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Towards a European Energy Union: European Energy Strategy in International Law
 1107142814, 9781107142817

Table of contents :
Contents
Preface and Acknowledgements
Introduction
1 The Argument of This Book
2 Concept and Functions of the European Energy Union
3 Regulation
4 Co-evolution
5 Integration
6 Global Regulatory Law
7 A Holistic View of EU Law
8 Assumptions of Multi-Tiered Regulation, Integration and Global Regulatory Law
9 Literature
10 Scope and Structure of This Book
1 Establishing the European Energy Union
I From the Lisbon Treaty to the Strategy for a European Energy Union
II The Energy Union Strategy: Context
1 Goals
2 Dimensions of Action
III Governance
IV International Cooperation: The External Energy Union
V Regulating Energy in International Law, European Union Law and National Law
1 Public Good Regulation of European and Global Energy
2 Multi-Tiered Regulation, Its Legal Regime and Organising Principles
3 European Energy Strategy in International Law
2 Rules-Based Energy Governance Worldwide: Regulation of Energy in International Law
I Internationalising Energy
1 The Universal Norm of Sustainable Energy
2 Implementing Sustainable Energy in International Law
II Developing Energy-Specific International Law
1 The Energy Charter Treaty: International Energy Regulation
2 The Energy Community: Regional Energy Market Integration
3 International Law for Transnational Energy Purchases and Projects
4 Institutionalised Cooperation in Energy
5 Sovereignty of States over Their Energy Resources and Energy Mix
III The Provision for Energy under the Sectoral Orders of International Laws
1 The Global Economy and Energy
2 Protection of the Environment and Energy
3 The Oceans and Marine Energy
4 Managing Energy Security
5 Development and Human Rights
IV International Regulation of Energy and Its Legal Regime
1 Regulating the Global Energy Cycle
2 The Complex International Legal Regime of Energy
3 The International Rule of Law and Energy
4 International Regulation of Energy and Its Enabling and Constraining Effect for the European Energy Union
3 Realising the European Energy Union in EU Law: Internal and External Regulation of the Energy Cycle
I The Constitutional Boundaries of the European Energy Union
1 EU Energy Policy within the Lisbon Federalism
2 Constraints: Dual-Representative Democracy, the Rule of Law and Fundamental Rights
II Programme, Functions and Trajectory of Regulatory Change
1 The Programme of Regulatory Intervention
2 The Energy Market
3 Secure Energy
4 Renewable Energy
5 Efficient Energy
6 Interconnected Energy Infrastructure
7 Decarbonising the Energy System
8 Energy Innovation
III Constitutional Order of the External European Energy Union
1 Enabling an External EU Policy on Energy
2 Dual Representative Democracy, the Rule of Law and Fundamental Rights as Constraints on External Energy Action
IV Realising the External European Energy Union
1 Programme of External Regulatory Action
2 The External Energy Market
3 Securing External Supply
4 Promoting Renewables, Energy Efficiency and Research
5 Decarbonising the Global and European Energy Systems
V Conclusions
4 The Role of Coordinated Member State Law in a European Energy Union
I Constitutional Guarantee of Autonomous Member State Policy and Law-Making on Energy
II Coordinating Broad Member State Energy Policy
III Member State Law-Making on Energy on the Objectives of Article 194(1) TFEU and the Constraints of the Internal Market and Environmental Protection
1 The Energy Market
2 Security of Supply
3 Renewables
4 Energy Efficiency
5 Infrastructure Development
6 Decarbonisation
IV Member State Treaty-Making on Energy
V Exclusive Competence of the Member States for Their Energy Mix
1 Nuclear Energy and the Internal Market
2 Shale Gas
3 Coal and the Subsidisation of Fossil Fuels
VI Conclusions
5 Regulating Energy through an Integrated Legal Regime: Formation, Normative Questions and Global Regulatory Law
I Forming the Integrated Legal Regime of Energy
1 Responsibility
2 Normativity
3 Unifying Concepts
4 Convergence
II Legitimacy
III Global Regulatory Law
IV Conclusions: European Energy Strategy in International Law
Index

Citation preview

TOWARDS A EUROPEAN ENERGY UNION

The European Union is poised to establish a genuine European Energy Union with the new powers conferred on it by the Lisbon Treaty. The European Energy Union aims to provide secure, sustainable and affordable energy throughout the cycle of production, transport and consumption by 2030. This book outlines, analyses and evaluates the legal regime underpinning this regulatory strategy, which integrates EU law with international law and with the law of member states and affiliated states. It demonstrates that and how these legal orders work together in achieving the universally shared objective of governing and transforming the European and global energy systems. This book will appeal to scholars and students of energy law and policy and the emerging global regulatory law at international, European and nationals levels. volker roeben is Professor of Energy Law at the Centre for Energy Law, Petroleum and Mineral Law and Policy at the University of Dundee and concurrently Visiting Professor of Law at the China University of Political Science and Law, Beijing, and Adjunct Professor at Turku University. He was interim legal adviser of the European Energy Charter, a Senior Research Fellow at the Max Planck Institute of Public International Law and a Professor at Swansea University College of Law and Criminology, as well as Professor at the University of Bradford School of Law. He has written widely on public international law and European Union law, and is currently working on the project concerning citizenship rights post-Brexit commissioned by the European Parliament.

TOWARDS A EUROPEAN ENERGY UNION European Energy Strategy in International Law

VOLKER ROEBEN University of Dundee

University Printing House, Cambridge CB2 8BS, United Kingdom One Liberty Plaza, 20th Floor, New York, NY 10006, USA 477 Williamstown Road, Port Melbourne, VIC 3207, Australia 314–321, 3rd Floor, Plot 3, Splendor Forum, Jasola District Centre, New Delhi – 110025, India 79 Anson Road, #06–04/06, Singapore 079906 Cambridge University Press is part of the University of Cambridge. It furthers the University’s mission by disseminating knowledge in the pursuit of education, learning, and research at the highest international levels of excellence. www.cambridge.org Information on this title: www.cambridge.org/9781107142817 DOI: 10.1017/9781316529720 © Volker Roeben, 2018 This publication is in copyright. Subject to statutory exception and to the provisions of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press. First published 2018 Printed in the United Kingdom by Clays, St Ives plc A catalogue record for this publication is available from the British Library. Library of Congress Cataloging-in-Publication Data Names: Roeben, Volker, author Title: Towards a European Energy Union : European energy strategy in international law / Volker Roeben, Swansea University. Description: Cambridge [UK] ; New York : Cambridge University Press, 2017. Identifiers: LCCN 2017023584 | ISBN 9781107142817 Subjects: LCSH: Energy industries – Law and legislation – European Union countries. | Energy policy – European Union countries. Classification: LCC KJE6698 .R65 2017 | DDC 343.2409/2–dc23 LC record available at https://lccn.loc.gov/2017023584 ISBN 978-1-107-14281-7 Hardback Cambridge University Press has no responsibility for the persistence or accuracy of URLs for external or third-party Internet websites referred to in this publication and does not guarantee that any content on such websites is, or will remain, accurate or appropriate.

For Petra, Johanna, Karl, Georg and Lukas. May fortune smile.

CONTENTS

Preface and Acknowledgements Introduction

page xiii

1

1 The Argument of This Book

3

2 Concept and Functions of the European Energy Union 3 3 Regulation

5

4 Co-evolution

6

5 Integration

6

6 Global Regulatory Law

7

7 A Holistic View of EU Law

7

8 Assumptions of Multi-Tiered Regulation, Integration and Global Regulatory Law 8 9 Literature

9

10 Scope and Structure of This Book 1 Establishing the European Energy Union

10 15

I From the Lisbon Treaty to the Strategy for a European Energy Union 17 II The Energy Union Strategy: Context 1 Goals 22 2 Dimensions of Action

III Governance

24

26

vii

22

viii

co ntents

IV International Cooperation: The External Energy Union 28 V Regulating Energy in International Law, European Union Law and National Law 28 1 Public Good Regulation of European and Global Energy 29 2 Multi-Tiered Regulation, Its Legal Regime and Organising Principles 33 3 European Energy Strategy in International Law 33

2 Rules-Based Energy Governance Worldwide: Regulation of Energy in International Law 36 I Internationalising Energy

37

1 The Universal Norm of Sustainable Energy 38 2 Implementing Sustainable Energy in International Law 42

II Developing Energy-Specific International Law 45 1 The Energy Charter Treaty: International Energy Regulation 45 2 The Energy Community: Regional Energy Market Integration 65 3 International Law for Transnational Energy Purchases and Projects 68 4 Institutionalised Cooperation in Energy 69 5 Sovereignty of States over Their Energy Resources and Energy Mix 70

III The Provision for Energy under the Sectoral Orders of International Laws 71 1 2 3 4 5

The Global Economy and Energy 72 Protection of the Environment and Energy The Oceans and Marine Energy 95 Managing Energy Security 99 Development and Human Rights 102

86

IV International Regulation of Energy and Its Legal Regime 103 1 Regulating the Global Energy Cycle 103 2 The Complex International Legal Regime of Energy

107

ix

c o n te n t s 3 The International Rule of Law and Energy 109 4 International Regulation of Energy and Its Enabling and Constraining Effect for the European Energy Union 112

3 Realising the European Energy Union in EU Law: Internal and External Regulation of the Energy Cycle 114 I The Constitutional Boundaries of the European Energy Union 115 1 EU Energy Policy within the Lisbon Federalism 116 2 Constraints: Dual-Representative Democracy, the Rule of Law and Fundamental Rights 126

II Programme, Functions and Trajectory of Regulatory Change 130 1 2 3 4 5 6 7 8

The Programme of Regulatory Intervention The Energy Market 136 Secure Energy 144 Renewable Energy 148 Efficient Energy 152 Interconnected Energy Infrastructure 156 Decarbonising the Energy System 158 Energy Innovation 165

131

III Constitutional Order of the External European Energy Union 168 1 Enabling an External EU Policy on Energy 169 2 Dual Representative Democracy, the Rule of Law and Fundamental Rights as Constraints on External Energy Action 172

IV Realising the External European Energy Union 178 1 2 3 4

Programme of External Regulatory Action 179 The External Energy Market 182 Securing External Supply 184 Promoting Renewables, Energy Efficiency and Research 191 5 Decarbonising the Global and European Energy Systems 192

V Conclusions

196

x

contents

4 The Role of Coordinated Member State Law in a European Energy Union 199 I Constitutional Guarantee of Autonomous Member State Policy and Law-Making on Energy 200 II Coordinating Broad Member State Energy Policy 201 III Member State Law-Making on Energy on the Objectives of Article 194(1) TFEU and the Constraints of the Internal Market and Environmental Protection 204 1 2 3 4 5 6

The Energy Market 205 Security of Supply 210 Renewables 211 Energy Efficiency 219 Infrastructure Development Decarbonisation 220

219

IV Member State Treaty-Making on Energy

221

V Exclusive Competence of the Member States for Their Energy Mix 223 1 Nuclear Energy and the Internal Market 2 Shale Gas 226 3 Coal and the Subsidisation of Fossil Fuels

VI Conclusions

224 227

228

5 Regulating Energy through an Integrated Legal Regime: Formation, Normative Questions and Global Regulatory Law 230 I Forming the Integrated Legal Regime of Energy 232 1 2 3 4

Responsibility 233 Normativity 235 Unifying Concepts 238 Convergence 239

II Legitimacy

240

c o n te n t s

III Global Regulatory Law

244

IV Conclusions: European Energy Strategy in International Law 248 Index

255

xi

PREFACE AND ACKNOWLEDGEMENTS

Providing clean energy for present and future generations is one of the key challenges of the twenty-first century. The European Energy Union is a strategic project for the transformation of the European and indeed the global energy system in the period up to 2030. The ensuing dynamic regulatory change has an internal and equally important external dimension. As a result, EU-level governance of the energy cycle will come to be based on a legal regime that integrates three normative orders: international law, EU law and the domestic law of member states and affiliated states. This book analyses the trajectory of this regulatory change. For this purpose, it proposes a different perspective on the law of the European Union. Rather than being isolated, it is embedded in a broader normative context. The book then makes a methodological plea: normative orders ought to be understood as working towards strategic objectives that they can achieve only by working with others. This has concrete implications for the way each is to be interpreted. The essence of the emerging global regulatory law, as the law underpinning governance of global priorities, lies in this integration of international law, European Union law and other regional and domestic law. Energy exemplifies this global regulatory law. This book reflects the law as it stood on 18 January 2017, although I have been able to include some essential updates. This book could not have been written without the support at the College of Law and Criminology of Swansea University. Over the course of writing, I have discussed ideas, concepts and concrete questions with many colleagues, and the results of these discussions are reflected in this book. I thank Jukka Snell, Andrew Halpin, Stefan Oeter, Joel Trachtman, Udo Di Fabio, Rüdiger Wolfrum, Frank Hoffmeister, Michael Wood, Arwel Davies, Kong Qingjiang, Paul Craig and Robin Churchill who gave generously of their expertise, knowledge and time. Petra Minnerop has read and debated with me the entire manuscript. Robin Hill provided invaluable assistance. All remaining errors are mine. xiii

u Introduction

Energy is the lifeblood of any economy. Traditionally the domain of the nation-State, energy has been moving onto the European and global scene over the past two decades or so. 2015 marks a watershed. In March, the European Council adopted the Framework Strategy for a Resilient Energy Union with a Forward-Looking Climate Strategy in a 2030 perspective, launching the process of establishing the European Energy Union. In December of that year, the UN General Assembly agreed on the Sustainable Development Goals, also in a 2030 perspective, of which the seventh aims at universal access to modern energy. Both envisage the managed transition from a carbon-dependent to a low-carbon energy system, one of the most complex regulatory tasks ever undertaken, and one with far-reaching consequences. Energy has become a laboratory of international and European governance and law-making with which the State level is aligning itself. This transition is taking place on the backdrop of rapid global change in the political economy, technology and economics of energy. In the political economy of energy, closed national markets dominated by a few vertically integrated players have been liberalised certainly in Europe but also elsewhere. Efforts at halting global climate change are coming down to choices on energy.1 The 2015 Paris Agreement on climate change focuses clearly on decarbonising the global energy system. Poverty eradication, economic prosperity and competitiveness 1

Intergovernmental Panel on Climate Change (ICPP), Fifth Assessment Report on Climate Change (AR5), Synthesis Report (2014), 1, available at www.ipcc.ch. The linking between climate change mitigation and energy is explicit in EU and US policy-making. In adopting the 2030 Climate and Energy Policy Framework, the European Council stated that it would revert to it after the Twenty-First Conference of the Parties to the UNFCCC on a post-Kyoto Protocol (October 2014, EUCO 169/14). It is implied in China becoming a leading producer of renewable energy. Further, F. Wanga, H. Yinb & S. Li, ‘China’s Renewable Energy Policy: Commitments and Challenges’, (2010) 38 Energy Policy 1872; E. Martinot, ‘Renewable Power for China: Past, Present, and Future’, (2010) 4 Frontiers in Energy 287.

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depend on the price of energy.2 Indeed, the very security of supply has arisen as a concern because of broader geopolitical changes between the principal exporters and importers of fossil energy, in particular the European Union. Technological advances have diversified the sources of energy beyond oil and gas, from renewable energy sources of the land and sea becoming a cost-competitive option3 to non-conventional fossil fuels and emergent sources such as methane hydrate.4 There have been advances in the long-distance transport and transmission of energy between centres of production and consumption, such as the liquefied natural gas technology for vessel-borne transport, high-voltage directcurrent technology for electricity networks5 and the storage of energy. Finally, the commoditisation of energy carries with it the worldwide tradability of energy on institutionalised exchanges and over the counter. This book focuses on the law underpinning the European Energy Union. While law accounts are most often and with full justification about understanding past and present, this book will explicate the trajectory of change in EU law placed in its international and national normative context over the medium and long term. It identifies the characteristic law formation for embedding the European Energy Union in international, EU and national governance and regulatory structures. It assesses the parameters, drivers and modalities for a concerted regulatory intervention by different normative orders, evaluates its legitimacy and discusses the paradigmatic quality of energy regulation for other fields. 2

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The United States may become energy self-sufficient by 2035, in large part thanks to shale oil and gas production; International Energy Agency (IEA), Energy Policies of IEA Countries: The United States 2014 Review, available at www.iea.org; and T. Curtis, ‘Unravelling the US Shale Productivity Gains’, OIES Paper WPM 69 (2016). The comparative price of energy has been marked as a pressing concern in Europe; see D. Buchan, ‘Costs, Competitiveness and Climate Policy, Distortions across Europe’ (2014), available at www.oxfordenergy.org/wpcms/wp-content/uploads/2014/04/Costs-Competitiveness -and-Climate-Policy.pdf. International Energy Agency, Medium-Term Renewable Energy Market Report 2014: Market Analysis and Forecasts to 2020 and World Energy Outlook 2016. US Department of Energy, Energy Resource Potential of Methane Hydrate (2011), available at www.netl.doe.gov/File%20Library/Research/Oil-Gas/methane%20hydrates/MH -Primer2011.pdf; Ministry of Economy, Trade and Industry of Japan, Strategic Energy Plan 2014, available at www.enecho.meti.go.jp/en/category/others/basic_plan/pdf /4th_strategic_energy_plan.pdf. ENTSO-E, Offshore Transmission Technology (2011) 24, available at www.entsoe.eu /resources/publications/system-development/north-seas-griddevelopment.

2 concept & f unctions of the e uropean e nergy union 3

1 The Argument of This Book This book makes three closely allied arguments. First, through the European Energy Union, the European Union assumes responsibility for the social-State function of providing EU citizens with equal access to secure, sustainable and affordable energy as a public good. This responsibility legitimises the European Union in establishing rules-based network governance over energy, in Europe and worldwide. Second, the legal form of this rules-based governance is regulation of the European and global energy cycles. This regulation is centred on a legal regime that integrates international law, EU law and the national law of the Member States. The development of this regime is shaped by the lateral co-evolution of these normative orders and their progressive vertical integration over a time span stretching to the end of the century, for which 2030 is a critical milestone. Third, this European Energy Union in international law instantiates the broader institution of global regulatory law. This is a general account of the interstitial relations between international law, regional law and domestic law. It emphasises that global legal priorities trigger the powerful self-coordination within the network formed by autonomous normative orders.

2 Concept and Functions of the European Energy Union The European Energy Union is a transformative political-legal project. Fulfilling the mandate of the Lisbon Treaty that inserted ‘energy’ as a policy and competence of the Union into the Treaty on the Functioning of the European Union,6 the European Council in March 2015 adopted 6

Treaty on the Functioning of the European Union, (2012) OJ C 326/47 (TFEU). The new Title XXI in Part III on Internal Policies consists of the sole Article 194 of the TFEU, which reads:

1 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. 2 Without prejudice to the application of other provisions of the Treaties, the European Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall establish the measures necessary to

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the strategy for establishing a European Energy Union. ‘Strategy’ is a category to gain analytical clarity on this process. The term is used in many disciplines and thus has many senses. At the most general level, strategy indicates decision-making under conditions of uncertainty. It has mostly been understood in an instrumental sense to align objectives with resources and a time frame.7 Lawrence Friedman’s sophisticated account points to the use of strategy in elucidating societal choices,8 but its usefulness for legal analysis has received little attention. Strategy understood in this sense connects the political system of society with its legal system. From the internal point of view of law, strategy elucidates the implications of political choices for law. It captures the connection between political impulses – context and governance – and the challenges arising and the design ideas and means of their realisation within the legal system. It thus elucidates the direction of legal change. The 2015 European Union energy strategy is the reference for policy and lawmaking on the European energy system for the medium term. The goal of energy supply security, a decarbonised energy system and economic competitiveness drives prioritising renewables within the overall mix, enabling network trade in energy Europe-wide, promoting private investment supplemented by public funding and proceduralising energy solidarity between the Member States. The implementing action includes EU policies ranging from the energy market, the environment and research and innovation to foreign policy, neighbourhood policy, trade and climate. The governance can be mapped as a rules-based network combining centralised EU and decentralised Member State policy and law-making on energy. The indispensable external aspect of this network

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achieve the objectives in paragraph 1. Such measures shall be adopted after consultation of the Economic and Social Committee and the Committee of the Regions. Such measures 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). 3 By way of derogation from paragraph 2, the Council, acting in accordance with a special legislative procedure, shall unanimously and after consulting the European Parliament, establish the measures referred to therein when they are primarily of a fiscal nature. Strategy is also used in the sense of the decision-making relative to the legal positions of others; see A. Duff, ‘Law, Strategy and Democracy’, (2009) 26 Journal of Applied Philosophy 269; A. Vermeule, ‘Three Strategies of Interpretation’, (2005) 65 San Diego Law Review 312. For further discussion, refer to Chapter 1. L. Freedman, Strategy (Oxford University Press, 2013), 607–29.

3 regulation

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extends to the world beyond as the European Union prepares to closely cooperate on energy with third States. In answering what this project is for, this book will argue that the new European Energy Union embodies the claim of the political system to determine the future structure of the energy system rather than the market. The design is a European concern, not just a national one. The European Union assumes the responsibility of guaranteeing the secure, sustainable and affordable supply of energy through policy, law and financial resources. Fulfilling this responsibility becomes a priority for the European Union’s institutional framework in the current parliament, which had previously only considered the matter from the vantage point of other policies such as the internal market and the environment. Responsibility for the delivery of such energy then lies with the market. This lifts to the EU level a social-State function of providing equal access for all citizens to an essential public good, with the citizens controlling the consumption and production of energy. The ensuing transformation of the current energy economies of the Member States is a step change from the previous liberalisation that left these economies intact. This responsibility grounds governance of the energy system at the EU level in output legitimacy. However, the social-State function of providing this public good requires large-scale public and private investments and needs input from all concerned to be legitimate. The European Union becomes accountable to its citizens for the mode and extent of its regulatory intervention, which, in turn, requires ensuring their democratic inclusion at the EU and Member State levels. The Energy Union aligns European public interest in its energy system with the global public interest in energy and shapes international law development. Thus, the European Union also assumes responsibility for bringing about rules-based energy governance worldwide, and for that it will be accountable not just to the citizens of the European Union but also to the international community of States and, ultimately, humanity.

3 Regulation The legal form that this rules-based governance of energy takes is regulation. This is public good regulation, in which public authorities issue legal directives to enlist all holders, both public authorities and private stakeholders, for the intended outcome. Such regulation is the objective of the European Energy Union Strategy, which also defines the means to achieve it. The European Energy Union Strategy aims at the eventual

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regulation of the entire energy cycle and energy system within the territory of the European Union and beyond. This regulation will be based on formal law-making through the resources of international law, EU law and national law. These normative orders co-evolve to form the tiers of a single integrated legal regime that sustains the regulation of the European and global energy systems.

4 Co-evolution International, EU and national laws of the Member States co-evolve in their respective provision on energy. This co-evolution concerns first the design of a constitutional order of energy in the sense of the fundamental enabling and constraining of rules of a normative order. These rules determine the boundaries of regulatory action on energy, albeit with a degree of stability and bindingness that is specific for each normative order. Within these boundaries, each normative legal order then develops a regulatory programme comprised of normative parameters, drivers and modalities to bring about transformation of the energy system. This programme produces the administrative law–type rules on energy. Finally, each normative order opens itself to the others. Each exchanges the closed autonomy of a separate normative order for the chance to influence external normative processes in line with its own constitutional/regulatory design.

5 Integration Each of the co-evolving normative orders is by itself inadequate and must work with the others to achieve effective regulation of the energy cycle. This requires vertical integration of the regulatory processes. The vertical integration of these autonomous normative orders turns on three ideas – responsibility, normativity and conceptual unity. Responsibility determines what each normative order is to do. This book will argue that international law provides the normative impetus and legal certainty for trade and international energy cooperation. EU law provides the principles and mechanisms of cross-border cooperation, which national law of the Member States and affiliated States then implements. Normativity designates the second idea that across the multi-tiered rule-making, the bindingness of the law needs to be secured. This calls for consistent rulemaking. It also calls for a material normative hierarchy with international law at its apex. Finally, conceptual unity of the regulatory action in

7 a h o l i s t i c vi ew o f eu law

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international law, EU law and national law, needs to be secured. Energy citizenship means inclusion in the political process at EU and Member State levels, equal access and the freedom to act as self-determining consumer and producer of energy. Yet it is human dignity that overcomes the exclusivity of this citizenship, generating the unifying concept for all three normative orders.

6 Global Regulatory Law Global regulatory law, as a branch of global law, is an institution of the law outside the State, the idea of which is to protect the public interest of humanity through the regulation of global value cycles. To reach every point of the globe, it works through a network of mutually reinforcing normative orders. This institution is not law-generating by itself but relies on the rule-making capacity of international law, regional law and national law. On the regional tier, the European Union is joined by others such as the Association of Southeast Asian Nations (ASEAN), and on the national tier, universal participation is the aim. This global regulatory law forms incrementally, sector by sector, in response to the global legal priorities and accompanying strategies for meeting societal challenges. Doctrines of global public law and multi-tiered normativity give effect to this order, adapted to the subject matter.

7 A Holistic View of EU Law Strategy, governance and regulation of the European Energy Union reflect a methodology of multi-tiered regulation, a matter that has received rather less attention than its political-science cousin multilevel governance. The plea of this book is for a methodological change. This is the plea for a holistic interpretation of EU law within an international normative environment, one that emanates from a common perspective on shared priorities. Contemporary legal scholarship is ideally internationally contextualised to build a broad interpretation of the developing relationship between EU law and international law. This is critical for a European Union whose self-perception is that of a global actor, whose policies now all have an external dimension,9 which has pledged to respect international law, and whose internal law-making increasingly 9

Article 3(5), 21 of the TEU; Article 205 of the TFEU.

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serves to implement international legal precepts. But this normative environment also comprises national law of the Member States and of affiliated third States. This book will recast the fundamental conception of the relationship between international law, EU law and national law. Instead of isolation and conflict mitigated by some porosity, it ought to be characterised as mutual reinforcement in providing order. In this account, international law, EU law and national law form a whole, and none can be understood outside this context. This holistic methodology is future orientated. The integration of normative orders is not a historic or present given but increases along a time line stretching into the future. Allied with the first therefore goes the second plea for a methodology that accounts for the temporal dimension of EU law, as well as international law and national law. Processes of legal change should be seen from the intended future endpoint, and existing law must be understood in that light. This entails a re-weighing of the sources. The organs and materials of the law-making process come into focus. This highlights the role of the European Commission in proposing legislation, whereas the traditional focus has been on the Court of Justice of the European Union and its case law. This book introduces and uses strategy as an analytical category to elucidate the choices that drive such legal change. It defines the regulatory objective and intended law development, instruments and procedures. This holistic understanding may be formalised in a coordinate system whose abscissa denotes integration into the international normative environment and whose ordinate shows the development over time. The trajectory of the law development under the European Union’s transformative projects, of which the European Energy Union is one, thus can be determined in close observation of the incrementally developing legal reality.10

8 Assumptions of Multi-Tiered Regulation, Integration and Global Regulatory Law This book situates the European Energy Union against the background of multi-tiered regulation. Its legal directives are issued in international law, EU law and national law. The argument that these form the tiers of an 10

A. Halpin, in M. Del Mar & Z. Bankowski (eds.), Law as Institutional Normative Order: Essays in Honour of Sir Neil MacCormick (Ashgate, 2009), 45, 47: ‘sound theory should be closely grounded in experiential reality.’

9 l iterature

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integrated legal regime rests on the assumption that they are commensurate and compatible. In making this assumption, I am following the work of Neil MacCormick on institutional normative order.11 Broadly in the positive tradition, institutional normative order explains law from the process of production of legal rules, which passes from social practices to norms to the formalisation and authorisation of rules. These then fall on the functional tiers of substantive rules, rules on application and adjudication and further rule-making. Institutions of law then turn on ideas about the law that are supported by rules. Institutional normative order describes the law of the constitutional State. But it also describes law outside the constitutional State. This is clear enough for the European Union which has been converging towards a model of the constitutional State, but also for international law that is not housed in one central organisation. It also produces its rules in a cycle, through the stages of identification and planning, formalisation and authorisation, application, assessment and reform. Thus, international law, EU law and the domestic laws of Member States all constitute normative orders in a descriptive sense, and the differences between them are a matter of their institutional design.

9 Literature There are fine, monograph-length accounts of European and international energy law, as well as of national energy laws. This book profits from these and discusses them throughout. However, it is perhaps useful to point out that the present account explores a line of inquiry that is not the focus of these treatments. This is an account of the European Energy Union and its legal order that is contextualised normatively and temporally.12 This perspective explains the choice of material and the depth of inquiry. It is not designed to substitute for the detailed treatment that these other works provide of EU law, of international law or of the various national laws. This book also focuses on legal change, which it is keenly aware is being planned from an endpoint that lies in the future. 11

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N. MacCormick, Institutions of Law (Oxford University Press, 2007); and N. MacCormick, ‘Concluding for Institutionalism’, in Law as Institutional Normative Order. Further, A. Menéndez & J. Fossum (eds.), Law and Democracy in Neil MacCormick’s Legal and Political Theory: The Post-Sovereign Constellation (Springer, 2011). V. Roeben, ‘Governing Shared Offshore Electricity Infrastructure in the Northern Seas’, (2013) 62 International & Comparative Law Quarterly 839.

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This gives it necessarily a speculative character that works dealing with the law as laid down do not have. The book makes, however, a number of general points, and for these other, non-energy-specific treatments are relevant. Joel Trachtman’s influential account of international law also detects international regulation as the future, and he identifies such regulation as the outcome of the efficient exchange of jurisdictional resources between and among States.13 This book takes an analytical approach to the trajectory of international regulation and the elements that shape it. Trachtman’s and mine are both explanatory yet different and complementary accounts of legal reality. Finally, the disorder of normative orders with which this book is also concerned has spawned excellent works such as Constitutionalisation of International Law and Constitutional Pluralism in the EU.14 The first aims at providing an attractive account for resolving normative conflicts in that disorder. The point of this book is to draw this discussion to the regulatory level where the innovative features of global law are being forged. By contrast to Legal Pluralism by Paul Schiff Berman,15 this is an account of public law, and while it is by no means exhaustive and non-statal law plays a role in commercial relations, public law is the important law on this and perhaps most global priorities and needs to be taken seriously as such.

10 Scope and Structure of This Book This purpose and perspective entail a primarily legal methodology, which is, however, conscious of the context in which the development and interpretation of law are taking place and which is particularly true for a fast-developing area such as the European Energy Union. The scope of this book depends on the use of its key term – energy. The term features in a broad range of disciplines. Policy and law have a fungible use of the term energy. In international law, the Agreement on an International Energy Program uses the term energy to describe the scope of cooperation of the Parties and the mandate of the International 13

14

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J. Trachtman, The Future of International Law: Global Governance (Cambridge University Press, 2009). J. Klabbers, A. Peters & G. Ulfstein, The Constitutionalisation of International Law (Oxford University Press, 2009); K. Jaklic, Constitutional Pluralism in the EU (Oxford University Press, 2014). P. Schiff Berman, Global Legal Pluralism: A Jurisprudence of Law beyond Borders (Cambridge University Press, 2012).

10 scope a nd structure of this book

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Energy Agency and then provides a comprehensive definition of energy sources and forms.16 The Energy Charter Treaty does so as well. Other treaties of universal or regional application refer to energy from the functional perspective of pollution control without further definition.17 By contrast, international commercial law, as laid down in the Convention on the International Sale of Goods, exempts (electrical) energy from the definition of goods that it covers.18 The Founding Treaties of the European Communities had previously referred to the specific sources of coal and nuclear energy,19 but the Treaty of Lisbon defined a general policy and competence for ‘energy’ in Article 194 of the TFEU. The term is not defined there.20 Commentators understand it broadly,21 and the negotiating materials on the Constitutional Treaty support this view,22 as does the jurisprudence of the Court of Justice.23 Energy is thus defined broadly for the purposes of this book. It encompasses energy sources and products, infrastructure and consumption. The book discusses renewable sources of energy such as solar, wind and tidal, as well as conventional and nonconventional combustible energy sources such as oil, natural gas and its liquefied derivatives and refined subsidiary products, reformed sources such as electricity, and its various end usages, such as transport fuel and means of heating. It also discusses the infrastructure connecting producer to consumer, consisting of pipelines, cables, vessels and the related technology. Energy forms an economic value cycle through the stages of generation, transmission and distribution and consumption. It also 16

17

18

19

20 21

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Article 42 of the Agreement on an International Energy Program, 18 November 1974, entered into force 19 January 1976, 1040 UNTS 271. Article 1(1)(4) of the UN Convention on the Law of the Sea, 10 December 1982, entered into force 16 November 1994, 1833 UNTS 397; Article 1 of the Convention on LongRange Transboundary Air Pollution, 13 November 1979, entered into force 16 March 1983, 1302 UNTS 217. Article 2(f) of the UN Convention on Contracts for the International Sale of Goods, 1 July 1964, entered into force 1 January 1988, 1489 UNTS 3. The Treaty Establishing the European Atomic Energy Community, (2010) OJ C 84/1, and, until its expiry in 2002, the Treaty Establishing the European Community of Coal and Steel. Reference to energy is also made in Article 122(1) of the TFEU. L. Hancher and F. Salerno, ‘Energy Policy after Lisbon’, in A. Biondi, P. Eeckhout and S. Ripley (eds.), EU Law after Lisbon (Oxford University Press, 2012), 367. Draft of the Treaty Establishing a Constitution for Europe (CONV 727/03, Annex VII), p. 110. For interpretive relevance for the Lisbon Treaty, see Opinion of AG Kokott, in Inuit v. Parliament and Council (Case C-583/11 P), 17 January 2013, at [32]. EssentNetwerkNoord and Others (Case C-206/06), [2008] ECR I-5497, at [43].

12

introduction

forms a system,24 so changes to any part of it will have consequences elsewhere within the system. The geographical scope of that system extends to the entire territory of the European Union, both land and sea, and beyond. In law, energy has a horizontal quality, cutting across many disciplinary divisions. This book thus brings within its remit, inter alia, constitutional, economic and environmental law. The purpose of this book dictates, however, that it delves into these matters only to the extent necessary; it is intended to complement rather than to substitute for specialist treatments. This book is structured in five chapters. This structure serves to prove the argument of the book in three steps. Chapter 1 takes the first step. It discusses choices of the European Energy Union Strategy on governing the energy-system transition through a legal regime that integrates EU law with international law and coordinated Member State laws. The next three chapters take the second step. They map the co-evolution of international law, EU law and national law on their respective constitutional, regulatory and opening designs for energy. Thus Chapter 2 examines the evolution of international law, Chapter 3 that of EU law and Chapter 4 that of the coordinated domestic laws of the Member States. Chapter 5 marks the third step. It analyses the formation of a vertically integrated legal regime from the cloth of these three normative orders through ascribed responsibilities, multi-tiered normativity and unifying concepts for international law, EU law and the laws of the Member States. It also spells out the methodological implications of my argument, confronts normative questions and makes the case for a new field of legal knowledge: global regulatory law. The book finishes with conclusions that summarise key findings and point out their implications for analysts and for policy-makers. A more detailed overview, which the reader may find useful, of the five chapters is thus as follows: Chapter 1 on European Energy Union Strategy will explain the procedure whereby the European Union’s gubernatorial institutions – the European Council and the European Commission – are turning the Lisbon Treaty mandate into a strategy. This strategy forms the reference for internal and external action for putting in place the legal framework that will apply in the period 2021– 30. Under the three interlinked objectives of secure, sustainable and affordable energy by 2030, the strategy prioritises renewables within the 24

Understood as a set of interacting or interdependent component parts forming a complex/intricate whole; Oxford English Dictionary (Oxford University Press, 2016).

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overall energy mix, private investment-driven development of Europeanwide infrastructure supporting decentralised supply, empowered energy consumers, energy solidarity between and among the Member States and secure international supply channels. It establishes the rules-based network governance of energy Europe-wide and worldwide, and its legal form is regulation, accessing and utilising, for that purpose, the resources of international law, EU law and Member State law. Chapter 2 discusses the international law on energy, starting with the 2030 Agenda with the Sustainable Development Goals and the universal strategy for rules-based energy governance. Turning to the constitutional ideas, it identifies the international law-making process to implement the norm of the sustainable development of energy by means of the regulation of energy through its life-cycle from production to transmission to consumption. The chapter maps the bifurcated development pathways of that regulatory action. The energy-specific pathway comprises the Energy Charter Treaty, which aspires to universal scope; the Energy Community Treaty for Southeast Europe; and the many intergovernmental agreements on supply and infrastructure. The non-specific pathway sees general international law instruments, and the institutionalised law-making treaties develop rules for energy-related issues within their remit. Thus the UN Law of the Sea Convention is a legal framework for the exploitation of marine energy, both renewable and non-renewable, vessel-borne transport and submarine transmission of energy. The fast-evolving international law on climate change provides principles for the energy mix, consumption and cooperation on energy and energy-technology between States. International economic law governs transnational trade and investment in green energy technologies, and collective security under the UN Charter regulates sanctions that directly affect trade in energy. The chapter concludes that this international law on energy is on the way to forming a complex legal regime that absorbs seminal trends in contemporary international law such as treatyfication and juridification. Chapter 3 focuses on EU law. It first sets out the constitutional design that emerges from the competencies on energy that the European Union holds, as well as the conditions of their subsidiary and democratic exercise. The chapter then turns to the regulatory programme of the energy system. This programme is implemented through secondary lawmaking across the energy market, the production and transmission infrastructure, emissions trading and other mechanisms for a low-carbon energy economy and environmental protection. Third, the chapter analyses the external aspects of the European Energy Union, extending to the

14

introduction

heteronomous international law-making the constitutional-regulatory order that applies internally and then receiving this international law on energy internally. Chapter 4 considers the national law on energy of Member States and affiliated States within a coordinating framework defined in EU law. This comprises the procedure through which national energy policies can be scrutinised for their compatibility with EU law–defined priorities. The macro-coordination is complemented by the coordination of national laws with area–specific European standards. The chapter then moves to the micro-level coordination of national laws for the attainment of sectoral objectives, assessing procedure and organisation used for this purpose. Chapter 5 builds on the analysis in the first four chapters to outline the vertical integration of international law, EU law and the coordinated Member State laws. Rules-based energy governance comes to be centred on a legal regime that assigns each constitutive normative order with a specific function in achieving the common objective. The conceptual unity of the regime is shown to lie in human dignity and the closely related energy citizenship in the sense that inclusive self-determination will mean not just access to energy for all without discrimination but also the capacity to make choices between offers that are not limited by national boundaries. This includes providing the individual with the means to become an active producer and consumer of energy. The chapter then discusses the democratic legitimacy of this integrated regime as the key normative criterion before offering a synthesis in global regulatory law of which energy is but one field.

1 Establishing the European Energy Union

European integration has covered energy since its inception, with the 1951 Coal and Steel Community providing for the supranational governance of coal and the 1957 Atomic Energy Community following suit. Yet coal rapidly waned in importance, and nuclear energy did not deliver on the promises of the 1950s, so oil and later gas in the 1970s became the dominant energy sources for most Member States. With the treaty establishing the European (Economic) Community containing no specific provision for energy, the Community’s approach remained incremental. It fell into two phases. In the first, treaty-based phase, the European Commission applied competition law to the vertically integrated energy sectors of the Member States,1 while the European Court of Justice applied the fundamental freedoms to energy goods, related services and capital. The second phase from the mid-1980s saw the Community legislate under its general competences for the internal market, the environment and economic policy, producing harmonised rules for oil, gas and electricity.2 These inroads into the energy sector remained incremental. Overall, they left the matter of energy for the Member States. The entry into force of the Lisbon Treaty on 1 December 2009 ushered in a new European approach, elevating energy to the EU level. It has replaced the European Community with the European Union as the sole organisation of European integration. It has also reorganised Part III on the internal policies the Union is to pursue and inserted into it the new ‘energy’ policy, conferring on the Union the competence for legal action. This treaty change provides the mandate for a political and legal project to reorganise energy at the EU level. 1

2

K. Talus, EU Energy Law and Policy: A Critical Account (Oxford University Press, 2014), 15–21; P. Cameron, Competition in Energy Markets: Law and Regulation in the European Union (2nd edn, Oxford University Press, 2007), 20. European Commission, ‘The Internal Market for Energy’, COM(88) 238 (advocating the application of the 1985 White Book to coal, oil, natural gas, electricity and nuclear energy).

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The instrument for interpreting this mandate and planning action is an inter-institutionally agreed strategy. The package of communications published by the Commission in February and agreed by the European Council in March 2015 formulates the strategy to establish a European Energy Union by 2030. This is a political strategy in the sense defined earlier of a high-level plan for collective action to design the future rather than a document for the mechanical-technical implementation of the existing political and legal framework. It can be used to elucidate the choices made at the creation of the political and legal organisation of the energy system of the future, contained in the formal features of a management strategy that defines objectives and identifies means of realisation.3 These choices define the Gestalt of the European Energy Union. Seen through this analytic lens, the Energy Union Strategy elucidates such choices on procedure, context, governance, international cooperation and legal change. The decision-making procedure brings to bear the authority of the European Council, supported by the initiative of the European Commission and the consent of the European Parliament. The context of that reorganisation is the transformation of the energy sector into a Europewide low-carbon energy economy based on renewable sources, efficiency and consumers empowered to manage demand and supply of energy in a near-zero-marginal-cost economy. Its time frame is the end of the century, with milestones set for 2030 and 2050. There is to be an integral external aspect, as this transformation is linked to that of the international energy system. Bringing it about is a process governed at EU level. This governance involves coordination of a set of responsible institutions formed by the European Union, the Member States and the international plane. It is to be rules based. The strategy provides the common reference for legal change in EU law, international law and Member State law to apply after 2020, causing their co-evolution. It defines the trajectory of regulatory intervention on the European and indeed global energy cycle, centred on a legal regime that integrates EU law with international law and Member State law. This chapter discusses these four aspects of the European Energy Union in turn. It first sets out the procedure by which the European Council, the Commission and the Parliament have turned the treaty mandate into a strategy that interprets this mandate. It then analyses the context of all future action on energy that the strategy defines. Third, 3

L. Freedman, Strategy (Oxford University Press, 2009) (particularly chap. 30, p. 491, on management strategy).

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it turns to rules-based governance. The fourth section explicates the essential external aspect. The fifth and final section argues that regulation of the European energy cycle through international law, EU law and national law is the legal form of this governance. It concludes that this is European energy strategy in international law.

