transmission, storage and use, as opposed to gas/heat produc-
tion, transmission, storage and use. Moreover, in some cases, some supply options are
rejected as environmentally inappropriate, for example large-scale biomass plantations or
large-scale hydropower. However, overall it is seen as possible to devise robust scenarios
for a range of possible social configurations, based on a mix of renewables and energy
efficiency.
The technical problems with this approach were mentioned earlier. The energy sources
are diffuse and involve low energy density flows. That may not matter if there is plenty of
space for large collection systems, for example for solar arrays and wind farms, but wide-
spread deployment does represent a challenge to the idea, promoted in the Ecomodernist
manifesto, that nature should be left unperturbed in wilderness areas. Only the deepest

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greens share that view. Most others accept that mankind has always interacted with, and
indeed is part of, nature. We have tamed wildernesses for food production and to create
living spaces. What matters is how it is done. For some, it is reasonable to have energy
technologies distributed across most of the environment, as long as they are low impact
options. Arguably that is the case for most renewable options: the impacts are mostly small
and local and can be managed (Clarke, 2016). However, there is plenty of room for solar
in deserts and wind farms offshore, if on-land sites are constrained by environmental con-
siderations. Moreover, if energy efficiency is taken seriously and less consumerist cultures
are developed, then demand can be reduced and the impacts limited further.
The intermittency problem can be resolved in part by increasing the installed capacity
of renewables so that there is surplus energy generated at times, which can be stored to
meet demand when there is less energy available. Wider supergrid links would obviously
make this easier, as would local smart grids: demand can be managed to shift peaks to
when supply is available (Elliott, 2016b). That can also cut costs. Indeed, it has been
argued that, with flexible supply and demand, rather than large fossil and nuclear plants,
running continually, the overall system could be more efficient and cheaper to run.
Certainly renewable costs are falling rapidly and using them avoids the large environmen-
tal and health costs of conventional systems (IEA, 2014; IRENA, 2014).
5. NUCLEAR OPTIONS AND PROBLEMS
Given the environmental advantages of renewables, and their arguably relatively minor
technical problems, why is there still support for nuclear power? The simple answer is
that it is well established with powerful supporters, and it does deliver energy, about 11%
of global electricity, with relatively low carbon emissions and relatively reliably. These
‘relative’ qualifications are however important in making comparisons with renewables.
The load factors for UK nuclear plants have been rather poor in recent years, around 60%,
due in part to unplanned shut downs, so that wind turbines, with load factors of 30–40%,
depending on location, do not look too bad by comparison. Higher nuclear load factors
are now more common in the UK and elsewhere, and new plants may be able to get to
90%, but wind technology is also improving, with offshore load factors being higher than
for on-shore sites.
Nuclear will no doubt always win on this measure, but the comparison turns in favour
of wind when we look at the embedded energy and the energy return on energy invested
ratio, not least since renewables like wind and solar do not need any fuel for generation.
There are disagreements about some of the estimates, but one meta-review suggested
that the lifetime output/input energy return was around 15:1 for nuclear plants and up
to 80:1 for wind turbines on good sites (Harvey, 2010). The figures for wind and other
renewables are likely to improve, as new technology develops, with for example new PV
solar cells attaining 34:1 (Bhandari et al., 2015). By contrast, the energy output to input
ratios for nuclear are likely to get worse as reserves of high grade uranium ore deplete.
More energy is then needed to mine and process the ore to make reactor fuel. Given that
most of the energy used for nuclear fuel production still comes from fossil sources (e.g.
diesel for strip mining bulldozers and trucks in remote areas), emissions/tonne of fissile
fuel produced will rise as ore quality drops and more has to be mined and processed to get

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the same final fuel quality. At present, carbon emissions for the nuclear cycle are said to
be similar to those for some renewables (although views differ), but, unless nuclear and/
or renewable energy can be used for fuel processing, they will rise to be much more for
nuclear, with, in any case, ever diminishing energy returns on energy investment (Storm
van Leeuwen, 2015).
The economics of nuclear also suffer from the need to deal with wastes, as well as the
cost of maintaining safety and security, problems which are either absent or relatively
small for most renewables. It is hard to put costs on nuclear risks, including security risks,
but they are substantial, with major accidents imposing large social and economic costs,
including hundreds of billions of dollar equivalents in Chernobyl and Fukushima in clean
up/dislocation costs, as well as potentially large direct and indirect health impacts, includ-
ing, from Chernobyl, many thousands of extra cancer cases (Elliott, 2013a). Radioactive
waste management is also expensive, with as yet no final repository for long-lived, high-
level waste having been constructed anywhere in the world, although some are planned,
with estimated costs in the tens of billions of dollars or equivalents for each. The volumes
are large. An industry-based study of an expansion programme under consideration in
the UK suggests that there could be up to 87,000 tonnes of highly active spent fuel to deal
with (Hodgson et al., 2014). Plant decommissioning is also expensive: the expected cost in
the EU has been put at over €123 billion (EC, 2016). Nuclear power thus leaves a major
unwelcome legacy (Blowers, 2016).
By contrast, although hydro dams have environmental impacts, and dam failures can
lead to many deaths, renewables like wind and solar generate no wastes and can be easily
decommissioned. Installation and operational accidents can occur, as in any industry, but
so far only around 150 fatalities have been reported with wind projects globally. While
there can be some local intrusion, compared with nuclear, in general most renewables,
hydro apart, are low potential impact options (Elliott, 2015a).
In terms of generation costs, at present in the UK, on-shore wind projects are going
ahead with strike prices under the Contract for Difference support system lower than the
proposed new nuclear project at Hinkley. Some PV solar projects are also cheaper and
both are likely to be substantially cheaper in the years ahead as they move down their
learning curves. Offshore wind also seems likely to be cheaper than the currently planned
new nuclear project in the UK. Indeed, nuclear costs appear to be continually rising, with,
in effect, negative learning curves, at least in the US and France (Boccard, 2014).
It may be that new nuclear technology will emerge that improves on this situation,
but that is far from certain. Some want to look again at fast breeder reactors and the
use of molten fluoride/thorium systems, but there are many unknowns. Certainly early
breeder and experimental thorium reactors proved to have problems (Alvarez, 2014).
New technology may limit some of the problems, but the economics are unclear, and,
even if prototypes prove to be viable, commercial-scale projects are likely to be decades
away. Some also look to the idea of developing new types of small modular reactors
(SMRs). In the past attempts have been made to improve the economics of nuclear
plants by going for larger-scale units, with little success. There would seem to be no
reason why going for smaller-scale units would be any more successful (Makhijani,
2013; Mackerron, 2015). Moreover, as the US Union of Concerned Scientists put it
‘Multiple SMRs may actually present a higher risk than a single large reactor, espe-
cially if plant owners try to cut costs by reducing support staff or safety equipment per

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reactor’ (Lyman, 2013). Certainly there are a range of siting, safety and security issues
(Ramana and Mian, 2014).
Fusion remains the ultimate dream. If it can be successfully developed, it would avoid
the fuel resource limits of fission: without breeders, there may not be enough uranium
to run fission plants for more than a few decades, depending on the number of plants in
operation. However, despite very large-scale funding, there is some way to go to viable
fusion technology, and, although breakthroughs are always possible, at present it seems
that, even if all goes well with experimental tests, workable commercial-scale fusion reac-
tors will not be available until the second half of this century.
Moreover, even if it can be developed successfully, fusion may have limits. Quite apart
from the unknown cost, there would be safety and security issues. Fusion plants would
contain radioactive tritium gas at very high temperatures, and there is a risk of leaks
or even explosive loss of containment. These plants may not generate very long-lived
radioactive wastes, but activated components would have to be stripped out regularly and
stored somewhere. Fusion reactors are likely to need lithium to make tritium, and reserves
of that are finite and are already in demand for the batteries of electric vehicles. Looking
far ahead, it may be possible to find fuel for fusion plants on the asteroids or elsewhere
in the solar system. That is fortunate since, if we are to engage in extensive interplanetary
travel, we may need fusion energy for propulsion. For the nearer future however, on earth,
fusion seems almost totally irrelevant. Unlike renewables, which are available now, for
the foreseeable future it can make no contribution to dealing with the urgent problem of
climate change (Elliott, 2013b).
6. WHY NOT BOTH?
The analysis so far has presented renewables and nuclear as opposites, whereas it might
be argued that they could be run in parallel and could even support each other. Quite
apart from the specific problems with nuclear discussed above, this seems unlikely on
any significant scale for a range of practical reasons. Nuclear plants are usually run 24/7
to recoup their high capital costs, although their output can be varied to some extent, so
in theory they might be able to balance the variable output from renewables. In practice
however this would be difficult for the regular short variations associated with renewables:
there are operational and safety constraints limiting nuclear plants to relatively slow, infre-
quent ramping up and down. Some of them can follow the slow daily cycles in demand,
but they could not balance the rapid and frequent minute-by-minute variations in wind
and solar availability. Basically, they are inflexible. So, unsuitable for complementing
renewables, they cannot play a major role in the flexible energy system that will be needed
(Elliott, 2016b).
It is possible that some older nuclear plants can be relegated to a grid balancing role,
providing back-up when wind and solar were low for long periods (Cany et al., 2016).
However, it might be economically challenging to maintain them for long periods and
building new nuclear plants for this role does not make much sense, since there are other
much cheaper options for that occasional standby function. If, alternatively, nuclear was
to expand significantly, so that there was a large nuclear element on the grid meeting
bulk power needs, then at times of low demand (at night in summer), its input to the

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grid would conflict with any renewable energy input that was available. One or other, or
both, would have to give way, dumping power wastefully. It is conceivable that storage
and exports could compensate for this and that smaller more variable nuclear plants may
emerge, possibly feeding waste heat to nearby users, although there would be safety and
security issues with locating mini nuclear plants in or near cites, as has been proposed.
For the present, the current generation of large inflexible, usually remotely sited, nuclear
plants and widely distributed variable renewables do not fit well together on the same
grid. It might be possible to have a small renewable element combined with a large nuclear
element or vice versa (PV solar was included in the Ecomodernisation scenario), but,
without significant storage or supergrid links to export excesses, the two options are not
compatible on a large scale.
It is possible that nuclear and renewables will nevertheless continue to co-exist for some
while. However, the balance is shifting. At present, renewables supply more than twice as
much electricity as nuclear globally, with nuclear growth stalled but renewables booming.
That trend seems likely to continue, although differing patterns may emerge around the
world. Some countries may still opt for a predominance of nuclear (Russia for example),
but, in most others, renewables are likely to dominate. For example, they already supply
ten times more electricity than nuclear in China, with the output from wind projects alone
being larger than that from nuclear. Although, the advent of new technology may change
the pattern in future, for the moment, in most (but not all) countries and regions the nuclear
options do not look to be as promising as the renewable options. That certainly seems to
be the emerging general view in much of western Europe, backed by public opinion – the
UK currently being one notable exception, along with Finland, with new nuclear plants
being built or planned. Although support for nuclear programmes continues in some
Eastern European countries (and also in Russia), nuclear phase out programmes exist in
Germany, Belgium, Switzerland, and even (partially) France and Sweden, while Italy has
voted not to reinstate nuclear, and Austria, Denmark, the Netherlands, Ireland, Portugal,
Greece and Norway remain non-nuclear (WNISR, 2016).
7. SOCIAL AND TECHNICAL CHOICES AHEAD
It is possible to conceive of a (far) future in which large fusion plants supply the bulk of
global energy, assuming fuel resources can be secured and safety and security issues can be
resolved. In theory they could support a highly concentrated centralised urban society. On
the way to that, a role might be played by fission, extended by breeder reactor technology.
All of this being set within an expanding global economy.
In the polar opposite view, the emphasis would be on decentralisation, based on the
use of widely distributed renewable energy technology and demand management, with
growth limited or even halted. Cities could convert to using renewables, but, as already
noted, they would not be able to meet all their needs from generation systems within their
boundaries and would have to import some of their energy from rural/offshore areas. The
degree of decentralisation may thus vary, but the overall emphasis is on widely distributed
energy generation, with, in all but the most autarchic prescriptions, grids providing bal-
ancing links. There would be no need for very large centralised plants and certainly not
large-scale nuclear power.

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However, hybrid versions may also be possible, for example with a few large isolated
fusion plants for specific end-uses (e.g. aluminium production), some mini-nuclear plants
locally, along with widely distributed renewables on and offshore meeting most needs. The
mix might vary around the world, depending on local resources and local preferences.
We have plenty of choices, a wide range of possibilities, with the choices to some extent
depending on our social goals. Some will argue that large-scale centralised technologies
like nuclear will inevitably lead to more constrained, perhaps authoritarian, societies,
but others say that this will be what emerges if we try to live within the tighter limits that
would, they claim, be imposed by reliance on renewables. They look to high technology
as being liberatory, offering us a cornucopian future. Most greens think this is a danger-
ous technical and social delusion. They look to liberation from centralised control, with
decentralised technology enabling local control. They see ecomodernisation as a dubious
technical fix, which would not deal with the social and environmental problems that face
us, whereas in their future, far from being constrained, life would be more fulfilling.
Some of these disagreements concern technical issues, but as can be seen, at bottom they
are concerned with a different vision of the future and how people might live (Miller et al.,
2013). It is conceivable that a highly democratic society might emerge based on centralised
highly automated technology: that was a dream of some early utopian libertarians. Most
modern green libertarians however have assumed that a truly democratic society would be
much more likely if the technology was smaller scale and locally controlled. Those issues
still have to be fought out, with, for good or ill, technology choices to some extent acting
as proxies for wider, harder to frame, social choices and political preferences.
The framework for the debate is not a fixed one. Ongoing technological developments
can change perceptions of what is possible and desirable. For example, the success of local,
distributed energy systems in parts of the EU, as part of the wider take-up of renewables,
empowers those who share the decentralist position. To go further in that direction, more
work will have to be done on smart-grid supply and demand management systems and
system integration generally, including wider supergrid network interconnection (Elliott,
2016b), and this whole area is certainly high on the current technical and political agenda,
opening up some interesting issues: see Box 27.3.
In parallel, in addition to continued work on upgrading existing renewables like wind
and solar PV, more work will have to done to push new renewables ahead, for example in
the tidal energy field, not least to reduce costs (Elliott, 2015b). No doubt a case can also
be made for more work on new nuclear options like Small Modular Reactors, although
that would be opposed by most green decentralists.
All other things being equal, an approach which widens the options available seems
best, but there will inevitably be financial resource limits to how widely the net can be
cast. Diversity is a good principle, but there is also merit in strategic selection based on
playing to existing strengths and capacities and taking account of current successful pat-
terns. It is a matter of judgement, but in terms of the scale of the resource and likely cost
reduction trends, quite apart from public preferences, distributed renewables at various
scales, suitably integrated in local, national and international networks, look to be a good
bet for the EU, and also elsewhere.