I From the Lisbon Treaty to the Strategy for a European Energy Union The Energy Union Strategy of March 2015 is the outcome of a decisionmaking procedure to elevate energy to the EU level. This procedure involves the constituent power – the Member States of the European Union assisted by a convention – and its constituted power – the institutional framework. It provides legitimacy, authority and the genesis of the strategy’s priorities. The procedure starts with reform of the treaty. Article 1 of the Treaty on European Union (TEU) denotes the modus of European integration. Accordingly, the Contracting Parties pursue common objectives through the European Union. They set new common objectives by amending the Founding Treaties through a revision procedure, which is now set forth in Article 48 of the TEU but was effectively already used for the 2007 Lisbon Treaty. It calls for a convention to prepare the treaty change. The preparatory work for the Lisbon Treaty was undertaken by the Convention for a Constitutional Treaty. While the Constitutional Treaty was signed by the Member States,4 it never entered into force. Yet it formed the basis for the Intergovernmental Conference for the Lisbon Treaty which adopted a text shorn of the overt symbolism while retaining its important innovations. That treaty was ratified by all Member States and entered into force on 1 December 2009. The Contracting Parties of the Lisbon Treaty made energy their new common objective by inserting the new Title XXI on Energy into Part III on Internal Policies of the Treaty on the Functioning of the European Union in the wording of the Constitutional Treaty.5 Energy is to be a principal policy and competence of the EU, not ancillary to others such as the internal market. The broad shape of this policy emerges from the objectives that the sole Article 194 of the Treaty on the Functioning of the European Union (TFEU) sets forth in its first paragraph. These treaty terms leave considerable leeway as to the relative weight to be attached to the several objectives and the way of going about 4 5

Treaty Establishing a Constitution for the European Union (2004), OJ C 310/1 (TFEU). Article III-256.

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realising them. Article 13 of the TEU mandates the institutional framework of the EU to develop a concrete policy for energy and then law-making on the basis of the competence provided in the second paragraph. This becomes the joint responsibility of the European Council and the Council, the Commission and the European Parliament. However, Article 15 of the TEU makes clear that the European Council is to have the principal role. Under this provision, the European Council guides the preparation and has ultimate responsibility for approving the policy. The responsibility of the European Council for the direction of European policy under the treaties corresponds to its legitimacy within the twopillared democracy in the EU. On it serve the heads of State and government who are accountable to their parliaments and electorates for the overall direction of European integration. The Commission designs the policy in detail, being accountable to the European Council, which exercises oversight through the Council of the European Union. However, the Commission has its own responsibility for formulating political choices grounded in its democratic legitimacy. The Lisbon Treaty finally substitutes the technocratic legitimacy of the Commission for a legitimacy grounded in the parliamentary election, emulating the model at the Member State level backed up by reference to comparative constitutional law. Under the Treaty of Lisbon, the Parliament elects the Commission President on a proposal of the European Council (Article 17(7) of the TEU). The interpretive practice of the institutions following the 2014 elections binds the European Council to propose the lead candidate of the party winning a majority of seats in the elections.6 Finally, the Parliament provides input into the preparation of the policy, it votes on it and it decides on the subsequent formalisation in binding law, together with the Council. Involving these three institutions, policy-making becomes an iterative procedure. The intended outcome of such a procedure is a strategy document, the tool for steering EU policy and law-making on policies whose ambition it is to reorder, to transform, the status quo of a sector. Such a document crystallises the consensus of all three institutions, but its authority stems primarily from the approval of the European Council and thus the agreement of the Member States represented by the heads of their executives. Strategy documents then couple the political and legal systems of the European Union. Reflecting the emergence of an EU gubernatorial function, they define objectives, principles and means of policy 6

European Council Conclusions, 27 June 2014, EUCO 79/14, at [25], in conjunction with adopting the strategic agenda for the next parliament, at [26].

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and serve as reference for the subsequent law-making. They are a highlevel political document on the design for legal action containing conceptual decisions for the legal acts that are to follow, while detail is reserved to the subsequent legislative process. Strategy documents also fulfil a key democratic function, by making policy choices and planning of the EU’s institutions on their future courses of action transparent, a pre-condition to holding them accountable for the implementation of these choices. They finally send strong signals to the private sector, allowing it to make investment choices aligned with the public policy. The Energy Union Strategy is the outcome of such a procedure that involved close interaction between the European Council and the Commission. The European Council and the Commission have been sharing the gubernatorial function of directing the EU’s energy policy through this procedure, with scrutiny by the Parliament. The following discussion of the genesis of the Energy Union Strategy serves to highlight the procedure in which it was formulated and agreed by the institutions. It also identifies the four distinct strands of energy policy that developed independently but which the strategy amalgamates. The procedure has its historic starting point in an initiative of the Member State level. The then prime minister of Poland and current European Council President, Donald Tusk, first propagated the idea of a European Energy Union in response to the historic gas crisis in 2009, when Russia briefly stopped the delivery of natural gas through Ukrainian pipelines, causing shortages in several Member States. The idea was then taken up by the Commission. Under its then President José Manuel Barroso, in 2010, the Commission published the communication on ‘Energy 2020 – A Strategy for Competitive, Sustainable and Secure Energy’.7 The following ‘2011 Exploratory Energy Roadmap’ set out four main routes to a more sustainable, competitive and secure energy system by 2050: energy efficiency, renewable energy, nuclear energy and carbon capture and storage.8 It also dealt with international energy cooperation.9 In 2014, the Commission then published three separate detailed

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European Commission, ‘Energy 2020: A Strategy for Competitive, Sustainable and Secure Energy’, COM(2010) 639. European Commission, ‘Energy Roadmap 2050’, COM(2011) 885. European Commission, ‘The EU Energy Policy: Engaging with Partners beyond Our Borders’, COM(2011) 539.

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communications on a climate and energy policy framework for 2030,10 on security of supply11 and on energy efficiency.12 Under the presidency of Jean-Claude Juncker and in line with a manifesto plank,13 the current European Commission has made an Energy Union an institutional priority. Commissioner Maroš Šefčovič was appointed as Commission Vice-President,14 and he has brought a total of four Commission briefs to bear on the project. A new dedicated Directorate General of the Commission for Energy (DG ENER) was also established. Under these auspices, a package of three communications on energy was drafted, which together form the strategy for an Energy Union. The first and general is entitled a ‘Framework Strategy for Resilient Energy Union with a Forward-Looking Climate Change Policy’.15 It sets forth as the overall goal secure, sustainable and affordable-competitive energy, with five interrelated dimensions of implementation. These dimensions pull together the content of the 2014 communications on climate-friendly, secure and efficient energy but add the energy market and energy research and innovation as dimensions in their own right, as well as a governance framework across all dimensions. An annex contains the roadmap of planned legislative actions. The Commission also commits to producing further strategic communications in the Framework Strategy.16 The second communication deals with interconnected infrastructure.17 The third communication indicates the external aspect of the Energy Union. It 10

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13 15

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European Commission, ‘A Policy Framework for Climate and Energy in the Period from 2020 to 2030’, COM(2014) 15; ‘A Framework for Climate and Energy Policies’, COM(2013) 169 (green paper). European Commission, ‘European Energy Security Strategy’, COM(2014) 330; see also the earlier European Commission, ‘Second Strategic Energy Review – An EU Energy Security and Solidarity Action Plan’, COM(2008). European Commission, ‘Energy Efficiency and Its Contribution to Energy Security and the 2030 Framework for Climate and Energy Policy’, COM(2014) 520. Available at http://juncker.epp.eu/my-priorities. 14 Article 17(6)(c) of the TEU. COM(2015) 80 [hereinafter ‘Framework Strategy’]. It refers to supplementary communications on specific matters; see European Commission, ‘Exploration and Exploitation of Hydrocarbons (such as Shale Gas), Using High-Volume Hydraulic Fracturing in the EU’, COM(2014) 23. These have been forthcoming: European Commission, ‘Strategy for Liquefied Natural Gas and Gas Storage’, COM(2016) 4; European Commission, ‘An EU Strategy on Heating and Cooling’, COM(2016) 51; ‘LNG and Storage Strategy, State of the Energy Union 2015’, COM(2015) 572, with Annex I, ‘Updated Roadmap for the Energy Union’; and Annex II, ‘Guidance on National Energy and Climate Plans’. European Commission, ‘Achieving the 10 Per Cent Electricity Interconnection Target Making Europe’s Electricity Grid Fit for 2020’, COM(2015) 82.

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sets out the EU position in relation to its future climate change policy within the UN Framework Convention on Climate Change in the run-up to adoption of the Paris Agreement.18 The Energy Diplomacy Action Plan presented jointly by the High Representative and the Commission in March 2015 deals with external energy policy generally.19 The European Council has been closely involved, providing input into its formulation, oversight over its preparation and final approval. In March 2014, it endorsed the 2030 energy and climate framework work programme presented by the Commission.20 In June it elevated energy to a priority for the incoming Commission.21 Following the recommendation of the Italian Council presidency,22 in October 2014 the European Council took the final decision on the 2030 climate and energy framework, including the target of a 40 per cent reduction of carbon dioxide emissions Europe-wide by 2030, energy security and governance.23 The European Council approved the Energy Union package in March 2015.24 In so doing, it maintained the comprehensive scope of the package and did not limit it to energy security.25 It did, however, reject the suggestion that the Commission may receive a veto over gas supply agreements with third States, merely calling for an assessment of voluntary demand aggregation mechanisms. The European Council and particularly the Council in its Telecommunication, Transport and Energy (TTE) configuration have since provided guidance on specific elements.26 The European Parliament, in its resolution of 15 December 2015, approved of the Energy Union Strategy.27 The genesis reflects that the intergovernmental European Council and the supranational European Commission share the gubernatorial function of directing the EU’s energy policy. The European Council has 18

19 20 21 22 23 24 25

26 27

European Commission, ‘The Paris Protocol – A Blueprint for Tackling Global Climate Change beyond 2020’, COM(2015) 81. ‘Foreign Affairs Council Conclusions’, 20 July 2015, 10995/15, Annex I. ‘European Council Conclusions’, 21 March 2014, EUCO 7/1/14. ‘European Council Conclusions’, 27 June 2014, EUCO 79/14, at [21,22]. Energy Council, ‘Conclusions on Energy Security’, 8 October 2014, 13788/14. ‘European Council Conclusions’, 24 October 2014, EUCO 169/14. ‘European Council Conclusions’, 20 March 2015, EUCO 11/15, at [1–3]. ‘Report of European Council President Tusk to the Parliament’, Press Release, 25 March 2015, at (2e). For instance, Energy Council, 26 November 2015, Doc. 14632/15. European Parliament, ‘Resolution towards a European Energy Union’, 15 December 2015.

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made the key decisions on all energy priorities, preliminarily in October 2014 and finally in March 2015, but largely in line with recommendations of the Commission. This genesis reveals that four distinct historic strands, which originally reflected different interests and preferences among the Member States, drive the 2015 Energy Union Strategy. The first strand is the concern that energy supply be secure throughout the EU territory and particularly for the Member States depending on a sole external supplier. The second is the linking of global climate protection and a policy on energy sources. The third is the integrated EU-wide market for network energy. The fourth is recognition of energy efficiency as an energy source. The Energy Union Strategy reflects the decision of the EU’s gubernatorial function to amalgamate these strands and to formulate a principal, comprehensive and integrated approach, with a view towards transforming the energy sector Europe-wide. Approval by the European Council signifies the common view that the strategy represents a fair balance of interests between Member States with still very different energy systems. It also signifies that all Member States accept that energy is their common as well as individual responsibility.

II The Energy Union Strategy: Context The 2015 Energy Union Strategy (EUS) interprets the Lisbon mandate for developing a distinct energy policy of the EU. This interpretation starts with the context of such action. It sets the aim of transforming the energy sector, from its status quo characterised by market fragmentation and carbon dependency, into a Europe-wide, effectively decarbonised energy system. This overall aim leads to a set of goals and objectives (1) and dimensions of implementation of these goals in a 2030 perspective (2).

1 Goals The Energy Union’s goal structure is composed of an overall goal, a triad of first-order objectives, several instrumental objectives and the goal of energy citizenship. The overall goal is to provide across the sectors secure (1), sustainable (2), competitive and affordable (3) energy. ‘Secure’ energy refers to sufficient energy supply for the EU as a whole and for each Member State in relation to projected needs based on solidarity and trust between Member States. ‘Sustainable’ energy means a low and eventually zero carbon energy generation and consumption, including a reduction of other pollutants. Energy is to be internationally ‘competitively’ priced for

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businesses and ‘affordably’ priced for households. The specific meaning of these goals results from the preceding diagnosis of the challenges. While the goals are universal and mirrored in the 20130 Agenda and the sustainable development goals (SDGs) of the United Nations, that diagnosis is, to a certain extent Europe specific. Thus, the challenge of energy security is defined as import dependency. The problem is how these objectives fit together. They are partly mutually reinforcing and partly conflicting, for the objectives may work at cross-purposes to one another and, under certain conditions, trade off against one another. Thus, the shift to a higher percentage of renewable energy sources will contribute to sustainable energy. Yet, it can make energy less affordable where such energy receives subsidies that are then borne by consumers or where fossil fuel could be produced at lower cost from conventional and non-conventional sources. While this shift does secure the supply because of production within Europe, it may also have contrary or self-cannibalising effects by causing a shift to more carbonintensive non-renewable energy forms to mitigate the volatility of renewable energy production. The relation between the objectives within the triad is thus not fixed. The balancing of the three composite objectives rather requires active management over time and across all substitutable sources of energy: fossil, renewable and fissile. The strategy also spells out the approach to bring about these firstorder goals. The EUS identifies this as the cost-effective reordering of the energy sector through harnessing market forces and, namely, the new business models, investment and innovation. This leads to the instrumental objective of an integrated Europe-wide energy market in which energy and related investments move freely across borders. The confidence of European investors must be secured through price signals that reflect long-term needs and policy objectives. Second, European companies are to develop technical products and technology to deliver energy efficiency and low-carbon technologies inside and outside Europe, including building a European labour force with the requisite skills to ensure successful implementation of the future energy system. The strategy finally defines as its ‘most important’ objective that citizens are at the core of the Energy Union. This is a first-order goal, in that citizens are to be chief beneficiaries. It is also an instrumental objective. Citizens are conceived of as actors in bringing about the Energy Union by taking ownership of the energy transition, benefitting from new technologies to reduce their bills, participating actively in the market and being protected as vulnerable consumers of energy.

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2 Dimensions of Action The dimensions of the EUS define to what extent and by what means these goals are to be achieved in the period from 2021 to 2030. The Energy Union will be covering all aspects of energy by identifying the five ‘dimensions’ along which action will be taken: energy security, the energy market, energy efficiency, decarbonisation, and research and innovation. These dimensions circumscribe the space for energy-related action exhaustively. The dimensions are aligned with the objectives of the new energy policy that Article 194(1) of the TFEU sets forth. They also go beyond: decarbonisation is climate change action falling under Article 192 of the TFEU, and energy research and innovation come under Article 182 of the TFEU. Each dimension sustains the entire Energy Union objectives triad, even though it may be contributing particularly to one objective. These dimensions are interconnected and interdependent, so effects on other dimensions must be taken into consideration. They have a functional structure linking second-order objectives with internal and external policy actions and certain EU law instruments. They retain most of the existing legislation on energy but assign it with a new functionality and envisage their progressive development towards a new iteration. The following paragraphs give a succinct overview of each of the dimensions to buttress these points. The objective of the first, the energy security dimension, is diversification of the sources of energy, suppliers and supply routes. Policies to this effect are the promotion of indigenous renewable energy source (RES)–generated electricity, the import of natural gas, which will remain an indispensable component of the European energy mix, through pipelines from alternative suppliers and the import of liquefied natural gas from States committed to rules-based governance. This includes review of Member State supply agreements and for the European Union to conclude intergovernmental agreements with third-country suppliers of energy. Diversification is then complemented by solidarity-based prevention of and resilience to supply shortages. This calls for EU instruments for regional planning and responses to emergency responses and enhanced gas storage. The energy market forms the second dimension. The acquis of the three energy packages that have liberalised the energy markets of the Member States will be retained and enforced, but the energy market dimension now aims to create a fully integrated EU-wide market for network energy and particularly for electricity generated from renewables, marked by dispersed sources of production, distance to the centres

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of consumption and volatility. It requires designing the supply side of a market that couples capacities regionally and Europe-wide and enables the demand response of consumers, as well as active supply. It also requires interconnected infrastructure able to transmit electricity across the EU territory. Projects of common interest are the instrument to achieve the target of at least 10 per cent interconnectivity of all infrastructure and, aspirationally, 15 per cent. Public investment is justified only where such infrastructure has large externalities. Energy efficiency is the third dimension. It is elevated to the position of a source, in the sense of the energy saved being equivalent to an increase in production capacity. Enhancing efficiency becomes a specific energy policy rather than an environmental policy. The strategy identifies action on consumer goods, heating and cooling of buildings and transport. The existing instruments are to be reformed, particularly the labelling directive. The strategy absorbs climate action into energy policy by defining decarbonisation as the fourth dimension. It reaffirms the EU-wide target of a 40 per cent reduction compared to the base year 2005 in carbon and equivalent greenhouse gas emissions to be achieved by 2030. The principal instrument is the European Emissions Trading System (ETS). The sectors covered by it have to reduce their emissions by 43 per cent compared to 2005. The strategy directs Member States to reduce the overall cap on emissions in successive steps, to reserve surplus emissions credits to function as an additional price signal and to expand coverage to all carbonemitting industry sectors but to continue to give allowances away for free to prevent carbon leakage. Non-ETS sectors will have to reduce their emissions by 30 per cent, and there will continue to be binding national targets. Further EU funding mechanisms will be set up to bring about significant low-carbon innovations, in particular, in major energy-intensive industries. The primary carbon dioxide reduction target generates secondary targets for the percentage of renewables and energy efficiency improvements of at least 27 per cent each by 2030. The ‘at least’ formula accords discretion to the later subsequent law-making stage to agree to more ambitious targets. The strategy performs a major policy shift from the past by determining that these are EU-level targets only that will no longer be broken down into targets for individual Member States. The substitution of fossil fuels by RES-produced electricity is thus primarily for the Member States, within the European Union’s dedicated State aid guidelines for energy and the environment. This transformation is to be innovation driven. The strategy therefore makes the promotion of energy research and innovation its fifth dimension.

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It identifies, as the policy objective, EU-level financial support for translating research in prioritised fields into commercial applications and specific support for carbon capture and storage technology. The dimensions of the Energy Union define the course of action. The strategy adopted in March 2015 defines the progress under each dimension planned for the period up to 2030. This already represents an increase in the ambitions over the previous period up to 2020. The increase in ambition for the period to 2050 is laid down in ‘Energy Roadmap 2050’. This long-term perspective is the transition to a carbon-free energy system.

III Governance In the literature on the European Union, governance is often discussed as new governance, with an emphasis on private-sector involvement.28 In the European Commission’s conception, governance is primarily a nonlaw method complementary of the law-based Monnet method.29 However, as defined originally by Rhodes, the term ‘governance’ refers more broadly to ‘a new process of governing; or a changed condition of ordered rule; or the new method by which society is governed’.30 Linked to the concept of non-unitary polities, this refers to governing with and through networks of public authorities by means of procedures, organisation and mechanisms for coordinating collective decision-making. Governance, then, is a form of political action. It is premised on collective action of all holders of public authority, on the levels of the Union, the Member States and on the international plane. Governance in this sense substitutes the hierarchical supranational method with a Union method of coordinating all holders of public authority towards a shared goal, with 28

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B. Eberlein and D. Kerwer, ‘New Governance in the European Union: A Theoretical Perspective’, (2004) 42 JCMS 121 (‘to build on participation of private actors in policy formation, relying on broad consultation and substantive input’); J. Scott and D. Trubek, ‘Mind the Gap: Law and New Approaches to Governance in the European Union’, (2002) 8 ELJ 1; for external governance, see P. Cardwell, ‘Rethinking the Law and New Governance in the European Union: The Case of Migration Management’, (2016) ELR 362. Further, G. de Búrca and J. Scott (eds.), Law and New Governance in the EU and the US (Hart, 2006). European Commission, ‘White Paper on Governance’, COM(2002) 428. See D. Winscott, ‘Looking Forward or Harking Back? The Commission and the Reform of Governance in the European Union’, (2001) 39 JCMS 897. R. W. A. Rhodes, ‘Understanding Governance: Ten Years On’, (2007) 28 Organisation Studies 1243; further, A. M. Kjær, Governance (2004) (international and EU governance).

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each taking action pursuant to its responsibility. That network governance is suitable for projects to transform an entire field. Strategy is an essential instrument. The open method of coordination in economic governance is an expression of this EU method.31 The EUS aims to set up such EU-coordinated network governance over the entire European energy system. It assumes the common responsibility of the European Union and its Member States. The guiding idea is to combine bottom-up with top-down decision-making. Decentralisation and plurality are to be balanced with centralisation and uniformity. Member State action is to be primary for most of the dimensions of the strategy. EU action envisaged there is complementary, serving the crossborder cooperation of the Member States and their entities, though in some areas EU action is primary, in particular, on decarbonisation and, to an extent, on the energy market. In addition to this complementary and supplementary action, the Union assumes oversight over decision-making of Member States to ensure that the collective effort delivers the agreed objectives in the aggregate. This presupposes a procedure in which the Commission iteratively interacts with each member state on its policy planning cycle. The instrument is the national plan on energy and climate that each member state will have to produce. A State of the Energy Union communication, published at the end of every year, will support transparent stocktaking on the collective progress against the EU objectives.32 Updated reference scenarios of energy trends aid future-orientated decision-making.33 This network governance of all relevant holders of public authority signals to the private sector that the transitional process is European and global, transformational and irreversible. This enables the market to deliver the transition to the novel energy system through investment, new business models and innovation. But the strategy then also enlists private-sector stakeholders as its agents by assigning market operators with responsibilities for and participatory roles in that governance, ranging from expertise-based rule-making and administration to securing supply in emergency situations. It extends that conception to businesses and households, who are given roles in managing demand as well as generating energy. 31

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Lisbon European Council, ‘Presidency Conclusions, 23–24 March 2000’, at [35–41] (strategy of economic governance). European Commission, ‘State of the Energy Union’, COM(2015) 572. European Commission, ‘EU Reference Scenario 2016: Energy, Transport and GHG trends to 2050’, July 2016.

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IV International Cooperation: The External Energy Union The Energy Union Strategy acknowledges that the European Union cannot deliver by internal action alone on the Energy Union objectives but that this requires it to engage in international cooperation. The Energy Union will therefore have an integral external aspect. All its dimensions indicate external action. Thus, the European Union can only deliver security of supply by accessing energy resources under the sovereignty of third States. This demands trade agreements to dismantle export restrictions, nondiscriminatory network access, investment promotion and protection and the definition of energy services that is lacking in the General Agreement on Trade in Services (GATS), prevalent trade and distribution monopolies in countries where domestic production is not monopolised, widespread use of local content requirements imposed on the equipment of foreign companies when they operate large-scale projects in third countries and insufficient transparency in regulatory processes pertaining to the granting of licenses for exploitation or trade in energy products. The European Union can also only deliver on the decarbonisation dimension through international cooperation, given that it produces only 7 per cent of global carbon emissions. Negotiating, concluding and implementing the Paris Agreement on climate change thus become integral elements of the strategy. The integral external aspect of the EUS transfers the commitment to comprehensive rules-based energy governance to the international plane. As envisaged in the Road to Paris document, the Paris Agreement will replicate the bottom-up and top-down governance approach that also applies internally, with oversight at the international level over the selfdetermining action at the level of the Parties.

V Regulating Energy in International Law, European Union Law and National Law The Energy Union Strategy couples governance and law-making. It is a powerful spur for EU law-making, directing the Commission to come forward with proposals for legislation. The Annex to the Framework Strategy document contains a roadmap of legislative projects that the Commission will propose to the European Parliament and Council. The roadmap operationalises the conception that the dimensions of the strategy are interrelated by providing a matrix that lists all five as criteria for selecting projects. The time horizon starts in late 2015, with a series of

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legislative proposals to be presented in 2016 and the remainder in 2017 so that all law will be in place in good time to govern after 2020. The sequencing of proposals therefore reflects practical considerations of the amount of preparatory work. It starts with the decarbonisation dimensions with reform of the legislation on the ETS and non-ETS sectors and the labelling directive and then comes to the secure supply dimension with reform of the legislation on security of gas supply and intergovernmental agreements, the directives on energy efficiency and renewable energy and the new Energy Market Initiative, concluding with research and innovation. This roadmap will be updated as part of the yearly State of the Energy Union communications.34 However, these individual projects for legislative acts, in the shape of directives, regulations and general decisions, should be distinguished from the structural legal change that they entail. Strategy is useful in the analysis of that legal change from a law internal point of view. The EUS relies on law to entrench the political commitment of the Union and its Member States to establish EU-level governance. It is rules-based governance that entails commensurately comprehensive legal change to regulate the European energy system. Regulation becomes the legal form of governance. The regulation that the EUS entails goes beyond managing specific risks; it is public good–orientated regulatory intervention on the entire economic cycle of energy, Europe-wide and globally. The categorisation has implications for the analysis of the scope and design of that regulation (1). This public good regulation is multi-tiered (2). It is a European regulatory strategy in international law (3).

1 Public Good Regulation of European and Global Energy ‘Regulation’ is a term that at its most general refers to directives issued by public authority to achieve a public purpose by altering the behaviour of individuals or groups.35 Within this general definition, the term ‘regulation’ can be used in several distinct senses. Risk regulation and public good or economic regulation denote two principal types of regulation. Good regulation refers to its normative criteria. 34

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European Commission, ‘2015 State of the Energy Union Communication’, Annex, ‘Update on the Roadmap’. M. Adler, ‘Regulatory Theory’, in: D. Patterson (ed.), A Companion to Philosophy of Law and Legal Theory (2nd edn, Blackwell, 2010) 590; UK Task Force on Better Regulation, Principles of Better Regulation (2011), 1.

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Regulatory invention may target specific risks associated with a certain conduct of individuals.36 The objective is to control the risks inherent in that activity for some value or good, such as health, safety or the environment.37 Risk regulation does not involve the reorganisation or reordering of an economic value chain, although its scope can be extensive.38 Generation and products of energy create specific risks for a range of public interests or values, such as the environment and human health. The EUS aims to control the risk that fossil fuel– produced greenhouse gases present for the global climate, as well as to manage the risks that new technologies in turn create. But it does so within a broader economy-wide context and therefore falls into another regulatory category. There is public good regulation where public authority orders an economic activity comprehensively to achieve a public good that the market fails to accomplish on its own; private actors are enlisted to achieve the objective set by government.39 The regulation of energy that the EUS intends comes under this rubric. It goes much beyond the existing energy provision in EU law: the existing three energy market packages are a case of network-industry regulation limited to the transmission stage in the energy life cycle. By contrast, the regulatory intervention regulation will now be comprehensive, covering the entire economic activity of energy, as described by the four stages of the life cycle of energy40: the generation of 36

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‘Paternalistic’ or welfare risk regulation focuses on the individual; see O. Bar-Gill and C. Sunstein, ‘Regulation as Delegation’, (2015) 7 Journal of Legal Analysis 1, 2. See A. Vermeule, The Constitution of Risk (Cambridge University Press, 2014), 1–5, for extension to public-sector risk. M. Adler, ‘The Normative Foundation of Risk Regulation’, (2003) 87 Minnesota L Rev 1293. The regulation of non-communicable diseases from tobacco and alcohol consumption remains risk regulation despite some para-prohibitive traits. A. Alemanno and A. Garde (eds.), Regulating Lifestyle Risks (Cambridge University Press, 2015); further, D. Byrd and C. Cothern, Introduction to Risk Analyis (2000). Bar-Gill & Sunstein, ‘Regulation as Delegation’, note 36. ‘Life cycle’ refers to consecutive and interlinked stages of a product or service system from the extraction of natural resources to the final disposal. ‘Life-cycle assessment’ is a technique to assess environmental impacts associated with all the stages of a product’s life from cradle to grave (ISO 14040.2 Draft: Life Cycle Assessment – Principles and Guidelines). It is related to the concept of value chains grounded in the idea of systems. This concept stems from business management; see M. Porter, Competitive Advantage (Free Press, 1985). It now describes the set of activities that firms operating in a specific industry perform in order to deliver a valuable product or service for the market; G20 Brisbane 2014 communique: ‘[W]e need policies that take full advantage of global value chains’; OECD and World Bank Group, ‘Inclusive Global Value Chains’, 1 October 2015.

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energy from certain sources, transmission through infrastructure and transport by vessels, distribution to end consumers through networks and the end uses of energy by consumers, businesses and households. What, then, are the choices of the EUS on the structure of this regulatory intervention? The regulator is the European Union. It is the direct regulator of private conduct in certain instances. It is the indirect regulator when it directs Member States to regulate in a certain way. The ultimate addressees are private economic operators and consumers, as well as public authorities, active in these four stages. This regulatory framework enlists these actors and coordinates their conduct. The point of that coordination is to enable them to bring to bear their capacities for achieving the regulatory objective. The programme for putting in place this regulatory framework is composed of normative parameters, drivers and modalities. Normative parameters and drivers define the purpose and level of the regulatory intervention. The normative parameters determine what public good shall be produced or protected. In addition to providing legality deriving from unequivocal competence, Article 194 of the TFEU formulates the European public interest in energy policy, the public good and the functions that the EU’s regulation are to fulfil. Drivers are structural features rather than the agents that determine the direction, level and pace of regulatory change. The objectives triad of secure, sustainable and competitive energy concretises these parameters to become the overall driver of the level of regulatory intervention. The modalities that determine the type of such intervention comprise legislative instruments, both prescriptive and incentive based, organisation, procedure, financial instruments and technology. These can be supplemented by non-legal modalities to provide consumers with up-to-date market information.41 They characterise the type of regulatory intervention.

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Further, G. Gereffi and K. Fernandez-Stark, ‘Global Value Chain Analysis’ (Duke Center on Globalisation, Governance and Competitiveness), July 2016. Both are wedded to the theorem that people are rational actors driven by self-interest and tangible incentives and disincentives; see R. Korobkin and T. Ulen, ‘Law and Behavioural Science: Removing the Rationality Assumption from Law and Economics’, (2000) 88 California L Rev 1051, 1060–6. Integrating insights into bounded rationality and in particular decision-making biases from behavioural science into regulatory design remains largely illusive; see A. Alemanno, ‘Nudging Healthier Lifestyles’, in Regulating, note 38, 309, 313–33; further, C. Sunstein, Why Nudge?: The Politics of Libertarian Paternalism (Yale University Press, 2014); G. Loewenstein et al., ‘Regulation for

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In parallel to the policy-making, this regulation is iterative. The abovementioned programme for the regulatory framework is to apply in the medium term, in the period from 2021 to 2030, and is but a step on the way to the long-term objective for a transformed European energy system by 2080. This iterative character has consequences for the criteria by which its legality, effectiveness and legitimacy ought to be judged. Risk and public good regulation are analytic concepts. They capture the essence of two types of regulatory intervention. Conversely, the concept of good regulation is normative. It interrogates the level and form of either intervention, whether it is necessary and in line with accepted notions of legal quality, such as consistency and transparency. This is a concretisation of the post-Lisbon constitution, its proportionality principle (Article 5(4) of the TFEU) and the rule of law. Proportionality demands that all EU action is necessary, that it is both effective and cost-effective. The Commission operates general procedures for assessing the proportionality of new and existing measures.42 Proposals for new measures are subject to impact statements that evaluate their proportionality ex ante on the basis of prognostics.43 The Regulatory Fitness and Performance Programme (REFIT) entails the periodic review of existing measures ex post on the basis of the evidence of their actual effectiveness and cost-effectiveness.44 Even where new measures are necessary on their own, they must be separately assessed for consistency with other existing legislation in the field, in other fields and with horizontally applicable legislation, for instance, on consumer protection. The EUS does not articulate specific yardsticks of good regulation. The general good regulation requirements then play their full part in the regulatory intervention it envisages. Good regulation remains, however, embedded in the broader constitutional scheme that the Lisbon Treaty designs. Thus, the competence reserve of Article 194(2)(2) of the TFEU mandated the departure from binding national targets,45 overriding a REFIT analysis having demonstrated the effectiveness of national targets.

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Conservatives: Behavioral Economics and the Case for “Asymmetric Paternalism”’, (2003) 151 University of Pennsylvania L Rev 1211. European Commission, ‘Better Regulation for Better Results: An EU Agenda’, COM(2015) 215; ‘Interinstitutional Agreement on Better Law-Making, (2016) OL J 123/1. European Commission, ‘Regulation Guidelines’, SWD(2015) 111. A positive opinion of the Regulatory Scrutiny Board is in principle needed. European Commission, ‘Regulatory Fitness and Performance Programme (REFIT): State of Play and Outlook’, COM(2014) 368. See below, Chapter 3.

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2 Multi-Tiered Regulation, Its Legal Regime and Organising Principles The term ‘regulation’ denotes the structure of the legal change that the EUS entails. That regulation is underpinned by concrete rules. Regulation embodies the claim to govern the activity of a sector through law. Formal law is primary, although it can be complemented by non-law instruments. That strong preference is to do with the rationality that inheres only in formal law: it expresses the strongest commitment of political authority, projecting the certainty for long-term planning and attracting the large-scale private investment needed to transform the energy system. These rules form a legal regime, in the sense of the systematic unity of a set of rules. The EUS implies the intention of the comprehensive use of all legal resources available to the European Union, not just EU law, but also international law and coordinated Member State law. The regulation of the European energy system, understood in its global connectedness, will thus centre on a legal regime that consists of three normative orders. The commitment of the international community of States must then be enshrined in international law, which is not susceptible to being unilaterally altered by its members. Only that sends the signal that the transition to a clean energy economy is global, irreversible and transformational, creating the legal certainty that is needed for long-term private energy decisions within and outside of the European Union.

3 European Energy Strategy in International Law This chapter has traced how the European Council, the Commission and the Parliament have interpreted the Lisbon Treaty as the mandate to establish a European Energy Union. An inter-institutionally consented strategy defines the context for the reordering of the European energy system in a 2030 perspective for the objectives triad of secure, sustainable and competitive energy through internal and external action on five dimensions and with comprehensive EU-level governance sustained by a programme of legal change to become operational after 2020. The Energy Union governance enables collective action of the network of responsible public actors composed of the Union, Member States and the international plane. It embodies the EU method of governance as a form of political action under which these actors agree on common objectives that each pursues within its responsibility. This governance is centralised in the sense that the Union assumes final responsibility for

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achieving the collective objectives that the Energy Union Strategy sets forth. It is decentralised in that it relies to a large extent on autonomous Member State policy and law-making towards the collective objectives. This Energy Union governance also has an essential external aspect, with the strategy emphasising external action by the Union for international cooperation based on international law under all its dimensions in order to supply secure and sustainable energy within Europe as well as worldwide. Regulation becomes the legal form of this governance. This is public good regulation, with intervention on the entire life cycle of energy, from generation through transmission and distribution to consumption. The strategy designs a programme of regulatory change for the entire European energy cycle through generation, transmission and distribution and consumption, for which it accesses and deploys the resources of international law, Union law, and the national law of the Member States. The regulatory intervention that this Energy Union Strategy entails thus centres on a legal regime that will have – and integrate – three normative tiers: international law, Union law and Member State law. The Energy Union Strategy sets itself up as the common reference for all three, guiding their co-evolution. This Energy Union signifies deep integration of the Member States. Shallow integration is about creating a common space without internal frontiers, while otherwise leaving the economic-political processes in each Member State largely untouched. By contrast, deep integration shapes a single and distinctly European economic model that transforms the status quo. That is the case for a Europe-wide low-carbon energy economy that will substitute the status quo by the end of the century. This transformation affects three points of the status quo, the compartmentalised national energy markets, the business model of centralised production and the dependence on carbon fuels, and replaces them with a Europe-wide market, decentralised production and non-carbon sources. In so doing, the European Union fulfils a social-State function by guaranteeing access to clean energy within this energy economy for all European citizens. The citizen is conceived of not just in its classic political role enshrined in Article 20 of the TFEU but also as the individual who self-determines essential life aspects, here the consumption and production of energy, and who has equal access to an essential public good, here secure, sustainable and affordable energy. Through this strategy for an Energy Union in international law, the European Union assumes responsibility for the political, legal and financial

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framework to provide secure, clean and affordable energy. It becomes accountable to its citizens for this framework through the institutionalised democratic processes under the Lisbon Treaty. It also assumes responsibility for bringing about rules-based energy governance worldwide, and for that, accountability lies ultimately with humanity itself. The integration of EU law with international law and national law becomes the legal means for the Union to discharge the responsibility it is assuming not just over energy but also over energy-affected global public goods such as the climate, the world economy and global security.

2 Rules-Based Energy Governance Worldwide Regulation of Energy in International Law

The Energy Union Strategy taps into and drives forward a structural change in international law. Energy used to be almost exclusively a matter of national concern subject to domestic law. It has now become a common interest of the international community of States and is being progressively internationalised. It is a widely accepted academic convention to designate a body of international rules as a subject matter or branch of international law if it has matured to the point where it has distinctive features that set it apart from others. Under this convention, an international law of energy has formed only recently. This is not the same, however, as the absence of a legal reality. This chapter analyses this current reality – the international law on energy. It argues that the worldwide governance and regulation of the global energy chain rest on international law that has been evolving on two strata, constitutional and regulatory. The constitutional stratum of contemporary international law is not grounded in the stability of a superior rule but contains the norms that have become universally accepted and orient the courses of conduct by States, as well as the law-making process for giving such norms a legal form which the contemporary practice of States has educed. The internationalisation of ‘energy’ instantiates this specific international constitutional stratum. The 2015 Sustainable Development Goals formulate a universally accepted norm for energy. A process of international lawmaking serves to legally implement the norm of universal access to sustainable energy. This process has fashioned two development pathways. The first leads to making international law designed specifically for the energy sector. The second is for the main sectoral orders that international law establishes to make provision for energy within their remits. The international laws on the global economy, climate change, the oceans and collective security have all started to produce energy-related rules within their remits. This international law-making on energy flows into an international legal regime that is complex as it emanates from international rules from both pathways. This regime sustains the international regulation of the global energy cycle. It is 36

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not self-contained but remains open to further law-making at regional and national levels, of which the European Energy Union is an example for the regional level. This chapter has four sections. The first examines the constitutional foundations for the internationalisation of energy. The second section assesses the development of energy-specific instruments, whereas the third turns to the non-energy-specific sectoral orders of international law. The fourth and final section provides a synoptic view on the international regulation of energy, which is sustained by the complex legal regime that these two strands of international law on energy form.

I Internationalising Energy It is a constitutional function to provide the political system with access to law. Contemporary international law provides this access. Despite various and increasing instances of non-consensual rule-making,1 international law remains decentralised, wedded to the consent of States as the source and font of legitimacy. But this decentralisation is now alleviated by a general process of international law-making through which international rules can be set for most States.2 This process has been shaped by contemporary State practice and remains grounded therein. It starts with a norm finding the acceptance of the international community of States.3 The community of States in this sense denotes their self-organisation for collective political decision-making.4 It will formulate the norm in a summit document or a resolution of the United Nations General Assembly, marking the outcome of universally attended policy-making meetings. The 1

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N. Krisch, ‘The Decay of Consent: International Law in an Age of Global Public Goods’, (2014) 108 AJIL 1. The contemporary process of international law-making is discussed, for instance, in A. Boyle and C. Chinkin, The Making of International Law (Oxford University Press, 2007). N. MacCormick, Institutions of Law (Oxford University Press, 2008) (essential characteristic of law-formation is to move from practice to norm to formalising and authorising a legal rule). For norm in the sense of a legal concept, see J. Crawford, ‘Responsibility for Breaches of Communitarian Norms: An Appraisal of Article 48 of the ILC Articles on Responsibility of States for Internationally Wrongful Acts’, in U. Fastenrath et al. (eds.), Liber amicorum Simma (Oxford University Press, 2011), 223. Further, G. Hernández, ‘A Reluctant Guardian: The International Court of Justice and the Concept of “International Community”’, (2012) 83 British Yearbook of International Law 13. It can become a legal subject if made the holder of international rights and obligation. But see E. Benvenisti, ‘Sovereigns as Trustees of Humanity: On the Accountability of States to Foreign Stakeholders’, 2013 (107) AJIL 295, at 300 (trusteeship concept does not presuppose the existence of a community of States).

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General Assembly has preponderance in legitimising such meetings given its remit to consider any international matter from the economic, environmental, social and security angles.5 The norm is accepted by States, represented by their heads of State or government at the meeting. Acceptance of the norm then initiates the process of giving it the form and authority of a rule of international law. This is a cascading process, progressing from universal to regional to bilateral to the national levels. At its endpoint, the norm will have materialised as a rule of customary international law binding all States and international organisations. The internationalisation of energy instantiates this teleological, normorientated process of international law-making. In what follows, the first part of this section demonstrates that a norm on sustainable energy has been formulated in the 2030 Agenda and Sustainable Development Goals. The second part then describes the structure of its legal implementation.

1 The Universal Norm of Sustainable Energy The universal norm that States reciprocally expect each other to act to provide all with access to sustainable energy has been formulated in three steps. The 1992 Rio Declaration on Environment and Development and Programme of Action6 first recognised sustainable development as the international master norm for integrated economic, social and environmental action, but neither the Declaration nor the accompanying Agenda 21 mentioned energy as a separate area or concern.7 The 2012 Outcome Document of the Rio+20 Conference8 confirmed and developed those documents. Its Part III, entitled ‘Green Economy in the Context of Sustainable Development and Poverty Eradication’, mentions energy and particularly the need for enhanced electricity production from renewables and energy efficiency.9 The document expects that the economic and 5 6

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Article 10 of the UN Charter. Rio Declaration, Principle 1, ‘Report of the United Nations Conference on Environment and Development, Rio de Janeiro, 3–14 June 1992’, vol. I, ‘Resolutions Adopted by the Conference’, resolution 1, annex I. Principle 1 reads: ‘Human Beings are at the centre of concerns for sustainable development.’ Agenda 21 deals with the ‘Safe and environmentally sound management of radioactive wastes’ in its section 2, ‘Conservation and Management of Resources for Development’, at [22.1–22.9]. A/RES/66/288, ‘The future we want’, 12 July 2012, contains agreement to launch a process to develop a set of Sustainable Development Goals (SDGs). A/RES/66/288, at [125–129], with the ‘Sustainable Energy for All’ (SE4All) Initiative of the UN Secretary General.

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environmental dimensions of energy can be integrated in the innovationdriven transition to a low-carbon economy. The third step was taken in 2015. In September of that year, meeting at the level of heads of State and government, the UN General Assembly adopted a resolution called the 2030 Agenda for Sustainable Development.10 This resolution extends the master-norm of sustainable development to energy and concretises it into the specific norms that energy should be secure, sustainable and affordable for all. The 2030 Agenda consists of a Declaration and the Sustainable Development Goals (SDGs). The Declaration defines the authority. It affirms that the commitment to sustainable development in its three dimensions, and the concretising SDGs are accepted by and applicable to all States.11 It thus addresses both developed and developing countries. This constitutes a conscious, marked shift away from the preceding Millennium Development Goals, which primarily addressed developing countries and developed countries in a secondary, supporting role only.12 This commitment is the result of an inclusive, consensus-building process.13 In its vision statement, the Declaration spells out the goal of universal 10

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A/RES/70/1. ‘Transforming Our World: The 2030 Agenda for Sustainable Development’, 25 September 2015, effective 1 January 2016. A/RES/70/1, at [5]. A/RES/55/2, ‘United Nations Millennium Declaration’, 18 September 2000. MDG 8 emphasises the role of developed countries in aiding developing countries, setting for them objectives and targets to achieve a ‘global partnership for development’ by supporting fair trade, debt relief, increasing aid and access to affordable essential medicines and encouraging technology transfer. The General Assembly Resolution ‘UN Decade for Sustainable Energy for All 2014–2024’ (A/RES/67/215, 21 December 2012) formulated the aim of universal energy access, improved energy efficiency and increased use of renewables and called for consideration of energy issues in elaborating the post-2015 development agenda. The subsequent resolution on ‘Reliable and Stable Transit of Energy and Its Role in Ensuring Sustainable Development and International Cooperation’, A/RES/67/263, 17 May 2013, notes that stable, efficient and reliable energy transportation is a key factor of sustainable development and, as such, is in the interest of the international community. The resolution welcomes building energy transportation systems and facilitating the trade of energy resources to promote sustainable development. The High-Level Panel on the Post-2015 Development Agenda convened by the Secretary General recommended including energy in the post-2015 development agenda and included an illustrative, dedicated global sustainable development goal relating to energy, Report, 30 May 2013, available at www.post2015hlp.org/wp-content/uploads/2013/05/UN-Report.pdf. The report of the General Assembly’s Open Working Group on Sustainable Development Goals then proposed a goal on ensuring access to affordable, reliable, sustainable and modern energy for all, accompanied by targets on energy access, renewable energy and energy efficiency, as well as two targets on related means of implementation, A/68/970, 12 August 2014.

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access to affordable, reliable and sustainable energy.14 The terms of this goal evidently overlap with those employed by the European Energy Union Strategy, although they need to be understood here in the context of universal normativity. Thus, reliable supply comprises security of supply from the perspectives of energy-importing States and energyproducing States. It also means the elementary access needed in SubSaharan Africa and the Asia-Pacific region, where about 500 million people still do not have access to electricity.15 The Declaration is concretised by the set of sixteen sectoral SDGs, each of which has several targets. The sectoral goals have the structure of a strategy for action within a time frame of fifteen years. The seventh goal deals with energy. Three targets express priority policies to achieve this goal. These are universal access to affordable, reliable and modern energy services (1), a substantially increased share of renewable energy in the global energy mix (2) and a doubling of the global rate of improvement in energy efficiency (3). Three horizontal means of implementation are indicated: international cooperation on these matters, investment in infrastructure (a) and improved infrastructure in developing countries (b). Decarbonisation amounts to a fourth energy target, through the reference in SDG 13 to international action on climate change control under the UN Framework Convention on Climate Change (UNFCCC). Implementation of these goals employs a range of instruments16 and concerns all areas.17 This strategy is underpinned by international governance of energy, to which States commit specifically.18 The High Level Political Forum on Sustainable Development under the UN Economic and Social Council is the UN mechanism for the follow-up and review of SDG 7 and its targets.19 SDG 13 reserves governance of energy from the perspective of climate change control to the UNFCCC.20 This energy governance is to be rules based. The 2030 Agenda affirms the principle of a common but differentiated responsibility of all States for law-making on sustainable 14 15

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A/RES/70/1, at [7]. G20 Energy Ministerial Meeting Beijing Communique, p. 2; and the ‘Enhancing Energy Access in Asia and the Pacific: Key Challenges and G20 Voluntary Collaboration Action Plan’. SDG 17. 17 A/RES/70/1, at [60–71]. 18 A/RES/70/1, at [60, 72]. A/RES/70/1, at [72–91]. The footnote to SDG 13 reads: ‘Acknowledging that the United Nations Framework Convention on Climate Change is the primary international, intergovernmental forum for negotiating the global response to climate change.’

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development that the Rio Declaration sets forth.21 Such law-making on energy is to take place on the international, regional and national levels.22 The 2030 Agenda and the seventh SDG are the endpoint of the consensus-building procedure on how energy should be ordered on the international plane. They reflect consensus that energy is a common interest of the community of States rather than being the national interest of each individual State, in the sense that it requires collective action and cannot be legally defended by any single State.23 That community interest in energy crystallises in a norm, from which deviating conduct will no longer be tolerated. The Declaration and the seventh goal make this normalising intention clear: sustainable energy for all is a norm for the conduct of States, to be followed both internationally across all areas and internally. Widespread practice of many States building up to the 2030 Agenda is turned by it into a norm for the future conduct of all States. The norm is institutionalised in the governance mechanism that the Agenda devises. Subsequent international action has been reaffirming this norm. The formulation by the General Assembly of the goal and strategy of universally sustainable energy is being supplemented by international and regional policy-making meetings.24 The Addis Ababa Action Agenda25 and the Third International Conference on Financing for Development provide concrete policies and actions to support implementation of the 2030 Agenda.26 Of the limited membership bodies, the G7 of the largest industrialised States and the extended G20 bring together the critical mass of States for governance of the global energy economy. Both have adopted commitments on energy-supplementing SDGs 7 and 13 of the 2030 Agenda. The G7 committed to the transition to a low-carbon energy 21 23

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A/RES/70/1, at [12]. 22 A/RES/70/1, at [62]. J. Brunnee, ‘International Environmental Law and Community Interests: Procedural Aspects’, in E. Benvenisti and G. Nolte (eds.), Community Obligations in International Law (2017, forthcoming), SSRN, available at https://ssrn.com/abstract=2784701 (for community interest); R. Wolfrum, ‘Enforcing Community Interests Through International Dispute Settlement: Reality or Utopia?’, in Liber Amicorum Simma, note 3, 113 (inherent community interests). Annex to the International Energy Charter, ‘Outcome Documents of Energy-Related Regional and International Conferences and Other Events as well as Initiatives Referred to on Page 2’, 21 May 2015. Available at www.who.int/global-coordination-mechanism/working-groups/ GCMWGonPrivateSector-AddisAbabaActionAgenda.docx.pdf. 16 July 2015, available at www.un.org/esa/ffd/ffd3/wp-content/uploads/sites/2/2015/07/ Addis-Ababa-Action-Agenda-Draft-Outcome-Document-7-July-2015.pdf; UN InterAgency Task Force on Financing for Development, Inaugural Report, 2016.

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economy in the ‘Hamburg Consensus’, paving the way for the Paris Agreement.27 The G20 has committed to phasing out fossil fuel subsidies, the promotion of renewables and improved energy efficiency and developed implementation plans.28 The 2016 Energy Ministerial reaffirms the commitment of the G20 States to ensure access to affordable, reliable, sustainable and modern energy for all. The Beijing communiqué29 recognises the key role of renewable energy in achieving the climate goals set at Paris in December 2015. For implementation, there is the G20 Voluntary Action Plan on Renewable Energy, the G20 toolkit of voluntary options on renewable energy deployment and cooperation on standards to accelerate smart grid deployment and interoperability.

2 Implementing Sustainable Energy in International Law The 2030 Agenda is not per se legally binding but is intended to be implemented in international law. This legal implementation does not lie with any central organs of general competence. It occurs through the formalisation and authorisation of international rules.30 An international rule is formalised in treaty or treaty alternatives such as resolutions of international organisations, decisions of meetings of State parties, expertise-based texts and others.31 The formalised rule then needs authorisation to become binding international law. The consent of States primarily confers such authority. Their collective consent, as expressed in the quorum of ratifications for entry into force of a treaty, brings the rule into existence. The individual consent of each State then makes the rule binding for that State. Secondarily, international bodies may authorise an international rule if their constituent instrument confers this competence. In addition, States authorise international rules indirectly by incorporating them into their national law. Turning an accepted norm into international law thus becomes a series of events of rule formalisation 27

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G7 Energy Ministerial Communique (Hamburg, 12 May 2015); the G7 Energy Ministerial Communique (Rome, 6 May 2014) focused on security of supply. See also G8 St Petersburg Summit, ‘Global Energy Security’ (2006). G20 Brisbane Summit Leaders Communique (16 November 2014), at [17, 18], ‘G20 Principles on Energy Cooperation on the International Architecture’. Available at https://ec.europa.eu/energy/sites/ener/files/documents/Beijing%20Comm unique.pdf. Further, J. d’Aspremont, ‘The Idea of “Rules” in the Sources of International Law’, (2013) 84 British Yearbook of International Law 103–30 (focusing on the sources of international law). Further, R. Wolfrum and V. Röben, Developments in Treaty-Making (Springer, 2009).

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and authorisation. Each event reaffirms as well as concretises the norm. Their accumulation eventually causes the rule to crystallise into customary international law. Such international rules fall on one of three functional tiers: substantive rules, rules on application and rules on further rulemaking. Multilateral law-making treaties occupy a central role in this process of international legislation. These treaties provide general rules for common interests and concerns of the international community of States.32 This function sets them apart from contract-making bilateral and multilateral treaties on commercial and other exchanges between States with small externalities. It shapes their key features. Law-making treaties bring together a critical mass of States while aspiring to universal membership. Although providing for operational rules, law-making treaties typically have a framework character, requiring further implementing agreements. This dynamic, convention-cum-protocol approach is prevalent in international environmental law, with the UN Framework Convention, Kyoto Protocol and Paris Agreement being a key example. It also operates for the Law of the Sea Convention and even the World Trade Organisation (WTO) Agreement, whose principles are implemented through treaties at a universal, regional or bilateral level. Finally, law-making treaties are institutionalised. The machinery for their implementation and progressive development through treaty and sub-treaty rule-making can be organised as an intergovernmental international organisation. Alternatively, it can be organised as a set of treaty bodies. Vesting the meeting of the Parties as the supreme treaty with far-reaching rulemaking powers then allows the Parties to progressively implement the treaty without formal amendment, a procedure that is becoming a predominant practice.33 Multilateral law-making treaties establish objective legal order for all issues of their subject matters. The subjective rights and obligations of Parties are means of effective application of that order. That objective 32

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J. Pauwelyn, Conflicts of Norms in Public International Law (Cambridge University Press, 2003) 52–89; J. Crawford (ed.), Brownlie’s Principles of International Law (8th edn, Oxford University Press, 2013). The term ‘common concern’ indicates a heightened interest, D. Shelton, ‘Common Concern of Humanity’, (2009) 39 Environmental Law and Policy 38–45. International Law Commission, ’Subsequent Agreements and Subsequent Practice in Relation to Interpretation of Treaties’, Conclusion 11, UN Doc A/71/10, chap. 6 (The legal effect of these decisions is to be determined on a case-by-case basis). Further, J. Brunnée, ‘COPing with Consent: Law-Making under Multilateral Environmental Agreements’, (2002) 15 Leiden J. Int’l L. 1–52.

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conception manifests itself in the approach of courts and tribunals to such treaties, which re-orients the interpretative canons that the Vienna Convention on the Law of Treaties34 sets forth for all treaties. This interpretive approach starts from the legislative programme of the treaty as a whole and the balance of interest it reflects, ascertained from its preamble.35 This programme then informs the interpretation of the operative part of the treaty so that individual provisions further the treaty programme.36 Such treaties are then interpreted in the light of international norms, including norms that emerge only after conclusion of the treaty.37 There is, also, the principle of a reciprocally harmonising interpretation with other treaties where they overlap.38 Finally, the treaty thus interpreted should be uniformly applied effectively in all circumstances by Parties, even towards non-Parties.39 The norm of global sustainable energy has set in motion such a process of international law-making in which multilateral law-making treaties have a critical role. This process has shaped two separate development 34

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22 May 1969, entered into force 27 January 1980, 115 UNTS 331 (VCLT), Articles 31 and 32. Article 31(2) of the VCLT treats the preamble of a treaty as a secondary means of contextual interpretation. Article 31(1) VCLT focuses on the wording of each provision. In Questions Relating to the Obligation to Prosecute or Extradite (Belgium v. Senegal), [2012] ICJ Reports 422, the International Court of Justice (ICJ) referred to the preamble of the Convention against Torture to qualify it as a mechanism for the effective prosecution of torture and then interpreted the treaty’s aut dedere aut iudicare provision in favour of a strict obligation to prosecute. In Question of the Delimitation of the Continental Shelf between Nicaragua and Colombia beyond 200 Nautical Miles from the Nicaraguan Coast (Nicaragua v. Colombia II), Preliminary Objections, 17 March 2016, the ICJ referred to the preamble of the Pact of Bogota to characterise it as the means for the peaceful settlement of all disputes and then interpreted the denunciation clause restrictively. In The South China Sea Arbitration (The Republic of Philippines v. The People’s Republic of China), PCA Case 2013-19, 12 July 2016, the Arbitral Tribunal referred to the preamble of the UN Convention on the Law of the Sea to find that the concept of the exclusive economic zone did away with all customary traditional rights of States. Responsibilities and Obligations of States with Respect to Activities in the Area, Advisory Opinion, [2011] ITLOS Reports 10 [hereinafter Deep Seabed Opinion], at [125–7] for UNCLOS; see Pulp Mills on the River Uruguay (Argentina v. Uruguay), [2010] ICJ Reports 14, at [204], for a bilateral treaty. Article 31(3)(c) of the VCLT makes external international rules a contextual means of interpretation of a treaty. Territorial and Maritime Dispute (Nicaragua v. Colombia I), [2012] ICJ Reports 624, at [104] (obligation of a Party to apply UNCLOS in relation to a non-Party); ITLOS, Request for an Advisory Opinion Submitted by the Sub-Regional Fisheries Commission (SFRC), Case 21, Advisory Opinion, 2 April 2015, at [127] (obligation for flag States Parties to apply coastal State law adopted pursuant to UNCLOS).

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pathways, one for energy-specific international law and the other for the general sectoral orders of international law to generate rules on energy that operate in a sectoral context. These will be discussed in turn.

II Developing Energy-Specific International Law The pathway of designing international law specifically for the energy sector has three vectors. The first is the multilateral law-making treaty for all energy issues. The Energy Charter Treaty (ECT) is the legal base of potentially global reach for intergovernmental regulation of energy (1). The Treaty establishing the Energy Community is the base for the supranational ordering of a regional energy market within the scope of application of the ECT (2). The second vector consists of bilateral contract-making treaties dealing with certain cross-border energy projects (3). And the third vector is for institutionalising the cooperation of States on energy (4). The sovereignty of States over their energy resources is a function of these vectors (5).

1 The Energy Charter Treaty: International Energy Regulation The ECT with its accompanying Protocol on Energy Efficiency and Related Environmental Aspects (PEEREA) is the only multilateral treaty of potentially universal scope that deals specifically with energy.40 It covers the energy value chain, from exploration to end use, and all energy products and energy-related equipment. While the historical origins of the ECT are in the aftermath of the Cold War, it constitutes the model for the international regulation of all energy issues.41 The preamble of the ECT states as its overall objective to be the legally binding base to implement the non-binding European Energy Charter.42 It is to provide the structural framework for energy governance.43 The 40

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17 December 1994, entered into force 16 April 1998, 2080 UNTS 95 [in this section referred to as the ECT]. Generally, J. Dore and R. de Bauw, The Energy Charter Treaty (Royal Institute of International Affairs, 1995); T. Wälde, The Energy Charter Treaty: An East-West Gateway for Investment and Trade (1996); C. Bamberger and T. Wälde, ‘The Energy Charter Treaty’, in Energy Law in Europe: National, EU and International Law and Institutions (Oxford University Press, 2001). In 1991, the then European Community, its Member States, the Russian Federation and the newly independent States of the former Soviet Union had signed the non-binding European Energy Charter that committed the signatories to adopting the ECT and PEEREA. Preamble, at [3]. 43 Preamble, at [4].

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principal objectives of that rules-based governance are growth from liberalised energy trade and investment and sustainable energy by promoting efficiency and environmental protection.44 More generally, the ECT is to advance the rule of law for the energy sector,45 to which the Parties had committed in the 1990 Charter of Paris for a New Europe.46 This programme balances the interest of resource-endowed Parties in accessing energy markets with that of other Parties in accessing those resources. This programme is reinforced by the operative part of the Treaty. Article 1 defines the scope of application of the ECT comprehensively, both ratione materiae – the energy sector – and ratione loci – the ECT area.47 Article 2 states as the purpose of the ECT to establish the legal framework to promote long-term energy cooperation between the Parties. The ECT is indeed designed to provide legal order for ‘all operations within the Energy Cycle’ (Article 19) throughout its area. The ECT programmes regulatory intervention on four pillars, liberalising energy commerce and transit (a), investment protection (b), cooperation on sustainable energy (c), and effective application and dispute settlement (d). To achieve this, the ECT deploys the legislative instruments of referencing world trade and international investment protection law, harmonising national energy laws and mandating further protocol making on its incompletely realised principles. It also provides for dispute settlement mechanisms. The 2015 International Energy Charter updates this ECT programme consistent with the universal norm of sustainable energy (e).

a Energy Trade and Transit Part II of the ECT aims at an open and competitive market for energy materials and products in the area.48 For that purpose, the ECT references WTO law. It extends the scope of application of the GATT disciplines (1) and deepens them for transit in network energy (2). The ECT goes beyond WTO law in referencing elements of the internal market law of the European Union (3). 44 46

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Preamble, at [5–8, 13–15]. 45 Preamble, at [6]. The non-binding Charter was signed 21 November 1990, available at www.osce.org/mc/ 39516?download=true. Further, P. Bobbitt, The Shield of Achilles (Anchor Books, 2003), 635–8. ‘Economic Activity in the Energy Sector’, Article 1(5), is defined as exploration, extraction, refining, production, storage, land transport, transmission, distribution, trade, marketing or the sale of energy materials and products. ‘Area’, Article 1(10) of the ECT, comprises both the land territory and the maritime zones of the Parties. Article 3.

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(1) Liberalising Trade in Energy Article 4 provides that the WTO Agreement applies to trade in energy goods and services between Parties who are also WTO members. As intended, the scope of the non-derogation clause has grown over time, as most Parties have become WTO members.49 The Treaty extends these liberalising rules to Parties that are not yet WTO members for the energy sector only. It incorporates the 1994 GATT non-discrimination disciplines on national treatment and quantitative restrictions for trade in energy where at least one party is not yet a member of the WTO.50 The ECT thus makes GATT disciplines for trade in goods applicable to energy products and materials and energy-related equipment. This includes gas, oil, coal, nuclear energy and electricity produced from renewable energy sources.51 That must also weigh on the question of whether energy and particularly electricity is a good or rather a service within the WTO proper. The ECT also deepens the WTO rules on market access through the binding of tariffs for imports and exports. For such tariffs, there is a general transparency obligation and a ‘best endeavours’ standstill clause52 which extends to energy materials and products and energy-related equipment. The ECT Conference may move items into a ‘basket’ where legally binding tariff commitments would apply from a later date by unanimous vote without a formal amendment procedure.53 No such legally binding tariff commitments have been made yet. 49

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The Russian Federation joined the WTO in 2012, available at www.wto.org/english/ news_e/news11_e/acc_rus_10nov11_e.htm. Article 29(2)(a). The Amendment to the Trade-Related Provisions of the ECT incorporates the changes resulting from the WTO Agreement. It entered into force 21 January 2010 and applies to trade with the signatories Afghanistan, Azerbaijan, Belarus, Bosnia and Herzegovina, Kazakhstan, Turkmenistan and Uzbekistan that have not yet acceded to the WTO. By contrast, the General Agreement on Trade in Services (GATS) is not incorporated, although services are protected as investments and technology, nor is the Agreement on Trade-Related Intellectual Property Rights (TRIPS). A commitment to provide effective protection of intellectual property rights regarding energy materials and products and related technologies following the highest international standards was declared. Annex EM I, following the Harmonised System of the World Customs Organisation. The Harmonised Commodity Description and Coding System is a multipurpose international product nomenclature system governed by the International Convention on the Harmonised Commodity Description and Coding System. It comprises about 5,000 commodity groups identified by a six-digit code to achieve uniform classification. The Parties that are WTO members undertake not to increase their tariffs beyond a ‘ceiling’ of their duty rates bound in the WTO, and Parties not yet WTO members undertake not to raise their import and export tariffs above the applied levels. Articles 1(4) and (4bis) with Annexes EM II and EQ II.

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Article 5 binds all Parties regarding performance measures for energy investments. Such performance measures are conditions imposed on persons for making an energy investment and for obtaining advantages, for example, subsidies once an investment has been made. Referencing the WTO Agreement on Trade-Related Investment Measures, Article 5 lists measures relating to investments in energy materials and products that are inconsistent with the disciplines of national treatment and quantitative restrictions. (2) Network Transit of Energy Article 7 of the ECT for all Parties deepens Article V of the 1994 General Agreement on Tariffs and Trade (GATT) on free transit, that is, the movement of goods between two States via the territory of a third State. Article 7 clarifies the applicability of free transit of energy goods through ‘Energy Transport Facilities’ comprising both pipelines and electricity grids.54 It also provides for transit dispute settlement, through an elaborate conciliation procedure.55 This conciliation procedure can be initiated by either Party to the dispute but not the Energy Charter Secretariat.56 Finally, Article 7 mandates the Energy Charter Conference to adopt an implementing protocol. Negotiations led to a draft protocol in 2010.57 The draft protocol breaks new ground, providing a ‘code of transit’ on secure transit through infrastructure, existing and new.58 It comprises the general obligation to prevent illegal taking of energy materials in transit; strengthens access by clarifying central terms such as available capacity, tariffs and metering; and provides for the transit State’s duty to allow construction or expansion of energy transport facilities. Although negotiations were discontinued in 2012, it remains a model. Negotiations are now underway for a Multilateral Framework Agreement on transit, which would be the first multilateral treaty on the matter. The Energy Charter Conference’s Legal Advisory Task Force has, furthermore, prepared non-legislative instruments to facilitate transit in the shape of model texts of transit agreements.59 54

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Article 7(10)(b). Further, D. Azaria, ‘Energy Transit under the Energy Charter Treaty and the General Agreement for Tariffs and Trade’, (2009) 27 Journal of Energy and Natural Resources Law 557–93. Article 7(5). 56 In their 2009 transit dispute, neither Russia nor Ukraine did so. Available at www.energycharter.org/fileadmin/DocumentsMedia/CC_251_ENG.pdf. A. Fatouros, ‘An International Legal Framework for Energy’, (2008) 332 Recueil des Cours 355, 400. Model Agreements for Cross-Border Pipelines, available at www.energycharter.org/ fileadmin/DocumentsMedia/Legal/ma2-en.pdf; Model Agreements for Cross-Border Electricity Projects, available at www.energycharter.org/fileadmin/DocumentsMedia/

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(3) Establishing a Competitive and Open Energy Market The ECT pursues, however, a wider objective of an open and effective energy market and seeks effectuation by referencing key elements of the internal market law of the European Union. However, the ECT rules as adopted are not directly operational. They provide skeletal minimum harmonisation and require further implementation in national law. They also are perfunctory. Modelled on the competition provision of the Treaty on the Functioning of the European Union (TFEU), Article 6(2) requires Parties to establish in their national laws rules on unilateral and concerted anticompetitive practices.60 These terms are not defined.61 Instead, the provision seeks to achieve harmonisation through technical assistance and cooperative enforcement.62 Modelled on the free movement of capital under the TFEU, Article 9 obligates Parties to make best endeavours to permit access to their capital markets. Finally, Article 8(2) requires Parties to eliminate existing and create no new obstacles to the transfer of technology in the fields of energy materials, products and related equipment and services.

b Energy Investment Secure supply of energy depends on legal certainty for cross-border investment in the exploration and exploitation of energy resources. Such investments are capital intensive, long term and subject to elaborate contracts under domestic law.63 The ECT establishes the international rules by which such investments can be made in the host State under favourable and stable conditions, enabling the movement of capital, services and goods. It references the benchmark of international investment law at the time to fashion one of the few multilateral investment protection regimes and the only one devoted specifically to energy investments (1). There has been extensive arbitral practice that exemplifies structural challenges. This practice merits close examination for whether it balances legal certainty for investment with space for regulatory intervention by Parties in the pursuit of economic and environmental objectives (2). It also exemplifies the challenge of ensuring uniform

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Legal/EMAs_en.pdf; Market and System Inter-Operability Agreement Guidelines for Cross-Border Electricity Projects, available at www.energycharter.org/fileadmin/ DocumentsMedia/Legal/GEMA_en.pdf. Article 101 of the TFEU. 61 ‘Understanding with Respect to Article 6 of the ECT’. Article 6(3)–(7) of the ECT. Case Concerning the Payment of Various Serbian Loans Issued in France (Serbian Loans), PCIJ Series A, No. 20 (1929).

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and effective protection of energy investment by a large and diverse set of Parties (3). (1) The ECT’s Investment Regime This regime of energy investment has three elements: definition of such investment, standards of promotion and protection and investor-State dispute settlement.64 (a)

Energy Investments and Investors

Article 1(6) references the usual characteristics of assets65 but requires that they be ‘associated’ with an economic activity in the energy sector. Investments thus can relate to upstream and downstream projects, involving fossil fuels as well as renewable energy resources. An investor is any natural or legal person with the nationality of another Party or permanently residing there.66 Shareholding in a company incorporated under the law of the host State is a protected investment.67 This protection for shareholders derogates from customary international law.68 (b)

Standards of Promotion and Protection

The ECT incorporates the standards of international investment law in Articles 10–16. During the negotiations, it was attempted to apply the principle of non-discrimination to the pre-establishment phase in order to place foreign investors on an equal footing with their domestic competitors in regard to requisite permissions and concessions in accessing the market.69 Yet the ECT as adopted merely establishes a best-efforts obligation to grant foreign investors non-discriminatory treatment in making an investment (Article 10(2)).70 Parties shall also endeavour not 64

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See E. Gallard and M. McNeil, ‘The Energy Charter Treaty’, in K. Yannaca-Small (ed.), Arbitration under International Investment Agreements (Oxford University Press, 2010), 37; T. Roe and M. Happold, Investment Disputes under the Energy Charter Treaty (Cambridge University Press, 2011); G. Coop and C. Ribeiro (eds.), Investment Protection and the Energy Charter Treaty (2008); K. Hober, ‘Investment Arbitration and the Energy Charter Treaty’, (2010) Journal of International Dispute Settlement 153. Investment is every kind of asset, such as a company, equity, contract-based claims, intellectual property and returns. Article 1(7). On the requirement of control, see ‘Understanding with Respect to Article 1(6) of the ECT’, annexed to the ECT; and State Enterprise Energorynok v. Moldova, SCC Arbitration V (2012/175), 29 January 2015. Article 1(6)(b); Article 13(3). Ahmadou Sadio Diallo (Republic of Guinea v. Democratic Republic of the Congo), Preliminary Objections, [2007] ICJ Reports 582, at [90]. Energy Charter Secretariat, The Energy Charter: A Reader’s Guide (2002). This would have been in line with US and Canadian BIT practice. Chairman’s Statement at Adoption Session on 17 December 1994 relating to Article 10(1), reproduced in The International Energy Charter: Consolidated Energy Charter Treaty, 55.

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to introduce new restrictions for foreign investors (standstill) and to progressively reduce remaining restrictions (rollback) (Article 10(5)). The Secretariat and the Investment Group of the Energy Charter Conference implement the provision with non-legislative action.71 However, Article 10(4) mandates developing a protocol to make nondiscrimination applicable to the pre-establishment phase. The negotiations on the ‘Supplementary Treaty’ began in 1995 but have not yet concluded.72 The draft of the treaty that has been produced contains an obligation to grant foreign investors national treatment and mostfavoured-nation treatment coupled with the right of each Party to opt out (‘top-down approach’).73 It would also apply to privatisations and tender procedures.74 Article 10(1), (7) and Article 13 establish strict standards for the protection of an investment post-establishment. Article 10(1) contains an elaborate definition of the protection standards accepted at the time of its adoption. It protects against discrimination based on the nationality of the investor regarding all aspects of an investment. Parties also must accord national treatment or most-favoured-nation treatment to nationals of other Parties (Article 10(7)). These standards ensure relative legal stability in the host State, which is unlikely to take measures detrimental to its own investors. By contrast, minimum standards of protection apply absolutely, regardless of how the host State might treat its own nationals. Such non-contingent standards are the fair and equitable treatment (FET),75 the most constant protection and security76 and the so-called umbrella clause.77 The FET standard guarantees that the

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Article 10 uses the terms ‘Making of an Investment’ and ‘Investment’ to denote, respectively, the pre-establishment and the establishment phases. Article 10(3) defines this as national treatment or most-favoured-nation treatment, whichever is the most favourable. The Energy Charter Secretariat has compiled a ‘Blue Book’ with exceptions to the principle of non-discrimination that Parties and signatories have reported. The exceptions are regularly reviewed in the ECT Investment Group, either through individual State examinations or horizontal reviews concerning existing authorisation procedures, screening mechanisms, restrictions on land ownership, etc. Energy Charter Conference, ‘Conclusions of the Review Conducted under Article 34(7) of the ECT,’ adopted at its fifteenth meeting, 14 December 2004. Available at www.energycharter.org/fileadmin/DocumentsMedia/Legal/ECST_Text_en.pdf. Per ‘Understanding No. 10’, Article 10(4) of the ECT includes privatisation and demonopolisation. Article 10, second sentence. 76 Article 10, third sentence. Article 10, fifth sentence.

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regulatory environment will be altered only for good cause and in a notdisproportionate and non-discriminatory manner, as well as the legitimate expectations grounded in specific representation that investments will not be frustrated. The umbrella clause internationalises investmentrelated obligations of the host State, whether contractual or statutory. The breach of such obligation can become a breach of the ECT.78 Article 10(11) also makes the performance standard of Article 5 in regard to host State performance measures actionable in investor-State-disputes. An absolute standard also applies to expropriations. Direct expropriation occurs where legal title is withdrawn. Article 13 requires such expropriations to meet the usual conditions to be lawful. The expropriation, that is, the formal transfer of title from the investor to the host State, needs to be in the public interest, non-discriminatory, carried out under due process of law and accompanied by payment of prompt, adequate and effective compensation. In an indirect expropriation, title remains with the investor, yet measures such as the investor losing management or control have the effect of substantially depriving the owner of the investment. A direct or indirect expropriation that does not meet these requirements is an internationally unlawful act, for which the host State is internationally responsible. Article 24(2)(b), located in Part IV of the ECT, stipulates certain general exceptions to the investment protection obligation under Article 10. Parties may take measures in emergency supply shortage situations or to benefit investors who are indigenous or socially or economically disadvantaged. Parties may also take any measure considered necessary ‘for the protection of essential security interests’ or ‘for the maintenance of public order’ (Article 24(3)). In times of civil unrest, a Party could thus seek to avoid its investment protection obligations under Article 10, though not expropriations under Article 13.79 By contrast, the general exception to protect human, animal or plant life or health does not apply to investments. This may be appropriate, because it is arguable that GATT Article XX, which Article 24 of the ECT partly incorporates, applies to traded goods and not investment 78

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Parties can opt out of unconditionally consenting to arbitrate such disputes, Article 26(3)(c) of the ECT and Annex IA, with reciprocal effect. Four States have made such a declaration. This security and public order exception should be interpreted as not applying to economic crises, nor does the ECT incorporate the customary international law doctrine of necessity. Further, A. Sykes, ‘Economic “Necessity” in International Law’, (2015) 109 AJIL 296.

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flows. But neither does Article 24 of the ECT create a custom-made exception provision. It then becomes the institutional responsibility of arbitral tribunals to recognise the legitimate objectives that may justify exceptions to the strict protection of energy investments. (c)

Investor-State Dispute Settlement

With its reference to the Charter of Paris, the preamble of the ECT stipulates the objective of judicial protection.80 Accordingly, Article 26(1) in Part V ensures that any investor-State dispute arising under Part III can be submitted to compulsory third-party settlement. Article 26(2) gives the investor the choice between three dispute-settlement mechanisms: The first is adjudication by host State courts. Parties are obliged to provide for effective remedies in their national law (Article 10(12)). The provision puts beyond doubt that Part IIII creates individual rights that are judicially enforceable. The alternatives are a previously agreed disputeresolution procedure or arbitration. In practice, disputes have been submitted to arbitration, for the usual advantages of arbitration in terms of time effectiveness and the internationalised procedure.81 The dispute can be submitted to arbitration three months from the date on which a Party requested an amicable settlement. The investor does not have to exhaust local remedies in the host State. The Parties consent unconditionally to the arbitration of investment disputes (Article 26(3)(a)). This treatybased consent is subject to two limited optional exceptions and cannot be abrogated by contract. Parties may only except their unconditional host State consent where the investor has previously instituted either adjudication in a national court or arbitration under another agreement.82 This fork-in-the-road provision, serving lis pendens, is subject to the so-called triple-identity test of several pending disputes.83 80

81

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The Charter reads, in pertinent part, ‘We will ensure that everyone will enjoy recourse to effective remedies, national or international, against any violation of his rights.’ Around one hundred arbitral proceedings have been instituted and thirty decided. A list of cases is maintained by the Secretariat, available at www.energycharter.org/disputesettlement/all-investment-dispute-settlement-cases/, and so does UNCTAD, available at http://investmentpolicyhub.unctad.org. Article 26(3)(b)(i) with Annex ID. This other agreement must also cover disputes about investments in energy and offer equivalent substantive and procedural protection to that of the ECT. Under Article 26(3)(b)(ii), each Party is to provide a written Statement. The Statement of the European Union contains a broad overview of its constitutional and judicial system. It also makes mention of a procedure to determine the proper respondent. Yukos Universal Limited v. Russian Federation, PCA Case AA-227, Interim Award on Jurisdiction and Admissibility, 30 November 2009, at [600]. Res iudicata applies to

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Consent to arbitrate can also be excepted for the umbrella clause.84 This treaty-based ex ante consent of the host State is to be matched by the consent of the investor as the other half of the ‘indispensable requirement’ for investor-State arbitration. This consent is expressed in instituting proceedings (Article 26(5)). The arbitral tribunal will be bound by such non-contestation of its jurisdiction under its procedural rules. Article 26(4) gives the investor the further choice among three external arbitral mechanisms: the International Centre of Investment Disputes (ICSID), a sole arbitrator or ad hoc arbitration under the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules or the Arbitration Institute of the Stockholm Chamber of Commerce (SCC).85 Article 26(7) constitutes the agreement of the Parties to treat juridical persons incorporated under the law of the host State but economically under the control of an investor of another party as foreign nationals.86 Procedure and powers of a tribunal are provided by the ICSID Convention and Rules, the Additional Facility Rules, the SCC arbitration rules, or the UNCITRAL rules, although Article 26(8) assumes that tribunals have the power to award non-monetary relief, including ordering the restitution of property, as well as monetary relief. This substantive and procedural protection of energy investments is in line with the benchmark that international investment law establishes. However, while this law mostly rests on bilateral treaties, the ECT is a multilateral law-making treaty applicable to investments and related disputes in developing, developed and transition economy countries.87 Such ECT arbitration partakes in the discursive interpretation of protection standards by arbitral tribunals across international investment law. However, the primary responsibility of the tribunals lies with the ECT. Within a modifiable international jurisprudence constante, the tribunals

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arbitral awards and domestic judgements; see Waste Management Inc v. Mexico (II), Decision on Preliminary Objections, 26 June 2002, at [39]. Article 26(3)(c) of the ECT. The ECT incorporates the admissibility criteria of each external mechanism. Thus ICSID requires that both the home and the host States are Parties to the Convention, and the Additional Facility still requires that one of these States is a Party to the Convention. Generalising Article 25(2)(b) of the ICSID Convention. According to the UNCTAD Investment Dispute Settlement Navigator (updated as of 1 January 2017), the ECT continues to be the most frequently invoked investment agreement with ten cases. According to the 2016 UNCTAD World Investment Report, at 105, the majority of intra-EU cases – nineteen of twenty-six – were brought pursuant to the ECT and the rest on the basis of intra-EU BITs. The overall number of intra-EU investment arbitrations was 130 by the end of 2015, approximately 19 per cent of all known cases globally.

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have effectuated the ECT programme of establishing legal certainty for energy investments subject to proportionate regulation for ECT-defined priorities (2). They have also secured the effective and uniform application of Part III (3). (2) Striking the Balance between Legal Certainty and Public-Interest Regulation The regulatory programme of the ECT demands the striking of a balance between legal certainty and the space for dynamic regulation for legitimate purposes. Developing the requisite jurisprudence is the responsibility of all arbitral tribunals. Various models are on offer to assist tribunals in discharging this responsibility. An objective model takes the FET standard to guarantee the rule of law in the host State.88 The subjective alternative, which will be developed here, starts from the premise that the ECT protects private economic activity through the standards of Articles 10 and 13. The rationale of that protection is akin to the free movement of capital under the TFEU. It is also akin to protection of the human right to property under the European Convention on Human Rights (ECHR). The conceptualisation of the ECT standards can draw on doctrines accepted there. The European Court of Human Rights draws the line between the rights of the individual and the legitimate regulation by States by distinguishing between expropriations, general rules and their application and all other inferences.89 The interference must pursue a legitimate objective in a not disproportionate manner and be objective and lawful. Thus, targeted actions that remove title or impair the exercise of management rights for the formal or factual transfer of assets on the State are the remit of Article 13. The alternative is that the interference results from changes to the regulatory framework for the investment. This is the remit in particular of the FET standard. The application of that standard then needs to consider that the ECT programme provides energy-specific grounds justifying such changes. The degree of deference accorded to the respondent reflects the social function of energy and that calculating damages in instances involving flaws in regulatory action (including of the legislature) is one of the unique features of investorState arbitration. The regulatory action then must be manifestly disproportionate to entail not just their illegality but also to require full 88

89

See S. Schill, The Multilateralisation of International Investment Law (Cambridge University Press, 2009), 78. Sporrong and Lönnroth v. Sweden, A52(1982) 5 EHHR 35, at [61].

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compensation.90 This corresponds to a reasonableness type of review. Where such is not the case, tribunals may still issue declaratory awards but not include damages. Such awards must be carried out as well.91 All other interferences come under the Article 10(1) standards of nondiscrimination, due process and the FET standard. The wrongful application of a contract or contract-assumed statute by the host State falls under the umbrella clause. The practice of the arbitral tribunals conforms to this three-legged framework that contextualises Articles 10(1) and 13 within the regulatory programme of the ECT. The cases of Kardassoupolos v. Georgia and Yukos v. Russia then belong in the first group of targeted interferences, leading to expropriations. In Kardassopoulos, the Tribunal concluded that the circumstances presented a direct expropriation, the Georgian measure in question having deprived a company in which the investor had interests of its rights in an oil pipeline.92 In Yukos, the Tribunal concluded that there was a case of indirect expropriation.93 Shareholders in the company Yukos, incorporated under Russian law, from several other States Parties complained of the treatment of that company. The authorities had brought various charges of tax evasion against it, whereas, on appeal, the Supreme Court of the Russian Federation ordered the assets of the company confiscated. The Tribunal considered that treatment a targeted, arbitrary interference with the company, constituting an indirect expropriation of the investment under Article 13. The reasoning and the finding of the Tribunal in this case place it on the same plane with the human right to property. The European Court of Human Rights indeed considered the application brought this time by Yukos itself against Russia on essentially the same facts.94 The Court first stated that the very fact that Yukos no longer existed as a legal person did not remove the conventional protection. It then recalled that the right to property under Additional Protocol I to the ECHR guards against three types of interferences: expropriation, certain general and abstract interferences and application. The Court found that Yukos had been subjected to disproportionate expropriation. It separately awarded compensation.95 90 91 92

93 94

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For EU law, Brasserie du Pêcheur SA (Case C-46/93), [1996] ECR I-1029. Article 26(8) of the ECT. Ioannis Kardassopoulos and Ron Fuchs v. The Republic of Georgia, ICSID Cases ARB/05/ 18 and ARB/07/15, 3 March 2010, at [387]. Yukos Universal Ltd. v. Russian Federation, PCA Case AA-227, 18 July 2014. ECHR, Case of OAO Neftyanaya Kompaniya Yukos v. Russia, Application No. 149021/04, 20 September 2011. 31 July 2014.

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The human right to property becomes a complementary means of protection against the State of nationality, not available under international investment law. In a second group of cases, Tribunals have found against the host State under Article 10(1) if concrete administrative, judicial or political action seriously interfered with the investment. These cases concerned outward investment of EU investors in European and Asian States transiting to market economies. In Petrobart v. The Kyrgyz Republic, one of the earliest cases, the Tribunal subsumed all standards under the purview of fair and equitable treatment.96 The Tribunal found the respondent government having transferred all assets of the State company on the other side of Petrobart’s contract to another company and its intervention in judicial proceedings to be breaches of the FET standard. Most tribunals, however, have defined and applied the FET and the several other standards of Article 10(1) separately.97 The Atmo Tribunal did not find any interference with the FET or the other standards through disorderly bankruptcy proceedings.98 The Tribunal in Stati v. Kazakhstan concluded that a string of measures of coordinated harassment by various institutions of the respondent State violated the FET standard.99 In Al Bahloul v. Tajikistan, the Tribunal found the respondent’s failure to issue exploration licences against the investment contract to violate the umbrella clause.100 The breach by the respondent of its Foreign Investment Law constituted a breach of the umbrella clause in Khan Resources v. Mongolia.101 In the third group of cases, the key issue has been the expectation that investors had at the time of making the investment and subsequent regulatory changes by the host State, either autonomously or pursuant to EU law. The cases concern host States that were or were becoming Members of the European Union.102 The Tribunals have focused on 96 97 98 99

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SCC Case 126/2003, 29 March 2005. C. Schreuer, ‘Fair and Equitable Treatment’, in Investment Protection, note 64, 63–115. Amto Ltd. v. Ukraine, SCC Arbitration 080/2005, 26 March 2008, at [10]. Anatolie Stati and Others v. The Republic of Kazakhstan, SCC Arbitration V (116/2010), 19 December 2013, at [944] Mohammad Ammar Al-Bahloul v. Republic of Tajikistan, SCC Case V (064/2008), 8 June 2010. Khan Resources Inc. Khan Resources B.V. CAUC Holding Company Ltd. v. The Government of Mongolia MonAtom LLC, PCA Case 2011-09, 2 March 2015. The ECT applies to inter-se relations of the member States as it contains no so-called disconnection clause. See C. Tietje, ‘The Applicability of the ECT in ICSID Arbitation’, (2008) 78 Beiträge zum internationalen Wirtschaftsrecht 1, at 9–11.