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BOX 27.3 SYSTEM INTEGRATION
High shares of wind and solar power transform the entire power system and lead to additional system
integration needs (Agora, 2015). There is an international effort underway exploring these issues and
some significant experience in handing them, with smart-grid demand response being one of the
options (Siano, 2014; Torriti, 2105). Energy storage is also a key area and is being developed quite
rapidly around the world (IRENA, 2015).
In the EU context, there are also some interesting developments in the interconnector field. The
European Network of Transmission System Operators for Electricity has looked at the develop-
ment of pan-EU electricity transmission networks up to 2050 in an e-Highway2050 project. Five
scenarios are explored, including three with large nuclear inputs, one with 100% renewables (includ-
ing some power imports from solar in North Africa), and a ‘small and local’ scenario based mainly
on smaller renewables and energy efficiency but with nuclear still supplying 10%. In all of them,
transmission grids offer many advantages, including enhanced trade and balancing opportunities
(e-Highway, 2015). Moving things on, the EU now has a four-year project to boost the development
of meshed High Voltage Direct Current (HVDC) offshore grids, as part of the Horizon 2020 Research
Programme (RENews, 2016).
8. CONCLUSIONS: ALL CHANGE
In 2010 German Federal Minister of the Environment Norbert Röttgen said:
It is economically nonsensical to pursue two strategies at the same time, for both a centralized
and a decentralized energy supply system, since both strategies would involve enormous invest-
ment requirements. I am convinced that the investment in renewable energies is the economically
more promising project. But we will have to make up our minds. We can’t go down both paths
at the same time. (Röttgen, 2010, p. 7)
There are a range of scenarios suggesting that the EU could supply most of its
electricity and perhaps also most other energy needs from renewables by around 2050,
given proper attention to energy saving. In addition to some ambitious high renewables
scenarios from green NGOs like WWF and Greenpeace, agencies such as the European
Climate Foundation and European Renewable Energy Council have outlined scenarios
with renewables nearing 100% of electricity contributions (ECF, 2010; EREC, 2010).
More recently, EDF’s R&D Paper ‘Technical and Economic Analysis of the European
Electricity System with 60% RES’, looks at an EU future dominated by renewables, with
nuclear only playing a moderate role (Burtin and Silva, 2015). Subsequently, a more
radical ‘Smart Energy Europe’ scenario has been produced by Danish academics, aiming
for near 100% renewable energy use in all sectors by 2050, and outlining the necessary
changes and costs (Connolly et al., 2016).
High renewable scenarios like this would involve significant technical changes and
some of them reflect changed social and economic priorities. However, whichever type of
future is envisaged, most of the technical research priorities seem clear. Firstly, the existing
renewables must be further developed and deployed, with the prospects for PV solar and
wind looking good. They are quite well established, so the emphasis will be on deployment
rather than R&D, although incremental innovation and novel technology development

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should also be pursued. Secondly, the less well developed renewable options need further
RD&D work, with some of them having large potentials. Some might also still put new
nuclear technologies in this category. Thirdly, system integration needs urgent attention,
including work on storage and smart-grid demand response, as well as wider supergrid
integration.
Some of this is underway, but what will be needed in future will depend on exactly
what type of overall energy system is envisaged. A system based on local self-generation
by domestic ‘prosumers’, energy co-ops and municipal agencies will be very different
from one led by centralised utilities. For example, in Germany around 40% of renew-
able capacity is now small-scale and locally owned, and, with some of their market lost,
the utilities have had to adopt a supporting role. That level of decentralisation may not
happen everywhere, but energy generation and use patterns are changing, partly as a result
of new technology, but also due to new consumer and community preferences. In terms
of research, understanding these social changes is perhaps the key need. While there is a
continued drive towards a single European energy market (with or without the UK) and
the proposed European Energy Union, at the grass roots, other forms of economic and
social organisation are emerging with perhaps different, often more localised, orienta-
tions, as well as differing drivers and problems (Koirala et al., 2016; Willis, 2016).
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28. EU energy innovation policy: the curious case of
energy efficiency
Jan Rosenow and Florian Kern* 108
1. INTRODUCTION
Innovation is key to addressing a variety of European policy ambitions. Especially in the
context of the economic recession after the financial crisis of 2007–8 and the austerity pol-
icies pursued in many European Member States, the EU developed an ‘Innovation Union’
plan which forms part of the Europe 2020 strategy that aims to create smart, sustainable
and inclusive growth (EC 2013). In this chapter we focus on EU energy innovation policy.
In the past, EU energy policy was primarily concerned with energy market liberalisation,
single market integration and innovation in energy supply technologies. A good example
of this is the European Strategic Energy Technology Plan (SET-Plan) adopted in 2008.
None of the ten European Industrial Initiatives mentions energy demand explicitly;
the only initiative dealing with some aspects of energy demand is the Smart Cities and
Communities Initiative. After criticism, for example by the International Energy Agency
(IEA 2008), attempts have been made to increase the focus on energy efficiency within
the SET-Plan, but it still does not constitute a separate European Industrial Initiative.
Similarly, not a single subject area of the 38 European Technology Platforms, which are
industry-led stakeholder fora recognised by the European Commission for developing
innovation agendas and roadmaps, deals with energy demand explicitly. Instead, the focus
is on different energy supply technologies, smart grids and carbon capture and storage.
However, more recently, energy efficiency has become an increasingly important area
of EU energy policy. The Europeanisation of energy efficiency policy (and energy policy
more generally) accelerated after the 2007 Lisbon Treaty when energy policy was first
formally recognised as a major competence of the EU (Solorio 2011). Prior to 2007 energy
policy was largely a matter for policy at the Member State level, a result of it being seen
as a high-priority national policy area given the energy security implications (Tews 2015).
There are two underlying concerns that stand out as the key drivers for this shift in
emphasis. The first is energy security. The EU is a major energy importer, relying on
non-EU sources for more than half of its primary energy in 2013 (Eurostat 2015). There
are specific concerns where there is reliance on imports from regions viewed as geopo-
litically problematic. These concerns focused initially on oil in the wake of the oil crises
in the 1970s (Hedenus et al. 2010), but are now extended to gas, particularly since the
Russia–Ukraine transit disputes of the last decade (Stern 2006; Yafimava 2011). There
was a recognition amongst Member States that energy security challenges should be
* This chapter was enabled through funding from Research Councils UK through their
support for the Centre on Innovation and Energy Demand (Grant no. EP/KO11790/1). This
funding is gratefully acknowledged.
501
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increasingly dealt with at the European level (Szulecki et al. 2016). The rise in concern
about climate change provided a second driver for action on energy efficiency, especially in
the context of the global leadership role to which the EU has aspired since the negotiation
of the Kyoto Protocol in 1997. Energy efficiency has been the only significant driver of
greenhouse gas emissions reductions in the first decade of this century (Edenhofer et al.
2014) and now plays a key role in EU climate policy (Delbeke and Vis 2015). There is also
increasing interest in a whole suite of possible benefits deriving from energy efficiency,
from macro-economic effects, air quality and health improvements to delivering jobs (IEA
2014). These multiple benefits of energy efficiency explain why it is one of the pillars of
EU energy policy.
As a result, energy efficiency is one of the three key pillars identified in the EU 20-20-
20 Strategy – a 20% reduction of projected primary energy consumption by 2020 (EC
2015a). The 2030 EU climate and energy framework, agreed in 2014, also features a 27%
energy efficiency target, although this is not binding for Member States at this stage. The
European Parliament called for a binding 40% energy efficiency target and it is likely
that the 27% target will be revised upwards. The Energy Efficiency Directive (EED)
establishes a framework of measures to ensure the achievement of this target (EP 2012).
Previous EU policies seek either to set common frameworks for energy efficiency policy
in Member States, for example the Energy Performance of Buildings Directive (EPBD)
and the Energy Services Directive (ESD), or to use EU competencies in trade policy to
establish common labels and standards, for example through the Ecodesign Directive.
Together these have increasingly influenced the national energy efficiency policies of EU
Member States.
Even though both the ambition and number of EU policies have been increasing sig-
nificantly, academic analysis of the role of such EU policies for innovation and deploy-
ment of energy efficiency technologies is scarce. In this chapter, we critically discuss the
ways in which EU energy efficiency policy is driving innovation and technology deploy-
ment on the basis of a review of the existing literature on the issue. First, using market
transformation theory – a common framework used to classify different policy instrument
types – we position the various EU policy instruments in energy innovation policy along
the different stages of market transformation. We then identify key research challenges
going forward, including: (1) the role of EU energy efficiency policy within a multi-level
governance structure; (2) the institutionalisation of EU energy efficiency policy; (3) the
need for more comprehensive policy evaluations; (4) the importance of better understand-
ing real-world policy mixes; and (5) the potential for applying a socio-technical approach
to energy efficiency in the EU. We conclude that the lack of an explicit innovation strategy
for energy demand constitutes a barrier to achieving the energy efficiency targets going
forward. Furthermore, the conventional understanding of market transformation is
unlikely to allow for the transition at the scale and speed required to make a significant
contribution to mitigating climate change across the EU.
2. INNOVATION AND EU ENERGY EFFICIENCY POLICY
EU innovation policy generally is concerned both with the development of new and the
deployment of existing energy technologies. The same is the case for energy efficiency,

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EU energy innovation policy: the curious case of energy efficiency 503
Support for Information and Regulation
Market penetration
innovation incentives
Late
adoption
Early
adoption
Research
Mass
adoption
Time
Source: Rosenow et al. (2015).
Figure 28.1 Market transformation as innovation and appropriate policy support
although, as stated in the introduction, the historic focus has been on energy supply
technologies. In order to achieve those two goals a set of policies has been implemented
which target the various stages of innovation from research and development through to
mass market deployment.
The most prominent theoretical framework to understand the role of public policy in
the process of energy efficiency technology innovation has been developed by market
transformation scholars (Blumstein et al. 2000; Geller and Nadel 1994). Geller and Nadel
describe the types of policy instruments used sequentially following the S-shaped logistic
diffusion curve. They conclude that four types of policies and programmes are typically
used to achieve a higher take-up of energy efficient technologies: (1) R&D to develop new
energy-efficiency measures; (2) market-pull or bulk purchase programmes to facilitate
commercialisation; (3) financial incentives to stimulate early adopters; and (4) efficiency
codes and standards to eliminate inefficient technologies and practices (Figure 28.1).
This framework emphasises the fact that successful innovation requires much more than
inventing new technologies (e.g. through R&D) and that diffusion processes can be quite
protracted and often need further public support.
Based on the market transformation approach outlined above, we analyse the exist-
ing EU energy efficiency policies along the four market transformation stages by policy
type and outline their respective impact on innovation in energy efficiency technolo-
gies. We argue that this conventional model of innovation is useful for understanding
the challenges involved in upscaling energy efficiency and has informed much of EU
and national policy thinking so far. In section 3 we discuss the extent to which the
market transformation approach is sufficient for understanding and informing EU
energy efficiency and propose that a more comprehensive transition framework is
required.

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2.1 R&D Policies
The main rationale for R&D policies is that markets tend to underinvest in R&D due to
knowledge spillovers. Therefore, public R&D spending is required to close this gap. R&D
both of new energy efficient technologies but also policy instruments and strategies are
funded by the EU’s Horizon 2020 programme. A budget of €198m was made available for
Horizon 2020 in the Energy Efficiency Call 2014–15, and €194m for the period 2016–17.
This represents an average €98m per year over four years. In comparison, the predeces-
sor of Horizon 2020, the 7th Framework Programme (FP7), contributed only €280m
for 2007–13, i.e. €40m per year on average to R&D for energy efficiency (EC 2016a). In
total, the EU is set to spend more than €1.3bn on energy-related research and innovation
projects through Horizon 2020 over the period 2016–17. Hence energy efficiency now
receives a significant but still relatively modest share (15%) of all energy-related research
funding (EC 2016b).
The Horizon 2020 Energy Efficiency Call 2016–17 provides support for innovation
through:
(a) research and demonstration of more energy-efficient technologies and solutions;

and
(b) market uptake measures to remove market and governance barriers by addressing
financing, regulations and the improvement of skills and knowledge.
The programme focuses on six areas: (1) consumers; (2) buildings; (3) public authorities;
(4) industry, products and services; (5) heating and cooling; and (6) innovative financing.
A particular emphasis is placed on multi-disciplinary projects integrating the social sci-
ences and humanities. Compared to FP7, Horizon 2020 appears to be moving towards
covering the whole innovation cycle, moving away from the linear innovation model and
acknowledging the feedback effects between the different parts of the innovation cycle.
However, there are concerns that much of this shift is rhetorical rather than substantive
(Young 2015). There are also concerns that within the Horizon 2020 energy efficiency pro-
gramme, the dominant techno-economic conceptualisation of energy consumers could
hinder long-term low-carbon aspirations and undervalue social science and humanity
perspectives (Foulds and Haunstrup Christensen 2016).
2.2 Information Policies
The rationale for introducing information policies is that the lack of information (or
awareness) inhibits the diffusion of more energy efficient technologies. Hence the role
for policy is to address this market failure, for example through initiatives like labelling
schemes.
2.2.1 EU Energy Label

The most prominent information policy within the area of energy efficiency is the EU
Energy Label, which was first introduced through the EU Energy Labelling Directive
(92/75/EC) in 1992 and later amended in a recast of the Directive (2010/30/EU) in 2010.
The Directive requires manufacturers to label certain types of appliances (e.g. washing

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machines, refrigerators and cooking appliances) to provide consumers with information

on the energy efficiency of the products available on the market. The innovation impact of
the label is twofold: (a) the label aims to encourage consumers to purchase more energy-
efficient goods already on the market (upscaling existing technologies); and (b) the label
incentivises manufacturers of labelled goods to increase the energy performance in order
to get a better label than competing products.
A recent evaluation of the EU Energy Label (Molenbroek et al. 2014) concluded that
it has an important role in innovation, although it is difficult to quantify and attribute
those impacts. The study also found that the EU Energy Label has had an impact on
international product policy and markets, being widely emulated in other countries. The
level of emulation can vary from simple adaptation of the label visuals, through to direct
and literal replication of requirements.
The EU Energy Label is an excellent example to illustrate that policies need to be flex-
ible to continue to support innovation. Research has shown that the extension of the
seven point A–G rating scale by adding new classes A+, A++ and A+++ leads to lower
perceived importance of energy efficiency when making purchasing decisions (Heinzle
and Wüstenhagen 2012) and in turn impacts negatively on the efficacy of the EU Energy
Label. As a result of similar arguments, on 15 July 2015, the European Commission pro-
posed a revision of the EU Energy Labelling Directive that includes a return to a closed A
to G scale (EC 2015b). At the time of writing, the proposal had not been passed through
the European Parliament but it can be expected that the scale will be amended.
2.2.2 Energy performance certificates