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whether the interference with any such expectation is supported by the ground underlying the regulatory changes, including the relevant EU law, and which is implemented in proportionate manner. In Nykomb v. Latvia, the Tribunal considered the regulatory measures at issue (amending a tariff incentive) lawful, although it did find their application discriminatory when compared to national investors, infringing Article 10(1).103 In Plama v. Bulgaria, the Tribunal stated that the host State maintains its legitimate right to regulate. It found that the respondent had not violated the FET standard by amending its environmental law for the clean-up of past damages caused by oil refineries in line with a World Bank recommendation, thus meeting the objective of Article 10 to create stable and favourable investment conditions.104 Tribunals have also assessed, under the FET standard, regulatory action taken by host States to comply with EU state aid law in the context of their accession to the European Union. The arbitrations in AES Summit v. Hungary, Electrabel v. Hungary, and EDF v. Hungary arose in the context of the EU accession of Hungary.105 Pre-accession, Hungary had guaranteed a certain purchase price for the energy it generated through its Hungarian subsidiary. Upon accession, the European Commission qualified this guarantee as state aid and required Hungary to withdraw it. In AES Il, with the motivating effect for the Hungarian measures remaining unclear, the Tribunal held that Hungary had good grounds to withdraw the price guarantee to address luxury profits and had done so in a proportionate manner. In Electrabel, by contrast, it was undisputed that the respondent’s measure implemented the European Commission’s state aid decision. The Tribunal created a doctrine of reverse harmonious interpretation between the ECT and EU law. It found that, in the absence of specific representations, protecting legitimate expectations under the FET standard involves a balancing between the investor’s rights and the public-policy objective of the host State. It then internalised the relevant EU law into this standard. This involved a general determination of compatibility. The Tribunal determined that the objectives of the 103 104

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16 December 2003. Plama Consortium Limited v. Republic of Bulgaria, ICSID Case ARB/03/24, 27 August 2008, at [218]. AES Summit Generation Ltd. v. Hungary (II), ICSID Case ARB 07/22, 23 September 2010. Electrabel S.A. v. Republic of Hungary, ICSID Case ARB/07/19, 25 November 2015; AES I was settled (not public); the award in EDF v. Hungary (December 2014) is not public. Also not public is a range of settled cases involving the application of EU law on energy security by Poland.

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ECT and EU law were similar about anti-competitive conduct, including unlawful State aid. It followed that the investor could not have acquired any legitimate expectations that the ECT would shield its investments from the effects of EU law. Starting in the 2010s, a third line of cases has arisen because of the changes to energy policy in several EU Member States. Some have made changes to their hitherto generous financial support for renewable energy production in the aftermath of the 2008 financial crisis as a matter of their autonomous decision. These cases are mainly still pending.106 Vattenfall II, also still pending, concerns the termination of nuclear power.107 The case presents a litmus test for not disproportionate and non-discriminatory regulation of the energy mix in cross-border energy investments. The applicant there, a Swedish company, owns two nuclear reactors in Germany. After an earlier reaffirmation of its commitment to nuclear energy, post-Fukushima the German nuclear energy statute was amended to phase out nuclear energy by 2021. There is a schedule for all reactors to stop producing that terminates the authorisations, beginning with the oldest owned by Vattenfall. This is also a test for consistent adjudication across levels, for the applicant had also lodged an individual complaint with the Federal Constitutional Court of Germany regarding the constitutional right to property. That Court ruled that the right to property of Vattenfall comprised the authorisations, that the amended law was a general rule and not an expropriation and that it was proportionate, provided that the law was amended to account for some unequal treatment of the plaintiff compared to other producers.108 The Constitutional Court also stated that the right to property protects trust in the stability of the law and that some compensation was due here for frustrated investments. Uniform and Effective Application Arbitral Tribunals have ensured the effective and uniform application of the investment protection standards, ratione personae, temporis and materiae, by interpreting the exceptions narrowly. This is the case for the ‘denial of benefits’ clause, Article 17(2), that excepts companies incorporated in the law of a Party but controlled by

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107

108

See UNCTAD repertory, available at http://investmentpolicyhub.unctad.org/; Charanne and Construction Investments v. Spain, SCC Case 062/2012, was decided January 2016 in favour of the State Vattenfall AB and Others v. Federal Republic of Germany, ICSID Case ARB/12/12; the Tribunal rejected the respondent’s preliminary objections, 4 July 2013. Case 1 BvR 2821/11, 6 December 2016.

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nationals of a third State and which have no ‘substantial business activities’ within that Party. The provision has been interpreted to not operate automatically but to be a power that the host State must exercise with prospective effect.109 The burden of proving that the conditions of that power are met lies with the host State.110 However, the investment must have been made bona fide, for otherwise the tribunal will lack jurisdiction.111 Arbitral Tribunals have also secured the uniform provisional application of the ECT’s protection standards by signatories.112 The Tribunal in Kardassopoulos v. Georgia found that the investment protection standards apply in full from the time the ECT became provisionally applicable in both home and host State, there in Georgia and Greece.113 Petrobart v. Kyrgistan extended the provisional application in time even beyond ratification.114 The issue arose there in regard to Gibraltar, which was covered by the signature of ECT by the United Kingdom but had been left out of the subsequent ratification. The Tribunal concluded that the signature-induced provisional application for Gibraltar continued. Stati v. Kazakhstan implies that provisional application will continue for an unlimited period unless expressly terminated.115 Article 45(1) in fine of the ECT has a built-in domestic exception clause which limits the provisional application of the ECT to the extent that it is inconsistent with the ‘constitution, laws or regulations’ of a Party. This limitation clause has been read narrowly. In Kardassopoulos, the arbitral Tribunal stated that the burden of arguing the exception was with the respondent, finding that Georgia had not demonstrated that the provisional application of treaties was incompatible with its relevant

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110 111

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Plama Consortium Ltd. v. Bulgaria, ICSID Case ARB/03/24; decision on Jurisdiction, 8 February 2005, at [179]. Amto, note 98, at [63]. Alapli Elektrik B.V. v. Republic of Turkey, ICSID Case ARB/08/13, 16 July 2012 (investment after the root cause of the dispute was known). Article 45(1). Signatories may opt out, para 2. Generally, ILC, Second Report of the Special Rapporteur, ‘Substantive Analysis of the Legal Effects of the Provisional Application of Treaties’, A/CN.4/675 (2014). Ioannis Kardassopoulos v. Georgia, ICISD Case ARB/05/18, Decision on Jurisdiction, 6 July 2007, at [223]. Petrobart Ltd. v. The Kyrgyz Republic, SCC Arbitration No. 126/2003, 29 March 2005, section VIII.2. Anatolie Stati and Others v. The Republic of Kazakhstan, SCC Arbitration No. 116/2010, 19 December 2013, at [1095] (provisional application of the ECT to Gibraltar based on the TFEU).

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laws.116 In the same vein, the Yukos Tribunal concluded that the provisional application of the ECT as a whole would have to be contrary to national law.117 The national law of most Parties allows for provisional application, though. This ‘all-or-nothing’ view has been contested, though, and the ‘piecemeal’ view of each ECT provision preferred.118 It accords, however, with the purpose of the ECT to provide effective protection for investments. It also chimes with the trend of narrowly interpreting what is in effect an exception to international compulsory dispute settlement.119 Withdrawal of the signature terminates the provisional application of the ECT (Article 45(3)(a)). But litera b of the same provision then extends the provisional application of the investment protection regime of the ECT for twenty years for investments made before such withdrawal. Most of the original signatories have now ratified the ECT, although the Russian Federation withdrew its signature in 2009.120 Yukos confirms that that State continues to be bound in full by Parts III and V of the ECT until 2029.121

c Sustainable Energy The third pillar of the ECT programme is energy efficiency and environmental protection from energy risks. The modality is to provide a programme of harmonising action at the national level supported by intergovernmental cooperation. Article 19 states principles of environmental protection. The Protocol on Energy Efficiency does so for energy efficiency. Parties shall formulate policy aims and strategies for energy efficiency (Article 5), adopt the relevant policies and programmes (Article 3.2) and 116 117

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Kardassopoulos, note 113, at [229–46]. Yukos, Interim Award, note 83, at [106]. Further, A. Niebruegge, ‘Provisional Application of the Energy Charter Treaty: The Yukos Arbitration and the Future Place of Provisional Application in International Law’, (2007) 8 Chicago Journal of International Law 355. On 22 April 2016, the District Court in The Hague set aside under the New York Convention the Yukos jurisdictional merits award, available at http://uitspra ken.rechtspraak.nl/inziendocument?id=ECLI:NL:RBDHA:2016:4230. Adopting the ‘piecemeal’ approach to Article 45, the court found the provisional application of Article 26 ECT inconsistent with Russian law. An appeal is pending before the Court of Appeal in The Hague. South China Sea Arbitration, note 36. T. Gazzini, ‘Energy Charter Treaty: Achievements, Challenges and Perspectives’, in T. Gazzini and E. De Brabandere (eds.), Foreign Investment in the Energy Sector (Brill, 2014), chap. 6. The ECT principles are also incorporated in Article 46 of the Partnership and Cooperation Agreement between the Russian Federation and the European Union on energy cooperation. Yukos, Jurisdiction, note 83, at [339].

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create the legislative and institutional bases (Article 8.3). This requires cooperation through the modalities of best-practice exchange and financial support.

d Dispute Settlement and Effective Application The fourth pillar of the ECT is third-party dispute settlement and effective application. The ECT confirms that the general bifurcation in international economic law investment protection is subject to Investor-State dispute settlement (Article 26), whereas that trade is subject to StateState dispute settlement. Part V institutionalises the principle of judicial and quasi-judicial dispute settlement for the substantive law of the ECT further. State-State arbitration is the general mechanism (Article 27(2)). Specific mechanisms are the trade dispute-settlement mechanism where one party is not a WTO member (Article 29(9) and Annex D). The StateState dispute settlement mechanism of the WTO applies to trade disputes between WTO members. By contrast, compulsory arbitration pursuant to Article 27(2) is not available for other parts of the ECT.122 There are only non-binding mechanisms for transit (Article 7(7) – conciliation) and environmental protection (Article 19(2) – review by the Conference), as well as the coordinating administrative procedure for competition law (Article 6(5)), although compulsory conciliation can resolve disputes effectively in a quasi-judicial manner.123 Part IV seeks to ensure effective compliance. Article 22 addresses compliance by enterprises owned by or privileged by a Party, which play a critical role in the energy sector of some Parties. The ECT does not require their privatisation, but Article 22 places the indirect obligation on Parties to ensure that such enterprises do not discriminate against foreign energy investments. This obligation of continuous conduct requires Parties to exercise due diligence regarding the prevailing circumstances. In addition, the conduct of enterprises that exercise public authority or that a Party effectively controls is directly attributable to that Party.124 The purpose of Article 23 lies in ensuring effective compliance throughout the organisational structure of the Parties. Measures taken by 122 123

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Article 28; Article 6(7) (competition); Article 19(2) (environment). See Conciliation between the Democratic Republic of Timor-Leste and the Commonwealth of Australia, Decision on Competence, 19 September 2016. ILC, Articles on Responsibility of States for Internationally Wrongful Acts [Articles on State Responsibility], Yearbook 2001 II/2, 26, Article 8. See Amto, note 98, at [10] (regarding Ukrainian Energoatom); Yukos, merits, note 93 (conduct of Gazprom was State controlled)

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sub-State entities are attributable to the Party,125 but each is also placed under the indirect obligation and must also take measures to ensure that sub-State entities comply with the ECT.126 Articles 22 and 23 effectuate the primary responsibility of Parties to carry the ECT out. The customary law of secondary State responsibility for internationally wrongful acts sets forth the legal consequences arising from a violation of its ECT obligations by a Party. It falls under the dispute-settlement mechanism of the ECT.

e The 2015 International Energy Charter for Governing the Global Energy Market The Energy Charter Conference (ECC) is an international organisation with legal personality whose members comprises Parties and signatories to the ECT with full voting rights, and other States and international organisations have observer status. It is the machinery for implementing the ECT. In May 2015, the ECC adopted the International Energy Charter (IEC) as successor to the 1991 European Energy Charter. While non-binding, it is the agreed interpretation of the programme of the ECT by its Parties within the meaning of Article 31(3)(a) of the 1969 Vienna Convention on the law of Treaties (VCLT). This interpretation turns the ECT into a universal vehicle of rules-based governance of interconnected energy markets.127 The adoption of the International Energy Charter falls within the power of the ECC. Its organisation, functions and powers are similar to the meeting of Parties of other multilateral law-making treaties. It is the supreme decision-making body, and its mandate entails organising the cooperation of Parties and progressively developing the ECT by implementing treaties and other normative instruments.128 The ECT in conjunction with the interpretation given to it through the IEC stresses even further that it aspires to eventually gain universal 125

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Article 7 of the ‘Articles on State Responsibility’ preclude a party from invoking that any of its organs acted ultra vires of its powers; Kardassopoulos v. Georgia, ICSID Case ARB/ 05/18; Decision on Jurisdiction, 6 July 2007, at [190] (respondent precluded from avoiding the consequences of a concession granted in alleged excess of power by a State-owned enterprise). The indirect obligation is separately amenable to investment arbitration; Article 23(2). The 2009 G7 Energy Ministerial tasked the Energy Charter Secretariat and the international financial institutions with preparing a strategy for the development of energy networks for the integration of energy markets in Africa. The legal effects of its acts need to be assessed on a case-by-case basis. Article 42 of the ECT reserves changes to the obligations of Parties to formal amendments.

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application. The circle of Parties and signatories has expanded to the continents of Europe, North America, Asia, Africa and Australia, attracting a critical mass of energy producers, consumers and transit States. At present, forty-nine States,129 the European Union and Euratom have acceded to it.130 Five States have signed but not yet ratified the ECT.131 However, signature already carries with it the obligation to provisionally apply it in full. Further States have observer status in the ECC, indicating their interest in future membership.132 In relation to the subject matter of the ECT, the IEC now absorbs into the ECT the universal norm of sustainable energy after 2015.133 It affirms the connection between that norm and the ECT’s regulatory principles. Deeper trade is a means for internationally legally secure energy supply. The free movement that the IEC also endorses states the intended removal of all obstacles to such cross-border trade. The emphasis on renewables and energy efficiency supports the sustainability objective. The strategy that the IEC designs comprises objectives, dimensions of implementation and concrete actions. Title I states the objective of sustainable energy, with improving energy security and maximising the efficiency of production, conversion, distribution and use of energy, and the development of an energy market based on the principles of nondiscrimination and market-oriented price formation. Title II on implementation identifies intergovernmental cooperation as the means of achieving these objectives. It is to deepen the effectiveness of the three ECT pillars of liberalised trade and transit, investment and energy efficiency and environmental protection. Title III on specific agreements details concrete cooperation on the life cycle of all energy sources and forms, including nuclear, fossil and 129 130

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The Republic of Yemen acceded in 2016. Article 1(3) includes as Contracting Party any ‘Regional Economic Integration Organisation which has consented to be bound by this Treaty’. The ECT was concluded by the then European Community and Euratom, Council and Commission Decision of 23 September 1997 on the conclusion, by the European Communities, of the Energy Charter Treaty and the Energy Charter Protocol on Energy Efficiency and related Environmental Aspects, (1998) OJ L 69/1. In 2009, the European Community was succeeded by the European Union per the Lisbon Treaty. The ECT has been ratified by all Member States including those having acceded since 1998, except Italy. Australia, Belarus, Iceland, Norway. Russia remains bound to Part III of the ECT on investment protection. Signatories of the 1991 European Energy Charter and the 2015 International Energy Charter, including China, and invited observers such as Iran. See preamble and the first paragraph of Title I IEC. See also Energy Charter Conference, Tokyo Declaration of the Energy Charter, 26 November 2016.

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renewable. The ECC, its subsidiary bodies and the Secretariat are mandated with carrying it out. The IEC thus aims to turn the ECT into the universal legal base of rules-based governance of the global energy chain to implement the norm of sustainable energy. This governance will rest on progressively integrating regional and national markets. The key regulatory principle is consistency of this energy-specific instrument with the applicable general international law grounded on multilateral treaties. The IEC refers to multilateral environmental agreements, the WTO Agreement and the non-proliferation treaty. The Tokyo Declaration includes the Paris Agreement. In this interpretation, the ECT serves to implement the priorities of these treaties and particularly the Paris Agreement for the energy sector. Finally, the IEC updates Article 18 of the ECT on the permanent sovereignty of Parties over their energy resources. Article 18(1), first sentence, makes the UN Declaration on permanent sovereignty of States over their natural resources explicitly applicable to energy resources. Under Article 18 (3), this sovereignty comprises policies on exploration and exploitation. The exclusive competence of the Parties also applies to the taxation measures.134 The second sentence of Article 18(1) underscores that this does not affect the obligation of Parties to exercise those competences consistent with the rules of international law, including the ECT itself. The IEC extends this reserved competence to transmission systems and the energy mix generally.135 Article 18 as interpreted by the IEC allocates to each State the exclusive competence over its energy resources and energy mix and the domain of international law but affirms the competence of the ECC otherwise to order the cooperation of the Parties.

2 The Energy Community: Regional Energy Market Integration The IEC envisages rules-based governance of energy for the entire area of the ECT, built up from regional and national energy market integration.136 The ECT establishing the Energy Community (EnC),137 an 134

135 137

Article 21. From this ‘carve out’, there is a ‘claw back’ for indirect taxation, such as valueadded tax (VAT), sales tax, excise tax, stamp duty, services tax, registration duty and transaction tax. Preamble, at [9]. 136 IEC, Title I (Objectives). 25 October 2005. It entered into force on 1 July 2006 for a period of ten years. This period was extended for another ten years in 2013, Ministerial Council Decision D/2013/03/ MC-EnC.

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international organisation, is the benchmark of regional energy market integration under international law, that is, the progressive harmonisation of all energy-related law. The ECT binds the European Union and the South-East European States eligible to become members of the European Union, referred to as the Contracting Parties.138 The Member States of the European Union have observer status. The EnC is a multilateral law-making treaty. Per its Preamble, the treaty aims at establishing among the Parties an integrated market, a single regulatory space in natural gas and electricity,139 and to secure supply for the region through access to continuous gas and electricity supply. Article 3 in Title I of the EnC on principles indicates the three areas of regulatory action (a). The treaty provides for supranational lawmaking machinery for this purpose (b).

a The Three Areas of Regulatory Action For the gradual integration of the Contracting Parties with each other and the energy market of the European Union, the EnC foresees regulatory action in three areas. Title II of the EnC obligates the Contracting Parties to implement in national law the evolving EU legislation on the energy market, environmental protection, energy efficiency and renewables.140 Title III enables the Community to create a common mechanism for the regional long-distance transportation of energy, including the mutual recognition of licenses, between the Contracting Parties and the connected territory of the European Union.141 It also fosters the free establishment of companies and development in the areas of renewable energy sources and energy efficiency, and it provides a framework of measures in the event of a crisis. Title IV addresses the energy market comprising the Contracting Parties and the European Union for its entire territory. It applies the directly applicable free movement of goods guarantee to the energy products covered by the EnC.142 It also defines competences for a common external energy trade and security of supply policy. 138

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Albania, Bulgaria, Bosnia and Hercegovina, Croatia, FYROM, Montenegro, Romania, Serbia and UNMIK (on behalf of the entity pursuant to UNSC 1244) on the other. The scope of energy products was later extended to cover oil and oil energy networks; Article 1 of Decision D/2008/03/MC-EnC. The acquis and respective implementation deadlines are in Annexs I–III. This connected territory is formed by the Member States Austria, Bulgaria, Greece, Hungary, Italy, Romania and Slovenia. Article 42 of the EnC.

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b Making Secondary Law The Energy Community is an international organisation, but vested with law-making machinery that is supranational and modelled on the European Coal and Steel Community.143 It combines the decision-making power of the Council, the body representative of the Parties to adopt binding measures, with the exclusive proposal power of the Secretariat, an independent body. Article 24 is designed to ensure flexibility in the way that the EU energy acquis is integrated in the EnC.144 The decision is taken by a majority of the votes cast in the Council of the Energy Community on a proposal of the European Commission. However, adaptations have only extended deadlines. The EnC also creates a compulsory dispute-settlement mechanism, which consists of the Ministerial Council finding on the non-compliance of a Party. This procedure can be instituted by another Party, the Secretariat and the Regulatory Board. Private bodies can submit complaints to the Secretariat.145 In cases of serious and persistent breaches, certain rights of the Party concerned may be suspended by the Ministerial Council, but the EnC does not provide for judicial or arbitral dispute settlement, nor for the investor-State dispute settlement, which are essential characteristics of the Energy Charter Treaty. (1) The Future of the Energy Community The Energy Community provides the model of rule of law-based, non-discriminatory regional energy market integration. The effectiveness of this model is verified by the subsequent accession to the Treaty of Moldova, Ukraine and Georgia, linking the EU energy market with nine neighbouring States. This extension also presents specific challenges. The first of these lies in the full implementation of the EnC programme. This comprises assistance from the European Union to reform these acceding markets; the supranational machinery making use of the competences of Title III, particularly for electricity grid interconnectors, and Title IV guaranteeing the free movement of capital, services and establishment; and to 143

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European Commission, ‘Accompanying Memorandum on the Signing of the Treaty by the Council of the European Union’. See Amended Article 1 of Ministerial Council Decision, 2011/02/MC-EnC, on the implementation of the EU Third Energy Package. While the electricity, gas, energy efficiency, environment and renewable energy acquis underwent an update, new acquis on statistics, oil emergency stocks, the TEN-E Regulation and the Energy Efficiency Directive have been integrated in this way. Ministerial Council Decision, 27 June 2008.

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create reciprocity in energy market access.146 The second challenge lies in turning the EnC into an instrument for the joint implementation of the Paris Agreement on climate-related action to decarbonise the energy system.

3 International Law for Transnational Energy Purchases and Projects The international law on specific transnational energy projects involves bilateral and occasionally plurilateral treaty-making of a commercial or contract-making type rather than the multilateral law-making treaties discussed so far.147 These comprise agreements between the producer State and the consumer State and between these States and the transit States. Transnational energy purchases presuppose an international law agreement between the producer State and the consumer State fixing the overall conditions of the purchase of natural energy resources. The consumer State then allocates these purchase rights to commercial operators which then enter into contracts with the producer State. Preferential trade agreements are the instrument to provide for non-discrimination in supply prices between the domestic market and export. Energy transit is governed primarily by bilateral agreements between States and only to a limited extent by multilateral international arrangements148 or by contracts between States and corporations. Transit agreements on oil and gas often involve two or more States in each case, as most energy high-pressure pipelines in operation are directly or indirectly State controlled. The legal framework for the construction of such transit pipelines follows the pattern for energy commodities purchases. The international agreements are usually preceded by non-legally binding memoranda of 146

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Ministerial Council Decision, M C 2 01 6 - 1 0- 1 4 1 4 T H ( 1 4 October 2016), Secretariat, Proposed Treaty Changes for the Ministerial Council, October 2016. D. Azaria, Treaties on Transit of Energy via Pipelines and Countermeasures (Oxford University Press, 2015). The 1921 Barcelona Convention and Statute on Freedom of Transit, 20 April 1921, entered into force 31 October 1922, and the 1965 New York Convention on Transit Trade of Land-Locked Countries, 8 July 1965, entered into force 9 June 1967. The Barcelona Convention provides for non-discrimination in the treatment of goods in transit and requires that the tariffs applied be ‘reasonable’. A regional treaty is the CIS Agreement on crude oil and oil products transit through high-pressure transmission pipelines, signed in 1996 to replace the unitary Soviet carriage system. The Convention on Physical Protection of Nuclear Material, 3 March 1980, entered into force 8 February 1987, 1456 UNTS 101, and IAEA regulations apply to the transport of nuclear material.

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understanding or joint declarations.149 Within this bilateralism, the challenge now is to establish rules-based multilateral governance over transnational energy grids.150 The international law for such projects is supplemented by private cooperation resulting in commercial standards, contracts and dispute settlement within the parameters set by the international public-law framework.

4 Institutionalised Cooperation in Energy The architecture of the global energy sector is based on international organisations that serve the cooperation between producers and consumers of energy for fossil and atomic fuels (a) and now also renewables (b).

a Non-Renewable Energy: Producer and Consumer Cooperation The organisational model for intergovernmental cooperation on fossil energy has traditionally been based on selective membership reflecting the interests specifically of producer and consumer States of these energy products. The Organisation of the Petroleum Exporting Countries (OPEC) is the intergovernmental organisation of the producers of oil.151 It resembles a commodities agreement as they exist elsewhere, but only representing the producers.152 The equivalent for gas is the Gas Exporting Countries Forum.153 The International Energy Agency (IEA) stands for the cooperation of energy consumers under the auspices of the Organisation for Economic Co-operation and Development (OECD).154 149

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A conglomerate of such agreements exists, for instance, in the case of the southern gas corridor, available at www.bp.com/en_az/caspian/aboutus/legalagreements.html; and the Baku-Tbilisi-Ceyhan pipeline; see ‘Joint Statement on the BTC Pipeline Project’, available at http://subsites.bp.com/caspian/Joint%20Statement.pdf. Further, M. Bekhechi, ‘The Chad-Cameroon Pipeline Project: Some Thoughts about the Legal Challenges and Lessons Learned from a World-Bank Financed Large Infrastructure Project’, in M. Roggenkamp et al. (eds.), Energy Networks and the Law: Innovative Solutions in Changing Markets (Oxford University Press, 2012), 78. The nonbinding equator principles for sustainable project financing were adopted in 2003, available at www.equator-principles.com. OPEC Statute, entered into force 1 October 1960, revised 10 April 1965, 443 UNTS 247. Pledges are unenforceable, and important producers remain outside. But see pledges of Russia and other non-OPEC oil producers to cut production to support OPEC members’ agreement on a 1.2 million barrels per day cut for the first six months of 2017. Doha Declaration, 15 November 2011. The International Energy Agency Association Initiative opens membership to emerging economies.

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The operational work of this intergovernmental organisation has concerned the reaction to external supply shocks, including solidarity mechanisms with decision-making by the IEA.155 The Nuclear Energy Agency (NEA) is a specialised agency within the OECD, whereas the International Atomic Energy Agency (IAEA) assists the development of atomic energy in certain States.156 By contrast, the International Energy Forum Charter157, an intergovernmental arrangement, fosters the dialogue on energy security between energy-consuming and energy-producing members, including transit States.

b The International Renewable Energy Agency (IRENA) The organisational model for renewables cooperation is distinct in that its membership is designed to be universal. IRENA is the intergovernmental organisation that supports countries in their transition to a sustainable energy future and serves as the principal platform for international cooperation on renewable energy.158 Ist das kurz im vergleich zum absatz ueber non-renewables. 5 Sovereignty of States over Their Energy Resources and Energy Mix This international law specific for energy casts the function of the permanent sovereignty of States over their natural energy resources, which arguably is a foundational rule.159 The permanent sovereignty of States over the natural resources located on their territory was first recognised in the 1962 Declaration of the UN General Assembly.160 It has been reaffirmed in Rio-Principle 2 and in the 2030 Agenda.161 It extends to energy resources, as the ECT and the 2015 IEC confirm. The 1962 Declaration and its concretisations are declaratory of the principle of 155

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International Energy Program, 18 November 1974, entered into force 19 January 1976, 1040 UNTS 271. The IEA now provides analysis and statistics in all fields of energy policy. Statute of the International Atomic Energy Agency, 26 October 1956, entered into force 29 July 1957, 276 UNTS 3. Under a special agreement, as well as the statute, it reports annually to the UN General Assembly and, when appropriate, to the Security Council. The non-binding charter was signed at the IEF Ministerial Meeting, 22 February 2011. Statute of the International Renewable Energy Agency (IRENA), 26 January 2009, entered into force 10 May 2012, 2709 UNTS 27, 146 members. R. Dolzer, ‘International Cooperation in Energy Affairs’, (2015) 372 Recueil des Cours 411. A/RES/1803 (XVII), ‘Permanent sovereignty over natural resources’, 14 December 1962. Note 10, at [18].

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sovereignty laid down in Article 2(1) of the UN Charter and customary international law.162 This sovereignty is neither absolute nor an obstacle to the formation of international treaty law on energy.163 Rather, this designated core of sovereign rights reflects a positive allocation of energy competences by international law. It denotes the exclusive competence of the territorial State to exploit these resources and now also the exclusive competence to determine its energy mix whether based on indigenous or imported energy resources.164 This, in turn, enables creating international legal obligations in relation to all other aspects of energy. Such obligations restricting the free exercise by State of that sovereignty over its resources arise under the sectoral international legal orders for trade,165 the climate and the oceans. Sovereignty over energy resources and sovereignty over the energy mix in fact become procedural guarantees: restrictions require the specific consent of the State concerned.166

III The Provision for Energy under the Sectoral Orders of International Laws The community of States establishes for its common interests sectoral legal orders based on multilateral law-making treaties striving for universal applicability. The point of the UN Charter, the UN Convention 162

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Brownlie’s Principles of Public International Law, note 32, 448, 455 (reinforcing the presumption against any restrictions). Nationality Decrees, [1923] PCIJ series B, no. 4, 24. Further, N. Schrijver, ‘Fifty Years Permanent Sovereignty over Natural Resources: The 1962 UN Declaration as the Opinio Iuris Communis’, in M. Bungenberg and S. Hobe (eds.), Permanent Sovereignty over Natural Resources (Springer, 2015), 15–28. These competences are protected from forcible and non-forcible interference by other States, though not non-State actors; Accordance with International Law of the Unilateral Declaration of Independence in Respect of Kosovo, [2010] ICJ Reports 403. WTO, China: Measures Related to the Exportation of Rare Earths, Tungsten and Molybdenum, Report of the Panel, 26 March 2014, WT/DS431/R. The Panel agreed with China that the term ‘conservation’ in GATT Article XX(g) means more than simply ‘preservation’ of natural resources and that every WTO member can take its own sustainable development needs and objectives into account, in accordance with the general international law principle of sovereignty over natural resources. However, the Panel held that ‘conservation’ does not allow members to adopt measures to control the international market for a natural resource, which is what the challenged export quotas were, in the view of the Panel, designed to do. This point of China-Rare Earths applies to energy resources. Questions Relating to the Seizure and Detention of Certain Documents and Data (TimorLeste v. Australia), Provisional Measures, [2014] ICJ Reports 136 (deriving procedural rules from the principle of sovereign equality in Article 2(1) of the UN Charter).

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on the Law of the Sea, the UNFCCC and the WTO Agreement is to provide the legal orders for all issues falling under their remit. None of these treaties deals specifically and exclusively with energy. However, all absorb the norm of sustainable energy and evolve to make provision for energy using two means: the reinterpretation of treaty concepts to apply to energy and the creation of new energy-related rules. The international regulation of energy thus acquires a horizontal quality, cutting across sectoral orders for the global economy (1), environmental protection (2), oceans governance (3) and collective security (4). This is a trend that has sufficiently consolidated to create the second pathway for the development of international law on energy in the future.

1 The Global Economy and Energy The international legal order of the global economy rests on the pillars of world trade law and international investment law. Neither law deals with energy by explicit design, but both have evolved towards energy-related provisions. The following discussion first traces this evolution, separately for world trade law and international investment law. It demonstrates that both still have structural shortcomings in realising the potential of trade and investment for securing access to sustainable energy. The discussion then turns to preferential trade agreements. These agreements, which integrate world trade and investment law, are becoming the principal instrument for regulating energy within international economic law.

a Applying World Trade Law to Energy The WTO Agreement is a multilateral law-making treaty. It satisfies the definition, serving the common interest in rules-based world trade to remove causes of conflict.167 Its objective of liberalising trade is a means to advance sustainable development in its economic, environmental and social dimensions.168 It lays down general rules that govern the bilateral relations of its members. The multilateral agreements annexed to the WTO Agreement 167

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See P.-T. Stoll, ‘The World Trade Organisation as a Club: Rethinking Reciprocity and Common Interest’, in Liber amicorum Simma, note 3, 172–83 (linking the WTO Agreement back to Article 55 of the UN Charter). But see J. Pauwelyn, Conflicts, note 32 (WTO Agreement has no law-making quality). Preamble, at [1]. The US-Shrimp case showed preambular text to be important for interpreting substantive obligations. United States – Import Prohibition of Certain Shrimp and Shrimp Products (WT/DS58/AB/R). See R. Howse, ‘The Appellate Body Rulings in the Shrimp-Turtle Case: A New Legal Baseline for the Trade and Environment Debate’, (2002) 27 Columbia Journal of Environmental Law 491.

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enshrine general disciplines for import and export restrictions and internal measures for goods and services and overriding objectives that can justify exceptions as well as for market distorting subsidies.169 These general disciplines can also be applied to energy. The following discussion first demonstrates this (1–5). However, this cannot provide the in-depth rules that trade in energy requires. Thus trade in energy is becoming the object of specific rule-making under the auspices of the WTO (6). (1) The Disciplines for Trade in Goods and Their Application to Energy The WTO Agreement establishes, under the conceptualising principles of market access and non-discrimination, disciplines that limit members’ exercise of their sovereignty. These disciplines apply in a differentiated fashion to trade in goods and services. The general disciplines of the 1994 GATT for market access through the prohibition of quantitative restrictions (Article XI), for non-discrimination through national treatment (Article III) and for most-favoured-nation treatment (Article I) only apply unconditionally to trade in goods. Energy has risen to prominence as a trade-law issue rather belatedly, reflected in the fact that only a handful of cases of the WTO disputesettlement system concern energy. However, the GATT disciplines are general and so are neutral as to the precise economic good being traded across borders. Whether energy, including electricity, qualifies as a good is not clear, though.170 The more consistent view is that energy products and materials are indeed goods. A powerful argument to that effect is the ECT. The ECT applies the GATT disciplines to energy products and materials including electricity, making clear that this is both possible and desirable. This substantive concretisation reflects on the interpretation of the WTO Agreement. A general doctrinal basis for this interpretative use of the ECT is Article 31(3)(c) of the VCLT, under which the ECT forms the context within which the WTO Agreement needs to be interpreted. This is true even though not all Parties to the WTO Agreement are also Parties to the ECT. The precise conditions for the applicability of Article 31(3)(c) VCLT admittedly remain disputed.171 However, the objective of the provision is 169

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Further, A. Sykes, ‘When Is International Law Useful?’, (2013) 45 NYU Journal of International Law & Politics 787 (reciprocal WTO obligations are self-enforcing). T. Cottier et al., ‘Energy in WTO Law and Policy’ (WTO Publication, 2008) (energy as service); M. Desta, ‘The GATT/WTO System and International Trade in Petroleum’, (2003) 21 Journal of Energy & Natural Resources Law 385. Further, P. Merkouris, Article 31(3)(c) VCLT and the Principle of Systemic Integration (Brill, 2015).

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the harmonious interpretation of international rules applicable to the same matter but laid down in separate treaties. Where those treaties belong to the same branch of international law, as is the case here, the demand for such harmonious interpretation is particularly forceful. It is then sufficient that the ECT membership represents a critical mass of the WTO membership, which is the case. More specifically, the harmonious interpretation of the WTO and the ECT – in both directions – is justified because they are part of the system of world trade law whose elements interact to form a consistent whole.172 Finally, rule-making under the WTO auspices also points in this direction. If energy including electricity therefore is a good, then the GATT disciplines of no quantitative restrictions and non-discrimination apply to any import. They apply unconditionally, regardless of whether the other Party has also liberalised its market. Therefore, it is not possible for a member to selectively open its energy market to internal providers. Nor is it possible to subject access to infrastructure to differentiating rules for providers from third States.173 (2) Energy Services It is generally accepted that transmission of energy via pipelines or energy grids is a service.174 The relevant disciplines for States arise under the General Agreement on Trade in Services (GATS) rather than the GATT. Under the GATS, only the most-favoured-nation discipline applies unconditionally to any service; national treatment and market access quotas only apply where and to the extent that a State has actually made a concession in its schedule for one or all of the modes of delivery of a service, following a general classification system for services. This system contains a range of possibly relevant classifications for energy-related services. The fragmented treatment of services in the complex energy chain much diminishes the effectiveness of the GATS in the sector.175 (3) Free Transit of Energy Article V of the GATT establishes freedom of transit through the territory of each Party via the routes most convenient 172 173

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J. H. Jackson, The World Trading System (2nd edn, MIT Press, 1997). WTO, European Union and Its Member States: Certain Measures Relating to the Energy Sector, WT/DS476, concerning the ownership rules for Russian gas pipelines. The panel report is expected in May 2017. Cottier, ‘Energy in WTO Law and Policy’, note 170. There is no separate energy sector in the Services Sectoral Classification List W/120. Three sub-sectors directly refer to energy, but important energy-related activities are spread over a broad range of sectors: transport, distribution, construction, consultancy, engineering, etc. See Claudia Locatelli, ‘Energy Services under the GATS’ (WTO OMC, 2014).

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for international transit. There shall be no restrictions or distinctions and no customs duties or other taxes on goods in transit, subject to routine registration and to charges for transportation and reasonable administrative expenses.176 Article V does not deal specifically with transit by means of fixed infrastructure, characteristic for energy. However, again, the Energy Charter Treaty forms the interpretive context. Article 7 of the ECT makes clear that transit covers energy infrastructure. Article 7 is binding on all Parties and intended to implement GATT Article V. Thus transit within the meaning of that provision also covers all transit of energy through dedicated fixed infrastructure, be it pipelines or grids. (4) Regulating Environmental Energy Risks The GATT allows for exceptions to its disciplines, where a State measure comes under one of the grounds sets forth in Article XX, has a sufficient nexus and is not discriminatory. The point of the GATT is for each member to set the desirable level of environmental protection but then to ensure that this objective is attained in a cost-effective manner. US-Gasoline concerned this constellation. The regulation of environmental risks from energy that would otherwise be WTO inconsistent thus can be justified. The Appellate Body concluded that the ‘Gasoline Rule’ under the US Clean Air Act with its requirements for gasoline sold on the US market was primarily aimed at the ‘conservation of exhaustible natural resources’ (Article XX(g)) but that it was designed in an unnecessarily discriminatory way.177 It can thus be surmised that energy-related measures to protect the global climate could justify derogating from the GATT disciplines, if they are not discriminatory.178 This would apply to measures such as clean fuel standards that account for the carbon footprint of energy products.179 India-Solar Cells leaves open the more far-reaching 176

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WTO, Russia: Measures Concerning Traffic in Transit on Ukrainian Products – Request for Consultations by Ukraine, WT/DS512/1, is a rare road transit dispute. Further, L. Ehring and Y. Selivanova, ‘Energy Transit’, in Y. Selivanova (ed.), Regulation of Energy in International Trade Law: WTO, NAFTA, and Energy Charter (Kluwer, 2012), 49. WTO, United States: Standards for Reformulated and Conventional Gasoline – Appellate Body Report of 20 May 1996, WT/DS2/9. The Appellate Body has yet to rule on whether measures to protect interests outside the territorial jurisdiction can be justified under Article XX, but climate change has a sufficient nexus with the territory of every State; see US-Shrimps. In WTO, European Union: Anti-Dumping Measures on Biodiesel from Argentina, WT/ DS473; Argentina alleges that the EU requirement that biofuel can be considered sustainable only where it achieves 35 per cent carbon dioxide emission reductions is discriminatory. GATT Article XX is not available.

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option of qualifying multilateral environmental agreements as ‘laws or regulations’ under Article XX(d), provided that they become effective in the domestic legal order.180 (5) Financial Support for Energy under TRIMS and the SCM The multilateral agreements on trade-related investments measures and on subsidies and countervailing measures apply in parallel to the GATT. The Agreement on Trade Related Investment Measures (TRIMS) sets forth a list of typical host State measures towards investments that are incompatible with the said disciplines, such as the local content requirements. The Agreement on Subsidies and Countervailing Measures (SCM) governs potentially trade-distorting subsidies. Subsidies are a pervasive instrument of State energy policy regarding most energy sources but are rarely challenged under the SCM Agreement. However, both agreements have been applied to the financial support mechanisms for renewables. The leading case, Canada-Renewables, concerned the support that the Canadian province of Ontario had established for renewably produced energy on its territory.181 Such producers had to use local content to become eligible for the support, and that requirement was found to clearly infringe the TRIMS Agreement.182 The more complex ruling concerned the compatibility of the regulated feed-in tariffs with the SCM Agreement. The SCM Agreement does not incorporate the general exceptions that would shelter ‘market-correcting’ subsidies such as those for renewable energy. The panel effectively created an exception for this type of support. It concluded that it could not determine that the support met the definition of subsidy, which requires that it conferred a benefit on the recipient, as there was no commercial market value with which to compare the supported renewably generated energy.183 This interpretation effectuates the international objective of renewables promotion that is now reflected in the 2030 Agenda and SDG 7.184 180

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WTO, India: Certain Measures Relating to Solar Cells and Solar Modules – Appellate Body Report of 16 September 2016, WT/DS456/AB/R, at [53]. WTO, Canada: Certain Measures Affecting the Renewable Energy Generation Sector – Appellate Body Report of 6 May 2013, WT/DS412/AB/R. See also India: Solar Cells, note 180, concerning domestic content requirements imposed on solar power developers selling electricity to the government. The Appellate Body interpreted possible exceptions for government procurement (GATT Article III, 8) and compliance with international law (Article XX(d)) narrowly. Article I of the SCM Agreement. R. Weber and R. Koch, ‘International Trade Law Challenges by Subsidies for Renewable Energy’, (2015) 49 Journal of World Trade 757–80. This rationale is tested in the

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(6) Energy Market Access: Export Restrictions and Duties and Liberalised Green Trade Even though the GATT disciplines do apply, they have shortcomings for the energy sector. The GATT has an inherent bias towards import protection and is not well equipped to deal with export restrictions by resource-endowed States that are common for energy trade. Export duties that many resource-endowed States levy often form a substantial part of their revenues. GATT Article II establishes market access through the discretionary binding by each State of its import and export tariffs in so-called schedules. However, tariffs for energy were not discussed during the Uruguay Round or at Marrakesh, neither for traditional energy products nor for new energy technologies. These structural shortcomings have generated a powerful push to develop specific rules for energy. This push has two dimensions. Within the WTO Agreement, export restrictions on energy in the form of export duties are being addressed through the instrument of protocols to the WTO, concluded with large energy resource-endowed States upon their accession to the WTO.185 The legally binding effect of such additional obligations was confirmed by the WTO Appellate Body in China-Raw Materials and again in China-Rare Earths.186. The panel in China-Rare Earths emphasised that the subsequent restriction of such sales was not justified under GATT Article XX or under the permanent sovereignty of China over its natural resources. This rationale applies equally to energy resources. The second dimension for specific rule-making on energy results from the very fact of under-protected imports of new energy technologies. The WTO instrument for tariff-free and otherwise protected trade in green energy technologies is the plurilateral agreement. Plurilateral agreements are binding only on the consenting Parties, although they remain open

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complaint by China regarding Italian and Greek law on feed-in tariffs for solar power generators; WTO, European Union and Certain Member States: Certain Measures Affecting the Renewable Energy Generation Sector, WT/DS452, and in United States: Certain Measures Relating to the Renewable Energy Sector, WT/DS510 (both in consultation). Saudi Arabia, Russia and China. The Saudi accession, 1 November 2005, WT/ACC/ SAU/61, provides the benchmark and floor. Further, Y. Selivanova, ‘The WTO Agreements and Energy’, in K. Talus (ed.), Research Handbook on International Energy Law (Elgar, 2014), 275; S. Mathur and P. Mann, ‘GATT/WTO Accessions and Energy Security’, in K. Talus (ed.), Trade, the WTO and Energy Security (Springer, 2014), 73. WTO, China: Measures Related to the Exportation of Rare Earths, Tungsten and Molybdenum – Appellate Body Report of 7 August 2014, WT/DS431/AB/R.

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for other WTO Parties to accede to. The United States, the European Union and others have launched negotiations for such an agreement to reduce tariffs on green energy technology goods.187 This is modelled on a non-binding agreement of members of the Asia-Pacific Economic Cooperation (APEC).188

b International Investment Law and Energy In contradistinction from world trade law, international investment law is not codified in a universal multilateral law-making treaty, but a network of bilateral investment treaties (BITs)189 and additional multilateral treaties. These contain the protection standards. Parties also consent to investor-State dispute settlement, conducted under the multilateral ICSID Convention, the UNCITRAL Arbitration Rules or the Rules of the SCC.190 This network forms an inter-treaty regime centred on the standard of fair and equitable treatment.191 The protection in the preestablishment phase varies. However, all treaties offer protection in the post-establishment phase. The standards prohibit discriminatory measures and require fair and equitable treatment, including most constant protection and security, and compensation for any expropriation. There can also be an umbrella clause under which Parties must honour their contractual obligations towards investors. The scope of application of this regime is determined by the threshold term of ‘investment’. The generally used Salini formula defines the term by 187

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The Environmental Goods Agreement (EGA) aims to eliminate tariffs on environmental technologies such as wind turbines, water treatment filters and solar water heaters. See European Commission, Report from the fifteenth round of negotiations for an Environmental Goods Agreement (EGA), 2 September 2016, and Statement of Ambassador Froman and Commissioner Malmström on the WTO Environmental Goods Agreement (EGA) Ministerial, 4 December 2016. Tariffs on fifty-four environmental goods – including wind turbines and solar panels – were agreed to be reduced to 5 per cent or less by the end of 2015; BioRes, 28 January 2014. On customary-law minimum standards of treatment, see P. Dumberry, The Formation and Identification of Rules of Customary International Law in International Investment Law (Cambridge University Press, 2015). The difference between these otherwise similar procedures is that ICSID awards are enforceable in the courts of Parties (Article 54 of the ICSID Convention). Other awards need to recognised and enforced via the New York Convention and be compatible with the ordre public of the respective jurisdiction. J. Alvarez, ‘The Public International Law Regime Governing Foreign Investment’, (2009) 344 RdC 193, 246; further, J. Pauwelyn, ‘Regime Composition, Emergence, and Change’, in J. Alvarez (ed), The Foundations of International Investment Law (Cambridge University Press, 2014), 10.

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two typical features: the commitment of substantial resources and its duration.192 Such investments take place in the primary, secondary and tertiary sectors. While the regime thus is general and not designed specifically for energy, it does apply to energy investments upstream and downstream.193 The principal rationale is legal certainty for the investment. In fact, much of the thus enabled cross-border investments concern energy.194 The most widely cited interpretation of FET, the so-called Tecmed standard,195 a jurisprudence constante of arbitral tribunals, has turned that guarantee into the singularly effective test for contesting the legality of national laws and its enforcement at every level of government.196 Secure energy supply then calls for legal stability for investments. This excludes recognising economic necessity derived from the law of State responsibility as potential good cause. It has been considered for the energy investments crisis in Argentina under treaties concluded by that State, but the ICSID Tribunals in the CMS Gas Transmission Co. and Sempra Energy disputes concluded that economic necessity did not justify the interferences there, whereas the LG&E Energy Group Tribunal held that the crisis the State was facing was not merely a period of the business cycle in the country.197 The investment regime has also been absorbing the sustainability aspect of energy. The right to regulate of the host State for legitimate objectives without fear of compensation has become a salient feature in the design of the current generation of stand-alone BITs.198 It is also 192

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Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco, ICSID Case ARB/ 00/4, Decision on Jurisdiction, 31 July 2001. The formula interprets Article 25 of the ICSID. Critical Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, ICSID Case ARB/10/7, 8 July 2016, at [204–10]. BITs often define the characteristics of an investment. Taxation is subject to some 2000 bilateral tax conventions in existence; T. Wälde and A. Kolo, ‘Coverage of Taxation in Modern Investment Treaties’, in P. Muchlinski et al. (eds.), The Oxford Handbook of International Investment Law (Oxford University Press, 2008), 306–11. N. Tabari, Lex Petrolea and International Investment Law (Informa 2016); M. Bungenberg et al. (eds.), International Investment Law (Hart, 2015). Técnicas Medioambientales Tecmed, S.A. v. The United Mexican States, ICSID Case ARB (AF)/00/2, 29 May 2003, at [154, 157, 160]. Alvarez, ‘The Public International Law Regime Governing Foreign Investment’, note 191. For practice, C. Schreuer, ‘Fair and Equitable Treatment in Arbitral Practice’, (2005) Journal of World Investment and Trade 337. Further, P. Cameron, International Energy Investment Law (Oxford University Press, 2010), 233. M. Sornarajah, The International Law on Foreign Investment (2nd edn, Cambridge University Press, 2004), 286; OECD, ‘“Indirect Expropriation” and the “Right to

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reflected in the arbitral practice. Consequently, the FET standard now comprises three stages. It protects legitimate expectations and the trust in the stability of the legal order, and it catches regulatory measures. Restrictions through such regulatory measures are justified, however, if undertaken for good regulatory cause and proportionately within a broad margin of discretion, at least in the absence of concrete representations. In the Philipp Morris cases, the respondent States argued that their plain packaging laws for tobacco products were a legitimate public health measure in line with the universal 2003 World Health Organisation’s Framework Convention on Tobacco Control. The Tribunal in the case against Uruguay accepted this on the merits,199 whereas the case against Australia was dismissed as an abuse of process.200 This can be generalised. For energy, the Paris Agreement on climate action would provide the legitimate objective of regulatory action. The pending Keystone arbitration under Chapter 11 of NAFTA illustrates this.201 It concerns the trans-boundary pipeline project to connect the oil sands products of Alberta with the Gulf of Mexico. By not granting the necessary authorisation, so the plaintiff claims, the US State Department acted unfairly, arbitrarily and in a discriminatory fashion. This argument, however, would not hold if the respondent’s reasoning is accepted that the pipeline for the highly polluting oil sands product is not compatible with the objective of low-emissions energy.202 There needs to be a proportionate protection of the economic activity and the economic rights embodied in the investment against general regulatory action in the sense that disproportionate interference entails illegality, which requires compensation. This defines a space for the Parties’ regulatory autonomy. This acceptance of rules-based governance for energy investments extends to the International Monetary Fund (IMF) and other international

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Regulate” in International Investment Law’, OECD Working Papers on International Investment, 2004/04; W. Shuan, ‘Towards a Balanced Liberal Investment Regime’, (2010) 25 ICSID Review 421–97. Philip Morris, note 192, at [423]. Philip Morris Asia Limited (Hong Kong) v. The Commonwealth of Australia, PCA Case 2012-12, Award on Jurisdiction and Admissibility, 17 December 2015 (acquisition of an Australian subsidiary, for initiating arbitration a case of forum shopping). TransCanada Corporation & TransCanada PipeLines v. The United States of America (arbitration under Chapter 11 of NAFTA), ICSID Case ARB/16/21 (pending). NAFTA Article 1114(1), ‘Environmental Measures’ reads: ‘Nothing in this Chapter shall be construed to prevent a Party from adopting, maintaining or enforcing any measure otherwise consistent with this Chapter that it considers appropriate to ensure that investment activity in its territory is undertaken in a manner sensitive to environmental concerns.’

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financial institutions engaged in energy investment regulation, through actions as different as the enforcement of guidelines on infrastructure projects undertaken by the World Bank, structural adjustment conditionality on IMF loans or non-binding forms of regulation such as the technical advice accorded governments under the World Bank’s International Finance Corporation. These actions, together with those of political risk insurers and market participants, which indirectly serve to enforce the strictures of investment treaties and investor State arbitral rulings, constitute a ‘hybrid’ public/private form of transnational energy regulation.203

c The Energy Dimension of Preferential Trade Agreements The international law of world trade and investment operationalise general concepts of rules-based governance of the global economy. Neither was designed specifically for energy, although both have come to be applied to energy. Such application demonstrates structural shortcomings in their capacity to regulate energy throughout its economic value cycle. The disciplines of world trade law are geared towards import tariffs and restrictions rather than export restrictions and duties and differential pricing mechanisms that characterise much trade in energy. Import tariff regimes for innovative green energy technologies are also missing.204 The provision for energy services, including transmission, is fragmented. The negative trade disciplines do not secure in sufficient regulatory detail the third-party access to infrastructure. International investment law secures the effective protection of an energy investment that is admitted but does not enable market access of investments into a national market. These shortcomings hamper the secure supply of affordable and sustainable energy worldwide, for which trade and cross-border investments are the vehicles. Remedying these shortcomings is the function of the second push for energy-related provision within the concepts of international economic law. The instrument is the serial conclusion of preferential trade agreements, or mega-regionals. Mega-regionals are in-depth integration partnerships between either States or regions covering a major part of world trade and foreign direct investment. Although preferential trade 203

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G. Van Harten and M. Loughlin, ‘Investment Treaty Arbitration as a Species of Global Administrative Law’, (2006) 17 EJIL 121–50, 149; D. Kalderimis, ‘IMF Conditionality as Investment Regulation: A Theoretical Analysis’, (2004) 13 Social & Legal Studies 103. The Energy Products Sector includes turbines, solar cells, static convertors, civil nuclear equipment and high-voltage electric conductors.

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agreements are not an instrument of WTO law, the WTO Agreement is implemented by this further treaty-making. They advance the overall WTO Agreement objective of liberalised trade, outweighing the restriction of the most-favoured-nation (MFN) principle to the participating Parties.205 While these preferential trade agreements are initially concluded between a limited number of States and regional organisations of economic integration, further States may accede subsequently. In that smaller setting, States can achieve deeper trade liberalisation and set regulatory benchmarks. Such agreements envisage trade as a lever for promoting more secure energy supply. They also envisage promoting sustainable energy through the trade with green energy technologies and cooperative decarbonisation action. The drivers are enhanced market access, regulatory cooperation and rule-making on the environmental and social dimensions of sustainable development. Preferential trade agreements integrate provision for liberalised trade and investment with environmental protection and labour standards, underpinned by compulsory third-party dispute settlement. By their comprehensive scope, they regulate the energy value chain. The following analyses the principal features of this international rule-making on energy, across NAFTA,206 CETA,207 DCTA,208 TPP209 and TTIP.210 205 206

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GATT, Article XXIV. The North American Free Trade Agreement, 17 December 1994, entered into force 1 January 1994, (1993) 32 ILM 289, is a preferential trade agreement concluded between Canada, the United States and Mexico. The Comprehensive Economic and Trade Agreement is the preferential trade agreement between the European Union and Canada, provisionally applied since 30 October 2016. See Joint Interpretive Instrument, EU Council Doc 13541/16. The Deep and Comprehensive Free Trade Agreement applies between the European Union and Ukraine provisionally since 1 January 2016, (2014) OJ EU L 161/3. The DCFTA is part of the EU-Ukraine Association Agreement, signed by Ukraine and the European Union on 27 June 2014 and provisionally applicable since 1 November 2014. The Transpacific Partnership Agreement is a preferential trade agreement for the Pacific Rim. It was signed in February 2016 and will enter into force after it has been ratified by a critical mass of signatories. The signatories, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam, stand for around 40 per cent of the global economy and a quarter of world trade. It does require the ratification of the United States to come into force. See Parliament of the Commonwealth of Australia, Joint Standing Committee, Report 165, November 2016 (recommending ratification). TPP membership is open to other Asia-Pacific economies. The Regional Comprehensive Economic Partnership (RCEP) is another Asian preferential trade agreement being negotiated under APEC. The Transatlantic Trade and Investment Partnership is the preferential trade agreement being negotiated between the European Union and the United States. See European Commission, ‘Report on the 15th Round of Negotiations’, October 2016.

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(1) Specific Market Access Provision for Energy Goods and Services Preferential trade agreements treat energy market access as a standalone chapter dealing with energy. The NAFTA is the model for this approach. It contains a separate energy chapter (Chapter 6) entitled ‘Energy and Basic Petrochemicals’, which incorporates and then refashions fundamental disciplines of the WTO to suit the trade in energy goods and energy-related services. It is based on essentially private ownership of energy resources and seeks to ensure non-interference by governments with private contractual relationships. Energy and basic petrochemical goods refer to the goods as classified under the Harmonised System. The point of the chapter is to design rules for energy trade within the rationales of the general GATT disciplines on export restrictions, taxes and regulatory measures. Article 603 subjects import and export restrictions to the GATT disciplines for quantitative restrictions. The Parties understand that these prohibit minimum or maximum import and export price requirements and any other form of quantitative restriction. Article 604 prohibits discriminatory export charges on any energy or basic petrochemical good.211 Article 605 provides for strict conditions for export measures to relieve shortages of an energy or basic petrochemical good to ensure that Articles 603 and 604 are not circumvented. Article 606 subjects internal regulatory measures applied by the State of import to energy to national treatment as provided in Article 301. In the TTIP negotiations, the European Union has been suggesting a separate chapter on energy, following the NAFTA model.212 Its negotiators are to consider measures to ‘facilitate and promote trade in environmentally friendly and low carbon goods, energy and resource-efficient goods, services and technologies’. And it considers provisions ensuring an ‘open, transparent and predictable business environment in energy matters’ and access to raw materials. They signal that the European Union will likely actively push to move beyond the precedent of CETA. Specific and comprehensive chapters on energy trade, pricing and transit have been inserted into free-trade agreements that the European Union has concluded with neighbouring States. Thus Chapter 11 of the DCFTA

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This has two preconditions. The charge must be applied to exports of any such good to the territory of all other Parties, and it must not be applied to any such good when destined for domestic consumption. European Council, Negotiating Directive, Doc 11103/13.

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between the European Union and Ukraine is entitled ‘Trade Related Energy’. It provides for domestic regulated prices and a prohibition of dual pricing and transit and the prohibition of quantitative restrictions and customs duties. These are the most far-reaching international rules on energy yet.213 (2) Horizontal Regulation The alternative is a horizontal approach that brings energy within each substantive chapter. The TPP provides throughout its pillars for rules that address the general conditions for greater energy trade. In the market access pillar, import tariffs have been eliminated for between 90 and 100 per cent of energy products. Exports of renewable-energy equipment will be duty free, and most exports of power transmission equipment will see immediate tariff elimination, with the remaining tariffs reduced over time to zero. TPP creates new exploration, extraction and production opportunities for fossil fuels, as Parties permit foreign participation in their energy sector and by increasing the screening threshold at which private foreign investments in the energy sector are considered.214 The market integrity pillar permits energy suppliers to bid for government contracts in other Parties on a level playing field with the large State-owned enterprises engaged in commercial oil and gas activities. CETA also takes a horizontal approach. (3) Energy Investment Preferential trade agreements cover the preestablishment phase of energy investments. They provide for national treatment in that phase.215 CETA guarantees market access for investments, prohibiting all quotas.216 The agreements provide the usual FET standard for investment protection post-establishment, underpinned by investor-State dispute settlement, the scope of which is defined further.217 They state, however, in different ways, that governments retain

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Cf. Dolzer, ‘International Cooperation in Energy Affairs’, note 159, 450. For instance, by the Australian Foreign Investment Review Board. NAFTA prescribes national treatment for the pre-establishment phase (Article 1102), although not market access. Article 8(4) of the CETA. This access is resource neutral. It comprises the oil sands of Alberta. TPP ties the substantive protection level to customary international law. CETA defines protective elements, including legitimate expectations based on specific representations. The criteria can be altered by way of binding interpretive notes.

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the right of public-interest regulation even if that negatively affects an investment.218 CETA brings an institutional innovation establishing independent, impartial and permanent investment tribunals modelled on the International Court of Justice and the European Court of Human Rights. (4) Sustainable Energy The agreements serve sustainable energy by providing each Party with legally secure, discrimination-free access to renewable-energy resources in the other Parties.219 Under CETA Article 24.9(2), Parties shall pay special attention to facilitating the removal of obstacles to trade or investment in goods and services of particular relevance for climate change mitigation and in particular trade or investment in renewable-energy goods and related services. Preferential trade agreements furthermore integrate rules on the environmental and social effects of improved trade and investment flows. Parties are generally forbidden to compete economically by relaxing their environmental or social standards, but the key concern is consistency of the agreement with the multilateral environmental agreements (MEAs) that bind each Party. For this purpose, these are effectively incorporated into the agreement, creating an agreement/internal obligation to comply with these MEAs. A dynamic reference to MEAs would now include the Paris Agreement. The agreements can contain a specific standstill clause, as does the TPP, that deems the existing measures listed in an annex to fulfil the obligations under the incorporated MEAs. The TPP internal standstill clause is enforceable through the StateState dispute-settlement mechanisms modelled on that of the WTO if the repeal has an effect on trade. Beyond incorporating these general international standards, the agreements provide new rules addressing specific environmental problems of the region. Institutionalised cooperation on sustainable trade is to go beyond the floor that the MEAs constitute. The TPP provides for cooperative efforts to address (among other issues) energy efficiency and the development of cost-effective, low-emissions technologies and alternative clean and renewable-energy sources. Similarly, the agreements incorporate the international legal standard on labour. The TPP references, for that purpose, the minimum requirements of the International Labour Organisation (ILO) Declaration. This obligation is enforceable through the State-State dispute-settlement mechanism. 218

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Article 1114 of NAFTA accords Parties the right and considerable discretion in taking regulatory action ‘that it considers appropriate to ensure that investment activity in its territory is undertaken in a manner sensitive to environmental concerns’. See ‘EU-Canada Partnership: A Renewable Energy Powerhouse’, available at http:// partnership.eu-canada.com/wp/canadian-economic-sectors/canada-renewable-energy/.

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By contrast, CETA exempts its environmental and labour provision from such dispute settlement.

2 Protection of the Environment and Energy The common interest of the community of States in rules-based governance of the environment is manifest. The 1992 Rio Declaration provides the impetus and the principles for coherent international environmental law-making.220 Principle 1 of the 1992 Rio Declaration sets forth the master-norm of sustainable development. The common but differentiated responsibility of States for the global environment and the integration of economic, environmental and social concerns are the broad unifying rationales for this law development.221 The Rio Declaration also provides operational principles of a substantive nature – not to cause trans-boundary environmental harm – and of a procedural nature – to use precaution and to conduct environmental impact assessments.222 The legal implementation of this norm and these principles starts from the environmental good. The multilateral environmental agreements that protect global environmental goods are general and not limited to or specific to the energy sector. Yet these law-making treaties have started to regulate the risks that energy presents. This is true for the protection of the global climate through the transition to a low-carbon energy system (a). It is also true for the protection of global biodiversity through the control of energy technologies (b). Trans-boundary environmental goods are protected by regional treaty and customary international law, which also apply to energy (c).

a Combating Climate Change through Transformation of the Global Energy Sector The international efforts at combating climate change are based on the UN Framework Convention on Climate Change (UNFCCC).223 The new Paris Agreement illustrates that climate change law is its core energy law. The Convention’s preamble formulates its legislative programme. It identifies protection of the climate as the common concern of humankind,224 grounding the competence of the international community of States for climate action. Mitigation of climate change is based on the common responsibility of all Parties, which is differentiated having regard to 220 222 223 224

UN Doc. A/CONF151/26 (vol. I), Preamble, at [3]. 221 Rio Principles 4 and 7. Rio Principles 2, 15 and 17. 9 May 1992, entered into force 21 March 1994, 1771 UNTS 107. Preamble, at [1].

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historical causation of climate change and the current capacity to abate it.225 The UNFCCC sets forth the broad objective, the principles and the commitment structure of international climate change action. These are to be concretised by the Conference of the Parties to the Convention (COP), the supreme treaty body.226 Institutionalised scientific input227 has been singularly effective in providing the impetus for the COP to adopt treaties that implement the UNFCCC, the 2001 Kyoto Protocol and the 2015 Paris Agreement. Their comparison demonstrates the emerging consensus on the objective of transitioning to a low-carbon economy and the role of international climate law in the regulation of energy worldwide (1). Energy consumption in the transport sector is subject to specialist regulation (2). (1) Climate-Related Regulation of Energy: From the Kyoto Protocol to the Paris Agreement The Kyoto Protocol has been ratified by most, if not all, Parties of the UNFCCC.228 It is based on a top-down approach, providing for differentiated obligations for developed and developing Parties. Developed-country Parties assume quantified emission-reduction commitments – targets and timetables – to reduce their greenhouse gas (GHG) emissions.229 The first such commitment period stretched to 2012, while the Doha amendments to the Protocol cover the second commitment period up to 2020.230 The Protocol does not directly prescribe policies by which the Parties are to achieve these commitments, nor in which sectors of their economies, although it gives an impetus for enhanced energy efficiency and increased use of renewables (Article 2 (1)). Developed-country Parties may use the so-called flexibility mechanisms to achieve their targets cost-effectively. The rules that the meeting of the Parties to the protocol (CMP) adopted for these mechanisms cover energy and energy projects.231 The CMP has developed reporting 225 227

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Preamble, at [6]; and Article 2(1). 226 Article 7 of the UNFCCC. The Intergovernmental Panel on Climate Change (IPCC) was established jointly by the World Meteorological Organisation and the UN Environment Programme in 1988 to ensure rigour and impartiality of the scientific findings as well as the advice provided to policy-makers on the causes and effects of climate change. 11 December 1997, entered into force 16 February 2005, 2303 UNTS 148. Article 3 with Annex B to the Protocol. Decision 1/CMP.8. The amendment of Annex B requires acceptance by at least threefourths of the Parties to the Kyoto Protocol, while as of January 2017, seventy-four of the total 144 Parties had deposited their instrument of acceptance. Parties may provisionally apply the amendment (Decision 1/CMP.8, para. 5). CMP 1 adopted the implementing rules on Joint Implementation (JI) and the Clean Development Mechanism (CDM) in 2001 as part of the so-called Marrakesh Accords

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requirements for Parties to ensure that the reported data are verifiable. In discussing these reports, the CMP makes recommendations to each Party on its energy policies, within a broader emphasis on economywide action. These reporting obligations can be enforced by the Enforcement Branch of the Compliance Committee operating under the Kyoto Protocol, with the prospect of suspending the eligibility of a Party from accessing the flexibility mechanism of the carbon market.232 In December 2015, the COP adopted the Paris Agreement as a successor to the Kyoto Protocol for the period 2020–30.233 This is a treaty under international law.234 Climate action pursuant to the Paris Agreement is action on energy.235 The Agreement substitutes a bottom-up approach for the top-down modality of the Kyoto Protocol. Article 2(1) defines the binding collective target to hold the global temperature rise to well below 2°C and drive action to halt it at 1.5°C. This signals the shift towards a low-carbon economy. The Agreement has a direct focus on the regulation of energy geared towards a low-carbon energy system. This is reflected in the regulatory modality it employs. The contribution towards this objective by all Parties is an expression of their common responsibility. The recognition that it may take developing Parties longer to reach the peak of their emissions expresses the principle that these responsibilities are differentiated in the light of their national circumstances. But, in contrast to the Kyoto Protocol, the Agreement does not define individual binding emissions reduction targets for some Parties. It rather relies on the selfdetermined contributions by all Parties. Nationally Determined Contribution (NDC) indeed allows each Party to determine the content of its contribution against a harmonised template to control for the realistic and transparent nature of NDCs and pursuant to a principle of

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and CMP 11 those for Emissions Trading. The legal bases are Articles 6(2), 12m, 17 Kyoto Protocol. CDM eligibility requirements are reflected in section F in the modalities and procedures (Decision 3/CMP.1); JI eligibility requirements as reflected in section D in the guidelines for implementation of Article 6 of the Kyoto Protocol (Decision 9/CMP.1), and ET eligibility requirements are reflected in the modalities, rules and guidelines for emissions trading under Article 17 of the Kyoto Protocol (Decision 11/CMP.1). 12 December 2015, Decision 1/COP 20. The COP had established a subsidiary body – the Durban Platform – for the negotiations. In accordance with Article 21, the Paris Agreement entered into force on 4 November 2016, UN Secretary-General, Depositary Notification, C.N.735.2016.TREATIESXXVII.7.d. Decision 1/20 governed in the interim and in parts beyond. World Energy Outlook, 2016, at 1.

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progression. After the first, a new NDC must be submitted every five years and be progressively more ambitious. Each NDC thus fixes in effect a binding baseline for the subsequent ones. Flexibility under the Paris Agreement is combined with a mandatory governance procedure. This top-down element is to ensure that the collective objective is reached nevertheless and is administered centrally by the COP serving as the meeting of the Parties to the Agreement (CMA).236 It receives the biennially reports of Parties on their greenhouse gas inventories and information to track Parties’ progress in relation to implementation and administers the global stock take with its built-in review mechanism. Under it, the NDCs will be reviewed with a focus on whether they are collectively on track of achieving the objective of a temperature rise of no more than 2°C. Subsequent NDCs must take into account the scientifically informed results of the global stock take by the CMA. The CMA also has broad legislative responsibility, both to determine the actual objective in the spectrum between 1.5 and 2°C and concerning the future shape of the many mechanisms of the Agreement, for which the treaty itself only provides rudimentary provisions and legal narratives. This governance procedure internationalises policy-making of the Parties on effective climate action. By identifying the specific decarbonising policies they want to employ, Parties lift those to the international level. The first NDCs submitted by many of the major emitters break down carbon dioxide emission-reduction targets into energy policy-making.237 Thus the Intended Nationally Determined Contribution (INDC) of the United States, in addition to setting a quantified emissions-reduction target, internationalises the specific energy policies that the federal government has already taken to achieve it. Among these are the regulations of the Environmental Protection Agency on permissible carbon and equivalent emissions from power plants and other major industrial fossil energy consumers. The European Union has lodged a INDC that sets its quantified emissions reduction target of 40 per cent by 2030 and then refers to the emissions trading system as its principal policy, covering all stationary energy generation. China has committed to peaking of carbon emissions by, to be supported, inter alia, by a shift in energy policy towards renewables. These policy changes are universal. The Paris Agreement requests meaningful INDCs from the critical mass of States that together are 236 237

Article 14 of the Paris Agreement. Recorded in the NDC register, Article 4(12) of the Paris Agreement.

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responsible for most carbon emissions regardless of their status as developing-country Parties. But this is coupled with solidarity mechanisms. For this purpose, the Agreement deploys renewables technology transfer to developing-country Parties.238 Also, support will be available for green energy projects in developing-country Parties,239 financed by the developed-country Parties.240 Although the common responsibility in the light of the national circumstances of all Parties implies mutual trust in the discharge of these obligations, enforcement cannot be left to the decentralised instruments of treaty law241 and the law of State responsibility. It requires centralised enforcement. The Paris Agreement prefers this to be facilitative in nature and mandates the CMA with adopting the implementing rules.242 It will give effect to the material reciprocity underpinning the Agreement in that each party will assume its obligations because others assume an obligation of comparable weight. With its decentralising modality, the Paris Agreement opens itself to domestic law-making. This coincides with a horizontal consensus forming on the policy instruments for transitioning to a low-carbon energy system. Such consensus has been emerging globally on the use of emissions trading systems. National or sub-national systems are already operating or under development in about forty States, representing nearly a quarter of global GHG emissions.243 For instance, China has been piloting carbon markets and will be launching a national market from 2017 that would create the world’s largest carbon trading scheme.244 Consensus is also emerging about energy efficiency and promotion of renewables.245 238 239

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Article 10 with Technology Mechanism. Article 9.8 of the Paris Agreement transfers the Financial Mechanism of the Convention, including its two operating entities, the Green Climate Fund and the Green Environment Facility. See GEF, ‘Investing in Renewable Energy: The GEF Experience’, (2012), available at www.thegef.org/gef/sites/thegef.org/files/publication/gef_renewenergy_oct2012 _r16.pdf. Article 9; Decision 20/1 ‘strongly urges developed country Parties . . . to achieve the goal of jointly providing USD 100 billion annually by 2020 for mitigation and adaptation’, at [115]. Article 60 of the VCLT: termination or suspension of obligations after material breach. The option of a court contained in earlier drafts supports justiciability in other forums. World Bank Group, ‘State and Trends of Carbon Pricing’ (October 2016). W. Liu, ‘Update on Developments on China’s National ETS’ (World Bank Report, October 2016). Also, Canada, Japan, Kazakhstan, New Zealand, South Korea, Switzerland and the United States. The Global Geothermal Alliance (GGA), a partnership of thirty-six States and twentythree organisations, is set to achieve a 500 per cent increase in global installed capacity for geothermal power generation and a 200 per cent increase for geothermal heating by

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(2) Climate Action on International Transport The UNFCCC is the exclusive forum for international climate change action, covering all sectors of the global economy. It generates the legally binding climateprotective obligations concerning energy, while other forums need authorisation for such action. These are the UN specialised agencies for the air and maritime transport sectors.246 The International Maritime Organisation (IMO) is authorised for the maritime sector and the International Civil Aviation Organisation (ICAO) for the air transport sector, which both have absorbed the objective of controlling the emissions from carbon fuels.247 The international law of maritime and air transport thus is evolving towards the international regulation of energy consumption through quasi-legislative measures. The so-called tacit consent procedure makes amendments to the technical standards to the constituent conventions binding on all Member States that do no object.248 Through this procedure, the IMO adopted fuel efficiency standards for vessels in 2013.249 In February 2016, the ICAO standardsetting process started, with its Committee on Aviation Environmental Protection recommending the first global fuel efficiency standard for commercial aircraft to be adopted by the Governing Council.250 The standard will apply to new aircraft designs from 2020 and to aircraft currently in production from 2023. It lays the groundwork for a market-

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2030. India launched the International Solar Alliance (ISA), which aims to align States with abundant solar potential. The Africa Renewable Energy Initiative (AREI) announced plans to build at least 10 GW of new and additional renewable energy generation capacity by 2020 and 300 GW by 2030. More than seventy States have agreed to phase out incandescent bulbs and promote the most efficient lighting technologies such as LEDs. Article 2(2) of the Kyoto Protocol. ICAO’s goal is to stabilise carbon dioxide emissions from international aviation at 2020 levels. Amendments to the International Convention for the Prevention of Pollution from Ships (MARPOL) Annexes adopted by the IMO enter into force for all Parties who have not objected to them within a specified deadline. Amendments to the Convention on International Civil Aviation (Chicago Convention) Annexes for Standards and Recommended Practices (SARPs) are adopted by the Governing Council by two-thirds majority. Contracting States are allowed three months to indicate disapproval of adopted amendments. The new chapter 4 of MARPOL Annex VI, entitled ‘Regulations on Energy Efficiency for Ships’, makes mandatory the Energy Efficiency Design Index (EEDI) for new ships and the Ship Energy Efficiency Plan (SEEMP) for all ships, entered into force on 1 January 2013, and applies to all ships over 400 gross tonnage. The regulations are expected to be amended to reduce emissions from today’s level. ICAO press release, 8 February 2016.

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based mechanism to prevent aviation emissions from growing after 2020. In September 2016, the 39th ICAO Assembly adopted the carbon offsetting scheme and established a roadmap for implementation from 2020.251 Under it, operators of international flights will have to purchase yearly emissions units.252 (3) Climate Action on Consumer Goods Climate action and energy efficiency are behind the phase-out of hydrofluorocarbons (HFCs) used in air-conditioning and cooling systems and one of the six main greenhouse gases. The Kigali amendment253 to the Montreal Protocol on Ozone Depleting Substances254 provides specific targets and timetables to replace HFCs with alternatives, with a differentiated target date for each of three groups of world economies.255 The Montreal Protocol commits all Parties to mandatory mitigation measures and ensures compliance through a robust compliance assistance program backed up with sanctions. The top-down instrument is appropriate for the control of HFCs that are only used in a specific, heavily concentrated sector and for which alternatives are readily available. While this is a top-down instrument, the Montreal Protocol has always catalysed market transformation faster than the mandated dates for phase-outs.

b International Environmental Standards for Energy Technologies Other global environmental goods demand regulatory action on new energy technologies and products. This is so for the risks of climate-friendly biofuel monocultures for global biological diversity. The basis is the 1992 UN Convention on the Protection of Biological Diversity (CBD)256 and the 1992 Ramsar Convention on Wetlands257. The Conference of the Parties 251

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ICAO Assembly, Resolution A39-3, ‘Consolidated Statement of Continuing ICAO Policies and Practices Related to Environmental Protection: Global Market-Based Measure (MBM) Scheme’, available at www.icao.int/Meetings/a39/Pages/resolutions .aspx. ICAO Assembly, Resolution A39-3, at [11]. Emissions units are offset credits from crediting mechanisms and allowances from emissions trading schemes. MOP 28, Decision XXVIII, further amendment of the Montreal Protocol, Annex, 14 October 2016, UNEP/OzL.Pro.28/CRP/10. 16 September 1987, entered into force 1 January 1989, 1522 UNTS 3. The richest countries, including the United States and those in the European Union, will reduce the production and consumption of HFCs from 2019. Most others will freeze the use of HFCs by 2024. A small group of the world’s hottest countries will freeze HFC use by 2028. 5 June 2991, entered into force 29 December 1993, 1760 UNTS 79. 2 February 2017, entered into force 21 December 1975, 996 UNTS 246.

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to the CDB has recognised that the regulation of biofuels falls under the CBD but has yet to adopt a binding standard and decentralised the matter. This is evident from Decision X/37 of the Conference of the Parties which recognised the need for the continuing improvement of policy guidance and decision-making to promote the positive and minimise or avoid the negative impacts of biofuels on biodiversity and which invited Parties to develop national inventories so as to identify areas of high biodiversity value, critical ecosystems and areas important to indigenous and local communities and to assess and identify areas and, where appropriate, ecosystems that could be used in or exempted from the production of biofuels.258 This non-exercise of the shared competence for biodiversity on the international level has triggered unilateral action at the regional level.259

c Preventing Trans-Boundary Harm from Energy International environmental law also seeks to prevent harm to transboundary rather than global environmental goods. The fundamental preventive rules are now laid down in customary international law. These substantive and procedural rules also serve the environmental sustainability of trans-boundary energy production and transport projects, albeit at some level of generality. Under Rio Principle 2, States must prevent activities within their jurisdiction that cause substantial damage to the environment of other States or areas beyond national jurisdiction. Rio Principles 17 and 19 poceduralise this by requiring States to carry out an environmental impact assessment to prevent trans-boundary harm and give warnings where significant harm may occur. These principles have now crystallised into customary international law and are thus universally applicable.260 The rules apply to any type of trans-boundary activity,261 including energy-related projects. Hazardous activities with potentially trans-boundary harm are subject to additional customary law 258 259

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UNEP/CBD/COP/DEC/X/37, 29 October 2010. E. Morgera, ‘Ambition, Complexity and Legitimacy of Pursuing Mutual Supportiveness through the EU’s External Environmental Action’, in: B. Van Vooren, S. Blockmans and J. Wouters (eds.), The EU’s Role in Global Governance: The Legal Dimension (Oxford University Press, 2013), 195, 201 (‘contingent unilateralism’). Pulp Mills, note 37, at [204, 205] (environmental impact assessment as customary law). Certain Activities Carried Out by Nicaragua in the Border Area (Costa Rica v. Nicaragua), Construction of a Road in Costa Rica Along the San Juan River (Nicaragua v. Costa Rica), Judgment of 16 December 2015 (dredging).

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rules.262 Such activities are not prohibited, but they must be licensed, and the territorial State is strictly liable for all trans-boundary harm caused, regardless of fault. The term ‘hazardous’ refers to any activity involving a risk of causing significant trans-boundary harm through physical activities.263 Energy production, in particular, nuclear installations, can fall under this definition. These customary law principles have been concretised by multilateral law-making treaties providing for effective control of trans-boundary pollution. The UN Economic Commission for Europe (ECE) Convention on Long-Range Air Pollution establishes standards for large industrial sources of key pollutants, including energy generation.264 The UN ECE Espoo Convention contains a standardised environmental impact assessment that applies to trans-boundary pipelines but not to cables.265 The Protocol on Strategic Environmental Impact Assessments to the Convention now applies to both types of projects.266 The Convention has also governed the planning of the Nordstream pipeline for gas from Russia via the Baltic Sea.267 The Paris Convention268 provides a compensation regime for damage resulting from a nuclear accident. The nuclear installation operator is exclusively and strictly liable for 262

263 264

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See ILC, ‘Articles on Prevention of Transboundary Harm from Hazardous Activities’, Doc A/56/10 (2001); ‘Principles on the Allocation of Loss of in the Case of Transboundary Harm Arising Out of Hazardous Activities’, Doc A/59/10 (2006). Article 1 of the Prevention Articles. Convention on Long-Range Transboundary Air Pollution, 13 November 1979, entered into force 16 March 1983, 1302 UNTS 217. The 1994 Oslo Protocol on Further Reduction of Sulphur Emissions, entered into force 5 August 1998, sets emission ceilings and control technologies for stationary sources, both energy generating and consuming, until 2010 and beyond. Parties are also required to take measures to increase energy efficiency and use of renewable energy. Convention on Environmental Impact Assessment in a Transboundary Context, 25 February 1991, entered into force 10 September 1997, 1989 UNTS 309, Annex I, no. 8; second amendment adopted by Decision III/7 of the meeting of the Parties. Protocol on Strategic Environmental Impact Assessment, entered into force 11 July 2010, Annex I, parts 1–3 and part 8. C. Redgwell, ‘Contractual and Treaty Arrangements Supporting Large European Transboundary Pipeline Projects: Can Adequate Human Rights and Environmental Protection Be Secured?’, in Energy Networks, note 150, 104. Convention on Third Party Liability in the Field of Nuclear Energy, 29 July 1960, 974 UNTS 256. The OECD Secretary General is the depositary for the Paris Convention, which has been amended three times by protocols adopted in 1964, 1982 and 2004. The 1960 Convention and the 1964 Protocol entered into force on 1 April 1968. The 1982 Protocol entered into force on 7 October 1988. The 2004 Protocol is not yet in force.

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damage resulting from accidents at its installation or during the transport of nuclear substances to and from that installation.

3 The Oceans and Marine Energy The 1982 UN Convention on the Law of the Sea269 embodies the common interest of the international community in oceans governance.270 The overall objective of this universal law-making treaty is to establish legal order for all oceans issues.271 Although predating the 1992 Rio Declaration, the Convention has absorbed the norm of sustainable development as well as the supporting Rio Principles272 and hence the new derivative norm of sustainable energy. The Convention becomes the instrument for regulating the marine energy economy. It does so in two ways. It coordinates the competences of States for using the oceans for purposes of energy resource exploitation, transport of energy by vessel and transmission via infrastructure (a). However, it also enables the cooperative exploitation of marine energy resources (b), and it provides a framework for international law-making to protect the marine environment from energy-related risks (c).

a Division of Competences over the Marine Energy Economy under the UN Convention on the Law of the Sea The Convention allocates competences to States over all uses of the oceans. This concept also applies to the two elements of the marine energy economy, fossil and renewable marine energy resources and the transport and transmissions of energy across the oceans. For this purpose, the Convention defines three maritime zones under national jurisdiction. These zones are the territorial sea, the exclusive economic zone (EEZ) and the continental shelf including any outer continental shelf. Within these maritime zones, the Convention allocates competences and rights over each potential use of the sea to the coastal State or to flag States. Seawards, there are two zones beyond national jurisdiction, the high sea and the deep seabed. The Convention allocates to the coastal State the majority of marine energy resources. The coastal State has sovereignty over these resources 269 270

271

10 December 1982, entered into force 16 November 1994, 1833 UNTS 397. The common heritage of mineral resources of the deep seabed and the common concern for the biological resources in areas beyond national jurisdiction deepen this general common interest. Preamble, at {4]. 272 Deep Seabed Opinion, note 37, at [126].

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located in its territorial sea, and it possesses sovereign rights in relation to the resources of the continental shelf and the EEZ. In addition to oil, gas and methane ice on the continental shelf, Article 56 grants the coastal State all marine renewable energy sources of the water column of the EEZ, ranging from wind to tidal energy and including solar energy. The coastal States have the jurisdiction to set the relevant rules. The Convention seeks to establish legal certainty as the precondition for any investment in these energy resources. This rationale of legal certainty applies to determining the identity of the competent coastal State by delimiting the maritime zones of States with opposite or adjacent coasts. The Convention provides for such delimitation only as the broad principle of an equitable outcome but empowers the judicial machinery to develop the concretising rules. The courts and arbitral tribunals having jurisdiction under the Convention have accordingly developed a threestep methodology of first establishing a provisional equidistance line, then modifying it for special circumstances and finally controlling for the proportionality of the apportionment with the coasts of the respective States.273 The application of this method requires a high degree of transparency to be legitimate. Alternatively, States remain free to delimit their boundaries by agreement. Any such settlement has, however, now to be based on this judicially developed doctrine of equidistance cum relevant circumstances, reinforcing the Convention as an objective legal order. In significant contrast to the exclusive allocation of marine resources to coastal States, the so-called immersion freedoms of the high seas have been maintained for the novel maritime zones that the Convention designs. Thus, transmitting energy by subsea infrastructure on the continental shelf is the right of every State. Each State may lay and operate pipelines and cables on the continental shelf of any State.274 The term ‘cable’ also comprises electricity cables. The extent of this right differs for both types of infrastructure, though. The course of pipelines is subject to the approval of the coastal State. This serves marine environmental protection from the specific hazards of oil pipelines. No such limitation of flag State jurisdiction has been provided for cables, but the coastal State arguably has a residual competence regarding risks emanating from 273

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Bay of Bengal Maritime Boundary Arbitration between Bangladesh and India, PCA Case 2010-16, 7 July 2014. Article 82 UNCLOS, referenced by Article 62 for the EEZ. For common marine oil and gas resources, see D. Ong, ‘Joint Development of Common Offshore Oil and Gas Deposits: “Mere” State Practice or Customary International Law?’ 93 AJIL 771.

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cables.275 A comparison between the laws of several coastal States can provide further clarification regarding the extent of the coastal State’s jurisdiction over both pipelines and cables.276 Operators of the flag State have to comply with these laws. This non-exclusive approach also applies to navigation. Thus is covered the transportation by vessel from the centres of production to those of consumption for fossil energy, traditionally oil, but now also liquefied natural gas. Navigation is the right of all States on the high seas and in the EEZ,277 and there are rights of transit passage for strategic international straits, such as the Strait of Hormuz and the Malakka Strait, and innocent passage through the territorial seas. These rights are enforceable through the Convention’s dispute-settlement system, where the immediate release of a ship arrested by the port State can be obtained. General legal principles, especially reasonableness, necessity and proportionality, bind coastal States in exercising their competences over vessels in their maritime zones, protecting navigation.278

b Joint Marine Energy Projects under the Convention The principle of nationalising marine energy resources and infrastructure, with States acting in their national interest and little international law, is a broad synthesising conception of clusters of Convention law. It may be modified by subsequent practice. The 2030 Agenda and the UN Open-Ended Informal Consultative Process on Oceans and the Law of the Sea focusing on ‘marine renewable energies’279 and the international governance of marine renewable energy projects shift that balance towards the internationalising principle, where States act in the common interest. The efficient exploitation of such energy depends on large-scale electricity infrastructure. States need to cooperate across jurisdictional zones for a common objective on the exercise of their respective rights 275

276 277 278

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V. Roeben, ‘Governing Shared Offshore Electricity Infrastructure in the Northern Seas’, (2013) 62 International & Comparative Law Quarterly 839, at 846–8. The M/V ‘Virginia G’ (Panama/Guinea-Bissau), [2014] ITLOS Reports 4, at [253, 285]. Article 87 and 63 of the UNCLOS. M/V Virginia G (Panama v. Guinea-Bissau), [2014] ITLOS Reports 4, at [270]; In the Matter of the Duzgit Integrity Arbitration (Malta v. São Tomé and Príncipe), PCA Case 2014-07, 5 September 2016, at [209]. Report on the work of the UN Informal Consultative Process on Oceans and the Law of the Sea at its thirteenth meeting, UN Doc A/67/120; and report of the Secretary General (UN), ‘Oceans and the Law of the Sea’, A/67/79 (31 August 2012) (‘marine renewable energies’).