The Energy Performance of Buildings Directive (EPBD) recast (2010/31/EC) requires
Member States to establish energy performance certificates (EPCs) for buildings that are
sold or let. EPCs need to be included in all advertisements in commercial media when a
building is put up for sale or rent. The EPC must also be presented to prospective tenants
or buyers and handed over to them upon completion of a deal. EPCs contain an energy
performance rating of the building and recommendations for cost-effective improvements.
In theory, this will enable the buyer or tenant to make more informed decisions and take
the energy performance of the building (and thus its running costs) into account when
deciding for or against a specific building. In turn, this should increase the value of a
property that is more energy efficient compared to one that is less efficient. Empirical evi-
dence suggests that this is a valid assumption to make (Fuerst et al. 2015). The impact of
EPCs on deployment is that they encourage building owners to invest in energy efficiency
in order to achieve a higher sales price or rental value.
2.3 Financial Incentives
The logic of providing financial incentives for the roll out of socially beneficial technolo-
gies is that they may not be competitive with conventional technologies and often incur
higher upfront capital costs but have societal benefits, which justifies policy intervention.
Creating a market for new technologies also often stimulates further investment in R&D
in this area by manufacturers and leads to learning by doing, which can drive cost reduc-
tions (Sagar and van der Zwaan 2006).
There is no explicit financing mechanism for energy efficiency deployment at the

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European level at the moment, although this is being considered as one of the options
going forward. Instead, funding for energy efficiency technologies is provided through
two principal mechanisms. Most funding is provided at the Member State level, and this
is used by Member States to comply with the Energy Efficiency Directive (EED) – in
particular Article 7. Secondly, the EU Structural Funds provide funding to a wide range
of areas, including an increasing share for energy efficiency.
2.3.1 Energy Efficiency Directive

The EED (2012/27/EU) was designed to bring the European Union back on track to
achieve the 20% energy consumption reduction target, and is one of the key steps identi-
fied by the Communication on the Energy Efficiency Plan 2011 and the Roadmap to 2025.
Previous analysis by the European Commission has shown that existing energy efficiency
policy measures would not deliver the 20% target by 2020 and leave a significant gap of
more than half of the required reduction (EC 2011b).
The Energy Efficiency Directive puts in place a number of important provisions to be
implemented by Member States, including the requirement to establish binding national
energy efficiency targets (Article 3) and national building energy efficiency strategies
(Article 4), a requirement to renovate 3% of public sector buildings each year (Articles
5 and 6), the need to establish energy efficiency obligation schemes (Article 7), and pro-
visions for auditing and metering (Articles 8–12). The most important Article of the
Directive (Article 7) requires Member States to implement Energy Efficiency Obligations
and/or alternative policy instruments in order to reach a reduction in final energy use of
1.5% per year (EP 2012). Article 7 is expected to deliver more than half of the required
energy savings of the 20% reduction target and is therefore the most important compo-
nent of the EED in terms of its contribution (EC 2011a).
Analysis of the response from Member States to Article 7 (Rosenow et al. 2016b) shows
that the largest number of policy instruments can be found in the category ‘financing
schemes or fiscal incentives’, such as tax rebates (e.g. crédit d’impot développement
durable in France) or loans schemes (e.g. the KfW programmes in Germany). Together
with Energy Efficiency Obligations, they provide the lion’s share of the expected savings
notified to the Commission.
2.3.2 Cohesion Policy

The EU’s Cohesion Policy provides an investment framework for energy efficiency, sup-
porting the EU Energy Policy and targets, through the European Regional Development
Fund (ERDF) and the Cohesion Fund (CF). These two funds represent the largest
sources of EU financial support for energy efficiency. The ERDF aims to reinforce eco-
nomic, social and territorial cohesion in the EU by redressing the main imbalances across
EU regions through support for sustainable development and structural adjustment of
regional economies. The CF, which targets Member States whose Gross National Income
per inhabitant is less than 90% of the Community average, aims to strengthen economic,
social and territorial cohesion of the EU in the interests of promoting sustainable devel-
opment, and investment in the environment, including sustainable energy.
In the 2007–13 programming period, energy efficiency allocations from the two funds
amounted to around €6bn, which is around 2% of the total funds of €347bn. Originally,
energy efficiency investments were allowed in public and commercial buildings. For

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housing, up to 2008 ERDF investment was restricted to particularly distressed areas of

the EU12 (Ramboll and IEEP 2015).
For the 2014–20 period, a total of €23bn (4% of the total funds) will be available for the
low carbon economy, a significant increase from the 2007–13 period. Under the ERDF,
a minimum percentage of funding will be directed to the shift towards a low-carbon
economy in all sectors: 20% in the case of more developed regions, 15% for transition
regions and 12% for less developed regions (ICF et al. 2014). As a result, a greater amount
of funding will be available for the energy renovation of buildings, as compared with the
period 2007–13, although the exact share is not guaranteed.
2.4 Regulation
The role of regulation is normally to implement certain technologies which are socially
beneficial but would otherwise not be deployed widely even if financial incentives were
offered. It can also be used to phase out socially undesirable technologies. Regulation is
often seen as the ultima ratio if other policy measures do not deliver.
2.4.1 Energy Performance of Buildings Directive

Within the buildings sector, the Energy Performance of Buildings Directive (EPBD)
(2002/91/EC) and the subsequent recast (2010/31/EC) is the most important piece of
legislation at EU level delivering minimum energy efficiency standards for buildings. The
EPBD is not setting EU-wide standards (unlike the Ecodesign Directive, covered below)
because of the diversity of building types, climate and construction techniques across the
EU. Instead, it requires EU Member States to set their own national building standards
through calculating cost-optimal minimum energy performance requirements for new as
well as renovated buildings. There are, however, concerns as to whether the requirements
are met in reality due to the performance gap between theoretically expected and actually
realised energy performance (Burman et al. 2014). The EPBD is particularly important
for the construction of new buildings, as existing buildings are only subject to minimum
standards in case of major renovations. All buildings that are constructed need to comply
with the energy performance requirements in the national building codes, although there
are clearly issues around enforcement.
In terms of innovation, the EPBD results in increasingly ambitious building codes,
forcing the construction industry to build more energy efficient buildings over time and
banning construction types that are less efficient than the minimum requirements. In that
sense building regulations can be seen as a key ingredient of policy strategies aimed at
‘creative destruction’ (Kivimaa and Kern 2016). Building on Schumpeter’s famous term,
Kivimaa and Kern argue that transformative change in building energy efficiency, for
example, can only be achieved through a mix of instruments which support innovation
(creation) as well as instruments which undermine currently dominant high energy prac-
tices (destruction).
2.4.2 Ecodesign Directive

In order to increase the energy efficiency of products, the Ecodesign Directive (2009/125/
EC) establishes a framework to set mandatory energy performance requirements for
energy-using and energy-related products. The Directive covers more than 47 product

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groups (such as heating systems, lightbulbs, white and brown goods, motors etc.) and the
minimum standards are constantly being reviewed and amended as the market average
in terms of energy efficiency improves over time. Through setting minimum standards,
the Directive forces manufacturers to design their products in a more energy efficient way
than they might do otherwise. The Ecodesign Directive is a framework directive and does
not set the product standards directly. Instead, the standards are established through the
so-called comitology procedure and implementing measures involving studies, impact
assessments and consultations with stakeholders.
In some instances, the application of the Directive has led to an outright ban of certain
products which is the strongest form of undermining the status quo (Kivimaa and Kern
2016). The most prominent example of this is the ban of incandescent light bulbs, for
which a gradual phase-out in the EU started in 2009 (Commission Regulation (EC) No
244/2009), a move that was controversial and has sparked much public debate (Howarth
and Rosenow 2014). However, it can be argued that such strong measures will be required
to achieve the needed energy efficiency revolution.
2.5 Summary
Based on our discussion of existing EU energy efficiency policies along the four market
transformation stages, we conclude that there are a number of issues to be aware of, as
follows.
There is too little direct financing for energy efficiency investments and there are no
energy efficiency focused technology platforms, but there has been some increase in
research funding for energy efficiency in Horizon 2020, from a very low to a modest share,
compared to previous framework programmes. Also, several implementation challenges
remain, but these normally reside with Member States (e.g. building standards). Overall,
one of the main challenges for EU energy efficiency innovation policy is how to effectively
coordinate a mix of targeted policy interventions horizontally at EU level and vertically
with activities in Member States and at local levels. Besides these specific problems with
the state of the art of EU energy efficiency innovation policy, there are also reasons to
suggest that the framing of the challenge through the market transformation perspective
is too narrow, which will be discussed in more detail in subsection 3.5. The next section
will discuss a number of key research challenges for work on EU energy efficiency innova-
tion policy which elaborate on some of the challenges identified above.
3. KEY RESEARCH CHALLENGES
Drawing on the above, the list of research challenges and needs is long and in this chapter
we cannot possibly discuss them all. Instead, we identify what we see as five key challenges
going forward. First, the interaction of EU and national policies for innovation within the
energy efficiency area is poorly understood. EU policies are often introduced with a view
that Member States will translate those effectively into national law and the evidence sug-
gests that the intent of EU policies often does not materialise in the actual implementation
of related policies at the national and regional levels. Second, there are important ques-
tions that need to be answered around the institutional set up of European innovation

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policies, and what this means for energy efficiency in particular. For example, the lack
of innovation platforms for energy efficiency raises the question of whether supply-side
technologies are structurally advantaged and what this means for innovation in energy
efficiency. Third, many of the policies driving innovation through upscaling deployment
are currently poorly evaluated, which results in a lack of understanding of what those
policies deliver in terms of energy savings but also technology innovation. Fourth, there is
an increasing policy heterogeneity across the EU Member States with often multiple poli-
cies focusing on achieving the same outcome. Our understanding of the impacts of such
policy mixes on innovation is only starting to emerge and few studies have analysed the
role of policy mixes within energy efficiency policy. Finally, research on socio-technical
transitions suggests that conventional models of market transformation (and the role of
public policy they promote) may be too limited in being able to capture the multifaceted
nature of transitions, especially in terms of the scale and pace of innovation required. In
the following, we discuss each of those issues in turn.
3.1 Multi-level Governance
One key research challenge is the multi-layered nature of EU policy making with regard to
innovation and energy demand reduction technologies. While the European institutions
set the policy framework (for example in the shape of directives or funding frameworks),
innovation policy is often implemented at the national, regional or even local level. Each
Member State faces different starting conditions and a different set of opportunities for
innovation, influenced by history, geography, institutional set up, the nature of the current
stock of technologies, infrastructures, available fuels and energy conversion technolo-
gies, and different cultural expectations and practices relating to energy use. However,
the range of technologies and techniques available to deliver energy savings are largely
common across the EU. Member States and other policy actors face a choice of policies
and policy mixes to try and foster low-carbon innovation including energy efficiency
(Rosenow et al. 2016a).
In order to meet their energy efficiency targets, many Member States are introducing
additional policies into an often already crowded policy space (ENSPOL 2015a, 2015b)
which has emerged over time in different ways in each Member State due to the lack of a
clear European energy policy prior to 2007 (Tews 2015). This process results in an increas-
ing policy heterogeneity in the energy efficiency area (Constantini et al. 2015). Some
scholars (e.g. Tews 2015) have argued that the different national responses to EU policy
result in ‘laboratories of innovation’ for policy instruments and outcomes.
Furthermore, policy making is becoming increasingly complex as power is redistributed
from the national level to supra- and sub-national actors, but also outwards to quasi-state
actors and non-state actors (Flanagan et al. 2011). This multi-level and multi-actor gov-
ernance increasingly requires policy mixes to be designed to take into account decisions at
other levels in order to achieve policy goals (Betsill and Bulkeley 2006). Analysis by Tews
(2015) shows that the multi-level governance approach of the European Union creates
tensions between the degree to which European policy sets targets and rules applicable
to all Member States and the extent of decentralising policy decisions in line with the
subsidiarity principle. Tews uses the example of renewable energy policy to illustrate
this point – the European Commission favoured a quantity-based quota system for

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r enewable energy whereas most Member States preferred priced-based economic instru-
ments such as feed-in tariffs. This is also the case for energy efficiency policy. Attempts
by the European Commission to harmonise energy efficiency policy through requiring
all Member States to use energy efficiency obligations – utility-funded energy efficiency
programmes – failed, and after intense negotiations the Energy Efficiency Directive
allowed Member States to also use alternative policy measures if they could show that
similar levels of savings would be achieved.
Future research should investigate further how EU energy efficiency policies are being
implemented at the national level and beyond, but also the extent to which national imple-
mentation and policy making affects EU policy (for example the ‘uploading’ of specific
policy instruments to the European policy agenda) (Tosun et al. 2015).
3.2 Institutionalisation of European Energy Efficiency Policy
In the introduction of this chapter we used the example of the European Strategic Energy
Technology Plan (SET-Plan) and the European Technology Platforms to illustrate that
energy efficiency does not receive the same amount of attention as supply-side technolo-
gies when it comes to EU technology innovation policy.
At the same time, energy consumers are increasingly recognised as being very impor-
tant, not just as a passive ‘load’ on energy grids, but as potentially active partners,
responders, or ‘prosumers’ in energy service networks (Parag and Sovacool 2016).
Commercial buildings, homes and industrial facilities can play an important role in reduc-
ing energy consumption, and ‘shaving’ energy peak demands, thus reducing the volume
of investments needed in generation, transmission and distribution infrastructures. But
decisions relating to energy infrastructure have traditionally been made – and continue to
be made – without consideration of the potential for lower-cost demand-side alternatives.
They are also predominantly made at the Member State level.
Future research should investigate both (a) the underlying factors that led to the current
institutional setting in which energy efficiency is structurally receiving less attention and
support than other energy technologies and (b) potential approaches to advance the status
quo in such a way that energy efficiency innovation is put on a level playing field with
supply-side options.
For example, the concept of ‘Energy Efficiency First’ or ‘Efficiency First’ found its
way into the Energy Union Communication in February 2015 (EC 2015c). It has been
invoked in statements by Vice-President Sefcovic and Commissioner Arias Cañete, and
recognised as an important principle in the Communication on new market design (EC
2015d). Future research should also analyse to what extent a principle such as Efficiency
First could be integrated into the decisions governing investment in energy infrastructure
and technology innovation. This requires identification of the many points at which these
decisions are made, and of the key actors involved. For example, investments relating to
electricity and gas transmission and distribution infrastructure are made by energy com-
panies and overseen by national regulatory authorities. The criteria for approving these
projects are found in national legislation and European directives and regulations. Cross-
border infrastructure projects will include a broader list of actors, including ACER,
ENTSO-E and ENTSO-G.

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3.3 Policy Evaluation
Despite the rising influence of European legislation on national energy efficiency policy,
the literature evaluating energy efficiency policy at the EU level is rather scarce. A recent
systematic review of peer-reviewed energy efficiency programme ex-post evaluations
(Wade and Eyre 2015) identified only four studies analysing the effectiveness of EU
energy efficiency policies (Bertoldi et al. 2001; Saussay et al. 2012; Schiellerup 2001; SRC
2001). All of the other 67 papers found by Wade and Eyre deal with the evaluation of
national energy efficiency policies. There are some studies that undertake pan-European
analyses. For example, Filippini et al. (2014) carried out an econometric analysis of the
level of energy efficiency across EU Member States and the impact of energy efficiency
policies. However, they did not explicitly evaluate the impact of specific EU policies but
instead focused on the role of the national policies adopted, some of which were driven by
EU initiatives. With regard to ex-ante evaluations, we are not aware of any peer-reviewed
papers carrying out ex-ante evaluations of EU energy efficiency policies – the available
ex-ante evaluations of EU energy efficiency policy are all located in the grey literature
(see for example the DG Energy website section ‘studies’). The lack of both ex-ante and
ex-post evaluations of European energy efficiency policy is an important gap which future
research should address in order to be able to provide advice to EU policy makers.
Future research should also analyse the national practices around evaluation with a view
to understanding how approaches to evaluation differ across the EU and what causes the
differences regarding methodologies and robustness. Furthermore, it would be i nteresting
to know whether particular evaluation practices are more successful in contributing to
the development of more effective innovation policies for energy efficiency, and how EU
energy efficiency policy can be evaluated in a meaningful way given the heterogeneity of
evaluation traditions in Member States and the need to rely on national evaluations in
order to carry out European policies that are implemented at the national level.
3.4 Policy Mixes
So far, the majority of studies looking at the role of EU policy in innovation and energy
efficiency have focused on single policy instruments and their role in achieving a greater
uptake of energy efficient technologies. In reality, as discussed above, the EU itself and
also most EU Member States employ a set of different policies aimed at innovation rather
than just one single instrument. Policy mixes can be understood as ‘complex arrangements
of multiple goals and means which, in many cases, have developed incrementally over
many years’ (Kern and Howlett 2009: 395). Recently, a number of studies have developed
thinking on interactions between policy instruments aimed at innovation within a given
jurisdiction. Recent work by the OECD (2010) for example emphasises the coherence and
appropriateness of the policy mix. An extensive literature review by Rogge and Reichardt
(2016) concludes that coherence goes beyond consistency (absence of contradictions) by
focusing on synergies. Gunningham and Sinclair (1999) have developed typologies of dif-
ferent kinds of policy mixes: (1) mixes that are inherently complementary; (2) mixes that
are inherently incompatible; (3) mixes that are complementary if sequenced; and (4) mixes
whose complementarity or otherwise is essentially context specific. Howlett and del Rio
(2013) also developed policy mix typologies proposing eight policy mix types determined

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by whether or not the mix involves multiple governments, consists of multiple policies
and addresses multiple goals.
Energy policy is probably the sector most studied regarding policy mix and innovation
(Cunningham et al. 2013), with a main focus on the EU Emissions Trading Scheme and
renewable energy policies (e.g. del Rio 2014; Sorrell and Sijm 2003) and, to a much lesser
extent, energy efficiency (Kern et al., 2016; Rosenow et al. 2015). However, even within
this policy domain, papers analysing the policy mix rather than individual instruments are
very scarce. In addition, when analysing policy mixes, the focus so far has often been rather
narrowly on the interactions of instruments. Rogge and Reichardt (2016) have argued that
research on policy mixes should not be confined to studying interactions between instru-
ments, but also include attention to policy processes and characteristics of mixes (such as
coherence or synergies), as well as elements of policy mixes (including policy strategies).
There is also useful research within policy sciences on the processes through which policy
mixes evolve, which is considered important for their effects (Howlett and Rayner 2007;
Kern and Howlett 2009).
Future research should investigate the role of the policy mix for innovation within
the energy efficiency space as this becomes increasingly important given the diversity
of national approaches to delivering EU energy savings goals. Practitioners increasingly
observe that often a combination of policies is needed to achieve the same result more
quickly and/or effectively which goes beyond earlier simplistic policy recommendations
in the form of single ‘optimal’ policy instruments. It is also true that increasingly national
energy efficiency policy mixes become very complicated, with many instruments (see Kern
et al. (2016) for an analysis of UK and Finish energy efficiency policy mixes) but also
many changes over time, which needs to be studied systematically in order to assess the
potential effects of such policy mixes on innovation processes.
3.5 Socio-technical Transitions: Beyond Changing Behaviour and Technologies
The market transformation approach discussed in section 2 has informed much of EU

and Member State thinking on energy efficiency innovation policy design. However, the
underlying linear pipeline thinking about innovation has long been discredited in the
innovation studies literature. In contrast, a more sophisticated model sees innovation as
arising from an innovation system, defined as a ‘network of institutions in the public and
private sectors whose activities and interactions initiate, import, modify and diffuse new
technologies’ (Freeman 1987: 1). This model highlights the interactions and feedback
loops between the different phases of R&D, development, demonstration, market forma-
tion and diffusion, and suggests that innovation processes are much less linear than sug-
gested by the conventional model. Innovation is viewed as a collective activity involving
many actors and knowledge feedbacks and strongly influenced by institutional settings
(Gallagher et al. 2012).
Building on this understanding of innovation, over the last decade a field of research
has emerged in which scholars are trying to understand the transformation of existing
socio-technical regimes towards more sustainable configurations (Geels 2002, 2011;
Markard et al. 2012; Smith et al. 2010). Much of the research has focused on the transi-
tion away from high carbon energy systems. The research on socio-technical transitions
suggests that conventional models of market transformation and the envisaged role of

LEAL-ARCAS_9781786431042_t.indd 512 08/09/2017 13:02

public policy within it may be too limited in being able to capture the multifaceted nature
of transitions and especially the scale and pace of innovation which is required (Kern
and Rogge 2016; Sovacool 2016). One of the most important insights of this literature of
relevance to this chapter is that technological artefacts (such as consumer electronics) are
embedded within wider socio-technical regimes which also involve user practices, markets,
symbolic meanings, existing infrastructures (e.g. the electricity grid), regulatory frame-
works like building regulations or electricity market rules, industrial structures, as well
as knowledge. The alignment of these different components of the system is very strong
and arises over time through a process of co-evolution which makes it very difficult to
change the trajectory of development (Geels 2002). While incremental progress in energy
efficiency is certainly possible and important, our argument is that in order to fulfil EU
energy and climate change targets a complete transformation of current systems of energy
demand and use is required rather than incremental change.
Seen from a transitions perspective, one of the shortcomings of the current EU
approach to energy efficiency has been the dominant techno-economic paradigm under-
lying EU funding programmes. A recent commentary in Nature Energy argues: ‘The
2016–2017 Energy WP is thus replete with technological deterministic assumptions,
whether they are about the linear uptake, interpretation and use of technologies, or about
intentionally overlooking consumers as part of going straight to technologies to solve our
energy challenges’ (Foulds and Haunstrup Christensen 2016: 3). This is problematic as ‘At
best, the techno-economic paradigm confuses our understanding of the actual dynam-
ics behind energy consumption and energy saving; at worst, it produces inefficient and
impractical solutions’ (ibid). From a socio-technical perspective the focus on either devel-
oping technological solutions ignoring consumers or trying to educate consumers about
beneficial behavioural changes is too simplistic (Sorrell 2015). Instead, future research
needs to focus on how current energy systems have evolved in a way which emphasises
the alignment and co-evolution between policies, market structures, infrastructures, tech-
nologies, culture, etc. Seen from a socio-technical perspective, innovation is understood
as a social process with complex interactions between multiple actors (firms, researchers,
policy makers, consumers) who develop strategies, make investments, learn, open up new
markets and develop new routines. Innovation also spans both supply and demand and
entails active contributions from consumers that go beyond the purchase and adoption
of new technologies (Geels et al. 2015).
Much research on transitions focuses on explaining through which kinds of mecha-
nisms radical change in such configurations occur (e.g. Geels and Schot 2007). The
second main insight of this research of relevance to this chapter is that transitions can be
understood to happen as a consequence of developments across three analytical levels: the
niche level, where new technologies, business models or practice emerges; the regime level,
which contains the currently dominant socio-technical regime to meet energy demand;
and the landscape level, which contains macro-political and macro-economic develop-
ments and trends such as climate change, globalisation or demographic changes which are
beyond the influence of actors from the niche and regime levels but impact upon them.
The main argument is that transitions occur when landscape developments put pressure
on the existing regime, and niche developments gather momentum until they can break
into and eventually replace the previously dominant socio-technical configuration. This
means for research on EU energy efficiency (innovation) policy that the analytical focus

LEAL-ARCAS_9781786431042_t.indd 513 08/09/2017 13:02

needs to shift towards a much wider range of actors and processes than simply detecting
cost effective reduction potentials and identifying barriers to their adoption. There is so
far very little research on energy efficiency from a socio-technical transitions point of view
(exceptions include, for example, Tambach et al. 2010). We argue that this is an important
gap as framing the challenge of energy demand reduction in this socio-technical way
encourages a move away from the individualist and incremental focus of current policy
approaches and towards more overarching visions of long-term, systemic change (Sorrell
2015). More thinking about how to design and implement transformative innovation
policy (Schot and Steinmueller 2016) is needed at the European level, and not just on
energy efficiency innovation.
4. CONCLUSION
Historically, much of EU energy policy has been primarily concerned with energy market
liberalisation, single market integration and innovation in energy supply technologies.
While this remains the case to some extent, in this chapter we have discussed how over
the last few years, EU energy policy has increasingly developed a wider set of activities
in order to foster innovation and deployment of technologies aimed at reducing energy
demand and increasing energy efficiency. We have discussed these policy developments
(and the associated academic literature analysing them) through the market transforma-
tion framework which informs much of the policy thinking at EU and Member State
level. Building on this review, we then outlined a number of key research challenges on EU
innovation policy for energy efficiency. These include: (1) the role of EU energy efficiency
policy within a multi-level governance structure; (2) the institutionalisation of EU energy
efficiency policy; (3) the need for more comprehensive policy evaluations; (4) the impor-
tance of better understanding real world policy mixes; and (5) the potential for applying
a socio-technical approach to energy efficiency in the EU.
While we argue that the increased focus on energy efficiency within EU energy policy is
a very welcome development, we conclude that the lack of an explicit innovation strategy
for energy efficiency and energy demand reduction, as well as an insufficient institutional
set up of EU energy efficiency policy, constitutes a barrier to achieving the challenging
energy efficiency targets the EU has set. Furthermore, we argue that policy design which
is based on the conventional understanding of market transformation is unlikely to allow
for the rapid transition at the scale required for meeting long-term EU targets. We suggest
that policy makers need to embrace a much wider conceptualisation, which sees energy
efficiency and energy demand reduction as a core component of the transformation of the
entire European energy system. This does not just involve changes in consumer behaviour,
technological artefacts and infrastructures such as the housing stock, but also related
changes in institutions, policy frameworks, culture, industrial structures and the like. We
advocate a socio-technical lens which sees changes in technologies as closely co-evolving
with these other changes. Focusing narrowly on bringing certain technologies to market,
or incentivising their diffusion, is insufficient.
Instead we propose a kind of transformative innovation policy (Schot and Steinmueller
2016) which not only supports alternative low energy used technologies and practices but
also actively phases out highly energy consuming processes and practices (Kivimaa and

LEAL-ARCAS_9781786431042_t.indd 514 08/09/2017 13:02

Kern 2016). In order to achieve this ambition, a well-designed policy mix (Rogge and
Reichardt 2016) in support of a transformation of the European economy is required. If
the EU adopts an experimental approach which is trying to make the most of the expe-
riences gathered in Member States, as well as internationally, then the EU can lead the
world in the transformation towards more efficient and clean energy systems.
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Index
abuse of dominant position 457 Austria 112, 138, 139, 198, 479, 495
access to justice 317–19 authoritarianism 249, 496
accounting 255 aviation 79, 175, 339, 418, 426
acidification of soil, lakes and rivers 434 Azerbaijan 26, 200–202, 203–6, 209–10, 211,
addiction medicine 447 225–6
Africa 106, 107, 112, 148, 184
Economic Community of West African Baku Initiative 173, 201, 205
States (ECOWAS) 182 Baltic Sea 343
North 126, 154, 162, 168, 196, 497 Baltic states 25, 121, 156, 228, 473
see also individual countries see also individual countries
African, Caribbean and Pacific countries 47 Balticconnector project 28, 342
Agency for the Cooperation of Energy banks 109, 111
Regulators (ACER) 17, 28, 55–6, 63, Barroso, José Manuel 202, 203, 205, 208
158–9, 172, 261, 262, 266, 510 behavioural studies 399–401, 403, 410–11
advisory competences 56–7 Belarus 228
decision-making competences 57 Belgium 27, 291, 472, 495
ENTSOs 59 benchmarking 392
REMIT and 57–8 Berlusconi, Silvio 252, 253
resource adequacy assessment 269 bilateral investment treaties (BITs) 120–22, 329
agriculture 109, 175, 433, 434, 488–9 Commission 139–41, 142
air pollution 336, 340, 343, 433–4, 435, 442, biodiversity 292, 305, 434
451, 487 biofuels 22, 34, 172
Albania 182, 352 biomass 34, 181, 304, 423, 461, 486, 491
Algeria 47, 76, 276 Black Sea region 43, 121, 173, 201, 288
annual reports: non-financial matters 316 Blair, Tony 404–5
appreciability test 24 Blue Growth Policy 343–4
aquaculture 343, 344 Bolivia 313
Arab Spring 471 border carbon adjustments, debate on 418,
arbitration 139–41, 142, 143–6, 148, 186, 187, 423–7, 431
188, 479 bounded rationality 457
business-related human rights violations in Brazil 165, 172, 182, 249, 254, 288, 421
oil and gas sector 310–11, 329, 330–34 Brexit 46, 112, 483
Arctic 222, 297, 306–7 bribery see corruption
Argentina 182 BRICs 177
Arias Cañete, Miguel 70, 510 see also individual countries
Armenia 182, 188 British Petroleum 246
Ashland Oil Inc. 245 Brunei 182, 300
Ashton, Catherine 197 budget 92, 159, 161, 176, 504, 513
Asia 148, 152, 184, 222 deficit 65
Russia’s gas pivot to Asia and Eastern gas building sector 85, 86, 92, 175, 268, 418, 502,
strategy 222–4 506–7, 508, 510
see also individual countries Code for Sustainable Homes 402
Asia-Pacific Economic Cooperation (APEC) energy performance certificates (EPCs) 505
121 Bulgaria 141, 204, 205, 226–7, 473, 479
Assange, Julian 252 Bush, George W. 41
auctioning 87, 156, 339, 419, 420 business
austerity 456 -related human rights violations in oil and
Australia 127, 182, 274, 352 gas sector 7, 309–34
519
LEAL-ARCAS_9781786431042_t.indd 519 08/09/2017 13:02