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over wind energy, cables and installations accordingly. This is certainly so for States operating in the context of the northern seas and in comparable settings. But, in principle, this holds true whenever States intend to exploit efficiently their offshore wind energy resources.280 Such cooperation includes joint planning of a grid, authorisation and regulatory oversight and cross-border cost sharing. The Convention indeed enables such cooperation by providing legal certainty on what each State may do regarding offshore resources and infrastructure.

c Cooperation on the Energy-Related Risks to the Marine Environment Conversely to the coordinating allocation of competences over uses of the sea, the Convention’s approach to protection of the marine environment is cooperative. Energy is a source of environmental pollution, as Article 1 of UNCLOS makes clear. Parties must cooperate to protect the marine environment from such pollution.281 The procedural Rio Principles apply to the protective action. The precautionary principle governs,282 and environmental impact assessments need to be conducted.283 The Convention progressively harmonises the national laws on marine environmental protection.284 The cooperatively developed international rules for the protection of the marine environment become the reference for coastal and flag States in exercising their respective competences. Such rules exist on a universal level for the prevention of ocean pollution from vessel-borne transport of fossil

280

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Roeben, ‘Governing Shared Offshore Electricity Infrastructure in the Northern Seas’, note 275. M. Esteban and D. Leary, ‘Current Developments and Future Prospects of Offshore Wind and Ocean Energy’, (2012) 90 Journal of Applied Energy 128 (wind energy projects in Asian-Pacific countries supported by regional cooperation); R. Zidalis, International Energy Law: Rules Governing Future Exploration, Exploitation and Use of Renewable Resources (Routlegde, 2000). Article 192 of the UNCLOS. Deep Seabed Opinion, note 37, at [125–35]; ITLOS (Special Chamber), Dispute Concerning Delimitation of the Maritime Boundary between Ghana and Côte d’Ivoire in the Atlantic Ocean (Ghana/Côte d’Ivoire), Provisional Measures, Case 23, Order of 25 April 2015, at [72] (precautionary approach). The ICJ has yet to recognise the customary international law status of this principle. ITLOS, Case Concerning Reclamation by Singapore in and around the Straits of Johor (Malaysia v. Singapore), Provisional Measures, [2003] ITLOS Reports 10, at 95. Further, C. Redgwell, ‘From Permission to Prohibition: The LOSC and Protection of the Marine Environment in the 21st Century’, in D. Freestone et al. (eds.), The Law of the Sea: Progress and Prospects (Oxford University Press, 2006), 180.

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energy products.285 Regional treaties regulate offshore energy-production installations.286

4 Managing Energy Security The UN Charter embodies the common interest of the community of States in maintaining international peace and security. The concept of security now extends risks to global stability of an abstract nature. The UN Security Council, which has the primary responsibility for maintaining international security (Articles 24 and 25 of the UN Charter), determines and manages such risks through binding measures, both of general application to all States and aimed at industries and individuals (Articles 39, 41 and 42 of the UN Charter).287 The Security Council currently manages energy forms and product for the risks they pose for global stability. This is the case for nuclear energy (a) and the strategic use of fossil energy resources (b). In the future, the Security Council may act to control risks to energy security by allaying supply crises (c) and by defending energy infrastructure (d).

a Energy as a Risk to Global Stability The UN Security Council regulates the nuclear energy cycle because of the direct risk to global stability that any use of nuclear energy for nonpeaceful purposes embodies. The Council is competent to take binding measures under Chapter VII of the UN Charter if the threshold of a threat to international security is met (Article 39). It has qualified as such threats certain risks, that is, abstract constellations that may lead to interState conflict or large-scale loss of human life. In this sense, the Council has qualified the proliferation of nuclear weapons beyond the circle of nuclear powers as a threat per se to international peace and security.288 This extends to nuclear energy because the technology of uranium 285

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International Convention for the Prevention of Pollution from Ships, 1973 as modified by the Protocol of 1978 (MARPOL 73/78), with International Convention on Civil Liability for Oil Pollution Damage (CLC), replaced by protocol, 27 November 1992, entered into force 30 May 1996, as amended in 2000. Convention for the Protection of the Marine Environment of the North-East Atlantic, 22 September 1992, entered into force 25 March 1998 (OSPAR); Decision 98/3 on the disposal of disused offshore installations; ‘Guidance on Environmental Considerations for Offshore Windpark Development’ (2008). Crawford, ‘Responsibility for Breaches of Communitarian Norms’, note 3, at 764–5. The possession of nuclear weapons itself is not prohibited in international law, Legality of the Threat or Use of Nuclear Weapons, [1996] ICJ Reports 226, 266.

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enrichment can also be used to create nuclear weapons. All States must prevent proliferation of nuclear technology and materials by non-State actors.289 The limit of this competence of the Security Council is the sovereign right of every State to include the peaceful use of nuclear energy in its energy mix. The Treaty on Nuclear Non-Proliferation concretises this limit. It recognises the said right of every Party and then offers technical support in the peaceful use of nuclear energy in exchange for the renunciation of nuclear weapons.290 Referencing the Non-Proliferation Treaty, the Security Council regulates the use of nuclear energy by individual States to ensure the exclusively peaceful purpose.291 The measures under Article 41 of the UN Charter employ substantive rules, procedure and organisation. In the case of Iran, the Joint Comprehensive Plan of Action endorsed by the Security Council lays down the rules and procedures for the entire Iranian nuclear programme.292 The IAEA is tasked with verifying compliance with Iran’s safeguards agreement.293 In the case of North Korea, Security Council measures prohibit trade in nuclear materials and technology, granting States interdiction powers.294 The non-proliferation norm is further implemented in energy-specific international law. Thus the ECT and the International Energy Charter affirm that the trade in nuclear materials is subject to specific agreements.

b Fossil Energy The Security Council furthermore regulates the fossil energy sector as a means of risk management. This concerns producer States whose actions are a concrete threat to the territorial integrity of others295 or present a risk 289 290 291 292

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S/RES/1540 (2004). 1 July 1968, entered into force 5 March 1970, UNTS 168, Articles I and II. S/RES 2231 (2015). The Joint Comprehensive Plan of Action (JCPOA), concluded on 14 July 2015 between Iran and China, France, Germany, the Russian Federation, the United Kingdom, the United States and the European Union, includes rules on all uranium enrichment activities, S/RES 2231 (2015), Annex A. S/RES/2213 (2015), at [8], with documents S/2006/814 and S/2006/815. A Joint Commission is responsible for making recommendations on proposals by States to participate in or permit nuclear-related activities through a Procurement Working Group (PWG). The PWG procedures and timelines are specified in JCPOA, Annex IV. S/RES/1718 (2006). S/RES/661 (1990) concerning Iraq after the invasion of Kuwait. Decentralised sanctions targeting the energy sector of the Russian Federation for its role in the Crimean and Ukrainian conflicts have been taken by the European Union and the United States. The

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for global stability. The measures then regulate the entire energy system of the States concerned, covering their access to technology and capital for production and access to clearing mechanisms for trade. They bind all States. Such measures must be lifted once they have achieved their purpose. The measures against the Iranian energy sector provide the template of this management regime.296 Their lifting, in turn, secures global energy supply by permitting international investment in the Iranian energy sector to make exports viable.297 The Security Council has extended this template of energy management to non-State actors that control resources and have been qualified as terrorist organisations.298

c Energy Security The 2030 Agenda potentially expands this role of the Security Council in managing energy-related risks to global stability further. Its intervention may be warranted to protect secure access to energy, as non- or underfulfilment of that norm may constitute a risk for global stability.299 A severe energy crisis destabilising a State or a region with cross-border implications can be qualified as a threat to international peace and security within the meaning of Article 39 of the UN Charter by the Security Council. Making such a finding would be within the broad interpretive margin that the Security Council’s competences entail.300 Such a finding would then ground its power to take non-forcible binding measures to manage an energy supply crisis. The Security Council has already set a precedent for severe public good supply crises that destabilise societies. It has declared a health epidemic to constitute a threat to international peace and security,301 and the Security Council management has aimed to mobilise the collective effort to provide medical

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unilateral use of force against oil platforms and other means of production is prohibited by Article 2(4) of the UN Charter, Oil Platforms (Islamic Republic of Iran v. United States of America), [2003] ICJ Reports 161, at [31–78]. Security Council Resolutions 1696 (2006), 1737 (2006), 1747 (2007), 1803 (2008), 1835 (2008), 1929 (2010) and 2224 (2015) concerning Iran and nuclear proliferation. S/RES/2231 (2015), terminating previous resolutions on the Iranian energy sector, after the IAEA reported that Iran had taken the series of initial nuclear-related measures called for in Resolution 2231. S/RES/2170 (2014), at [13–17] (oil controlled by terrorist organisation ISIS). OSCE Parliamentary Assembly, ‘Promotion and Use of New and Renewable Sources of Energy’, Resolution adopted at the 21st OSCE PA Annual Session, 9 July 2012, at [14] (energy security). Certain Expenses of the United Nations, Advisory Opinion, [1962] ICJ Reports 1, 168. S/RES/2177(2014), preamble, at [5] (unprecedented Ebola outbreak in Africa).

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support, including from competent international organisations.302 This template could be transferred to the management of an energy supply crisis. Functioning cross-border energy infrastructure secures supply but is vulnerable to terrorist and other attacks, which the Security Council has characterised as a threat to international security.303 It may therefore in the future extend its existing regime for combating terrorism to the cooperative protection of such infrastructure.304 Regional security organisations within the meaning of Chapter VIII of the UN Charter, such as NATO, have already brought this under their remit.305

5 Development and Human Rights The 2030 Agenda and goal 7 give a clear international development law aspect to energy. The norm of universal access to secure, sustainable and affordable energy implies solidarity on energy, met by transfers of investment and technology from developed to developing countries. The general instruments for financing sustainable development are being reprogrammed to this effect. The World Bank finances energy efficiency and renewable energy in addition to traditional oil and gas projects.306 The Paris Agreement provides financial support for climate-friendly energy projects in developing-country Parties. These actions sustain a reinterpretation of the collective right to development that is decoupled from fossil fuels. In addition to this collective right, there is the universal individual human right to solidarity in energy. The right of everyone to an adequate standard of living (Article 11 of the International Covenant of Economic, Social and Cultural Rights) contains explicitly the right to housing, which the Committee on Economic, Social and Cultural Rights (CESCR) has interpreted to contain the right to availability of domestic energy.307 This turns domestic energy into a public good,308 which States are responsible to respect, protect from others and 302

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WHO, ‘Statement on the First Meeting of the IHR Emergency Committee on the 2014 Ebola Outbreak in West Africa’, 8 August 2014 (public health emergency of international concern, allowing it to dispense aid). S/RES/2253 (2015), preamble, at [1]. 304 Addis Agenda, note 96. North Atlantic Council, Bucharest Summit Declaration, 3 April 2008, at [48]. World Bank Group, 2015 Annual Meeting, institutional commitment to increase climate-related investments by 28 per cent by 2020. Committee on Economic, Social and Cultural Rights, General Comment 4, HRI/GEN/1/ Rev. 9 (vol. 1) 11. A. Eibe, ‘Adequate Standard of Living’, in D. Moeckli et al. (eds.), International Human Rights Law (Oxford University Press, 2014), 195–216, at 198, 204.

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progressively fulfil. This provision provides a principle in the sense of a directive or rationale addressed to the public authorities of each Party, as well subjective, judicially enforceable rights under certain circumstances.309 Monitoring lies with the CESCR under the Pact and the UN Human Rights Council.310 Its Universal Periodic Review has proved powerful in reviewing the human rights records of all UN Member States.311 The reports demonstrate that States perceive the provision of sustainable energy to all under their jurisdiction, free of any discrimination, as a human rights obligation.312

IV International Regulation of Energy and Its Legal Regime Preceding sections analysed the two pathways along which the international law on energy is developing. This section offers a synthetic conception of this process that sustains the present and future international regulation of energy (1) based on a complex international legal regime that integrates the two pathways (2).

1 Regulating the Global Energy Cycle Regulation is first a synthesising conception of the current modus of international law, following on the international law of coordination and the international law of cooperation.313 In a descriptive definition, the purpose of international law as regulation is to realise specific common interests of the community of States in cross-border value chains and systems. It marks a departure from the international law of cooperation towards an international community of States that defines community interests to bring about societal changes through concerted law-making in all sectoral orders. This new approach is characterised through welldefined goals and targets, the incorporation of scientific evidence as the basis for all legal developments and the tightening of the latitude for all States leading to the complete exclusion of the possibility to take action 309

310 311 312 313

Ibid., at 214. Further, S. Langford, ‘Closing the Gap? – An Introduction to the Optional Protocol on Economic, Social and Cultural Rights’, (2009) 27 Nordic Journal of Human Rights 1. A/RES/60/251. A/HRC/RES/5/1, with reporting guidelines adopted by the Council at its sixth session. See report of Nicaragua, A/HRC/WG.6/19/NIC/1. J. H. H. Weiler, ‘The Geology of International Law: Governance, Democracy and Legitimacy’, (2004) 64 ZaöRV 550; Trachtman, The Future of International Law, note 13.

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outside this legal framework, accepted by States because it is based on material reciprocity efforts. It comprises the international rules that the community of States requires, putting its governance arrangements on a legally binding foundation. These rules are intended to be of universal application, eventually binding all States. Although the immediate addressees are mostly States, many rules are ultimately designed to alter private behaviour. International regulation signifies programmatic legal change from the status quo of international law that supports the coordinated exercise by States of their sovereignty and their sectoral cooperation. International regulation then creates functional orders for cross-border systems. These functional normative orders have a horizontal quality, cutting across the sectoral orders of international law, which are based on treaties codifying all matters. Energy exemplifies this new regulatory modus of international law. International rules cover the global energy value chain through the stages of generation, transmission and distribution to consumption. These rules serve the common interest of the community of States in rules-based governance of energy. The programme of this regulatory change breaks down into its drivers, modalities and normative parameters. The drivers of the international regulation of energy are located on three levels. The overall driver is the universal norm of secure, sustainable and affordable energy for all laid down in the 2030 Agenda. SDGs 7 and 13 and the associated targets are drivers of change on the medium level of abstraction. Promoting renewables in the energy mix and improving the energy efficiency, global infrastructure and the general decarbonisation of the global energy sector are such drivers. The third driver is identifying regulatory priorities not just for energy-specific international law but also for the principal branches of international law, including world trade law, international environmental law, the law of the sea and the law of collective security. Taken together, these drive regulatory change across the entire international energy cycle from generation from certain preferred sources, to its transmission and transport via network infrastructure and vessels, to consumption across all end uses. This regulation employs four principal modalities. The first is treaty. Treaty rules serve to impose negative disciplines on States that are operational as such or to harmonise national law. Organisation is the second modality. Organisation serves effective treaty implementation through rule-making or the development of policies and best practices. Third, there is financial support for developing countries in making the transition to modern energy. Finally, a novel procedural modality

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underpins the bottom-up approach to international energy regulation. This governance procedure combines a non-prescriptive obligation for self-determined national commitments with strict procedural obligations to report to a central body, progressive increase in commitments and joint decision-making on the collective ambition and its implementation. The Paris Agreement enshrines this procedure for binding international law for the decarbonisation of the international energy comprehensive. The 2030 Agenda establishes such a procedure for all energy-related action of States and international organisations and across all branches of international law. The implementation of these drivers and modalities by the community of States is subject to a set of normative parameters: responsibility, solidarity and human dignity. Responsibility is one of the institutions of contemporary international law, located at a higher level of abstraction than its rules and principles.314 Through it, international law makes strategic decisions about the relation with its political environment. The idea of international responsibility is to clarify who does what and is accountable to whom in relation to a shared objective. These three vectors of responsibility are concretised through the development of international rules and particularly law-making treaties and their interpretation. The 2030 Agenda acknowledges the responsibility that the international community of States has towards humanity for the provision of the public good of modern energy. The international governance and regulation of energy and the sustaining complex international legal regime are grounded in this responsibility. Responsibility thus becomes the organising principle whose vectors structure the development of international law on energy. With Agenda 2030 bringing energy under the master norm of sustainable development, all States have accepted responsibility for regulating for a system that delivers sustainable, secure and affordable energy for all. Each becomes accountable to the community of States, and ultimately humanity, for its actions in this regard. What States are accountable for is concretised by international rules that stretch horizontally across all segments of international law. States are responsible for considering the contribution that any given treaty to which they are Party can make towards the common objective and to which treaty a given regulatory task should be allocated. While States are primarily responsible, institutional actors established under these treaties 314

V. Roeben, ‘Responsibility in International Law’, (2012) 15 Max Planck Yearbook of United Nations Law 1389.

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assume a secondary responsibility for developing these treaty regimes further.315 Tertiary responsibility rests with the principal private actors, and that responsibility is concretised in commitments on the international plane. Human rights are the second normative parameter. The traditional focus of international human rights has been on the State, in the sense of constraining State power to ensure the internal homogeneity of States engaging in cooperation.316 However, if the community of States undertakes international regulation of a matter, it itself becomes the addressee of these rights. Human rights comprise liberty, equality and solidarity rights, which are universal, interrelated, interconnected and indivisible.317 These set parameters for international energy regulation. The liberty rights form parameters for the international regulation of the economic side of energy, particularly the right to property on a regional level. The relevant solidarity rights comprise the inalienable right of every individual to participate in energy development.318 The guarantee of a life of dignity is the central unifying concept for all human rights,319 so not just each human right has a dignity component to it, but in truth all international law has so as well. International energy regulation thus must ensure every individual access free of discrimination to the secure, sustainable and affordable energy that permits a life of dignity. This regulatory change programme covers the cross-border value chain of energy through the stages of generation, transmission and distribution to consumption. The realisation of this programme depends on intergovernmental cooperation and therefore the willingness of sovereign States to engage with it in fragmented decision-making structures. The Energy Community, which employs the supranational method, constitutes an exception. Although the consent principle is hedged by the common responsibility that all States have accepted, the regulatory programme is therefore not realised in full and at the same time in all areas of international law, but some elements of it will be present in each. 315

316 317

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Deep Seabed Opinion, note 37, at [135] (responsibility of States parties for the protection of the marine environment of the deep seabed); Bay of Bengal, note 273, at [339] (responsibility of courts and tribunals to concretise delimitation rules). Trachtman, The Future of International Law, note 313, 253. Vienna Declaration and Programme of Action (VDPA), adopted by the World Conference on Human Rights, 25 June 1993, at [5]. VDPA, at [10], referring to A/RES/41/128 (1986). VDPA, preamble, at [2]. Further, C. McCrudden, ‘Human Dignity and Judicial Interpretation of Human Rights’, (2008) 19 EJIL 655, 664.

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2 The Complex International Legal Regime of Energy The international regulation of energy is being realised through international law-making. Entering into international law obligations sends the strongest signal of the political commitment of States. This creates the legal certainty for long-term planning by private actors, indispensable for the intended transformation of the global energy economy. This international law-making has shaped two development pathways, one for generating energy-specific international law and the other for producing energyrelated international rules within the remit of the sectoral orders of international law. The resulting body of international law on energy can be reconstructed into a complex international legal regime, making it possible to gauge the extent to which the regulatory programme is being achieved. International lawyers use the term ‘regime’ to highlight the material unity of a set of international legal rules. The term then has two principal senses. The first sense of an intra-treaty regime indicates the whole that a treaty, its implementing treaties and the sub-treaty rules form. It must be accepted, interpreted and applied as such. The second sense focuses on the relationship between different treaties. The term will be used here in this latter sense of an inter-treaty regime. The inter-treaty regime of energy is grounded in the 2030 Agenda and SDGs 7 and 13. The common objective of transiting to universally secure, sustainable and affordable energy underpins the material unity of treaties hailing from separate branches of international law. This international legal regime of energy is complex precisely because it brings under it two pathways of international law development.320 Energy-specific international and non-specific general international law form the two components of this complex regime. This complex regime fulfils three principal regulatory functions: (1) establishing a clear competence order for all energy sources and energy policy, (2) securing supply by liberalising commerce and investment in energy and (3) making energy sustainable by decarbonising the global energy system. These regulatory functions are allocated for legally binding treatment to treaties from either pathway. The common functionality causes the energy-specific and general pathways to converge. Treaties 320

Further, B. Grady, ‘EU Lifestyle Policy and International Law: A Three-Level Game’, in A. Alemanno and A. Garde (eds.), Regulating Lifestyle Risks (Cambridge University Press, 2015); 263 (complex regime of international lifestyle regulation); Alvarez, ‘The Public International Law Regime Governing Foreign Investment’, note 191 (discussing the non-complex inter-treaty regime of investment protection).

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from both pathways enshrine similar concepts, principles, rules and institutions, extending their reach in concentric circles. The overlapping treaties become mutually reinforcing as States comply with materially similar obligations under different treaties and their circle of Parties. This complex regime builds on the structural developments in contemporary international law-making discussed earlier. It makes full use of the multilateral law-making treaty and its capacity to create objective order.

a Competences, Sovereignty and Sovereign Rights over Energy Resources and Energy Policy Choices The first function that the international legal regime of energy fulfils is to create the legal certainty in which further international and regional cooperation on energy can take place. This requires a comprehensive order of competences for all energy resources, renewable and non-renewable, which makes clear which State has the right to exploit the concrete resources, the jurisdiction to promulgate the necessary rules with effect for private Parties and the competence to enter into international agreements over them. The permanent sovereignty of every State fulfils this function regarding terrestrial energy resources. It finds its legal base in the general principle of sovereignty, enshrined in the UN Charter and customary international law, as well as in the specific ECT. For marine energy resources, the UN Convention on the Law of the Sea fulfils the function by allocating sovereign rights to the coastal State over those in its exclusive economic zone and on its continental shelf. Neither sovereignty nor sovereign rights over energy resources can then serve as a defence against fulfilling obligations assumed by the State about their exercise. b Secure Energy Supply: Trade, Investment and Transport The second regulatory function of the regime is to secure the supply of energy, through trade, investment and transport and transmission across the globe. This function is allocated to both general and energy-specific international law. The general WTO Agreement is the basis of the international energy trade. This is the result of the application of general WTO rules on liberalised trade to energy. It is also the result of specific rule-making for energy, for instance, in the accession agreements to the WTO and then at the level of regional free-trade agreements. Preferential trade agreements, concluded within the parameters of the global trade system defined by the WTO Agreement, combine trade and investment and contain further rules liberalising trade in energy. It is the remit of the law of the sea to order the cross-border maritime trade in energy bound

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to transport by vessel and transmission infrastructure, submarine electricity cables and pipelines. The separate general international investment regime is reinforced through the additional protective basis provided by international human rights. The energy-specific trade and investment pillars of the ECT make WTO law and international investment law applicable to energy and then deepen its provision for the specific characteristics of energy. An internationally integrated energy market with interconnected networks, third-party access and market coupling may eventually be created on this basis.

c Sustainable Energy: Climate Change, Renewable Energy and Energy Efficiency The third function of the regime is to make energy environmentally sustainable. It also is allocated to both general and sectoral international law. The function of decarbonising the global economy is primarily allocated to the general UNFCCC. The implementing treaties – Kyoto Protocol and now Paris Agreement – set standards for the policy of States on the energy cycle, directly for the consumption of fossil energy and indirectly for energy generation and the energy mix. Although the UNFCCC is the primary forum for decarbonising the global economy and its energy sector, it is not exclusive. The general preferential trade agreements providing for the promotion of renewables and energy efficiency support the decarbonisation objective as well. But this impetus has also been received and acted upon in energy-specific international law. The Energy Charter Treaty has always focused on energy efficiency, renewables promotion and the containment of energy-related risks for the environment, and the 2015 International Energy Charter reinforces this. 3 The International Rule of Law and Energy The international rule of law does not have comprehensive deontological quality. It is a principle of yet incomplete realisation. Where States and international actors comply with its requirements, there the principle is progressively realised. The function of the international rule of law is to reinforce the rationality inherent in international law. International law rationalises the exercise of political authority because of the formal structure of its rules, providing it with secondary legitimacy. This function yields requirements that international rules ought to fulfil.

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Completeness, certainty and justiciability have been identified as paramount requirements.321 That now is the case for the energy sector. Completeness requires that international rules cover all essential subject matters and apply universally, including the States with the strongest interest. The trajectory of international law on energy corresponds to this requirement. While the historical starting point of the permanent sovereignty of States over their energy resources had made energy the domain of domestic law, over the past two decades or so, energy has become internationalised. Incremental overlapping treaty-making has produced a complex legal regime of energy. This regime is moving towards complete coverage of the common-interest issues of energy. It is also moving towards universality. The authorisation of the multilateral treaties underpinning the regime that aspire to universal membership has a strong collective element: the consent of a critical mass of States is needed for the respective treaty to enter into force. This critical mass comprises the States most interested in the regulated matter. Significant matters remain, however, outside the present scope of this universal international law on energy, for instance, infrastructure management and pricing, which have been dealt with only on a bilateral or regional basis. Legal certainty requires consistency of all international rules that purport to apply to the same set of facts, even though international law remains decentralised.322 The strongest guarantee for such consistency would be the comprehensive codification of all energy issues, bar decarbonisation, in a specific multilateral law-making treaty such as the ECT or in a universal trade agreement. However, the international law on energy cuts across all principal branches of modern international law. The international rule of law does not stand in the way of this complexity. The requirement of consistency is being satisfied through several techniques. At the stage of law-making, new treaties incorporate the existing rules. By such incorporation, rules are not just integrated into the operation of all further treaties but also receive an extended application. This technique is much assisted by the treaty categorisations, of which the multilateral environmental agreement is one. Consistency can also be achieved over time under each institutionalised treaty by its machinery harmonising the application of that treaty 321

322

A. Watts, ‘The International Rule of Law’, (1993) 36 German Yearbook of International Law 15. Legal certainty has further elements, such as non-retroactivity. Article 24(2) of the VCLT enshrines the presumption of non-retroactivity of treaties.

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with others, through implementing treaties and producing sub-treaty rules323 and by its judicial and arbitral but also all quasi-legislative and administrative bodies interpreting that treaty harmoniously with others. In so doing, courts and tribunals may employ several techniques. International courts and tribunals have started using Article 31(3)(c) VCLT to bring ‘relevant’ treaties to bear in interpreting the treaty that founds their jurisdiction.324 All treaties included in the international energy regime then set forth relevant rules for each other. These are never inconsistent rules within the meaning of intra-treaty competence provisions that empower courts to apply relevant external rules of international law.325 The rules of the regime are always consistent within the meaning of any treaty internal normative hierarchies.326 But courts and tribunals are responsible for developing consistency doctrines specifically for the complex international legal regime of energy. Thus the transformative telos of the regime produces standards that integrate all rules to reach deep into national decision-making processes. Courts should use the margin of appreciation that the standards invariably confer transparently and predictably. This also requires engaging with jurisprudence constante on the promotion of legal certainty and the national rule of law stemming from international human rights courts. Finally, an overarching doctrine emerges that identifies the organising principles of the regime. These principles turn the three political objectives of sustainability, security and affordability into legal principles in the sense of rationales capable of balancing. The international rule of law finally requires compulsory third-party settlement of all disputes concerning the interpretation and application of international law.327 The juridification of the international energy 323

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325

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Comprehensively ILC, ‘Fragmentation of International Law’, report, A/CN.4/L682 (2006), at [410–80]; see B. Simma, ‘Foreign Investment Arbitration: A Place for Human Rights?’, (2011) 59 ICLQ 573, 581–4 (investment contracts as vehicles). ILC, Fragmentation of International Law, Conclusions, A/61/10 (2006), at [17–23]; Deep Seabed Opinion, note 37, at [58]; Philipp Morris v. Uruguay, note 192. For dynamic treaty interpretation, Dispute Regarding Navigational and Related Rights (Costa Rica v. Nicaragua), [2009] ICJ Reports 213, at [64]. Arctic Sunrise Arbitration (Netherlands v. Russia), 14 August 2014, at [198] (for Article 293(1) of the UNCLOS). Conciliation between Timor-Leste and Australia, note 123, at [93] (for Article 3111 of the UNCLOS). With the added purposes of developing international law and individual rights protection. For a critical assessment of the status quo, see P. Sands, ‘Developments in Geopolitics: The End of Judicialisation?’, 2015 ESIL Annual Conference Final Lecture.

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regime is only partial, though. State-State or investor-State disputesettlement mechanisms are available for trade, investment and the oceans. But rules on the cooperation on energy-related environmental risks and energy efficiency under the ECT and preferential trade agreements are mostly exempted, and energy-related obligations that States are undertaking for the protection of the global climate are subject only to an optional dispute-settlement clause.328 The international rule of law-based implication for courts and tribunals that do have jurisdiction is that they ought to include such rules into their competence, for those rules also contribute to the objectives of the energy regime. Furthermore, while dispute-settlement mechanisms are organisationally part of individual treaties and are held to realise that treaty’s programme, this specialisation is balanced by the institutional responsibility of all courts and tribunals to coordinate their jurisprudence procedurally. The International Court of Justice remains the only court of universal jurisdiction, suggesting its preponderance in this international judicial architecture. In the era of regulatory international law, the international rule of law is producing a fourth requirement that international rules are effectively and uniformly applied by States Parties. This entails the conception of treaties as conferring powers on Parties for specific purposes rather than just rights and obligations. The exercise of these powers then becomes subject to general administrative law-type principles, such as legality, reasonableness and proportionality and judicial review.329 This conception extends to all treaties that vest Parties with the powers for a common energy-related objective, ranging from bilateral treaties on energy projects to multilateral treaties such as the Paris Agreement, with the latter also setting up central administrative oversight.

4 International Regulation of Energy and Its Enabling and Constraining Effect for the European Energy Union This regulation of the energy cycle at international law reaches only so deep. It provides the legal certainty and the impetus. However, it depends 328

329

Article 14 of the UNFCCC; Article 24 of the Paris Agreement. Article 36(2) of the ICJ Statute applies to environmental disputes; Whaling in the Antarctic (Australia v. Japan: New Zealand Intervening), [2014] ICJ Rep 226. Whaling in the Antarctic, at [62–9].

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on further law-making that concretises this international law and provides the precepts that alter individual behaviour. Such implementing law-making occurs in regional organisations as well as in States.330 It thus occurs in the European Union and its Member States. International law on energy acquires a powerful enabling and constraining function for the European Energy Union. 330

For Africa, see ECOWAS Energy Protocol, 31 January 2003 (not in force); for Asia, see APEC Energy Ministerial Meeting, 24–25 June 2012, St Petersburg Resolution.

3 Realising the European Energy Union in EU Law Internal and External Regulation of the Energy Cycle

Chapter 1 analysed the strategy for a European Energy Union, providing EU citizens with secure, sustainable and competitive energy. This strategy envisages rules-based governance leading to regulation of the energy system and energy cycle in Europe and globally on the basis of coevolving international law, EU law and Member State law. Chapter 2 examined the evolution in international law towards such regulation. This chapter discusses the reception of the Energy Union Strategy in EU law. Prior to the Lisbon Treaty, EU law on energy had been incremental to general, non-energy-specific objectives, namely, the internal market and environmental protection. After Lisbon, the focus shifted to energy-specific law-making to realise the European Energy Union. This chapter will argue that this law-making has three strata: constitutional, regulatory and external opening. The constitutional basis defines the boundaries of a European Energy Union. The Treaty energy policy and competence that enable the European Energy Union to enact law determine what the European Energy Union can and cannot be. However, this competence is embedded in the constraints of dual representative democracy, the rule of law and fundamental rights, all of which intensely apply to the EU’s law-making on energy. Activating this constitutional basis, the European Union’s constituted power has started to regulate energy Europe-wide. The programme of that regulatory intervention comprises normative parameters, drivers and modalities. This programme is being implemented through intensive law-making that aims to have the legislation for the period 2021–30 in place by the end of 2018. While the European Council continues to determine the direction of the European Energy Strategy, the European Commission, the European Parliament and the Council of the European Union dominate the current law-making process. Because of its monopoly of proposal, the European Commission is at this point of the process in a dominant position, a fact for which this book accounts. 114

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The external aspect of the European Energy Union is the indispensable complementary element to its internal aspect. The Energy Union Strategy envisages external action of the European Union in the managed transition to a novel energy system, from trade in energy from abroad to climate-related action on a global scale and European energy economy to advancing the international law on these matters. This challenges the EU legal order to open itself to heteronomous international law. This opening translates into an extension of the constitutional design to international law-making on energy by the European Union. Within these boundaries, the European Union is extending its internal regulatory programme externally and, from that perspective considers the developing international law on energy. This chapter progresses in two steps, discussing the internal aspect of the European Energy Union first and then its external aspect. Thus the first section sets out the constitutional order for an energy policy by the European Union (I). The second section examines the programme of internal regulatory action and its ongoing implementation through legislative packages (II). In turning to the external aspect, this chapter identifies the constitutional order of external action on energy (III) and then the programme of external regulatory intervention (IV). The final section concludes that energy implies overall responsibility for a critical public good, a social state function that includes all citizens as consumers and producers of energy and who are to have equal access to it and is realised by combing central uniform EU law with decentral plural Member State law.

I The Constitutional Boundaries of the European Energy Union The Treaty of Lisbon enshrines the essence of the Constitutional Treaty and provides the European Union with a constitutional order. It is true that after Lisbon, the fundamental legal order retains an international law quality. The Member States remain masters of the Founding Treaties, by which they create the European Union as an international organisation with legal personality and Treaty-conferred yet not autonomously determined competences.1 At the same time, the Treaty entrenches constitutional law–type legal institutions. These institutions are modelled on those governing in the constitutional Member States and equivalent in bindingness and stability, albeit adjusted for the normativity of a diverse, 1

Articles 47, 48 and 54 of the TEU.

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non-unitary polity.2 An enabling federalism is accompanied by the constraints of dual-representative democracy, the rule of law and fundamental rights. The constitutional order of energy is embedded in these institutions. It becomes the ultimate guarantor, the yardstick for the legal viability and the source of legitimacy of the regulatory intervention that the European Energy Union entails. Thus, this section assesses energy policy within, in turn, the enabling federalism (1) and the constraining dual-representative democracy, rule of law and fundamental rights (2) of the post-Lisbon constitution.

1 EU Energy Policy within the Lisbon Federalism One may speak of federalism when a larger polity and several smaller polities are bound together in a legally operational order of divided competences.3 The Lisbon Treaty designs such federalism in a variety reflecting that the European Union integrates sovereign States. This design is based on three principles: enumerated competences, the subsidiary exercise of competences and solidarity and trust in the inter-se relations of the Member States. The leeway that the European Union now has to pursue an energy policy is a function of these principles: The Lisbon Treaty confers on it the specific but limited competence over energy (a). The exercise of this shared competence by the EU must remain subsidiary and proportionate (b) and respect that solidarity governs the inter-se energy relations of the Member States (c). This specific competence derogates the general alternatives (d).

a Enabling an EU Energy Policy Competences enable a polity to take legally binding measures. The Lisbon Treaty reinforces the principle that the European Union only has enumerated expressly conferred competences, whereas the Member

2

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Article 4(2) of the TEU. On the concept of non-unitary polities, see R. A. W. Rhodes, Beyond Westminster and Whitehall (Unwin, 1988). J. Resnik, ‘Federalism’s Forms and Norms: Contesting Rights, De-Essentializing Jurisdictional Divides, and Temporizing Accommodations’, in J. Fleming (ed.), Nomos LV: Federalism and Subsidiarity (New York University Press, 2014), 363. For federalism philosophies and their consequences, see R. Schütze, ‘Political Philosophy of Federalism’, in R. Wolfrum (ed.), Max Planck Encyclopedia of Comparative Constitutional Law (Oxford University Press, 2016).

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States are residually competent.4 By inserting the new Title XXI, ‘Energy’, into Part III of the Treaty on the Functioning of the European Union (TFEU), ‘Union Policies and Internal Actions’, with the sole Article 194, the Treaty confers on the European Union an express competence, enabling it to take legally binding measures on energy, albeit limited by an important reserve for the Member States. Article 194 of the TFEU has a functional structure aligned with that of other internal policies of the European Union. It comprises the three elements of objectives, competence and procedure. Article 194(1) first sets forth the overall context, which is the internal market, the preservation and improvement of the environment and solidarity between the Member States. It then stipulates the five objectives of the EU’s energy policy: the energy market (lit. a), supply security (lit. b), energy efficiency and new and renewable forms of energy (lit. c) and interconnected energy networks (lit. d). Article 194(2) confers the actual competence to adopt binding measures to attain these objectives, including the harmonisation of Member States’ laws.5 These measures are to be adopted in the ordinary legislative procedure. Exceptionally, a special legislative procedure, where the Council adopts the measure by unanimity after consulting with the Parliament, applies to measures with a primarily fiscal nature (Article 194(3)). This means that measures that merely have fiscal implications for the Member States are adopted through the ordinary procedure. It also follows that the European Union possesses the competence for energy measures of a fiscal nature. That special legislative procedure also applies to environmental legislation substantially affecting the energy mix of the Member States (Article 194(2)(2)). This competence grant finds its limitation in the second subparagraph of Article 194(2). It does not affect three rights of the Member States: to determine the conditions for the exploitation of their natural energy resources, to choose between different energy sources and to choose and structure their energy supply. There is no substantial threshold criterion provided, in marked difference from Article 192(2)(c) of the TFEU. Although couched in the language of rights, this amounts to an explicit statement of an exclusive competence of the Member States for their energy mix. It is thus a justiciable yardstick for overreaching EU 4

5

Article 5(1), (2) of the TEU. The Member States are residually competent (Article 4(1) of the TEU). Under Article 13(2), the respective institution of the European Union must also be competent to act; see General Court, Peter McBride and Others v. Commission (Case T458/10), 13 May 2014. E contrario Article 2(5)(2) of the TFEU.

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legislation. Alternative interpretations of an opt-out or derogation power for individual Member States do not do justice to the objective federalism that the Lisbon Treaty espouses. Such explicit statements of exclusive Member States’ competences exist elsewhere where an EU policy touches on a sovereignty-sensitive matter.6 The Court of Justice of the European Union (the Court) has indicated the common interpretive methodology7: the terms of the competence reserve must be interpreted literally, historically and having regard to the EU competences. Both the Member States and the European Union must tailor their legislation to that effect. Thus no energy source that any Member State wishes to use can be prohibited entirely by the European Union, whether it has the resources on its territory or needs to import them. Nor can the European Union prescribe using a certain source of energy or formulate binding national targets for shares of sources in the energy mix. But it may take measures on the objectives of Article 194(1) for the European Union as a whole and coordinate the Member States’ policies so that collective objectives are achieved in the aggregate. The final half-sentence of Article 194(2)(2), in turn, limits that exclusive Member State competence by confirming that the European Union possesses the competence, under Article 192(2)(c) of the TFEU, to restrict energy-mix choices of Member States for climate-protection reasons. For minor restrictions, this may occur under the ordinary legislative procedure. Only substantial restrictions are subject to the consent of each Member State. The competence reserve is thereby turned into a procedural guarantee. Article 194(3) adds that the tax system under which energy will be traded remains a matter of primary national competence. The economy of Article 194 reveals a deliberate division of competences between the European Union and the Member States that needs to be taken seriously. The Lisbon Treaty does not conceive of energy as a common policy through which the European Union could by itself comprehensively regulate the European energy system. It rather empowers the European Union to establish a two-tiered regulatory framework of central-uniform EU rules and decentral-plural domestic law of the Member States. The distinction between these tiers is not fixed. The 6 7

Cf. Article 72 of the TFEU in the Area of Freedom, Security and Justice. Adil (Case C-278/12 PPP), 6 September 2012, at [52] (discussing the terms of Article 72 of the TFEU – maintenance of law and order and safeguarding of internal security).

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Treaty tasks the European Union with proceduralising the substantive tension between collective energy interests and differences in interests and capacities of individual Member States.

b The Subsidiarity and Proportionality of EU Energy Action The Lisbon Treaty makes its federalism legally operational by defining competence categories with specific preconditions and consequences, to which individual heads of competences are allocated. Exclusive competences empower only the European Union to legislate.8 Where legislative competences are shared, both the European Union and its Member States may legislate. Only if and to the extent the European Union has made use of the competence are the Member States pre-empted.9 It marks the spirit of the Lisbon federalism that most competences are shared rather than exclusive to either the European Union or the Member States. Article 4(2)(i) of the TFEU states that the energy competence of Article 194 TFEU is shared. The Lisbon Treaty entrenches the principle that the exercise of any shared competence by the European Union must be subsidiary to action at the Member State level.10 The subsidiarity principle expresses the normative preference for decentral-plural over central-uniform action, protecting democratic self-determination at the Member State level. The underlying assumption is that the Treaty objectives can be achieved through either EU or Member State action. Article 5(3) of the Treaty on European Union (TEU) operationalises subsidiarity as a legal principle, requiring the European Union to demonstrate that central-uniform action is necessary for it to act to achieve the meta-objectives of Article 3 of the TEU, specifically the economic, environmental and social unity that the third paragraph defines. This presupposes meeting two criteria: the diverse state of the law at the Member State level presents a clear risk for one of these meta-objectives, and the proposed EU action is suitable and necessary to address it. These criteria apply already to the strategic policy-making stage, and the political control of this macro-subsidiarity lies with the European Council. The criteria then also apply to the legislative stage. This micro-subsidiarity is controlled politically and judicially. In the legislative process, Member States’ parliaments now 8 9

10

Article 2(1) of the TFEU; Article 3 enumerates the exclusive competences. Article 2(2) of the TFEU; Article 4 lists shared competences and declares it the residual competence category. Article 5(1) of the TEU.