Paris Agreement 385–93 China 33, 85, 87, 106, 107, 165, 166, 170, 179,
business entities from law-takers to law- 196, 209, 210, 230–31, 232, 471
makers 388 air pollution 433, 451
business models 393 airlines 426
business-related human rights violations in oil challenges 112–13
and gas sector 7, 309–34 corruption 249
access to effective remedy 317–19 East China Sea 302–3
grievance mechanisms under UNGPs emissions trading schemes 417, 420, 426
326–8 IECT 182, 184
litigation involving companies 319–25, 333 Joint Oil Data Initiative (JODI) 185
case for external and binding grievance Kyoto Protocol 421
mechanisms 328 offshore energy 288, 301, 302–3
accessible and consensual 329–30 renewable energy 461, 480, 495
arbitration 329, 330–34 Russia 223, 224
protect, respect and remedy in EU context smart grids 451
311–13 South China Sea 297, 300–302
competences 313–15 Turkmenistan 206–8
implementation 316–17 choice architecture 399
Buzek, Jerzy 69 choices, new approaches to energy 10,
486–98
Canada 154, 172, 182, 253, 417, 420 Ecomodernisation 488–9, 490, 491–2, 495,
cancer 434 496
capability-expectations gap 44, 45 nuclear options and problems 492–4
capital markets 111 old and new approaches 487–8
union 94 renewable energy and problems 489–92
capture, state 444 renewable and nuclear energy 494–5
carbon capture and storage 92–3, 339, 410, social and technical choices ahead 495–7
486–7, 488 Churchill, Winston 114–15, 123
carbon leakage see under emissions trading Cicero 237
scheme circular economy 445, 467–8
cars, energy-efficient 83 cities 107–8, 108, 113, 217, 391
Carter, Jimmy 169 global city regions (GCRs) 106, 107, 108,
Caspian Sea region, energy security strategy in 111
5, 192–211 renewable energy 491, 495
diversification 195, 197–8, 199, 200, 211 smart 72, 501
Azerbaijan 200–202, 203–6, 211 civil society organizations (CSOs) 39, 391
framework 200–202 class 273
Southern Gas Corridor 202–4, 205, 207, Climate Action Network (CAN) Europe 482
211 climate change 69, 84, 113, 162, 165, 170, 172,
Turkmenistan 200–202, 204, 206–8, 211 174–5, 231, 444, 445, 502
energy security analytical levels 513
concept of 192–4, 210–11 carbon leakage see under emissions trading
dimensions and agents of 194–7 scheme
future research 209–10 climate departure index 437
Russian gas 192, 195, 196, 197–200, 205, common but differentiated responsibilities
210, 211 approach 41, 421, 427
Central Asia 26, 196, 209 Ecomodernisation 490
Kazakhstan 138, 209, 210, 420 Energy Community 442–3
Turkmenistan 200–202, 204, 206–8, 209, external competences in energy and 1–2,
210, 211 30–47
certification feedback loops 436
energy performance certificates 505 Framework Convention on see under United
TSOs 54–5, 56, 62 Nations
challenges, EU 111–12, 471–5 global emissions 434
Chernobyl 493 costs internalised 441

LEAL-ARCAS_9781786431042_t.indd 520 08/09/2017 13:02

Index 521
impacts and costs 435–7 external representation 39, 197

maritime transport 335, 336, 348, 352 infringement proceedings 25–6, 50, 61, 65,
maritime transport 303–4, 335, 336–40, 264, 479
348–9, 352 Integrated National Energy and Climate
smart grids 451, 452, 453, 454, 456, 457 Plans
target: reducing greenhouse gas emissions enforcement 64–5, 66
35, 69, 88, 174–5, 261, 276, 335, 421, internal energy market 258, 260, 261,
428–9, 460–61, 473, 478, 482, 483, 484 264
Third Package 61 intra-EU investor–state arbitration 139–41,
Climate Diplomacy Action Plan 40, 45, 46 142
climate security 46 justice, energy 279, 280
clinker/cement 85, 424, 426–7 maritime sector 337, 338, 339–42, 344,
Clinton, Hillary 239 345–6, 349
cluster analysis 402–3 natural gas 26, 154–5, 158–9, 176, 199,
‘CNN effect’ 110 226–7, 230
coal 21, 27, 33, 37, 44, 113, 114, 150, 167, 170, pricing 457
177, 218, 230, 231, 442, 447, 453, 472, quantity-based quota system for renewable
473 energy 509–10
coal-fired utilities and health 434 recommendations 64–5, 66
political role 69 renewable energy 344, 345–6, 475–7, 479,
transition, energy 443 481, 482–3
Coase theorem 438 roadmaps 34, 54, 261, 335, 445, 485
Code for Sustainable Homes 402 Sector Inquiry (2006) 51–5
Cohesion Policy 506–7 security, energy 26, 154–5, 157–9, 161–3,
Cold War 105, 138, 198, 210 195, 199, 266, 475, 481, 482–3
collective goods and self-interest 41 definition of 470–71, 485
Colombia 44, 472 Green Papers 38, 195, 198, 259, 470
colonialism 114, 118, 167 import dependency 40, 473
combined-cycle gas turbine (CCGT) power state aid 60, 61, 62, 176
plants 218 subsidies 457
COMECON 118, 120, 134, 149 targets 26, 34–5, 54, 261, 267, 268, 335,
comitology 508 482–3, 506
command-and-control vs market-based third-party access 55
instruments 437–41 UN 2030 Agenda for Sustainable
Commission 25, 45, 109, 171, 202, 259, 264–6 Development 42
ACER 56–7, 59, 63 UNGPs 313
capability-expectations gap 44 waste management 465
certification 54–5 Common Foreign and Security Policy (CFSP)
circular economy 468 39, 194, 196, 197, 202
clean energy 83 common heritage of mankind 296, 297
ACEI 92–3 competences on energy, business and human
for all Europeans/Winter Package 35, 49, rights 313–15
266–70, 450 competences in EU energy policy 1, 18–19,
climate change 37, 174 28–9, 61, 157, 166, 171, 172, 177, 259, 278,
competition, intensity of 60 352, 469, 475, 477–8, 501, 502
competition law 51, 64 coordinated action 31, 36
corporate social responsibility 317 environment and energy 20–22, 475
emissions trading scheme 339–40, 419, 420, external competences in energy and climate
421, 422, 423, 424–6, 428–30 change 1–2, 30–47
Energy Community 43 ‘in the spirit of solidarity’ 18, 19–20
energy efficiency: Member States and integration and energy 15–17
509–10 internal market and energy 18, 20, 21, 22,
Energy Union 17, 32, 49, 67, 69, 70–72, 475
74–5, 81, 83–4, 90, 92–4, 161–3, 172, judicial cooperation 318
265–6 multilevel governance 24–8

LEAL-ARCAS_9781786431042_t.indd 521 08/09/2017 13:02

ordinary legislative procedure 20, 21, 28 infringement proceedings 25–6, 50, 61, 65,
exceptions from 23–4 264, 479
security of supply 22–3, 28 preliminary rulings 59–60, 64
competition law 48, 59, 62, 258, 457, 470 creative destruction 392–3, 507
competition law-ization as tool to analyse criminal law 254–5
see institutional structures, effectiveness Croatia 229, 479
of Cuba 313
competitiveness 90, 162, 268, 278, 279, 341, cyber-attacks 458
456 cyclical trend in investor–state relations 142–3
anti-corruption laws 254 Cyprus 300, 472
emissions trading scheme 417, 421, 429 Czech Republic 141, 229, 473, 479
Energy Union: research, innovation and
88–94 data protection 354, 357, 358–9, 364, 365,
pledge and review model 381 367–8, 369
shipping sector 341 debt levels 445
constructivism 106 decarbonization 17, 30, 34, 159, 162, 170, 178,
consultation 404–6 216, 218, 267, 435, 453, 454
consumerism 489, 491, 492 business sector 390, 392
consumer(s) 510, 513 Eastern Europe 473
Energy Union and 71, 92, 268, 314 embedded carbon 88
EU energy Label 504–5 Energy Community 442
organizations 39, 258 Energy Union 72, 79, 84–8
protection 64, 262, 263–4, 269, 270 ERDF 507
smart grids 452, 455, 457 maritime sector see separate entry
smart meters 356–7, 361 Nordic states 28
social science: energy efficiency and demand timeframe 437
reduction 395–6, 410–11 see also renewable energy
behavioural studies 399–401, 403, 410–11 decentralisation 410, 480, 489–91, 495, 496,
deficit model 396 498
segmenting the public 396–9, 401, 402 deep green analysis 488, 489, 491–2, 495
social practice theory 401–3 deforestation 248
continental shelf 295–6, 297, 307, 347 Delors, Jacques 69, 78
cooperation 447 Delreux, T. 45
duty of 76 democracy 69, 111, 195, 249, 286, 433, 457,
corporate governance 254–5 496
corporate responsibility 309, 312–13 Denmark 25, 28, 77, 157, 291, 473, 479, 495
corporate social responsibility (CSR) 254–5, North Sea super-grid project 27
316–17, 321 wave and tidal energy 344
corruption 5–6, 237–56 design, product 465, 468, 502, 507–8
definition 237–8 developing countries 39, 149, 170, 175, 295–6
dishonesty, tale of 249–53 BITs 120
energy sector: peculiarities of 244–9 corruption 247, 248–9
cost of capital 443 emissions trading schemes 421
Council of Energy Regulators (CEER) 56 energy transition 446
Council of the European Union 17, 20, 21, 28, IECT 179, 181, 182
39, 45, 72, 76, 109, 197, 278, 445 investment protection 118
ACER 56, 59 Kyoto Protocol 421
emissions trading scheme 430 Paris Agreement 378–9, 391, 427, 428
industrial emissions 440 production agreements 115
OECD 327 waste management 463
oil stocks 158 development cooperation 40, 44
renewable energy 475, 477, 478 digital union 94
Court of Justice of the European Union 36–7, Distribution System Operators (DSOs) 269,
39, 291–2 270
BITs 139 smart grids 457–8

LEAL-ARCAS_9781786431042_t.indd 522 08/09/2017 13:02

Index 523
diversification 115, 123–4, 125, 162, 163, 181, see also institutional structures, effectiveness
231, 342–3, 454, 455–6, 475, 482, 484 of
Caspian Sea 195, 197–8, 199, 200–208, 211 electro-mobility 92
double taxation treaties (DTT) 120 emerging economies 152, 288, 346, 421, 427
‘Dutch disease’ 154 see also developing countries
emissions, industrial 438–41, 442
East China Sea 302–3 emissions trading scheme (ETS) 85–6, 94,
East Siberia–Pacific Ocean (ESPO) oil pipeline 174–5, 267, 286, 345, 417–18, 436, 440,
222–3 441, 512
Eastern Europe 44, 139, 160, 202, 442, 455–6, border carbon adjustments, debate on 418,
473, 495 423–7, 431
Central and 202, 209, 229–30, 454 carbon leakage 417, 419, 420–21, 430–31
Central- 158, 162 current measures to prevent 422–3
South- 130, 173, 198, 204, 230, 454 future measures 423–30
see also individual countries Paris Agreement 418, 427–8
Eastern Partnership 173, 205 proposed measures on 428–30
Ecomodernisation 488–9, 490, 491–2, 495, 496 carbon price 86, 175, 419, 420, 421, 428, 430,
Economic Community of West African States 436
(ECOWAS) 182 funds for innovation and investment 430
economic crisis (2008) 87, 141, 165, 419 ongoing reform of 428–30
economic growth 179, 314, 344, 379, 444–5, overview 418–20
447, 489, 491 shipping industry 338–40
economies of scale 78 Energy Charter Treaty (ECT) 3–4, 114–49,
economy, circular 445, 467–8 160, 173, 180, 181, 195
ecosystems 217, 340, 345, 346, 433, 434 Broader Energy Europe 126, 128–30
ecotourism 406 conciliatory procedure for transit disputes
education 181, 240, 442, 446, 457, 458, 513 137, 138
eHighway2050 project 497 energy security 122–3
election cycles 110, 457 diversification 115, 123–4, 125
electric vehicles 85, 232, 452, 453, 454, 458, 494 multilateral challenge 124–6
electricity market 16, 17, 20, 25, 48–50, 128, EU perspective 126–7
157, 165–6, 171, 481 dispute settlement: ECT vs intra-EU cases
cooperation 443 139–44
demand response 264–5, 269, 455, 457, 458, ECT and EU acquis 130–34
497, 498 ECT, EU acquis and issue of transit
Efficiency First and infrastructure 510 134–7
Emissions Trading Scheme (ETS) 85 EU acquis communautaire development
Energy Union 70, 78, 79–82 logic 128–30
financialization 457 Ukrainian transit crises, ECT and EU
integrated offshore electricity grid 137–9
development 345 WTO and ECT 127–8
liberalization of evolution of investment and trade protection
current legislative framework 262–4 from colonies to legal protection 114–16
historical overview 257–62 evolution of energy markets 116–19
localization 443 bilateral to multilateral treaties 120–22
minimum interconnection target 172 international law: priority over EU acquis
Nord Pool 28 131
North Sea offshore super-grid project 27, Italy’s pull out from 141–2, 143–4
342 new prospects for 148–9
recent developments 264–70, 497 ‘REIO clause’ 133–4, 136, 142, 144
renewable energy 265, 497 Russia and 114, 115, 126, 127, 129, 149, 160,
Sector Inquiry (2006) 51–3 186–9
smart grids 209, 353, 496, 497, 498 diversification 123–4
security, energy 9–10, 450–59, 482 ECT and EU acquis 130–34
smart meters 8, 353–69, 411, 452 ECT, EU acquis and transit 134–7

LEAL-ARCAS_9781786431042_t.indd 523 08/09/2017 13:02

ECT not ratified by 127, 128, 130, 131–3, decarbonizing the economy 84–8
141–2, 144, 148, 149, 160, 173, 186 energy efficiency 81–4, 510
Energy Charter adaption process 146–7 energy security, solidarity and trust 73–8,
European Neighbourhood Policy 130 162
missed opportunities 144–6 fully integrated market 78–81
sanctions 146, 147–8 research, innovation and competitiveness
Ukrainian transit crises , ECT and EU 88–94
137–9 further research 94–6
WTO and ECT 127–8 smart grids 454
sunset provisions 141–2 transit tariffs 44–5
Energy Community 43, 127, 130, 131, 134, English Channel 343
160–61, 173, 435, 442–3, 446, 484 Eni SpA 252
Energy Diplomacy 163, 196, 206, 483–4 Enron 246–7
Action Plan 40, 45, 46 ENTSO-E (European Network of
energy efficiency 17, 43, 76, 157, 159–60, 178, Transmission System Operators for
180, 219, 491, 492 Electricity) 28, 58–9, 63, 172, 263, 269,
competences 18, 28–9, 39, 352 497, 510
eHighway2050 project 497 ENTSOG (European Network of
Energy Union 81–4, 92, 94 Transmission System Operators for Gas )
IECT 181 58–9, 63, 159, 172, 510
innovation and policy on 10–11, 501–3, 508 environment 247, 464
financial incentives 505–7 air pollution 336, 340, 343, 433–4, 435, 442,
information policies 504–5 451, 487
R&D policies 503, 504 command-and-control vs market-based
regulation 507–8 instruments 437–41
key research challenges 508–9 competences 18, 20–22
institutionalisation 510 complete energy transition 444–5
multi-level governance 509–10 conclusions and proposals 445–7
policy evaluation 511 emissions, impacts and costs of 435–7
policy mixes 511–12 Energy Community 435, 442–3, 446
socio-technical transitions 512–14 energy trilemma and external costs 432–5
maritime sector 336–7, 341, 343, 352 marine 305, 346, 348, 349
research and development 92, 503, 504 offshore methane hydrates 306
smart grids 452, 458 pollution and oceans law 303–4
smart meters 361–2, 368 offshore oil and gas projects 288
social science: demand reduction and 395–6, transition and energy companies 443–4
410–11 Equator Principles 329–30
behavioural studies 399–401, 403, 410–11 Estonia 28, 229, 473, 479
deficit model 396 Euratom 148, 156, 177, 182, 194
segmenting the public 396–9, 401, 402 Supply Agency 39
social practice theory 401–3 Eurocrisis 111
targets 26, 35, 69, 174, 175, 261, 268, 276, European Climate Foundation 497
361, 478, 482, 502, 506 European Coal and Steel Community 69, 156,
Winter Package (2016) 266, 267, 268 173, 177, 194
Energy Label, EU 504–5 European Council 39, 60–61, 69, 74, 81,
energy performance certificates 505 159–60, 162, 174, 195, 197, 261–2, 268
energy security see security of energy supply integrated energy and climate policy 162
Energy Union 2, 17, 26–7, 32, 49, 67–96, European Economic Area (EEA) 173, 182
161–3, 172, 196–7, 265–6, 267, 473, 485, European Economic Recovery Plan (EEPR)
498 159
in context 67–9 European Energy Charter 121, 147, 148, 179,
genesis 69–70 181, 195
nature 70–72 European Energy Union see Energy Union
five ‘guiding dimensions’ 17, 72, 335, 450, European External Action Service (EEAS) 39,
484 45, 200, 202, 206

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Index 525
European Free Trade Area (EFTA) 182 fair trial 319

European Investment Bank 39, 84 Farage, Nigel 256
European Neighbourhood Policy (ENP) 76, feedback loops 436
130, 160, 200, 205, 435, 446 FIFA 240–41
European Parliament 17, 20, 21, 24, 28, 39, 72, financial services 393
109, 197, 278 Finland 22, 28, 77, 461, 479, 495, 512
ACER 56, 59 fisheries 343, 347
Azerbaijan 206 fishing vessels and LNG 351
emissions trading scheme 430 flood losses 435
border carbon adjustments 424, 426 focus groups 404
energy efficiency target 502 fracking 113, 454
industrial emissions 440 framing 110, 406
renewable energy 475, 477, 478 France 21, 25, 79, 106, 112, 155, 162, 506
waste management 445, 466 carbon tax 424
European Policy Centre 46 Energy Union 27, 93
European Regional Development Fund nuclear energy 493, 495
(ERDF) 506–7 renewable energy 27, 79
European Renewable Energy Council 497 target 22
European Research Council 93 free-riding 151, 154, 424
Europêche 348 freedom of movement 128, 258
Eurozone 109, 111 funding 39
eutrophication 434 Connecting Europe Facility 27–8
excessive deficit procedure 65 future research agenda 46–7, 94–6, 163–4, 177,
excise duties 278, 433 209–10, 255, 286, 307, 333–4, 369, 435,
exclusive economic zone (EEZ) 294–5, 297, 437, 446–7, 459
300, 301, 304–5, 347
external competences in energy and climate G7 180, 189
change 1–2, 30–47, 315 G8 125
EU priorities and action plans 32 G20 180, 189
climate change mitigation 34–5 game theory 447
energy security 33 gas market 16, 17, 19, 20, 25, 33, 48–50, 78,
future research agenda 46–7 128, 165–6, 171–2, 177, 218, 219–20,
global climate and energy governance 40–41 221–2, 223–32
EU and global climate frameworks 41–2 Caspian Sea region, energy security strategy
EU and global energy frameworks 42–3 in 5, 192–211
institutional derogations to protect interests of investors
actors 38–40 119
challenges and opportunities 43–5 ECT
shared 35–7 EU acquis, transit and 134–7
application 37–8 Ukrainian transit crises, EU and 137–9
externalities 143, 151, 165, 177, 185, 285, 388 Efficiency First and infrastructure 510
behaviour of energy companies 443–4 Energy Union 27, 70, 73–4, 75, 76, 77
command-and-control vs market-based European Energy Security Strategy (2014)
instruments 437–41 161–2
complete energy transition 444–5 first gas policy 453–4
energy trilemma and external costs 432–5, integration into single global 116
442 liberalization of
feedback loops 436 current legislative framework 262, 263–4
natural gas 154, 156, 159 historical overview 257–9, 260–62
oil 152, 158 long-term contracts: oil indexation 124, 134
Extractive Industries Transparency Initiative market failures 154–6, 157, 158–9
(EITI) 255 mercantilist turn 176
Exxon 245 Nabucco natural gas pipeline project 26, 161,
176, 202–3, 204
Facebook 108 Nord Stream 1 144–5, 161, 199, 228, 231

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Nord Stream 2 76, 77, 199, 228–30, 231, 232 globalization 105, 109, 113, 177, 242, 255–6,
Nordic regional cooperation 27–8 340, 385, 386, 513
OPAL gas pipeline project 144–5 single global energy market 116
recent developments 264, 266, 484–5 Goldthau, A. 150, 151, 166
Sector Inquiry (2006) 51–3 Greece 203–4, 205, 227, 352, 495
smart grids 453–4 Greenpeace 405, 482, 491, 497
Southern Gas Corridor 202–4, 205, 207, 211 Grotius, Hugo 289
Trans-Adriatic Pipeline 176, 202–4, 205, 352 Gulf Oil 244–5
transition, energy 232, 443–4
Ukrainian gas crises 137–9, 159, 161, 163, hacker attacks 363
172, 176, 215, 501 hazardous chemicals 247
see also institutional structures, effectiveness hazardous waste 462, 464
of health 247, 365, 433–4, 435, 442, 447
gas and oil sector: business-related violations High Representative of the Union for Foreign
of human rights 7, 309–34 Affairs and Security Policy 39, 197, 202
GATT 121, 127, 149, 242 high seas 289, 296, 299
Gazprom 26, 27, 74, 77, 123, 124, 156, 199, Hill, C. 44
203, 211, 215, 222, 223, 224, 225, 227, 228, Horizon 2020 345, 497, 504, 508
229, 230, 246, 252 human rights 187, 188, 205–6, 207, 238, 251
‘Gazprom clause’ 26, 176 corruption 238
GDP growth 82, 86, 447 oil and gas sector: business-related violations
geopolitics 196, 199, 200, 201, 205, 209, 215, of 7, 309–34
216, 219, 220–22, 223, 231 Paris Agreement 373, 374, 375, 382–4
Georgia 182, 253, 442 private agents 372–3
geothermal power 170, 182–4, 304 smart grids 459
Germany 25, 31, 106, 107, 109, 112, 155, 162, smart meters 354, 357–64
199, 455 Hungary 200, 205, 229, 473
coal 453 hydroelectric power 170, 491, 493
cost of emissions reduction 277
election cycles 110 Iceland 175, 418
electricity production 410, 443 imperfect competition 151, 154, 159
energy mix 113 India 33, 106, 107, 165, 166, 170, 179, 471
Energy Union 26–7 airlines 426
environmental taxes 278 Bhopal gas disaster 311
loan schemes 506 Kyoto Protocol 421
Nord Stream 76, 77, 199, 228–9 indigenization 107
North Sea super-grid project 27 Indonesia 168
nuclear energy 495 industrialization 114
oil scarcity (1944–1945) 69 information 107, 314, 457
renewable energy 476, 498 annual reports: non-financial matters 316
landfill 467 deficit 47
wind and solar power 27, 410, 463 energy efficiency 399–400, 504–5
Global Carbon Atlas 88 exchange 159, 345
global landscape and energy politics 2–3, Joint Oil Data Initiative (JODI) 185
105–13 lack of 151–2, 249
ad hocism 109–11 mechanism on energy intergovernmental
challenges 111–13 agreements 76
ever more actors 108 overload 109–10
less stability 105 smart meters 452
missing or failing narratives 105–6 infrastructure, ownership of transit 26
multilevel games and rules 108–9 innovation 90, 392, 482, 501–15
new technologies 111 collective activity 512
outlook 113 emissions trading scheme 422, 430
Westphalian system and its gradual erosion energy efficiency and policy on 10–11,
106–8 501–3, 508

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Index 527
financial incentives 505–7 International Atomic Energy Agency (IAEA)

information policies 504–5 39, 121
R&D policies 503, 504 International Centre for the Settlement of
regulation 507–8 Investment Disputes (ICSID) 139, 141
Energy Union: research, competitiveness International Energy Agency (IEA) 33, 42–3,
and 88–94 73, 121, 152, 157–8, 169, 180, 185, 189,
frugal 92 230, 435, 501
key research challenges 508–9 definition of energy security 470
institutionalisation 510 International Energy Charter (IECT) 5, 179–89
multi-level governance 509–10 global reach 181–6
policy evaluation 511 Russia 146, 147, 149, 182, 186–9
policy mixes 511–12 thematic scope 181
socio-technical transitions 407–10, 512–14 International Energy Forum (IEF) 121, 180,
open 92 185–6
INOGATE 201, 205 International Labour Organization (ILO) 312,
insider trading 57 316
institutional structures, effectiveness of 2, International Law Commission (ILC) 293
48–50, 65–6 International Maritime Organization (IMO)
competition law-ization as tool to analyse 303–4, 305, 336–7, 340, 343, 350, 351,
50–51, 61–2, 64–6 352
direct access to regulatees 51, 54–5, 62 International Organization for Standardization
networked enforcement 51, 55–9, 63–4 316
private enforcement 51, 59–60, 64 international organizations 38, 39, 108
first assessment of new package 62–5 participation of EU in 36–7
background to proposed rules 60–62 International Petroleum Industry
legislative framework Environmental Conservation Association
2006 Sector Inquiry 51–3 (IPIECA) 327–8, 330
objectives of Third Package 53–4 International Renewable Energy Agency
interconnectors 16, 81, 119, 159, 497 (IRENA) 43
intergovernmental organisations (IGOs) 390 International Seabed Authority (ISA) 295, 296,
Intergovernmental Panel on Climate Change 297, 306, 346, 348
(IPCC) 437 Internet 107
internal energy market 15, 18, 20, 21, 22, 44–5, invasive species 434
60–61, 177, 455, 475 Iran 33, 114, 153, 168, 182, 208, 225, 227–8,
ACER 56, 57, 59 471
Commission study of 2005 260 Iraq 152, 168, 249, 303, 471
consumers 314 Ireland 472, 495
ECT, EU acquis and transit 136 Israel 73, 152, 168, 300
Energy Union 69, 78–81 Italy 25, 106, 139, 141–2, 143–4, 204, 205, 352,
First Energy Package 48, 128, 131, 133, 479
259–60 corruption 252–3, 254
interconnection target 172, 473, 482 nuclear energy 495
maritime sector 342 producers of solar PV modules 466
regionalization and 63–4 universities 240
Second Energy Package 48, 128, 130, 131,
133, 136, 260–61 Japan 78, 417, 420, 493
Single European Act 258 East China Sea 302–3
smart meters 354, 357, 360, 363, 368 Joint Oil Data Initiative (JODI) 185
Third Energy Package 17, 48–60, 66, 128, Jordan 182
130, 131–3, 136, 155, 158–9, 171–2, 173, Juncker, Jean-Claude 67, 69, 162, 174, 445
176, 216, 261, 262–4 justice, energy
Trans-Adriatic Pipeline 204 concept of 274–5
Winter Package (2016) 35, 60–66, 83, energy taxes’ cardinal problems 273–4
266–70, 450 household types
see also electricity market; gas market effects on different 283–5