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exercise political control of draft legislative acts,11 in addition to the powerful control that governments have via the European Council. The adopted legislation becomes subject to judicial review in a special procedure.12 The Lisbon Treaty instructs the Court to take this review seriously. In Philip Morris Brands, the Court has now confirmed that subsidiarity is a legal principle and fully justiciable as to law and fact.13 The test examines the legislative concept – its purpose and general scheme – and every provision of the legislation for its subsidiarity.14 However, the review of EU regulatory legislation has largely remained ineffective, for, in law, the Court accepts that the European Union may regulate matters that fall under the Member State’s primary competences as ancillary to core internal market matters.15 And review on the facts has remained mostly limited to the stated legislative grounds and the ex ante information contained in the European Commission’s impact statement.16 However, the subsidiarity concern in energy regulation will often be less with the legislative concept as such but with the implementation competence that the Member States retain,17 and the Court has been more forceful in interpreting EU legislation so as to safeguard the space for Member State implementation.18 Thus any use by the European Union of the shared energy competence of Article 194 of the TFEU is subject to subsidiarity. The European Union must demonstrate that the status quo of decentral-plural energy regulation constitutes a significant problem for the meta-objectives set forth in Article 3(3) of the TEU and their concretisation in Article 194(1), which the Energy Union Strategy and then the implementing legislation remedy. The macro-subsidiarity of the Energy Union Strategy is addressed 11

12 13 14

15 16

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Article 2 of the ‘Protocol (No. 2) on the Application of the Principles of Subsidiarity and Proportionality’. Article 8 of the ‘Subsidiarity Protocol’. Although the EU legislature retains the final say. Philip Morris Brands and Others (Case C-547/14), 4 May 2016, at [217]. Philip Morris Brands, at [213]. These are not always clearly distinguished; Estonia v. Parliament and Council (Case C-508/13), at [51]. Philip Morris Brands, at [213–28] (there health). Article 5(2) of the ‘Subsidiarity Protocol’. Vodafone (Case C-58/08), [2010] ECR I-4999, at [77]; Luxembourg v. Parliament and Council (Case C-176/09), at [76] (both under the Treaty of Amsterdam). UK Parliament, House of Lords EU Committee, ‘Strengthening National Parliamentary Scrutiny of the EU: The Constitution’s Subsidiarity Early Warning Mechanism’, HL Paper 101, 14 April 2005, at [218]. Avesta Polarit Chrome (Case C-110/03), [2003] ECR I-8725, at [56]; General Court, Estonia v. Commission (Case T-263/07), [2009] ECR II-3463, at [52]. The ruling of the General Court was confirmed on appeal, although on grounds of Article 288(3) of the TFEU; Commission v. Estonia (Case C-505/09P), 29 March 2012.

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in the impact assessment for the 2030 climate and energy framework.19 It points out that the Member States cannot individually ensure access to secure, sustainable and competitive energy and that the cost of the transition to the energy system will be lower if Member States cooperate. The assessment also argues that the new Article 194 supports EU action on energy. This Lisbon Treaty amendment indeed reflects the intention of the constituent power that the European Union may undertake a specific energy policy. But the decentralised design of the European Energy Union, based on a bottomup approach, reflects the macro-subsidiarity of the new policy. Micro-level subsidiarity becomes the yardstick for each proposal under Article 194, translating it into binding law. The burden is on the European Union to demonstrate, for the legislative scheme and each provision, respectively, that central-uniform intervention by the European Union is necessary because decentral-plural regulation would threaten the objectives of Article 194 and Article 3(3) of the TEU. The burden is high for the primary competences of the Member States over secure supply, renewables and efficiency and infrastructure, but it also exists for the energy market20 and decarbonisation. Any exercise by the European Union of the shared competence must also be proportionate (Article 5(1), (4) of the TEU). While subsidiarity solves conflicts as to whether the European Union may act at all, proportionality determines the permissible level or intensity of regulatory intervention. The jurisprudence of the Court regularly accords the EU regulator broad discretion.21 Proportionality protects Member States’ flexibility and societal liberty against overly burdensome regulation. From it flows an overall cost-effectiveness requirement.

c Solidarity and Trust in Inter-Se Energy Relations Solidarity among Member States is a meta-objective of the European Union (Article 3(3)(3) of the TFEU). Solidarity and mutual trust characterise the inter-se relations between Member States in this specific federalism, making them categorically different from relations with third States.22 The idea of solidarity combines a vulnerable position 19

20

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European Commission, SWD(2014) 15. Article 5(2), ‘Subsidiarity Protocol’, prescribes that impact statements accompanying European Commission proposals discussing subsidiarity. Opinion of AG Poiares Maduro in Vodafone, [2010] ECR I-5003, at [30] (for the internal market generally). Philip Morris Brands, note 13, at [166]. Opinion 2/13 (Accession to the ECHR), 18 December 2014, elevates the principle of mutual trust to the constitutional level.

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with the ability of others to assist and their accountability for rendering such assistance. Solidarity in the energy field is stressed twice in the Treaty.23 The chapeau of Article 194(1) of the TFEU states that solidarity between the Member States governs the EU’s energy policy, and so does Article 120(1) of the TFEU. In that solidarity, each Member State is taking energy decisions with a view to the needs of others and especially under consideration of vulnerabilities related to energy, even when it is not in its immediate national interest. In turn, every Member State may trust the ability of the other Member States to deliver assistances to the extent it cannot fulfil its primary responsibility of supplying its population with secure, sustainable and equally affordable energy. This solidarity is not in itself operational but needs to be concretised through further law-making at Member State and at EU levels.

d Alternatives The effect of the novel competence over energy depends on the extent to which it displaces other alternative competences. The Lisbon Treaty has reformed the pre-existing multifaceted competence structure. Before 2009, the then European Community had used a range of competences for measures concerning energy, though none was expressly for energy: Article 95 of the EC Treaty on the internal market,24 Article 100 on difficulties of supply,25 Article 156 on trans-European networks,26 Article 175 on environmental protection27 and the general flexibility clause in Article 308.28 Measures under Articles 95, 155 and 175 of the EC Treaty could be taken through the co-decision procedure with qualified majority voting in the Council. Unanimity in the Council was required for environmental ‘measures significantly affecting a Member State’s choice between different energy sources and the general structure of its energy supply’.29 Network projects also required approval of the Member State 23

24

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Due in particular to requests from Poland and the Baltic countries; J. Piris, The Treaty of Lisbon (Cambridge University Press 2007), 319. Now Article 114 of the TFEU. See Regulation 1228/2003 on conditions of access to the network for cross-border exchanges in electricity, (2003) OJ L 176/1. Now Article 122 of the TFEU. See Council Directive 2004/67/EC concerning measures to safeguard security of natural gas supply, (2004) OJ L 127/1. Now Article 171 of the TFEU. See Decision 1364/2006 laying down guidelines for transEuropean energy networks, (2006) OJ L 262/1. Now Article 192 of the TFEU. See Directive 2009/28/EC 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. Now Article 352 of the TFEU. 29 Article 175(2)(c) of the EC.

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concerned.30 The first part of the introductory sentence of Article 194(2)(1) of the TFEU states that the competence for energy does not prejudice the application of other competences that Part III of the TFEU provides. Yet the new Article 194 is not merely declaratory.31 It is an incontestable legal basis, provides a novel context for the existing competences and forecloses resort to the flexibility clause (Article 352 of the TFEU). Clarity on the legal basis for EU measures on energy is a demand of the post-Lisbon federalism. It is also a condition of scrutiny control by the European Parliament and Member States’ parliaments. Article 194 of the TFEU thus needs to be clearly delimited from alternative competences that may also apply to energy. The delimitation of overlapping competences is the remit of the Court as the final interpreter of the Founding Treaties.32 The case law has evolved as the competences of the European Union have become more differentiated over time. The reasoning in the foundational Titanium Dioxide case is to the effect that the reach of each competence must be determined in isolation.33 On this ground, the Titanium Dioxide Court concluded that the general internal market harmonisation competence was the legal basis for the directive setting conditions for environmentally harmful material to be in free circulation, regardless of the then new environmental competence. While this judgment has yet no room for a lex specialis argument, the Court in Road Traffic Offences implicitly used it for delimiting overlapping competences.34 The case concerned Directive 2011/82 for information exchange and enforcement of certain road traffic offences. The European Commission had based its proposal on Article 91 of the TFEU on transport safety, whereas the Parliament and the Council changed the legal basis to Article 87 of the TFEU on police cooperation. The Court recalled that Article 91(1)(c) of the TFEU specifically stated ‘measures to improve transport safety’ as an objective of EU transport policy. Having in mind its aims and its content, the directive was a measure to improve transport safety in this sense. Road Traffic Offences thus stands for the proposition that the Treaty provides for competences with lex specialis quality by couching the objectives of the competences in more specific terms. The reach of the lex specialis over any leges generales is to be determined by interpreting those terms. 30 32

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Article 156(2) of the EC. 31 But see Piris, The Treaty of Lisbon, note 23, 319. Commission v. Parliament and Council (Waste Shipment) (Case C-411/06), [2009] ECR I7585, at [45]. Commission v Council (Titanium Dioxide) (Case C-300/89), [1991] ECR I-2867, at [17–21]. Commission v. EP and Council (Road Traffic Offences) (Case C-43/12), 6 May 2014.

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These principles apply to delimiting Article 194 from other competences of Part III of the TFEU. The systematic place and the breadth and precision of its first paragraph demonstrate that Article 194 of the TFEU is intended to be the lex specialis for the EU’s action on energy, and the chamber judgment in Parliament v. Council appears to accept this.35 The precise terms of these objectives need to be interpreted to determine their exclusive reach and any normative overlap with other competences. Exceptionally, a measure can be based on both Article 194 and the general competence if it pursues two equally important objectives or if its components are inseparably linked.36 This is only excluded where the respective procedures diverge.37 (1) The Internal Market The specific formulation of the objective of an energy market in Article 194(1)(a) makes it the lex specialis for harmonising measures over the general internal market competence of Article 114 of the TFEU.38 Into Article 194(1)(a) are then imported the usual questions of delimiting the general internal market competence of Article 114 of the TFEU from flanking competences, such as consumer protection (Article 169) and industry policy (Article 173). The competences to adopt measures to ensure the right of establishment (Articles 50 and 53) and to liberalise the services market (Article 59) remain unaffected. This is also the case for the exclusive competences over competition (Article 101) and state aid (Article 107). (2) Economic Policy Article 194(1)(b) providing for energy security in solidarity must similarly be delimited from Article 122(1) of the TFEU on economic policy. Without changing its scope, the wording of the provision is now more precise than Article 100 of the EC Treaty. Article 122(1) of the TFEU now allows the Council to 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’39. This is the 35 36

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Case C-490/10, 6 September 2012. Waste Shipment, note 32, at [47]; Parliament v. Council (Al Quaida) (Case C-130/10), 19 July 2012, at [42–44]. Titanium Dioxide, note 33, at [17–21]; Commission v. Parliament and Council (Dangerous Chemicals) (Case C-178/03), [2006] ECR I-107, at [58 and 59]. With Declaration No. 33, the Member States have separately reserved the right to derogate from the legislation on the energy market to ensure supply in the event of serious internal disturbances, referring to Article 347 of the TFEU. Emphasis added.

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specific basis for ad hoc crisis-reactive measures to supply shocks, whereas Article 194 underpins preventive and resilience-orientated measures. (3) Environmental Protection The objective to promote energy efficiency, renewables and new forms of energy in Article 194(1)(c) derogates the general environmental competence of Articles 191 and 192 of the TFEU. It can also be relied upon for legislation controlling negative environmental effects of these energy sources and related technologies. Article 194 does not mention, however, reduction of greenhouse gas emissions from carbon-based fuels. For that, the European Union must rely on the environmental and climate-protection competence of Article 191(1)(d) of the TFEU. The general environmental competence is also the basis for protecting environmental goods against risks from technologies such as carbon capture and storage. (4) Trans-European Networks Article 194(1)(d) and the network policy competence of Article 170 of the TEFU genuinely overlap, as both mention interconnected energy networks. The network competence specifically includes providing financial support for projects of common interest in trans-European networks (Article 171 third indent of the TFEU). But both can be relied upon cumulatively, as both prescribe the ordinary legislative procedure. (5) Euratom The relationship between the TFEU and the Treaty establishing the European Community for Atomic Energy (EA) is unclear. It came up in Assel II, where AG Szpunar argued that the TFEU covers all energy materials and products, while the EA lays down special rules only if the characteristics of nuclear energy so require. The Court left that general question open but stated that nuclear fuel is covered by the free-movement guarantee of the EA.40 The EA thus derogates as lex specialis over Article 194 and the TFEU to the extent of its specific provisions.41 Otherwise, the broadly worded Article 194 also covers nuclear energy and electricity generated from it. It is the task of the institutions to harmonise both treaties. The Court does so by transferring 40

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Kernkraftwerke Lippe-Ems v. Hauptzollamt Osnabrück (Assel II) (Case C-5/14), 4 June 2015, at [43 and 86]. For instance, intergovernmental supply agreements for nuclear energy fall under Article 103 of Euratom and not Article 194(1)(a) of the TFEU; see COM(2016) 53, at [3].

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principles from the TFEU to the EA. The EU legislature does so by stating explicitly whether a legislative act is to also apply to nuclear materials. (6) Information Collection Article 194(1) of the TFEU is the specific legal basis for the European Commission to collect information related to its objectives. It displaces the general competence of Article 337 of the TFEU.42 (6) Research and Development Article 194(1) does not mention research and development in energy. The general policy and competences of Articles 179–190 of the TFEU thus remain applicable, a main application of the without-prejudice clause of Article 194(2)(1). This is a supporting competence that does not permit harmonisation.43

2 Constraints: Dual-Representative Democracy, the Rule of Law and Fundamental Rights The Lisbon Treaty institutionalises dual-representative democracy, the rule of law and fundamental rights. These constrain the European Union when making use of its competence to regulate the European energy system.

a Dual-Representative Democracy Democracy provides a polity with primary legitimacy through the inclusion of its citizens. Article 10 of the TEU grounds the European Union on dual-representative democracy, in which the European Parliament represents EU citizens and the European Council and the Council of the European Union represent the Member States and their citizens. It is institutionalised in the Parliament and the Council jointly exercising the EU’s legislative function (Articles 14 and 16 of the TEU). Article 194(2) of the TFEU accordingly prescribes the ordinary legislative procedure, which requires the consent of Parliament for all energy legislation.44 The Parliament is also responsible for controlling the application of its legislation by the European Commission and the European Council and by the Member States. It can generate debate on policy alternatives even where it has no individual decision-making powers.45 42 43 44 45

Parliament v. Council (Case C-490/10), 6 September 2012, at [67]. Article 2(5) of the TFEU. The Committee on Industry, Research and Energy (ITRE) is competent. European Parliament, ‘Debate and Vote on the Nordstream 2 Pipeline’, Press Release, 10 May 2016, 20160509IPR26345.

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But the Parliament also needs to be included in the political decisionmaking on the level of intervention to bring about the intended transition to a low-carbon economy. The Parliament has made a strong claim to be fully involved in the planning for a European Energy Union.46 The democratic responsibility of the Parliament also applies to those energy-related matters for which the European Council adopts the legislative act in a special legislative procedure. Errors of the Council in consulting Parliament on acts that are primarily of a fiscal nature or substantially concern the energy mix for environmental reasons will vitiate the act.47 Still, the special legislative procedure is an exception from the principle that the Parliament and the Council are co-legislators and ought to be corrected by reading both Article 194(3) and Article 192(2)(c) of the TFEU narrowly. Thus, for an energy measure to be of a primarily fiscal nature, the fiscal implications must be clear and predominant, and for environmental measure to have a substantial effect on the energy mix, this must concern all Member States. Admittedly, the Court has been adamant that the legal basis for a EU measure is determined by the substantive scope of the competence, not its procedure.48 Yet it will still opt to bring the measure under that competence whose procedure gives greater say to Parliament if the wording so permits.49 Extending the ordinary legislative procedure in this way does have a federalising implication: majority voting in the Council substitutes for unanimity in those two instances. The Lisbon Treaty strengthens the EU legislature’s responsibility vis-à-vis the European Commission. The legislature must make all essential decisions itself in the legislative act if it empowers the European Commission to adopt delegated or implementing acts.50 It must set policies, balance competing interests and determine any fundamental rights issues.51 The European Commission must remain within the legislatively determined limits and concretise the legislative choices.52 The procedure that the European Commission must follow in adopting delegated acts provides the Parliament with a means of monitoring the exercise of this quasi-legislative 46

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European Parliament, ‘Legislative Resolution of 15 December 2015 on Towards a European Energy Union’, T8-0444/2015. Parliament v. Council (Somali Pirates I) (Case C-658/11), 24 June 2014, at [86] (there the special legislative procedure of Article 216(6)(b) of the TFEU). For instance, Parliament v. Council (Al Qaida) (Case C-130/10), 19 July 2012, at [42]. Parliament and Commission v. Council (French Guiana Fisheries) (Joined Cases C-103/12 and C-165/12), 26 November 2014. Articles 290 and 291 of the TFEU. Parliament v. Council (Frontex) (Case C-355/10), 5 September 2012, at [64, 67]. Parliament v. Commission (EURES-Net) (Case C-65/13), 14 October 2014, at [38].

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power,53 but it can also scrutinise implementing acts.54 These substantive and procedural justiciable yardsticks have great significance for the EU regulation of energy, which relies heavily on the two-step process of legislation and subsequent executive rule-making by the European Commission.

b The Rule of Law and Judicial Protection The rule of law reinforces the formal rationality of law, providing a polity with secondary legitimacy. Article 2 of the TEU establishes the rule of law as a value of the European Union. It requires that European power is exercised through consistent legal rules. The rule of law thus demands that the European Union’s energy regulation produces clear legal bases, that these are developed out of existing EU law where possible and that they provide for judicially enforceable individual rights. The rule of law in the European Union comprises judicial protection, which Article 47 of the Charter of Fundamental Rights (CFR)55 now enshrines as a fundamental right. Such judicial protection only lies for individual rights guaranteed in EU law. The presence of a right determines which objective EU law can be judicially enforced.56 This threshold criterion of the right is a thick concept.57 It involves making and then judicially identifying value judgements of the legislator on protected individual interests rather than a thin doctrinal determination of whether a given rule is sufficiently precisely worded and unconditional.58 This judicial protection guarantees judicial review as to fact and as to law through the two-pillared judicial architecture of EU and Member State judicatures.59 The right to judicial protection, concretised by 53

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Borealis Polyolefine (Case C 191/14), Opinion of AG Kokott, 12 November 2015, at [167]. The Inter-Institutional Agreement on better law-making, (2016) OJ L 123/1, ensures that the Parliament receives all documents at the same time as the Member States and that their experts have access to the meetings of Commission expert groups. Regulation (EU) No. 182/2011 of the European Parliament and Council laying down the rules and general principles concerning mechanisms for control by Member States of the Commission’s exercise of implementing powers, (2011) OJ L 55/13. (2012) OJ C 326/391. The pre-Lisbon judicial doctrine of effectiveness may continue to occupy a role in the enforcement of solely objective EU law. Further, S. Kirchin, Thick Concepts (Oxford University Press, 2013). The direct effect of a rule is neither a necessary (Factortame) nor a sufficient condition for a right, although the practice tends to conflate the two; see Opinion of AG Wathelet, in Rosneft (Case C-72/15), 31 May 2016, at [118]. Otis and Others (Case C-199/11), 6 November 2012, at [55]. Further, T. von Danwitz, ‘The Rule of Law in the Recent Jurisprudence of the ECJ’, (2014) 38 Fordham International Law Journal 1311, 1312.

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legislation and judicial doctrine, thus generates a uniform procedural code for Member State courts. Article 47 of the CFR indicates the three pillars of this code: effective remedy (para. 1), fair procedure (para. 2) and legal aid (para. 3).60 Articles 48–50 of the CFR and certain substantive rights concretise these pillars.61 They partially harmonise Member States’ procedural systems and are the basis of the power of Member State courts to protect individual rights against acts of the Member States. The right to judicial protection also lies against all EU acts of individual or general application. The Lisbon Treaty has amended Article 263(4) of the TFEU so that private parties have standing in annulment actions before the General Court against any ‘regulatory act’. However, the Court interprets that term narrowly, only catching delegated or implementing European Commission acts that are directly applicable.62 This includes general decisions addressed to all Member States that feature prominently in the regulatory action on energy.63 Judicial review of other acts of general application must be sought before a Member State court that then has to refer the question of invalidity to the European Court of Justice.64 Direct and indirect actions coalesce in the intensity of review that the courts will apply to regulatory measures. The regulatory regime of the European Energy Union encompasses this principle of judicial protection for the individual rights that it confers on all stakeholders, in particular consumers.

c Fundamental Rights Fundamental rights secure freedom and equality by placing limits on political-legal power, thereby providing it with secondary legitimacy. Post-Lisbon, the CFR binds EU institutions comprehensively (Article 6(1) of the TEU, Article 51(1) of the CFR). The CFR is fully justiciable, with Article 52(1) prescribing the standard doctrine for rigorous adjudication of CFR rights. The CFR provides three freedom rights that define limits to regulatory intervention on the energy market, although this has so far attracted little 60 61 62

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Articles 4 and 19(1)(2) of the TEU are the complementary objective law provisions. For instance, the right of the child to be heard (Article 24 of the CFR). Inuit Tapiriit Kanatami and Others v. Parliament and Council (Case C-583/11 P), 3 October 2013, at [61]. T&L Sugars and Sidul Açúcares v. Commission (Case C-456/13 P), 28 April 2015, at [65 and 66]. ‘A general measure is also not of individual concern even if the identity of those falling under it can be known.’ This is grounded in the subsidiary jurisdiction of the EU courts (Articles 4 and 19(1)(2) of the TEU).

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attention in the context of the European Energy Union. The freedom to conduct a business (Article 16) protects market operators from overly burdensome intervention. The right to property (Article 17) safeguards trust in the stability of the law as a basis for investment.65 The Court has adjudicated these rights, with strict scrutiny of proportionality, although it has yet to find an instance of violation.66 More trenchant has been the jurisprudence on the right to data protection (Article 8 of the CFR). The Court has derived from it a positive protective obligation. EU legislation needs to provide organisational and procedural safeguards so that companies use private data for specific purposes only and provide individuals with a means of redress.67 Article 8 of the CFR thus emerges as the principal fundamental right standard for the transition to a digitalised energy economy. The CFR also protects material equality of individuals. Chapter V on solidarity ensures rights to equal access to public goods such as health (Article 35), education (Article 14(2)) and social security assistance (Article 34). While addressing the EU legislature, these are not just principles but rights within the meaning of Article 52(1). The CFR does not explicitly mention a right of equal access to energy but does provide such a right indirectly. Article 36 safeguards access to essential services of general economic interest at the Member State level. This comprises energy services.68 In a broader sense, Article 36 expresses that energy is a public good. The EU legislature must respect, protect and provide rights-based equal access of everyone to it.

II Programme, Functions and Trajectory of Regulatory Change The constituted power activates the constitutional basis for the regulatory intervention that will realise the European Energy Union. The programme of that intervention envisages regulation of the European energy 65

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As well as certain authorisations; Sky Österreich (Case C-283/11), 22 January 2013, at [34–38]. For instance, Pfleger (Case C 390/12), 30 April 2014; Giordano v. Commission (C-611/12 P), 14 October 2014 (Article 17 of the CFR); Sky Österreich (Articles 16 and 17 of the CFR). Digital Rights Ireland (Joined Cases C-293/12 and 594/12), 8 April 2014, at [47], referring for the interpretation of Articles 7 and 8 of the Charter to the European Court of Human Rights (ECtHR) in Case of S. and Marper v. UK, Applications Nos. 30562/04 and 30566/ 04, 4 December 2008, relating to Article 8 of the Convention. The Court also follows the ECtHR in holding the private-law legislature bound by the Charter rights. ANODE (Case C-121/15), 7 September 2016, at [40].

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cycle by 2030, with overlapping action from several angles on each stage. If 2015 was the year for planning, 2016 has started the law-making process, with the European Commission presenting a suite of legislative proposals that the Parliament and the European Council have begun to deliberate.69 This section first analyses the regulatory programme (1). It then maps the trajectory of legal change from the status quo,70 broken down for each objective of EU energy policy that Articles 194(1) defines, and for decarbonisation and innovation (2-8).

1 The Programme of Regulatory Intervention The programme of regulatory intervention comprises normative parameters (a), drivers of intervention (b) and modalities (c).

a Normative Parameters of Energy Regulation Normative parameters determine the functions and guiding principles of regulatory intervention. In the constitutionalised European Union after Lisbon, the Treaties define the functions and high-level principles for the design of the regulatory framework. Article 194(1) lit. a–d defines the energy system of the future that lies in the European interest. This system uses renewables and efficiency as the principal energy sources traded throughout a single, interconnected energy market. The objectives determine the functions that the EU’s regulatory action must advance. The resulting regulatory framework on 69

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The proposals have been presented as three thematic packages. The summer 2015 decarbonisation package contained proposals for an amended ETS Directive (COM (2015) 337) and the new Effort Sharing Regulation (COM(2016) 482) and Labelling Regulation (COM(2015) 341). The winter 2016 gas package comprised proposals on the security-of-supply regulation and the intergovernmental agreements decision. The winter 2016 package on ‘clean energy for all’, presented on 30 November, contains proposals for recasts of the RES (COM(2016) 767) and EE Directives (COM(2016) 761), the Electricity Directive (COM(2016) 864), the Electricity Regulation (COM (2016) 861) and the ACER Regulation (COM(2016) 863) – the so-called Market Design Initiative – and also a new Governance Regulation (COM(2016) 759). Innovation will be addressed in 2017. The Council has committed to agree to this legislation by 2018; ‘Outcome of the June TTE Council’, Doc. 9736/16, p. 9; ‘TTE Council Outcome: Work Programme of the Maltese Presidency for the First Semester of 2017’, December 2016, Doc. 8405/16, at [22]. See below for the state of play on each proposal. For this status quo, see European Commission, ‘Overview of the Secondary EU Legislation That Falls under the Legislative Competence of DG ENER and That Is Currently in Force’, 14 March 2016, available at https://ec.europa.eu/energy/sites/ener/ files/documents/Overview%20of%20ENER-related%20legislation%20%28by%20policy %20areas%29%20update%2014.03.2016.pdf.

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energy is to guarantee that these functions are attained by steering the behaviour of all relevant market operators and consumers, by direct EU action and by indirect action through the Member States across the generation, transmission, distribution and consumption stages of the energy cycle. The general part or chapeau of Article 194 ties the provision back to the overall objectives of the European Union as laid down in Article 3(3) of the TEU. In its first sentence, Article 194(1) of the TFEU thus sets out three principles in the sense of rationales: the internal market, environmental protection and solidarity. The internal market guides across all energy policy objectives. Within the meaning of Article 3(3) of the TEU and Article 24 of the TFEU, the internal market incorporates the principle of a competitive social market economy. This demands that the private sector provides the investment and innovation for the transformation of the European energy system. The regulatory framework must enable this private-sector action by sending the right signals and providing legal certainty for planning. In turn, public intervention must be limited to correcting market failures or suboptimal investment situations. Environmental protection is the second guiding principle.71 Environment comprises both the global environmental good of the climate and more localised environmental goods. Environmentally motivated energy regulation is subject to further specific principles, namely, that the polluter should pay (Article 192(2) of the TFEU). Third, solidarity applies to all functions of the EU’s energy policy. The European Union is to promote support for Member States that are vulnerable because of the structure of their energy mix, their economic capacity or their geographical location. Solidarity goes hand in hand with trust, which, in turn, depends on transparency of the actions of all Member States. The horizontal provisions of the TFEU also apply to energy policy and yield other guiding principles. Article 9 of the TFEU protects consumers, and Article 14 and Protocol No. 26 protect energy services of general economic interest and access to them. Consumer protection and services are also fundamental rights (Article 36 and 38 of the CFR). These are first directional ‘principles’ for the EU legislature, yet both also confer directly applicable rights under certain circumstances (Article 52(5) of the CFR). 71

It is reinforced by the horizontal provision of Article 11 of the TFEU, pursuant to which environmental protection must be integrated into the energy policy, and by Article 37 of the CFR, qualifying environmental protection as a fundamental right.

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The foundational parameter for the overall regulatory approach, however, is that proportionate and subsidiary action, mandated by Article 5 of the TEU, must mobilise the initiative of all stakeholders, Member States and their regional and local levels, regulators, industry and consumers for cooperatively achieving regulatory objectives. All are responsible to act towards these objectives within their defined functions.

b Drivers of Regulatory Change: Goals, Targets and Priorities The drivers in the sense of structural features of regulatory intervention concretise and operationalise these Treaty-defined parameters. There are three drivers of increasing specificity: overall goal, targets and priorities. Set forth in the Energy Union Strategy, they now advance change in EU law. The first-level driver is the overall goal of the European Energy Union to deliver secure, sustainable and competitive energy for all EU citizens. Security of supply means sufficient energy to meet demand throughout the European Union and in all Member States. Sustainability is measured against both global environmental goods, such as the climate and biodiversity, and more localised goods. Competitiveness refers to the capacity for energy prices to affect the heuristics of employment and the parallel and cumulative subsequent substantive effect on living standards. As with affordability, it comprises energy consumer welfare and prevention of energy poverty. Energy security, environmental sustainability and competitiveness/affordability become aspects of a unitary objectives triad that the decision-making needs to integrate. Thus regulatory policies that meet all three objectives receive the highest preference. Where the objectives conflict in concreto, in particular, between sustainable energy, on the one hand, and secure and affordable energy, on the other, there is no general or abstract hierarchy between them, but the decision-making must seek to realise each as much as possible. Such ‘trilemma’ conflicts need to be resolved over time, through monitoring of the consequences of legal action across the energy system and devising corrective policies. The numerical targets are the second-level drivers directing the intensity of the regulatory change. As a general concept, targets provide quantified benchmarks for outcomes over a defined period of time. The Energy Union Strategy sets substantive targets for the EU level, for at least a 40 per cent reduction in carbon dioxide emissions compared to 1990 with a view to achieving a 80 per cent reduction by 2050, from which are derived the targets of at least a 27 per cent renewable share of energy

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consumption and at least a 27 per cent energy efficiency improvement.72 There is also the target of at least 10 per cent interconnectivity of the European networks. These targets direct the intensity of the change to phase out fossil fuels and promote renewables and energy efficiency within a Europe-wide energy market. These targets will become legally binding for the European Union but no longer be broken down into binding targets for each Member State.73 Instead, there will be indicative, nationally determined contributions. These targets embody a bottom-up regulatory approach in which each Member State decides on the type and level of regulatory intervention after 2020. This approach yields the two-tiered regulation of energy. The control of carbon-based energy generation and of the Europe-wide energy market is governed by the principle of centralisation, with eventually fully harmonised EU rules and common oversight, but the promotion of energy efficiency, renewables and grid interconnectivity falls under a principle of decentralisation. The approach responds to the constitutional principles of subsidiarity, the reserved competence over the energy mix and the cost-effectiveness of decentralised policy and law-making. It is also consistent with the evolution on the plane of international law. Third-level drivers are the priorities for regulatory action. The Energy Union Strategy defines priorities for each of its five dimensions, which are aligned with the objectives of energy policy that Article 194(1) of the TFEU defines. These priorities then shape the concrete regulatory action in relation to each objective of Article 194(1).

c Modalities of Regulation Modalities designate the type of regulatory intervention. The European Energy Union will be based on an architecture that combines centralised EU action in some fields with decentralised Member State action in others. The technical modalities of the energy regulation by the European Union are rules, organisation, procedure, financial support and technology. (1) Instrumental Legislation Legislation within the meaning of Article 289(3) of the TFEU, that is, acts adopted by the Parliament and 72

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The Energy Union Strategy says that this target is to be reviewed by 2020 ‘having in mind an EU level of 30 per cent’, as proposed by the European Commission, whereas the Parliament had requested a 40 per cent target. Excepting the emissions targets from sectors not covered by the ETS, for which there will continue to be national targets.

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the Council, in the form of a directive, regulation or general decision, sets binding rules for all actors. These rules have a specific structure in the present regulatory context. Rather than manifesting simple links between certain conditions and consequences, they shape instruments to steer the actions of individuals towards a specific objective of two types. Marketbased instruments provide market participants with economic incentives and/or information for behaviour in line with the public objective. Energy regulation heavily relies on such instruments with built-in flexibility. By contrast, command-and-control instruments do not accord such flexibility, with ‘command’ being a standard that must be complied with and ‘control’ signifying sanctions for non-compliance.74 Such instruments pass through successive iterations, in which the animating idea is concretised progressively. After a first stage in which merely general principles are enunciated that provide the basis for a common understanding, further stages provide partial and possibly then full harmonisation as to substance and procedure. Full harmonisation turns the Member States into de facto administrative agencies of the European Union overseen by the European Commission. Instrumental legislation relies on a two-step rules-making procedure that combines the legislative act with subsequent executive rule-making by the European Commission. The legislative act itself must contain the regulatory decisions, with the Commission’s delegated or implementing act being necessary and effective to carry it out. Non-binding normative instruments serve to provide details to reinforce the policy decisions made in the legislative act. They nudge private behaviour further in the desired direction. (2) Organisation Organisation is the second modality. It enables Europe-wide or regional cooperation between Member States and their divisions down to local government, national regulators, market operators and participants to fulfil functions ranging from joint planning, the development of technical or other standards for adoption by the Commission to primary decision-making over market operations. The design features of organisation concern the representation, scope of intervention and powers. The decentralised agency75 is but one of the organisational forms, either formal or informal. The European Union 74

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See R. Baldwin, M. Cave and M. Lodge, Understanding Regulation: Theory, Strategy and Practice (2nd edn, Oxford University Press, 2011). ‘Joint Statement of the European Parliament, the Council and the Commission on Decentralised Agencies’ (2009).

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programmes the work of the organisation by setting principles, criteria and standards, and procedure. The result is multilevel organisation of the European Energy Union, where public authority can be exercised at the EU level, the regional level and the local level, carrying with it the constitutional constraints of judicial protection, fundamental rights and subsidiarity. (3) Procedure Procedure for coordinated planning by Member States is the third modality. It makes Member States policy planning subject to European Commission oversight for both ambition and implementation to ensure that the collective objectives of the European Energy Union are reached.76 This procedure is iterative, with a sequence of improving approximate solutions to the intended outcome. Coordinating Member State planning of power generation, grid infrastructure and preparedness for supply crises calls for a harmonised classic direct administrative procedure which serves to reach decisions by a finite sequence of operations and in consultation with all stakeholders. (4) Financial Instruments Instruments for financial support for energy projects from EU funds emerge as a fourth regulatory modality. Although a line is sometimes drawn with regulation in a narrower sense, financial instruments are in truth modalities of the regulatory programme. They substitute for normative instruments, incentivising private action in investment and innovation. The design of financial instruments is subject to the guiding principle of a competitive market economy. This yields the additionality criterion that the support should also be directed to projects with clear positive externalities for European Energy Union objectives. Such financial support should be leveraging private-sector investments that will then become multipliers of the public funds involved. (5) Technology Technology emerges as a fifth regulatory modality. Regulatory action aims at putting technology in the hands of consumers so as to achieve regulatory objectives.

2 The Energy Market Article 194(1)(a) of the TFEU determines that an energy market is fundamental. The European Energy Union objectives triad drives the 76

This proposal is discussed in Chapter 4.

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creation of an integrated Europe-wide energy market to supply secure and affordable energy through the efficiency gains of cross-border trade. It is also to supply sustainable energy: electricity generated from renewables requires flexible markets adapted to their decentralised, intermittent production. The priority becomes to go beyond the Third Package for a liberalised energy market and to design an integrated EU-wide energy market (a). It underlies the energy market package of November 2016 (b–e) for a new iteration of the Electricity Directive, the Electricity Regulation, and the Regulation on the Agency for the Cooperation of Energy Regulators (ACER).

a From Liberalisation to Integration The legal framework for a liberalised energy market is largely in place. The primary Treaty law of the fundamental freedoms for goods, services, establishment, capital and competition as well as on State aid all apply to energy. The three legislative packages on the internal market in gas and electricity, adopted under Article 114 of the TFEU, regulate the national transmission networks. The Third Package establishes the regulatory norm of non-discriminatory access of third parties that do not own the network.77 It accepts that networks and pipelines are natural monopolies but requires ownership unbundling or at least the legal and functional unbundling of transmission system operators (TSOs) from the activities of electricity generation, gas production and energy supply.78 Independent regulators set tariffs for access to the electricity and gas networks, cooperating in the Agency for the Cooperation of Energy Regulators (ACER).79 There is complementary legislation on market abuses,80 electricity trade and grid operation. 77

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Directive 2009/72 of the Parliament and of the Council concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC (Electricity Directive), (2009) OJ L 21/55, and Directive 2009/73/EC of the Parliament and of the Council concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC, (2009) OJ L 211/94 (Gas Directive). Comprehensively on the Third Package, see A. Johnston and G. Block, EU Energy Law (Oxford University Press, 2012). Regulation 714/2009 of the Parliament and of the Council on conditions for access to the network for cross-border exchanges in electricity, (2009) OJ L 211/15, and Regulation 715/2009 of the Parliament and of the Council of 13 July 2009 on conditions for access to the natural gas transmission networks, (2009) OJ L 211/36. Further, European Commission, ‘The Unbundling Regime’, Staff Working Paper, 22 January 2010; ‘Ownership Unbundling’, SWP(2013) 177. Regulation 713/2009 of the Parliament and of the Council establishing an Agency for the Cooperation of Energy Regulators, (2009) OJ L 211/1. Regulation 1227/2011 requires registration and prohibits insider trading and market manipulation. The reporting of data on transactions on the wholesale energy market

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The remaining task is to ensure that the Third Package is legislatively transposed by the Member States in a timely, correct and uniform fashion.81 The European Commission has been using its power to institute infringement proceedings for the centralised enforcement of such transposition.82 There is also incentive-based centralised enforcement, as correct transposition is a precondition for accessing the European structural and investment funds to co-finance energy investments.83 In addition, the legislation can be enforced de-centrally before national courts, as it does create individual rights. The Court has indicated this in E.ON Földgáz Trade,84 relating to the principles that TSOs must observe and regulators must ensure in regard to network access. The judgment states that these principles are intended to confer judicially enforceable rights for access to networks against operators but also regarding national regulators.85 As a result, national courts can police correct transposition and application of the Third Package in the Member States.86 The legislative liberalisation of national markets is flanked by the European Commission using EU competition law to prevent companies from preserving compartmentalized national energy markets.87 The European Energy Union priority is to move beyond this liberalisation within each Member State and to design a single, genuinely integrated Europe-wide energy market. This intervention relies on the efficiency of an integrated energy market to advance the European Energy Union’s objectives triad. Embarking immediately on more interventionist measures, such as active disinvestment in carbon-based energy generation, would indeed fall afoul of subsidiarity. This market integration is to be achieved through the progressive harmonisation of the rules of the hitherto separate national markets. The recast Electricity Directive sets as the overall principle that the energy market will be governed by scarcity prices so that correct

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began in 2015 on the basis of the Commission implementing act, Regulation 1348/2014, (2014) OJ L 363/121, covering commodities and derivatives markets. Outcome of the June 2016 Energy (TTE) Council, at 8. Further, on the challenges of transposition, see P. Cameron, Legal Aspects of EU Energy Regulation: Implementing the New Directives on Electricity and Gas Across Europe (Oxford University Press, 2005). Article 258 of the TFEU. European Commission, ‘Enforcement of the Third Internal Energy Market Package’, SWD(2014) 315; for current practice, see http://ec.europa.eu/ energy/en/topics/enforcement-laws. Articles 6 and 19, Regulation 1303/2013 of the Parliament and Council laying down common provisions, (2013) OJ L 347/320. E.ON Földgáz Trade (Case C-510/13), 19 March 2015. 85 Ibid., at [45–48]. Ibid., at [50–51]. Cameron,’Legal Aspects of EU Energy Regulation’, note 81; C. Jones (ed.), EU Energy Law: EU Competition Law and Energy Markets (Claeys & Casteels, 2004).

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production and investment decisions can be made and energy is allocated according to demand throughout the Europe-wide market.88 The proposed package puts in place a regulatory framework for the entire electricity cycle through the stages of transmission, distribution and consumption. It establishes homogeneous structures for the principal market participants. It retains the principles of the Third Package for TSOs and adds rules on priority dispatch by TSOs for certain renewably generated electricity. It also extends these principles to distribution system operators (DSOs). The proposed Electricity Regulation then orders the behaviour of these actors and the Member States in the Europe-wide electricity market by providing for electricity market coupling (b), cooperative regional management of the interconnected network (c), regulatory oversight (d), and managing supply and demand (e). It provides for this purpose harmonised rules and new forms of organisation as modalities of this regulatory intervention.

b Market Coupling To ensure that power flows from low-price to high-price areas across Europe presupposes continuous energy trading between producers and TSOs. Effective markets for such trading in the short term – single-dayahead and intra-day – are particularly important for electricity generated by renewables that can only be predicted shortly before actual production. The recast Electricity Regulation provides for EU-wide short- and long-term (forward) markets in electricity.89 The chief instrument is progressive market coupling across borders, jointly organised by power exchanges and TSOs. For this purpose, each Member State must designate at least one nominated electricity market operator (power exchange) that will have the right to offer day-ahead and intra-day trading services with delivery in another Member State.90 These operators shall cooperate 88

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Proposal for a Directive of the European Parliament and of the Council on common rules for the internal market for electricity, COM(2016) 864. Based on the TTE (Energy) Council Conclusions, ‘Presidency Messages to Give Guidance to the Commission on the Energy Market Initiative’, 6 June 2016, Doc. 9103/16, Annex; European Parliament, ‘Resolution of 13 September 2016 on Towards a New Market Design’ (P8_TA-PROV (2016)0333), as well as the public consultation, COM(2015) 340. Incorporating rules developed under the previous Electricity Regulation, namely, European Commission Regulation 2015/1222 establishing a guideline on capacity allocation and congestion management (CACM), (2015) OJ L 197/24, and European Commission Regulation 2016/1719 establishing a guideline on forward capacity allocation (FCA), (2016) OJ L 259/42. The list of designated NEMOs is maintained by ACER, available at www.acer.europa.eu/ en/electricity/FG_and_network_codes/CACM/Pages/NEMO%20List.pdf.

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Europe-wide. The recast Electricity Regulation provides harmonised rules on the electricity market generally, on discrimination-free access for producers to transmission networks and on congestion management. For further minimum harmonising of the requisite detailed rules, the proposal retains the instrument of network codes and guidelines for cross-border electricity transmission. These technical rules are developed in a two-step procedure. The European network of transmission system operators for electricity (ENTSO-E) is the organisation tasked with drafting these, supervised by ACER.91 The European Commission then adopts the drafts as delegated acts. The approach of the recast Electricity Regulation is to endorse a target model of Europe-wide market coupling to be realised through the bottom-up cooperation of power exchanges and TSOs. These are enlisted and provided with responsibilities.

c Regional Cooperation The interconnected network is currently managed by the national TSOs, structured within the organisational model of the Third Package. These cooperate within the EU-wide ENTSO-E on the rules of an integrated market. To arrive at cross-border management, the recast Electricity Directive and Regulation will establish regional cooperation centres for the TSOs of the relevant region. There will be mandatory cooperation on system operation, capacity calculation, security of supply and risk preparedness.92 The centres will be equipped with decision-making powers over their members, exercised by majority voting. Article 194(2) of the TFEU is the legal basis for establishing such sui generis bodies and vesting them with primary legal powers. The Court has recognised the principle in the European Securities Market Agency (ESMA) case93 relating to financial market regulation. The ESMA is the decentralised agency overseeing financial markets and has primary decision-making powers over private actors, pre-empting Member States’ authorities. The Court confirmed that the EU legislature can on the basis of its legislative power under Article 114 of the TFEU make not just substantive but also organisational rules, vesting arm’s-length 91

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Regulation 714/2009 of the Parliament and of the Council on conditions for access to the network for cross-border exchanges in electricity and repealing Regulation (EC) No. 1228/2003, (2009) OJ L 211/15. Proposal for a Regulation of the European Parliament and of the Council on the internal market for electricity, COM(2016) 861, Annex I. UK v. Parliament and Council (Case C-270/12), 22 January 2014.