LEAL-ARCAS_9781786431042_t.indd 527 08/09/2017 13:02

implementation 277–80 Russia 224

EU energy position 275–7 Sakhalin-2 project 223
microeconomics of 280–83 supply structure 116
terminals 26, 55, 119, 155, 159, 176, 453,
Kazakhstan 138, 209, 210, 420 456
Khodorkovsky, Mikhail 251 Lithuania 26, 28, 176, 229, 479
Kuwait 303 local authorities 39, 47
long-term contracts (LTC) 123–4, 134, 155,
labelling 399–400 169, 199, 215
EU Energy Label 400, 504–5 loyal cooperation 37
laissez-faire liberalism 169 Luft, G. 46
Lamy, Pascal 93 Luxembourg 291, 461, 472, 479
landfill 464, 465, 467, 468
Latin America 148, 184 Macedonia 182
Latvia 22, 28, 229, 461 Malaysia 182, 300
law of the sea 6–7, 287–308 Malta 461, 472
current issues maritime sector 7–8, 335–52
biodiversity 305 emission reduction from shipping 303–4
energy exploration in Arctic 306–7 EU strategy 336–40
future research 307 integrated maritime policy 292, 340–44
marine renewable energy 304–5 ocean energy 344–6
newly discovered resources 306 seabed mining 346–8
pollution and oceans law 303–4 LNG and maritime transport 348–52
history 289–90 see also law of the sea
oceans and energy 287–9 maritime spatial planning 389
UNCLOS market transformation theory 502, 503, 508,
in EU law and policy 291–2 512–13, 514
EU in negotiation of 290–91 market-based instruments
UNCLOS dispute resolution and command-and-control vs 437–41
management 299 emissions trading scheme (ETS) see separate
Eastern Mediterranean 300 entry
Northeast Asia 302–3 maritime sector 338–40
South China Sea 297, 300–302 Maugeri, L. 169–70
UNCLOS and energy 292 media 109, 110, 111
‘Area’ 296–7 mediation 202, 326, 327, 328, 330, 331, 334
contiguous zone 294 medieval trade system 387
continental shelf 295–6, 297, 307, 347 Member States 109, 163, 258, 263, 264, 455,
delimitation 297–9 472, 473–5
energy in development of law of the sea competences 18, 21–2, 23–4, 31, 35–7, 38,
292–3 40, 44, 45–6, 47, 61, 157, 171, 278, 314,
exclusive economic zone 294–5, 297, 300, 352, 430, 469, 475, 477–8, 501
301, 304–5, 347 east vs west paradox 44
high seas 289, 296, 299 emissions, industrial 440
islands, regime of 297 emissions trading schemes 419, 429–30
territorial sea 293, 304 energy efficiency 473, 506, 507, 508, 509–10,
see also maritime sector 511
Le Pen, Marine 256 First principle 84, 510
lex mercatoria 397 First Package 259–60
Libya 168 Integrated National Energy and Climate
Liechtenstein 175, 418 Plans 64–5, 66
light bulbs 508 multilevel energy governance 24–8
liquefied natural gas (LNG) 17, 78, 154, 155, National Regulatory Authorities (NRAs) 54,
156, 162, 215, 219, 230, 262, 266, 485 55–6, 57–8, 260, 269
maritime transport and 343, 348–52 Preventive Crisis Action Plans 159
micro-LNG grids 453 prices, energy 457

LEAL-ARCAS_9781786431042_t.indd 528 08/09/2017 13:02

Index 529
renewable energy 461, 473–5, 476–7, 478, New Zealand 420

479, 483, 485 niche, regime and landscape levels 408–10, 513
research 93 Nieto, Peña 254
safety of offshore oil and gas operations 315 Nigeria 47, 182, 247, 249
Third Package 61, 264 non-discrimination 59, 297, 336
transit tariffs 44–5 non-governmental organizations (NGOs) 108,
UNGPs 113, 184, 253, 390, 404, 482, 497
National Action Plans 316–17 non-state actors 105, 113, 184, 323, 509
waste management 465 Paris Agreement 372–3, 374, 381, 383, 384,
mercantilism 176, 177 385–93, 394
MERCOSUR 121 Nord Stream
Merkel, Angela 31 NS1 144–5, 161, 199, 228, 231
methane hydrates, offshore 306 NS2 76, 77, 199, 228–30, 231, 232
Mexico 78, 182, 249, 254 Nordic countries 205
Middle East 33, 112, 126, 166, 167, 168, 195, see also individual countries
196, 199, 202, 222, 471 Nordic regional cooperation 27–8
migration 106, 107, 112 North Africa 126, 154, 162, 168, 196, 497
MINDSPACE 399 North American Free Trade Agreement
mining, seabed 292–3, 346–8 (NAFTA) 121
modernization of economy 67 North Korea 112, 181
Moldova 182, 442 North Sea 304, 305, 343
monopoly, natural 171, 258, 260 offshore super-grid project 27, 342
Morocco 182 Norway 28, 127, 154, 162, 173, 175, 276, 472
multi-level perspective 408–10, 513 Arctic 306
multi-polar structures 105 behavioural trial 399, 400
multi-stakeholder approach to climate regime EU ETS 418
strategic agenda 391–2 gas 74
multilevel energy governance 24–8, 509–10 IECT 182
multilevel games and rules 108–9 non-nuclear 495
multinational corporations/enterprises 15, 256, North Sea super-grid project 27
385–93 oil 73
Tripartite Declaration of Principles renewable energy 478
concerning Multinational Enterprises nuclear energy 21, 69, 72, 92–3, 167, 177, 231,
and Social Policy 316 471
see also business-related human rights Ecomodernisation 490
violations in oil and gas sector France 27
Myanmar 182, 248 fusion 486, 487, 488, 490, 494, 495, 496
Germany 113
N-1-principle 159 non-proliferation 181
Nabucco natural gas pipeline project 26, 161, options and problems 487, 488, 489, 490,
176, 202–3, 204 492–4, 498
nation states 106–8, 111 renewables and nuclear 494–6, 497
national courts 59–60 output/input energy return 492
nationalism, economic 177 Poland 27
nationalism, resource 143 social science: policy development 404–6
negligence 319–20 Spaak report (1956) 15
neo-classical economics 457 United Kingdom 404–6, 407, 492, 493, 495
neo-functionalist integration 173 uranium 69, 73, 472, 488, 490, 492, 494
neoliberalism 166, 168–70 nudges 399
Netherlands 112, 139, 157, 168, 289, 461, 479,
495 Obama, Barack 229–30, 238, 425
North Sea super-grid project 27 ocean energy 344–6, 491
wind turbines 409 OECD (Organisation for Economic
network codes 17, 58, 59, 63, 262–3, 270 Cooperation and Development) 43, 121,
new approaches to energy choices 10, 486–98 238, 243, 511

LEAL-ARCAS_9781786431042_t.indd 529 08/09/2017 13:02

Guidelines for Multinational Enterprises new challenges and solutions in 372–3

316, 327 subsuming Agreement in 373–5
National Contact Point (NCP) 326–7 human rights law, lessons from 382
Oettinger, Günther 197, 198, 202, 207 universal standards 383–4
offshore grids voluntarism 382–3
meshed High Voltage Direct Current nationally determined contributions 379–80,
(HVDC) 497 381, 392, 427, 428
North Sea 27, 342 participation at COP21 372, 384, 394
oil 15, 33, 69, 73, 75, 114–15, 143, 166, 177, better international governance: private
195, 219, 222–3 391–3
business-related violations of human rights non-state actors’ engagement in
in oil and gas sector 7, 309–34 negotiations 387–91
embargoes 168 rise of new actors 385–7
futures contracts 169–70 pledge for action 379–80
globally traded commodity 215 pledge and review model 381
hazardous chemicals 247 top-down to bottom-up approach 380–81
IECT 182, 184 target 30, 88, 180, 336, 370, 434
import dependency 276, 472 United States 424, 428, 446
Joint Oil Data Initiative (JODI) 185 path dependencies 25, 28, 70, 93, 174, 410
maritime transport 348, 349 peak oil 152, 170
market failures 152–4, 156–8 Philippines 300, 301–2
neoliberal era 168–70 Phillips Petroleum Company 245
offshore 288, 292, 301, 303 piracy 125
production agreements 115 Poland 21, 25, 200, 228, 229, 473
safety of offshore operations 315 Energy Union 27, 93, 162
scarcity (1944–1945) 69 policing, predatory 251
Seven Sisters 167 policy development and social science 403–6
transition, energy 443 political risks 276, 470
OPEC (Organization of Petroleum-Exporting politics 69, 109–13, 211, 273–4, 441
Countries) 121, 152, 153, 154, 167–9, 180, polluter pays 149, 338, 339
182, 185, 302 pollution and oceans law 303–4
opportunity costs 277 population 434–5, 491
opt out 24 populism 46–7, 112, 113, 240, 255–6
Orban, Viktor 205 Portugal 168, 289, 349, 495
ordinary legislative procedure 20, 21, 28 post-ontological framework: Paris Agreement
exceptions from 23–4 8, 370–94
poverty, energy 53, 148–9, 179, 181, 262, 432,
Palestine 182 470
‘Panama Papers’ 239 smart grids 454
Paris Agreement 30, 31, 35, 40, 41, 42, 94, 113, Prabhu, Jaideep 92
170, 174, 175, 180, 217, 446, 483 predatory policing 251
binding and non-binding instruments 372, prices 79, 86, 125, 143, 152–4, 155–6, 158, 166,
373, 374, 375–7, 382–4, 394 168–70, 171, 195, 230, 302, 342
hardship in climate negotiations Arctic 306
378–9 carbon 86, 175, 419, 420, 421, 427–8, 430,
legal tools for complex political challenges 436
377–8 China and Russia: discussions on gas pricing
carbon leakage in EU 418, 427–8, 430 223
decarbonizing the economy 84, 88, 264, 454, electricity 52, 483
463 smart grids 451, 455, 456–7, 458
European Council 262 smart meters 356
in Franck’s post-ontological framework 8, Gazprom 74, 124, 156
370–94 long-term contracts (LTC) 123–4, 155
climate negotiations: need to answer non-energy raw materials 346
complex legal issue 371–2 oil futures contracts 169–70

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Index 531
Paris Agreement: carbon 427–8, 430 Germany 27

supply and demand 63, 64, 156, 457 Green Paper (2000) 259
transparency 258 history of Directives 475–7
prisoner’s dilemma 447 2009 Directive 477–9
privacy 459 IECT 182, 184
smart meters 354, 357–64, 365–7 integrating variable renewable energy
private enforcement 51, 59–60, 64 production (VRES) 79–80
private international law 320–21, 331–2 IRENA 43
private property 118 Italy 141
private sector 38–9, 47 marine 288, 304–5, 343
business see separate entry ocean energy 344–6, 491
product standards 465, 468 NER 300 programme 339
ecodesign 502, 507–8 Nord Pool electricity market 28
production-sharing agreements (PSAs) 115, North Sea super-grid project 27
118, 329 output/input energy return 492
proportionality 314, 354, 361–4, 441 policy mix and innovation 512
prosumers 450, 455–8, 498, 510 private enforcement 60
public debt 65 problems 277, 444–5, 487–8, 489–92
public goods 151, 152, 154, 458 renewables and nuclear 494–6, 497
global 46, 84 quantity-based quota system 509–10
Putin, Vladimir 221, 222, 223, 226, 227, 250, research and development 92, 498
251, 252, 253 security, energy 10, 159–60, 277, 469–85
challenges faced by EU 471–5
Qatar 352 current status of renewable energy 479–81
quasi-state actors 509 recent developments 481–5
smart grids 353, 451, 452–3, 455, 456, 458
rationality, bounded 457 social science 406–7
rationalization of resource rent collection 143 solar power see separate entry
Reagan, Ronald 169 South East Europe 443
recommendations 64–5, 66 subsidies 27
recycling 465, 466, 468 targets 26, 35, 49, 69, 160, 174, 175, 261,
solar PVs 462–3 276, 461, 476, 478, 479, 480, 482–3, 484,
wind turbines 463–4 485
refugees 107, 109, 112 waste management and 10, 460–68
regional economic integration organization wind power see separate entry
(REIO) 131 winter Package (2016) 266, 267, 268
‘REIO clause’ 133–4, 136, 142, 144 rent seeking 444
Regional Operational Centres (ROCs) 63–4 research 90
regionalization 63–4 China: renewable energy 480
renewable energy 34, 43, 49, 86–7, 149, 157, Energy Union: innovation, competitiveness
159–60, 178, 209, 219, 232, 264, 265 and 88–94
ACEI 92 see also innovation
Algeria 76 research agenda 46–7, 94–6, 163–4, 177,
aquaculture 343 209–10, 255, 286, 307, 333–4, 369, 435,
auctioning 87 437, 446–7, 459
Azerbaijan 210 resource nationalism 143
coal 453 Rhodesia 168
community ownership models 407 Romania 139, 141, 473, 479
competences 18, 20, 21, 23, 24, 25, 352 Rompel, Susanne 161
costs 492, 496 Rosneft 188, 246, 250–51
decentralization 489–91, 495 Röttgen, Norbert 497
Energy Union 85, 86–7, 484 Ruggie, John 312
feed-in tariffs 85, 87, 410, 459, 476, 477, 510 rule of law 118, 217, 317
France 27 rule-maker or rule-taker 4–5, 165–78
gas: first gas policy 453–4 EU’s liberal approach 171

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exporting rules to near abroad 172–3 security, energy 17, 18, 30–31, 41, 122–3,
IPE of EU climate policy 174–5 156–7, 166, 170
making markets at home 171–2 Broader Energy Europe 126
future research agenda 177 Caspian Sea region: strategy for 5, 192–211
key eras in IPE of energy 166–70 climate change and 34, 43–4, 46, 47
mercantilist turn 176 competences 22–3, 28, 39, 157
Russia 19, 25, 26, 39, 47, 106, 112, 113, 160, dimensions and agents of 194–7
173, 196, 276, 471 diversification 115, 123–4, 125, 162, 163,
Arctic 306 454, 455–6, 475, 482, 484
corruption 248–53 Caspian Sea 195, 197–8, 199, 200–208,
energy projects 5, 215–17 211
gas pivot to Asia and Eastern gas strategy east vs west paradox 44
222–4 electricity directive 61, 263
geopolitics 205, 215, 216, 219, 220–22, Energy Community 442
223, 231 energy efficiency 159–60, 501–2
global public policy and energy– Energy Union 27, 69, 70, 73–8, 79, 161–3,
environment nexus 217–20 484
natural gas and implications for climate foreign policy 160–61
and energy 230–32 Green Papers 38, 259, 470
natural gas projects 225–30 import dependency 40, 41, 166, 196, 197,
gas 33, 74, 123–4, 134–9, 154, 156, 159, 221, 259, 268, 276, 451, 468, 469, 472–3,
161–2, 163, 172, 176, 192, 195, 196, 482–3, 485
197–200, 205, 210, 211, 215–16, 219–20, infrastructure, security of 123, 125
221–2, 223–30, 472, 501 international fora, lack of 45, 46
Gazprom see separate entry key indicators of 482
Hungary 473 market failures 150–52, 163
IECT 182 natural gas 154–6, 158–9
Nord Stream 2 (NS2) 76, 77 oil 152–4, 156–8
nuclear energy 495 meaning of 123, 125, 148, 150, 192–4,
oil 33, 73, 154, 166, 215, 219, 220, 222–3, 472 210–11, 470–71, 485
permafrost in Siberian tundra 436 multilateral challenge 124–6
role of ECT in EU–Russia energy relations natural gas 19, 22, 23, 33, 157, 216, 352,
see Energy Charter Treaty 484–5
share ownership in oil companies 246 Energy Union 27, 73–4, 75, 76, 77,
smart grids 454 161–3
Trans-Adriatic Pipeline (TAP) 204 LNG terminal in Lithuania 26
see also Soviet Union market failures 154–6, 158–9
South Stream pipeline project 26
Saakashvili, Mikheil 253 oil 152–4, 157–8
safety of offshore oil and gas operations 315 priorities and action plans 33
Samaras, Antonis 203 renewable energy 10, 159–60, 452, 469–85
sanctions current status of 479–81
Energy Charter Treaty (ECT) 146, 147–8 energy security challenges faced by EU
Sarkozy, Nicolas 424 471–5
Saudi Arabia 73, 153, 168, 222 ocean energy 344
Scandinavian countries 228, 278 recent developments 481–5
see also individual countries smart grids 9–10, 450–59, 482
science diplomacy 47 solidarity 19–20, 78
science and technology studies 405 Third Package: security of supply 53, 262,
Scotland 403, 407 263
sea-level rise 435 Sedláček, Tomás 445
seabed mining 292–3, 346–8 Šefčovič, Maroš 70, 72, 77
Securities and Exchange Commission 244–5, segmenting the public 396–9, 401, 402
256 Serbia 182
securitization 46, 170 Seven Sisters 167

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Index 533
shale gas 27, 162, 170, 180, 209, 230, 231, 410, research 93
454 smart grids 456
shale oil 152, 153, 180 social science 410
Shell 247 Spain 139, 141
shipbuilding 343 system integration 497
Sikorski, Radek 200 Turkmenistan 209
Sitter, N. 166 solidarity 18, 19–20, 38
Slovakia 139, 229 Energy Union: energy security, trust and
small and medium-sized enterprises (SMEs) 73–8, 162
344 South Africa 168, 332, 421
smart cities 72, 501 South China Sea 297, 300–302
smart grids 209, 496, 497, 498 South Korea 420
security, energy 9–10, 450–59, 482 South Stream pipeline project 26
smart meters 8, 353–69, 411, 452 Southern Gas Corridor 202–4, 205, 207, 211
EU Charter Art 7: impairments to private sovereign wealth funds 108
life and home 354, 357–64 sovereignty, national 40, 171, 179, 194, 195–6,
justifications 360–64 384, 385, 386, 475, 483
EU law 354, 356–7, 368 natural resources 115, 124–5, 314
Charter Art 7 357–64 paradox 177
further research 369 security of demand 123–4
technical characteristics and functions of security of supply 31, 46
355–6 Soviet Union 124, 138, 170, 195, 198, 288,
United States 365–8 493
social media 110 former (FSU) 118, 120, 134
social science 8, 395–411 GATT 149
energy efficiency and demand reduction see also Russia
395–6, 410–11 Spaak Report (1956) 15
behavioural studies 399–401, 403, 410–11 Spain 60, 79, 139, 141, 347, 349
deficit model 396 renewable energy 463, 466, 476
segmenting the public 396–9, 401, 402 wave and tidal energy 344
social practice theory 401–3 special economic zones 119
energy generation and 403, 410 special legislative procedure 21, 23–4, 278
placing energy infrastructures 406–7 spill-overs 171, 196, 210, 435, 446, 452, 504
policy development 403–6 state aid 26, 49, 60, 61, 62, 176, 267, 429–30
sociotechnical transitions 407–10, state capitalism 170
512–14 Stockholm Chamber of Commerce 141
social and technical choices ahead 489, 495–7 stranded assets 218, 222, 227
socio-technical transitions 407–10, 512–14 subsidiarity 21, 314, 476, 478, 509
soft law 128, 129, 130, 376, 382, 383, 384 subsidies 109, 421, 456, 457
soft power 200–201 arbitration 139, 141, 143
soil acidification 434 fossil fuel 180
Solana, Javier 173, 196 renewable energy 27, 87, 141
solar power 34, 73, 87, 170, 232, 488, 490, 491, sulphur emissions from ships 343
492, 493, 496 super grids 27, 491, 492, 495, 496, 498
development 497–8 supremacy of EU law 15
Ecomodernisation 490, 495 sustainability 16, 17, 162, 432, 444, 445–6
ECT-based claims regarding subsidies 141, Code for Sustainable Homes 402
143 Cohesion Fund 506
eHighway2050 project 497 Energy Community 442
end-of-life see waste management and maritime sector 341, 343
renewable energy smart grids 451–4
IECT 182, 184 Sweden 25, 28, 77, 139, 495
network weakness 452 renewable energy 22, 344, 461, 478, 479
nuclear energy and 494, 495 Switzerland 182, 241, 495
output/input energy return 492 Syria 112, 153, 229, 471

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Taiwan 300 CO2 emissions of passenger cars 83, 160

targets, energy 26, 28, 34–5, 53–4, 69, 159–60, decarbonization 267
171, 174–5, 261–2, 264, 267, 268, 276–7, maritime transport 335–52
335, 352, 361, 460–61, 473, 476, 478, 479, electric vehicles 85, 452, 453, 454, 458, 494
480, 482–3, 484, 485, 502, 506 EU competence 171
mismatch 61 import dependency 472
tariffs, transit 44–5 non-ETS sector 85–6, 175
taxation 18, 21, 24, 142, 314, 459 renewable energy target 49, 160, 174
carbon tax 286, 424 Trump, Donald 73, 78, 239–40, 255–6, 424,
energy efficiency and tax rebates 506 428
excise duties 278, 433 Turkey 131, 182, 205, 225–8, 231, 300, 352
Pigouvian tax 433 Turkmenistan 200–202, 204, 206–8, 209, 210,
energy justice: concept to make Pigouvian 211
tax work 273–86 Tusk, Donald 69
regressive 273, 285
Technical Assistance to Commonwealth States Ukraine 19, 75–6, 77, 112, 113, 131, 173, 228,
(TACIS) 200–201 229–30, 454, 471
telecommunications sector 51, 63, 79, 171, 446 Energy Community 442
territorial sea 289, 293, 297, 304, 347 gas crises 159, 161, 163, 172, 176, 195, 196,
terrorism 33, 111, 454 197, 198, 205, 210, 215–16, 229, 230,
tertiarisation of EU economy 86 501
third-party access 16, 52, 59, 77, 118, 158, 260, ECT, EU and 137–9
456 IECT 182
contractual mismatch 119, 134 unanimity 21, 24
Energy Charter Treaty 131, 133, 134 UNCITRAL 141
exemption: major new infrastructure 26, 55, UNCTAD 120, 142–3
57, 62, 119, 176, 203 United Kingdom 16, 25, 107, 114–15, 157, 162,
investment pay-back 119 512
tort 319–20, 331–2 Brexit 46, 112, 483
United States: Alien Tort Statute 323–5 Bribery Act 253–4
trade 470, 502 British Petroleum 203, 246
embedded carbon and 88 North Sea super-grid project 27
Trans-Adriatic Pipeline (TAP) 176, 202–4, 205, nuclear energy 404–6, 407, 410, 492, 493, 495
352 renewable energy 410, 476, 493
Trans-European Transport Network 349–50 target 21–2, 479
transaction costs 128, 185, 438 wave and tidal energy 344
Transatlantic Trade and Investment seabed mining 346–7
Partnership (TTIP) 77, 161 smart meters 411
transition economies 118, 442 social science: energy efficiency and demand
transitions, socio-technical 407–10, 512–14 reduction 395–6, 410–11
transmission system operators (TSOs) 171, behavioural studies 399–401, 403, 410–11
269, 458 deficit model 396
certification of 54–5, 56 segmenting the public 396–9, 401, 402
ENTSO-E 28, 58–9, 63, 172, 263, 269, 497, social practice theory 401–3
510 social science and energy generation 403, 410
ENTSOG 58–9, 63, 159, 172, 510 placing energy infrastructures 406–7
National Regulatory Authorities 54–5, 56 policy development 403–6
North Sea super-grid project 27 sociotechnical transitions 410
Regional Operational Centres 63–4, 269 United Nations 108
third-party access 55 2030 Agenda for Sustainable Development
transnational companies 108 42
see also business-related human rights corruption 244
violations in oil and gas sector Economic Commission for Europe
Transparency International 244, 248–9 (UNECE) 121
transport sector 18, 268, 279, 452 Framework Convention on Climate Change

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Index 535
(UNFCCC) 31, 37, 41–2, 45, 94, 217, Van Vooren, B. 36

379, 380 Venezuela 168, 249
border carbon adjustments 426 vertically integrated undertakings/companies
Kyoto Protocol 69, 175, 217, 278, 421, 25, 48, 49, 54, 131, 133, 167, 257, 259, 260,
424, 427, 502 261, 262
non-state actors 387, 389–90 Vietnam 182, 300, 301
Paris Agreement see separate entry Visegrad group 200
shipping industry 303–4, 340
General Assembly 124–5 waste management, nuclear 404, 405–6
Global Compact 313, 316 waste management and renewable energy 10,
Guiding Principles on Business and Human 460–68
Rights (UNGPs) 309, 312–13, 315, circular economy 467–8
316–17, 330–31, 333 EU waste regulation 464–5
non-judicial grievance mechanisms 326–8 renewables: amending 465–7
Human Rights Council 312, 313 solar PV 460, 461, 462–3, 464, 465–6, 467,
NAZCA (Non-State Actors Zone on 468
Climate Change) 391 wind turbines 305, 460, 461, 462, 463–4,
sustainable development goals 84 465–7, 468
United States 16, 41, 107, 109, 112, 161, 166, water quality
197, 205, 472 air pollution 434
Alien Tort Statute 323–5 wave and tidal projects 344, 491
Arctic 306 welfare state 69
business-related human rights violations in Wessel, R.A. 36
oil and gas sector 310 WikiLeaks 252
climate change 113, 421 wind power 34, 73, 79, 87, 170, 491, 492, 493,
emissions trading schemes 417, 420, 425 496
federal cap-and-trade scheme, proposed development 497–8
425 end-of-life see waste management and
Kyoto Protocol 424, 427 renewable energy
Paris Agreement 424, 428, 446 IECT 182, 184
Constitution’s Fourth Amendment 365–6 Kazakhstan 209
economic crisis (2008) 87 network weakness 452
Foreign Corrupt Practices Act (FCPA) nuclear energy and 494, 495
242–4 offshore 27, 304–5, 344, 345, 491,
gas 77–8, 154, 162, 179–80, 230, 231 493
LNG 352 floating platform 345
IECT 182, 184 output/input energy return 492
law of the sea 292 smart grids 456
maritime sector 337 social science 406–7, 409, 410
Nord Stream 2 pipeline 229–30 system integration 497
nuclear energy 493–4 Turkmenistan 209
oil 77, 152, 153, 154, 168–9, 179–80, 231 windfall profits 421, 423
security policy 73, 157 World Bank 180, 189, 238, 244
Russian foreign policy 223–4 World Trade Organization (WTO) 121, 126–7,
Securities and Exchange Commission 244–5, 149
256 border carbon adjustments 424, 425–6,
smart grids 451 431
smart meters 365–8 Energy Charter Treaty and 127–8
sociotechnical transitions 409 maritime transport 340
urbanization 489 WWF 482, 497

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Research Handbook On Eu Energy Law and Policy

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RESEARCH HANDBOOK ON EU ENERGY LAW AND

Rafael Leal-Arcas and Jan Wouters - 9781786431042

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Research Handbook on EU Internet Law

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RESEARCH HANDBOOKS IN EUROPEAN LAW

Cheltenham, UK • Northampton, MA, USA

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Edward Elgar Publishing, Inc.

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ISBN 978 1 78643 104 2 (cased)

Typeset by Servis Filmsetting Ltd, Stockport, Cheshire

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Rafael Leal-Arcas and Jan Wouters - 9781786431042

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PART I INSTITUTIONAL ASPECTS

2 Competences in EU energy policy 15

PART II EXTERNAL ASPECTS

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PART III ECONOMIC, SOCIAL AND LEGAL ASPECTS

PART IV ENVIRONMENTAL AND TECHNOLOGICAL ASPECTS

Rafael Leal-Arcas and Jan Wouters - 9781786431042

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Rafael Leal-Arcas and Jan Wouters - 9781786431042

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Pami Aalto, Jean Monnet Professor (International Relations) at the Faculty of

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Rafael Leal-Arcas and Jan Wouters - 9781786431042

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Rafael Leal-Arcas and Jan Wouters - 9781786431042

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Alands Vindkraft (C-573/12) ECLI:EU:C:2014:2037������������������������������������������������������������15, 60

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Amin Rasheed Shipping Corp v Kuwait Insurance Co [1984] AC 50�����������������������������������������331

United States of America

Rafael Leal-Arcas and Jan Wouters - 9781786431042

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Rafael Leal-Arcas and Jan Wouters - 9781786431042

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EUROPEAN UNION through grids (OJ L 147, 12.6.1991, pp.

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with regard to intergovernmental Parliament and of the Council of 27

Rafael Leal-Arcas and Jan Wouters - 9781786431042

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Directive 2003/87/EC of the European 2003/87/EC so as to improve and

Rafael Leal-Arcas and Jan Wouters - 9781786431042

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Rafael Leal-Arcas and Jan Wouters - 9781786431042

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EU Charter of Fundamental Rights�� 8, 314, Regulators (OJ L 211, 14.8.2009, pp.

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art 17(1)����������������������������������������������������39 Kingdom of Jordan and the

2 Competences in EU energy policy 15

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art 17(1)��39 Kingdom of Jordan and the

art 136��296 NATIONAL

3. EXCEPTIONS FROM THE ORDINARY LEGISLATIVE

4. THE PRACTICE OF MULTILEVEL ENERGY GOVERNANCE