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organisations with such primary decision-making power. This rationale of implied organisational powers applies to all legislative competences, including Article 194(2). The right to good administration (Article 40 of the CFR) requires that such decisions can be reviewed internally, while the right to judicial protection guarantees judicial review. The bottom-up regional cooperation on the energy market between Member States is based on politically binding intergovernmental agreements.94 The European Commission engages with such cooperation on authorisation by the Council.

d Oversight The proposal for a recast of the ACER Regulation stops short of establishing a principle of common EU-level oversight over networks. The main oversight decisions on the networks will continue to be taken by national regulators, with ACER having a coordinating role acting through recommendations and opinions and taking decisions only at the request of the national regulators or if they fail to take a decision within a certain time frame. This is in line with the subsidiarity principle, as the Commission cannot currently demonstrate that the existing decentralised structure is not fit for purpose.95 ACER will have roles in regard to the organised cooperation of the TSOs, rule-making with ENTSO, and decision-making on cross-border technical issues.96 Were a case to be made in the future for aligning ACER with the Common Approach to Union agencies, then ACER could be vested with oversight over national regulators. ACER could then make regulations facilitating the cross-border flow of energy and decisions relating to new infrastructure affecting more than two Member States, on exemptions from physical reverse flows under the reformed Security of Gas Supply

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European Commission, ‘Outcome of the Commission’s Public Consultation on a New Energy Market Design’, Council Doc. 11018/15, referring to examples of political cooperation in energy matters such as the North Seas Countries’ Offshore Grid Initiative (NSCOGI) within the Pentalateral Forum, the Baltic Energy Market Interconnection Plan (BEMIP) (http://ec.europa.eu/energy/en/topics/infrastructure/baltic-energy-marketinterconnec tion-plan), the new South-West Europe Interconnectivity Group (https://ec.europa.eu/ energy/en/news/high-level-group-energy-infrastructure-south-westeurope-created) or the Central and South Eastern Europe Gas Connectivity Group (https://ec.europa.eu/energy/ en/topics/infrastructure/central-and-south-eastern-europe-gasconnectivity) in the field of gas. COM(2016) 863, at 11. 96 Articles 4, 5, 6 of the proposed recast ACER regulation.

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Regulation97 and on cross-border cost allocations under the Regulation for Trans-European energy infrastructure.98

e Managing Supply and Demand The key regulatory approach to decentralised production and consumption is rights-based, all of which falls under the judicial protection guarantee of Article 47 of the CFR. Decentralised producers receive the rights to offer their electricity and to access markets free of discrimination. Intervention for self-generation by citizens will remain for Member States, though, with the Commission taking non-legislative information-based action.99 The design of the integrated energy market includes demand-side management, that is, the capacity to change electricity usage by end-use customers in response to market signals.100 The recast Electricity Directive will group this into legal rights and rights to the technological means to exercise these rights. Energy-related consumer protection integrates and effectuates the general instruments,101 in line with the Court’s jurisprudence on this legislation, to make it effective for the energy sector.102 The proposed recast of the Electricity Directive provides for an energy-specific definition.103 It also creates the right to change providers, although the obstacle of switching fees is not addressed. The regulatory priority under the European Energy Union is to empower energy consumers to be able to make informed choices on exercising these rights. This needs technology, with smart homes and networks and data management.104 For the recast Electricity Directive, the Commission proposes creating a complementary individual right to receive a meter.105 The Electricity Directive accelerates the roll-out by Member States of smart meters that inform consumers 97 99

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98 Note 121 and accompanying text. Note 162 and accompanying text. But see European Commission, ‘Best Practices on Renewable Energy Self-Consumption’, SWD(2015) 141. See CEER, ‘Advice on Ensuring Market and Regulatory Arrangements to Help Deliver Demand Side Flexibility’, June 2014, 1. Directive 2011/83 of the Parliament and of the Council on consumer rights, amending Council Directive 93/13/EEC and Directive 1999/44/EC and repealing Directive 85/577/ EEC and Directive 97/7/EC, 2011 OJ L 304/64. Regulation 2006/2004 of the Parliament and of the Council on cooperation between national authorities responsible for the enforcement of consumer protection laws, (2004) OJ L 364/1, applies where the trader and the consumer are established in different Member States. Inclusion of energyspecific laws in the Annex is being considered. RWE Vertrieb AG (Case C-92/11), 21 March 2013. 103 Chapter III. European Commission, ‘Delivering a New Deal for Energy Consumers’, COM(2015) 339, 7. Article 21.

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accurately of their energy consumption.106 The Commission will also monitor the implementation of the common European industry standards for meters. Digitalisation of energy creates large amounts of personal data in the hands of providers. Article 8 of the CFR demands legislation to determine the responsibilities of actors in energy consumers’ data handling. The proposal and further informal instruments concretise the general regulatory framework on data management.107 For accurate and transparent information on prices, the Commission will be using informal instruments on minimum standards for that information, nudging consumers towards price signal–based decisions. This priority on demand-side management promotes the European Energy Union’s objective of efficient and therefore more secure, sustainable and affordable energy. It is, however, at the same time susceptible of conflict with the European Energy Union’s objective of secure energy for all. Although that is not spelled out specifically in the Energy Union Strategy, this implies equal access to energy for all. But demand management by technologically empowered consumers is intended to create differentiated tariffs for consumers that could run counter to this objective. The European Union therefore is to monitor the development of tariffs under this criterion. In the same vein, vulnerable consumers may not be able to effectively represent their interests. Furthermore, the preference for renewables and the phase-out of regulated prices might have a particularly detrimental effect on them. The Energy Union Strategy considers the protection of vulnerable consumers to be the main means to fight energy poverty and suggests general welfare instruments. However, the Third Package allocates the regulatory function of protecting this consumer group primarily to the national level.108 The proposed Electricity Directive accords the Commission a broader supporting role, without, however, altering this decentralised approach. 106

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A ‘smart meter’ is an electronic system that can measure energy consumption, providing more information than a conventional meter, and can transmit and receive data using a form of electronic communication (Article 2(28) of the EED 2012/27 and Article 20 of the Electricity Directive). The European Commission monitors progress against this obligation, COM(2014) 356 Commission proposals for a Network and Information Security Directive and a General Data Protection Regulation; European Commission Recommendation 2014/724/EU on a data protection impact assessment template for smart grids and smart metering systems, (2014) OJ L 300 63, which is to allow Member States to anticipate potential impacts on the rights and freedoms of data subjects and implement stringent safeguards. The Gas Directive 2009/72 only suggests an ‘integrated approach’, at [recital 53]. See Chapter 4.

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3 Secure Energy Pursuant to Article 194(1)(b) of the TFEU, the European Union secures the energy supply for the European Union as a whole in solidarity between the Member States. The European Energy Union’s objective of secure supply is consequently assessed against the projected needs of the entire European economy.109 The European Energy Union’s target on the share of renewables in the energy mix directs that these become a primary source in securing this supply level. Securing energy supply in this preventive sense then goes beyond the previous approach focused on supply crises. It generates the regulatory priority to diversify supply (a). The second priority is to enhance the collective solidarity-based supply resilience (b).

a Diversified Supply Diversified supply means moving away from imported fossil fuels, with its small circle of suppliers and limited routes of supply. Much renewable energy is generated from resources indigenous to the European Union. Yet the intermittency of much renewables production, which is becoming more acute as its share grows, presents a specific challenge. The objective of making supply from this source permanently secure, then, drives the EU intervention for development of storage for large quantities of electricity in the extended energy system,110 such as pumped hydro, where excess energy is used to pump water up into large basins to be released at times of peak demand, high-powered batteries and hydrogen. The EU-level regulatory intervention is integrated into the design of the electricity storage market and interconnected infrastructure111 and will take the form of specific financial support for such technologies.112 The alternative response to intermittency is so-called capacity mechanisms to back up RES production. These often use highly pollutant lignite coal or diesel generators and thus risk secure supply objective risks cannibalising 109

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European Commission, ‘Policy Framework for Climate and Energy in the Period from 2020 to 2030, Impact Assessment’, SWD(2014) 15, with scenarios depending on Member States’ policy choices. Defined as the act of deferring an amount of energy that was generated to the moment of use either as final energy or converted into another energy carrier. European Commission, ‘Energy Storage: Proposed Principles and Policies’, June 2016; DG Ener Working Paper, ‘The Future Role and Challenges of Energy Storage’, without date, available at https://ec.europa.eu/energy/sites/ener/files/energy_storage.pdf. Technological innovation in storage falls under the Horizon 2020 programme (Joint Undertaking on Fuel Cells and Hydrogen) and the Strategic Energy Technology Plan (Smart Grid Initiative).

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the sustainability objective. The regulatory action of the European Union relies on the integrated energy market to make such mechanisms superfluous, charging regional cooperative centres with assessing adequacy in a regional energy market.113 Natural gas emits considerably less greenhouse gas than oil and therefore qualifies as the main backup fuel to renewables in securing supply, covering around a quarter of the EU-wide demand. Fostering the supply of this energy source will extend the European Union’s energy regulation to the generation stage. However, the share of indigenously produced conventional gas is declining. Shale gas reserves exist in several Member States,114 but the exclusive decision to explore and exploit these indigenous resources by means of fracking technology lies with each Member State. The European Union therefore is likely to continue to import the lion share of its gas. Russia, Norway and Algeria are currently its main suppliers, and some Member States depend on one supplier exclusively. The gas is imported via long-distance pipelines. Diversifying this supply requires importing natural gas from third States that share with the European Union a strong commitment to rules-based energy governance. The large-scale import of liquefied natural gas (LNG) from the United States, Canada and Australia is increasingly economically realistic. The liquefied gas can be transported by vessel to an access point in the European Union, a port or floating storage and regasification unit, where it is reconverted into its gaseous state and then fed into the grid. The internal regulatory action concentrates on the infrastructure, in terminals, storage capacity and regional hubs. The TEN-E Regulation provides the instrument of Projects of Common Interests to establish this infrastructure.115 The projects need to give all Member States access to LNG via terminals or interconnectors and access to liquid hubs.116 Third-party access to LNG terminals is guaranteed under the Gas Directive,117 subject to Member State implementation discretion. The European Commission’s LNG strategy contains merely a hortatory appeal to remove the many exemptions that have been granted.118 113 114

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See below, Chapter 4. European Commission, ‘On the Exploration and Production of Hydrocarbons (Such as Shale Gas) Using High-Volume Hydraulic Fracturing in the EU’, COM(2014) 23. See below, Chapter 4. European Commission, ‘An EU Strategy for Liquefied Natural Gas and Gas Storage’, COM(2016)49, 6, with supporting information in SWD(2016) 23. Further, M. Waloszyk, Law and Policy of the European Gas Market (Elgar, 2014). LNG Strategy, note 116, at [8].

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Although nuclear energy is a source of a climate-friendly supply of electricity, the Energy Union Strategy does not assign it a primary role in the European Union’s energy mix. That is, to do with the dependency on imported nuclear fuel and, more fundamentally, with the decision to use or not to use nuclear energy being a reserved competence protected by Article 194(2)(2) of the TFEU. Under the EA, the Commission must be kept informed of the level of nuclear provision in those Member States. It needs to account for this information in the assessment of the overall secure supply of energy.

b Resilience The current regulation of conventional reserves focuses on each Member State. The 2010 Gas Security of Supply Regulation119 defines a supply standard with standardised indicators: member States must be able to supply at least 30 days’ worth of gas to private households and other vulnerable consumers like hospitals. The 2009 Oil Stocks Directive obligates member States to build up and maintain minimum stocks of crude oil and petroleum products.120 The revised Security of Gas Supply Regulation121 is a new iteration of the instrument for enhanced resilience to supply shocks in gas. It is based on the principles of regional planning to prevent risks, solidarity-based management of emergencies and the joint responsibility of gas suppliers and governments for security of supply. For this, it provides the organisation and procedure. The regulation forms ‘regional groups’ in accordance with transnational supply risks. The regional risk assessment is to take into account cross-border energy flows and storage possibilities. Member States must also work together on measures such as reverse gas flows at cross-border 119

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Regulation 994/2010 of the Parliament and of the Council concerning measures to safeguard security of gas supply, (2010) OJ L 295/1. Directive 2009/119/EC, imposing an obligation on Member States to maintain minimum stocks of crude oil and/or petroleum products, (2009) OJ L 265/9. The total oil stocks maintained at all times within the Union must correspond to ninety days of average daily net imports or sixty-one days of average daily inland consumption. Regulation of the Parliament and of the Council concerning measures to safeguard the security of gas supply and repealing Regulation No 994/2010 (not yet in OJ). The new SOS Regulation was adopted, after significant changes to the proposal, COM(2016) 52, see ‘Outcome of the TTE Council Meeting’, 5 December 2016, Doc. 15098/16, with Doc. 14847/16 and Doc. 151273/16 (presidency conclusions), Presidency report, 20 March 2017, Doc. 7296/17; and Council Doc 8734/17, 5 May 2017.

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interconnections. National preventive and emergency plans will be developed on that basis. The Gas Coordination Group at the EU level coordinates the work. The management of emergencies proceduralises the responsibility of gas suppliers and each Member State and the solidarity between Member States. This is, however, qualified: it works only as a last-resort mechanism, and the acting Member State has to be compensated. It is first for natural gas companies and the Member State concerned to deal with the crisis. Only if this is not effective, then connected Member States must help to ensure the essential gas supply in another Member State through market and non-market measures.122 The European Commission receives the power to coordinate the responses of the Member States in the case of a declared emergency. The proposal does not, however, suggest that emergency stocks be held collectively. Although that would further advance energy solidarity, this cooperative solution preserves the subsidiary nature of the intervention.123 The regulation will assign private gas undertakings with the responsibility for supply security. This activates the defensive potential of the fundamental rights that these undertakings have (Articles 16 and 17 of the CFR).124 Even accounting for their social function as suppliers of essential goods and services,125 the concrete restrictions placed on their business activities and related property still need to be strictly proportionate.126 That is reflected in the legislatively drawn line that only the most significant gas supply contracts will need to be notified. Long-term contracts of gas providers that provide 40 per cent or more of annual gas consumption in the Member State concerned will have to be notified by the competent authority, which assesses them for their impact on the security of gas supplies in the Member State and the region.127 Others remain subject to requests by national authorities. This power can be exercised only in duly justified circumstances. 122

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Article 12 of the new SOS Regulation. Essential is the supply of households, social services and district heating installations. Subsidiarity requires demonstrable added value of such centralisation. However, the economics may be inconclusive. Collective stocks would certainly involve lower holding costs than expecting Member States to each keep stocks. But would they also be cheaper in the event of necessary use, where distribution costs, delays and scarcity will act as price drivers? The Commission proposal for the new SOS regulation considers fundamental rights not applicable, COM(2016) 52, at [8]. Sky Österreich (Case C-283/11), 22 January 2013, at [45]. 126 Ibid., at [47]. Article 13 of the new SOS regulation.

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The stress tests for severe gas disruptions128 underpin the priority of enhancing the resilience of the gas sector. However, the shift to (renewably) generated electricity calls for a resilience regime that is strengthened in parallel. The Commission has now also proposed a new regulation on preparedness in the electricity sector129 as part of the winter 2016 package, setting forth harmonised rules for preventing and managing electricity supply crises, but without operational solidarity.

4 Renewable Energy EU energy regulation must promote renewable energy sources (RES; Article 194(1)(c) of the TFEU). The European Energy Union objectives triad drives the promotion of RES, comprising wind, tidal, photovoltaic and bioenergy. These provide sustainable energy, reducing emissions in carbon dioxide and other air pollutants and reducing cooling water needs compared with conventional alternatives. Produced indigenously, they also make supply more secure, while the affordability objective calls for the phase-out of public subsidies borne by the consumer. The concrete target of a share of at least 27 per cent by 2030 remains unaffected by the short-term volatility of the price of non-renewable energy sources. It directs regulatory intervention in favour of increased energy generation from that source in the period from 2021 under four priorities: decentralisation, complementary EU measures EU support schemes, and controlling environmental risks.

a Decentralizing the EU Legal Framework for Renewables The current RES Directive fixes a 2020 EU-level target of 20 per cent RES. This consists of legally binding targets for each Member State.130 It also establishes priority access to the grid for electricity generated from this source. 128

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European Commission, ‘Short Term Resilience of the European Gas System: Preparedness for a Possible Disruption of Supplies from the East during the Fall and Winter of 2014–2015’, COM(2014) 654. See also European Commission, ‘Report on the Implementation of Regulation 994/2010 and Its Contribution to Solidarity and Preparedness for Gas Disruptions in the EU’, SWD(2014) 325. COM(2016) 862. Directive 2009/28/EC of the 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. The share of renewable energy in the European Union has increased from 8.5 per cent in 2005 to 15.3 per cent in 2014 (26 per cent in electricity); European Commission, ‘Third Renewable Energy Progress Report’, COM (2015) 293.

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The Energy Union Strategy formulates an increased target of at least 27 per cent RES for an extended time frame until 2030. In contrast to the existing legislation, it does not break this target down into individual Member State targets. The differentiation takes account of the fact that Member States have differing interests and possibilities and are at different stages of development, from near 0 to over 50 per cent of electricity generation from renewables. It is also constitutionally required by subsidiarity and the reserved Member State competence over their energy mix under Article 194(2)(2) of the TFEU, as long as the common objective is preserved. The proposal for the reformed directive after 2020 (RESD II) translates this policy change into law. It provides for a legal obligation upon the European Union to achieve this target, but not for the Member States. This decentralisation is hedged by a EU legal framework, though.131 The European Union is responsible for ensuring that the decentralised action achieves the agreed renewables target collectively and in solidarity between Member States. This requires a EU-designed coordinating legal framework that is robust enough to substitute for the lack of binding individual targets to achieve the EU targets and provide legal certainty for investors. It must also, however, respect the subsidiary, decentralised architecture of the European Energy Union in this field and leave Member States sufficient flexibility. The framework is first of all procedural. Under the proposed governance procedure, Member States must produce a RES strategy as the reference for national policies and projects as part of comprehensive ten-year national energy and climate plans. The harmonised template for the RES strategy132 includes renewable energy trajectories and policies up to 2050, specific technology-relevant trajectories for renewable energy up to 2030 and measures for increasing the flexibility of the energy system achieving market integration and coupling within the EU-wide market.

b Market Share Quota The proposal sets forth quantified targets for renewable energy in heating and cooling and in transport that gradually increase up to 2030 and sets 131

132

But see European Commission, ‘Mid-Term Evaluation of the Renewable Energy Directive: A Study in the Context of the REFIT Programme’, April 2015 (legally binding targets have been effective), available at https://ec.europa.eu/energy/sites/ener/files/docu ments/CE_Delft_3D59_Mid_term_evaluation_of_The_RED_DEF.PDF. See Annex to the ‘2015 State of the Energy Union Communication’.

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forth policy options.133 These are subject to adjustments at the midterm review of the European Energy Union trajectory. Article 194(2)(1) of the TFEU does provide the competence to prescribe such procedural and substantive rules. However, under the principle of subsidiarity, the need for all these uniform central rules has to be demonstrated, against the data, that European Union is not on track to meet its target.

c Harmonised Planning Furthermore, the permitting procedure for electricity generating installations is harmonised. Pursuant to the model for harmonised procedures employed elsewhere, this features a central permitting authority in every Member State vested with the authority to issue a single permit. It operates under a uniform procedure for balancing the project interest with other factors such as resource and grid availability and environmental concerns. d Financial Support The proposal expects market amortisation of the maturing renewables industry but accepts continuing financial support from public funds, primarily of the Member States. The proposal also accepts Member States continuing to provide financial support, though it seeks to ensure the market-compatible design of such support and to limit any support for backup mechanisms. This control integrates the general law on State aid but goes further in its mandatory opening of national support schemes. The supplementary EU support takes the form of grants financed from the proceeds of the auctioning of allowances to power plants under the Emissions Trading System (ETS), the European Union’s current programme for innovative low-carbon energy demonstration projects financed from the proceeds of the allowances for new market entrants (NER 300). The proposal for an amended ETS Directive introduces new financial support instruments. A EU-level Innovation Fund will support translating innovative technologies into breakthrough innovation in industry. The ETS Directive will also continue to obligate Member States to re-channel proceeds obtained from the auctioning of allowances into funding renewables projects. 133

Member States shall require fuel suppliers to include a minimum share of bioenergy increasing to at least 6.8 per cent in 2030 (Article 25 of RESD II) and endeavour to increase the share of renewable energy supplied for heating and cooling by at least 1 per cent every year (Article 23).

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Articles 191(1) and 192(1) of the TFEU provide the legal base for this financial support mechanism included in the ETS, for it collects a fee for the specific purpose of decarbonising the economy. It is not taxation nor a primarily fiscal measure that would fall under Article 192(2) of the TFEU. A next step could be a general guarantee fund to support advanced renewable projects financed from the general budget, but the Electricity Directive is content with providing favourable market conditions, such as priority dispatch and balancing responsibilities.

e Controlling the Environmental Risks of Renewable Energy Technologies While protecting the climate, renewable energy technologies bear risks for other global and local environmental goods. Pursuant to the chapeau of Article 194(1) of the TFEU, the European Energy Union manages them by means of harmonised rules. Bioenergy – biofuels and bioliquids – is expected to make up a significant part of the overall energy in Europe and worldwide but presents risks for biodiversity where they induce direct or indirect land-use change. The European Union’s framework for bioenergy is contained in the Renewable Energy Directive and the Fuel Quality Directive134 and provides harmonised sustainability criteria for biofuels and bioliquids produced inside and outside the European Union.135 To be eligible for support or count against renewables targets, biofuels must achieve GHG savings of at least 35 per cent in comparison to fossil fuels but cannot be produced from raw materials obtained from land with high biodiversity such as primary forests or highly biodiverse grasslands.136 Provisions limiting indirect land-use change were added in 2015. After 2020, the generation and consumption of this energy source will be regulated under a fully harmonised procedure that takes account of the fact that second-generation bioenergy uses waste.137 The evolution of this regulatory approach emulates the control of health risks from oil and gas production. The Offshore Safety 134

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Directive 98/70/EC of the European Parliament and of the Council relating to the quality of petrol and diesel fuels and amending Council Directive 93/12/EEC, (1998) OJ L 350/58. European Federation for Cosmetic Ingredients (Case C-592/14), 21 September 2016, and other cases declare extraterritorial effects of EU regulatory action for legitimate purposes lawful. Article 7a, ‘Fuel Quality Directive’, note 134. European Commission, ‘Preparation of a Sustainable Bioenergy Policy for the Period after 2020’ (2016).

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Directive138 establishes harmonised rules for preventing major accidents in offshore oil and gas operations and limiting the consequences of such accidents. Licenses can be granted only to companies that are well financed and have the necessary technical expertise and after information on the safety of the installations has been made available to citizens. Companies are also fully liable for environmental damage caused to protected marine species and natural habitats.

5 Efficient Energy EU energy regulation must also promote energy efficiency (Article 194(1)(c)). ‘Energy efficiency’ is the relation between energy input and economic output. Improvement in this relation results in energy savings. The Energy Union Strategy conceives of efficiency as an energy source with energy savings contributing to the objectives of increased security of supply, reduced carbon dioxide emissions and lower energy costs. The target of a minimum of 27 per cent improvement in efficiency for the European Union drives the regulatory intervention after 2020. The priorities then are for decentralised regulation by the Member States (a), complemented by EU action on energy end uses: consumer goods (b), heating and cooling (c) and transport (d). The regulatory intervention for efficiency thus will be covering the consumption stage in the energy cycle and at the same time define generation by establishing efficiency as the equivalent of a source in the energy mix. The proposals for a reform of the directives on energy efficiency and energy efficiency of buildings are pending, while the labelling regulation was adopted in 2017.139

a Decentralizing Energy Efficiency and the EU Legal Framework The proposed recast Energy Efficiency Directive (EED II) prescribes for the European Union a target of a 30 per cent improvement in efficiency.140 The intended decentralisation is implemented in the proposed reform of the EED that only requires Member States to submit their intended 138

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national contributions from 2021 towards the binding EU-level target.141 However, the proposal prescribes for each Member State a common binding savings target of 1.5 per cent in the period 2021–30 and obligation schemes for energy providers as the default implementation policy.142 The public sector should purchase energy-efficient renovations on at least 3 per cent of the buildings it owns. Furthermore, Member States shall monitor efficiency levels in new energy-generation capacities, and companies shall undergo audits of their energy consumption. This decentralisation is hedged by a EU-level legal framework. The new governance procedure prescribes for each Member State a ten-year national energy and climate plan. The template for this plan requires detailed information on energy-efficiency measures and their expected effect on primary and final energy consumption, detailed for individual sector consumption. This procedure is complemented by EU rules on consumer goods, heating and cooling of buildings and the transport sector.

b Consumer Goods The EU legislation on consumer goods efficiency will rest on the Ecodesign Directive and the reformed Energy Efficiency Labelling Regulation. Both are framework instruments that require the European Commission to adopt implementing measures on product groups. The Ecodesign Directive143 provides producers with the technical tools for making products more energy efficient.144 Labelling incentivises producers to improve efficiency by being able to label goods according to their energy efficiency for informed consumer choice. The legal form is a regulation,145 as this iteration now makes it a fully harmonised instrument. The key point is to reform the scaling of products to ensure that it 141

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Under the current energy efficiency directive, Member States set indicative individual targets for energy efficiency increases by 2020 to reach the EU-wide target of a 20 per cent efficiency improvement. Directive 2012/27/EU of the Parliament and Council on energy efficiency, amending Directives 2009/125/EC and 2010/30/EU and repealing Directives 2004/8/EC and 2006/32/EC, (2012) OJ L 315/1 (EED), Article 3. Article 7(a). See European Commission, ‘Evaluation of Articles 6 and 7 of the Energy Efficiency Directive’, SWD(2016) 402; ‘Guidance, Implementing the Energy Efficiency Directive’, COM(2013) 762. Directive 2009/125/EC of the European Parliament and Council establishing a framework for the setting of ecodesign requirements for energy-related products, (2009) OJ L 285/10. European Commission, ‘Ecodesign Working Plan 2016–2019’, COM(2016). Note 139.

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sends clear signals to consumers. The proposal reinstates a homogeneous A through G grading scale, with no currently available products assigned to the two top categories to drive innovation. The European Commission may introduce or rescale labels by way of delegated acts.146 For enforcement, the Commission shall maintain a central product database, and Member States shall establish and implement a market surveillance plan.

c Heating and Cooling of Buildings Half of all energy in Europe is consumed by heating and cooling buildings, both residential and office.147 This legislation relies on incentivising consumers, with the November 2016 package proposing strengthening the rights of consumers to meters and accurate billing. It is supported by managerial legislation for Member States to roll out the technological infrastructure, namely, smart meters. The Energy Performance of Buildings Directive lays down the framework for improving the energy performance of the building stock through best practice dissemination,148 long-term plans for nearly zero-energy buildings, the goal of decarbonising buildings and financial support.149 Local government is enlisted as a European Energy Union governance level. The Covenant of Mayors organizes the cooperation between local authorities on best efficiency practice.150 Article 194(2) of the TFEU is the legal base for determining the competent administrative level within Member States for this purpose. Mandating the local level in this respect is lawful. Indeed, Article 5(3) of the TEU considers the local authorities as the preferred decision-making level on local matters such as housing. d Transport The strategy to increase the efficiency of the transport system, which consumes about a third of all energy, marks the regulatory shift to 146

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The Council Presidency presented on 9 September 2016 a compromise text on rescaling and the product database to ensure greater Member State control than foreseen in the proposal. Doc. 11989/16. European Commission, ‘Impact Assessment for the Amendment of the Energy Performance of Buildings Directive’, SWD(2016) 414. European Commission, ‘Good practice in energy efficiency’, SWD(2016) 404. ‘Smart Finance for Smart Buildings Initiative. The 2015 integrated Covenant of Mayors incorporates adaptation to climate change and extending it to the 2030 time frame. Covenant signatories voluntarily pledge action to support implementation of the EU 40 per cent greenhouse gas–reduction target by 2030 and the adoption of a joint approach to tackling mitigation and adaptation to climate change.

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lower-emission transport modes, away from oil.151 The proposed recast of the RES Directive will require Member States to ensure that 10 per cent of total energy consumption comes from biofuels, the clearest substitute for oil-based fuels in that sector. This complements the Fuel Quality Directive,152 requiring that fuel providers reduce by 6 per cent the GHG emissions of the fuel they put on the market through methods such as reducing flaring or increased use of biofuels. Emissions are calculated for each fuel across its life cycle,153 although the carbon foot-printing of particular sources, such as Canadian tar sands oil, has been dropped as a result of intense lobbying. But the comprehensive reordering of the transport sector rests on command and control legislation to force the car industry to supply electric cars.154 This is the aim of gradually increased carbon dioxide emission standards for passenger cars and vans after 2020. Regulation 442/2009155 establishes carbon dioxide performance standards for new cars, although it includes flexibility mechanisms, such as fleet-wide standards and the possibility for manufacturers to form groups and act jointly to meet the emissions target. The targets shall be reviewed for the period after 2020.156 These would then fall under the proposed European Commission oversight over the approval procedure.157 The Clean Fuel Directive158 sets 151 152

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European Commission, ‘European Strategy for Low-Emission Mobility’, COM(2016) 501. Council Directive 2015/652 laying down calculation methods and reporting requirements pursuant to Directive 98/70, (2015) OJ L 107/26. Article 4 with Annex I. For public-sector demand response, see Directive 2009/33 of the Parliament and the Council on the promotion of clean and energy-efficient road transport vehicles, (2009) OJ L 120/5. Regulation 443/2009 of the European Parliament and of the Council setting emission performance standards for new passenger cars as part of the Community’s integrated approach to reduce CO2 emissions from light-duty vehicles, (2009) OJ L 140/1, with Regulation 333/2014 of the European Parliament and of the Council amending Regulation 443/2009 to define the modalities for reaching the 2020 target to reduce CO2 emissions from new passenger cars, (2014) OJL 103/15. Article 13, Regulation 443/2009 requests the Commission to review by 2015 and if appropriate propose targets for the period beyond 2020. A consultation on the revision of the regulation concluded in October 2016. Proposal for a Regulation of the European Parliament and of the Council on the approval and market surveillance of motor vehicles and their trailers and of systems, components and separate technical units intended for such vehicles, COM (2016)31. The legal basis of the proposal is Article 114 of the TFEU. This oversight is contested; see ‘Presidency Report on Council Working Party’, Doc. 14713/16. Directive 2014/94 of the European Parliament and of the Council on the deployment of alternative fuels infrastructure, (2014) OJ L 307/1.

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individual targets and timescales for Member States to provide the infrastructure for electric cars. The shift towards transport modes that consume less than road transport, such as rail, maritime transport and inland waterway transport is supported by the Shift2Rail Joint Undertaking.159

6 Interconnected Energy Infrastructure Article 194(1)(d) of the TFEU tasks the European Union with promoting the interconnection of European energy networks. The European Energy Union objectives triad drives continent-wide interconnected networks to ensure the supply of all Member States. It also aims at the integration of sustainable RES-generated electricity into the energy market and the unlocking of economies of network-bound energy trade. The specific target of at least 10 per cent not later than 2020 and the aspirational 15 per cent interconnection target for 2030 drive the regulatory intervention. In line with the market principle, this interconnected infrastructure is to be created mainly through private investment.160 These objectives are to be achieved through the instrument of Projects of Common Interest (a) and regional high-level groups for energy infrastructure planning (b). This leads to eventual EU regulation of the infrastructure for electricity and gas Europe-wide.

a Projects of Common Interest Areas of low interconnectivity lie in the periphery of the European Union, making the Baltic States, Portugal and Spain, Ireland and Cyprus ‘energy islands’.161 Achieving the European Energy Union interconnectivity target will rest primarily on the instrument of so-called projects of common interest (PCIs) that the Trans-European Networks in Energy Regulation (TEN-E Regulation)162 sets forth. The regulation provides the organisation of twelve regional and thematic groups in 159

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Council Regulation 642/2014 establishing the Shift2Rail Joint Undertaking, (2014) OJ L 177/9. The business model of most transmission lines is based on the tariffs that energy generators are charged for feeding. So-called merchant lines rely on the price differences for energy between two points. European Commission, ‘Achieving the 10 Per Cent Electricity Interconnection Target: Making Europe’s Electricity Grid Fit for 2020’, COM(2015)82. Regulation 347/2013 on guidelines for trans-European energy infrastructure, (2013) OJ L 115/39, adopted under Article 172 of the TFEU. On the overlap between Article 194(1) (d) and Article 171(1) of the TFEU, see above.

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which Member States, ACER, ENTSO and the Commission are represented for approving projects proposed by private promoters, mostly TSOs. These groups apply harmonised criteria.163 A project must implement one of the nine strategic geographical energy infrastructure priority corridors that the regulation identifies in the fields of electricity, gas and oil or one of the three EU-wide thematic energy infrastructure priority areas for smart grids, electricity highways and carbon transportation networks.164 Cost-benefit analysis serves to identify projects that generate the maximum benefit against the targets for interconnectivity and renewables promotion. The Commission adopts the approved PCIs in delegated acts biennially, with the second list adopted in 2015.165 This legislation incentivises cross-border infrastructure projects. PCIs are eligible for financial support from a dedicated financial instrument, the Connecting Europe Facility, and from the European Fund for Strategic Investments.166 PCIs are also eligible for a harmonised, one-stop permitting procedure in the Member States concerned. A national authority issues the comprehensive decision that concentrates the required authorisations and conducts the environmental impact assessment. National regulatory authorities must provide regulatory incentives by setting tariffs for the use of the infrastructure that take into account the appropriate length of time for the investments to be recouped. The Commission may use this procedure for ensuring that the EUwide interconnectivity target of the European Energy Union is reached. The TEN-E Regulation contains a feedback system by which the Commission monitors the PCIs against the agreed target of 10 per cent interconnectivity. In case of divergence, the Commission can take corrective actions, such as approving more proposals for PCIs and working more closely with lagging regional groups.

b Regional Cooperation Providing such cooperative organisation is the function of the high-level groups. These high-level groups are based on non-binding memoranda 163 164 165

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Article 4 of Regulation 347/103. Incorporating ENTSO-E’s ten-year network development plan, TYNDP. Commission Delegated Regulation 2016/89, (2016) OJ L 19/1, published as an Annex to the ‘2015 State of the Energy Union Communication’. Articles 4(3) and 7(3), Regulation 1316/2013, establishing the Connecting Europe Facility, amending Regulation No. 913/2010 and repealing Regulations No. 680/2007 and No. 67/2010, (2013) OJ L 348/160. Financial support from the CEF totals €5.35 billion for 2014–20, mostly for feasibility studies. Member States may also use European Structural and Investment Funds (ESIF) under certain conditions.

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of understanding between Member State governments. Examples are the Pentalateral Forum, the North Seas Countries’ Offshore Grid Initiative (NSCOGI), the Baltic Energy Market Interconnection Plan (BEMIP),167 the new South-West Europe Interconnectivity Group168 and the Central and South Eastern Europe Gas Connectivity Group in the field of gas.169 These regions will be establishing action plans with concrete milestones for implementation, including concrete interconnection proposals to achieve the 10 per cent target. The North Sea strategic corridor is an example where incompatibilities of the regulatory framework on the financial support for renewables and the trans-border allocation of costs for infrastructure have hampered progress in this cooperative manner.170 Future EU corrective action may involve the transfer of primary decision-making on cost allocation to the ACER. Reaching the aspirational 15 per cent interconnectivity target would mean gradual construction of electricity highways; regional initiatives would then be linked up for the purpose of developing a high-voltage direct-current grid Europe-wide.171

7 Decarbonising the Energy System The European Energy Union objective of sustainable energy drives the accelerated decarbonisation of the European energy system. There is an economy-wide target of 40 per cent reduction of GHG emissions by 2030,172 comprising the heightened target of a 43 per cent reduction for the power and industrial sectors. This generates the regulatory priority to develop the next iteration of the centralised carbon emissions. In July 2016, the European Commission proposed amending the Emissions Trading System Directive.173 The reformed directive would amount to 167

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At http://ec.europa.eu/energy/en/topics/infrastructure/baltic-energy-marketintercon nection-plan. At https://ec.europa.eu/energy/en/news/high-level-group-energy-infrastructure-southwesteurope-created. At https://ec.europa.eu/energy/en/topics/infrastructure/central-and-south-eastern-eur ope-gasconnectivity. European Commission, ‘Study on Regulatory Matters Concerning the Development of the North Sea Offshore Energy Potential’, January 2016. International Council on Large Electric Systems, ‘CIGRÉ B4 Compendium of HVDC Schemes’ (2009). The European Union is on track to meet the 2020 target of a 20 per cent reduction compared to 1990 levels. European CommissionC proposal for a Directive of the Parliament and Council amending Directive 2003/87/EC to enhance cost-effective emission reductions and low-carbon

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a de facto phase-out of fossil fuel sources from the European energy mix, barring a breakthrough in commercialised carbon capture and storage technology (a–e). This accelerated para-prohibitive regulation of fossil fuel throws up important constitutional questions. Other sectors are to reduce emissions by 30 per cent, and the proposed new Regulation on Effort Sharing174 implements this priority with binding national targets (f).

a Phasing Out Carbon Fuel in the Power and Industry Sectors Carbon dioxide, the most important, if not most potent, GHG, is produced and emitted primarily by industry, with conventional power plants using carbon-heavy fossil fuels being the largest polluters, followed by the heavy manufacturing industry. The regulatory instrument to reduce the use of carbon fuels is the Emissions Trading System (ETS). Laid down in a directive, the ETS is the largest multistate, multisector carbon emissions trading system in the world, requiring power stations, a wide range of energy-intensive industry sectors175 and airline flights within and between Member States to obtain permits for any carbon dioxide emissions.176 The current third phase of the system covers the period 2013–20. The European Energy Union regulatory programme foresees a new iteration of this instrument, which is retained over the alternative of a carbon tax to create legal certainty for investment in carbon-free industry. The EC proposal for a revised ETS Directive suggests a further harmonisation for the period 2021–30. The instrument will reflect the collective ambition in this fourth phase by being strengthened in two critical aspects: the public-policy objective and the allocation of emission

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investments, COM(2015) 337; currently at first reading, see ‘Presidency Text’, 14 December 2016, Council Doc. 15487/16. Proposal for a Regulation of the Parliament and of the Council on binding annual greenhouse gas emission reductions by Member States from 2021 to 2030 for a resilient Energy Union and to meet commitments under the Paris Agreement and amending Regulation No 525/2013 of the European Parliament and the Council on a mechanism for monitoring and reporting greenhouse gas emissions and other information relevant to climate change, COM(2015) 482. These include oil refineries, offshore platforms and industries that produce iron and steel, cement and lime, paper, glass, ceramics and chemicals. In some sectors, only plants above a certain size are included, and Member States can exclude certain small installations if measures are in place that will cut emissions by an equivalent amount. The European Union has competence over international flights to and from third States, Air Transport Association of America and Others (ATAA) (Case C-366/10), [2011] I13755, at [130].

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allowances to companies. It will also provide for market oversight and take account of the social-economic adaptation costs. It will be aligned with the Paris Agreement and be reviewed after each global stock take under the Paris Agreement.177

b The Public-Policy Objective The ETS incentivises reduced fossil fuels in energy generation by putting a price on carbon dioxide emissions.178 It is a ‘cap and trade’ instrument. The public-policy goal to limit emissions is reflected in the cap on the total amount of emissions. Within the cap, companies receive emission allowances, so-called Tradable Emission Credits.179 A company must surrender enough allowances to cover all its emissions after every year; otherwise, fines are imposed. The current third iteration of the ETS Directive already provides a single EU emissions cap instead of the previous national caps. The cap decreases each year.180 The October 2014 European Council had directed that the reduction rate of emission allowances for industry should increase from 1.74 to 2.2 per cent. The proposal implements this increase from 2021 onwards. c Allocating Allowances to Industry The limit on the total number of allowances available ensures their commercial value. These can be traded freely within the European Union. Companies can also buy limited amounts of credits from emission-saving projects in third States. In line with the environmental principle that the polluters should bear the cost of preventing and remedying the pollution (Article 191(2) of the TFEU), the allowances should be sold rather than given away for free. The principal parameters then concern the criteria and procedure for the allocation of allowances. Under the current ETS Directive, allowances are auctioned off to electricity-generating power stations. The Auctioning Regulation,181 a delegated EC act, harmonises the procedure. An auctioneer and an auction platform need to be appointed, and the design of the auction must meet the standards of predictability, cost-efficiency, fair access to 177 178 179 180 181

Presidency text, note 173, Article 30. L. Massai, European Climate and Clean Energy Law and Policy (Routledge, 2011). One allowance gives the holder the right to emit one tonne of CO2 or equivalent. Of the average total number of allowances issued annually in 2008–12. European Commission Regulation 1031/2010 on the timing, administration and other aspects of auctioning of greenhouse gas emission allowances pursuant to Directive 2003/ 87/EC, (2010) OJ L 302/1.

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auctions and simultaneous access to relevant information for all operators. After 2021, the majority of all allowances will be auctioned.182 Stationary sources that are not electricity generators currently still receive their allowances for free. The October 2014 European Council has directed the continuation of this approach after 2021. The regulatory priority lies in the choices on this free allocation. For the allocation of these allowances by Member States, the current amended directive sets forth harmonised criteria. The primary criterion is the so-called benchmark of best performance per tonne of product multiplied by historical emissions. A corrective factor can be applied to meet the overall emission cap. The Commission is empowered to adopt concretising rules. The Commission’s Benchmarking Decision, a delegated act, defines the benchmarks.183 The Commission is also empowered to define the correction factor. Under this procedure, Member States had to carry out a preliminary calculation of the number of free allowances to be allocated to each installation in their territory from 2013 to 2020 and notify national implementation measures to the Commission.184 However, as the preliminary allocation through these measures exceeded the maximum amount of allowances available in 2013, the Commission applied a ‘cross-sectoral correction factor’ rising every year until 2020. After Commission approval, Member States could then take final allocation decisions.185 The Lisbon parliamentary democracy demands that the EU legislature assumes responsibility for this para-prohibitive regulation in a transparent manner so that it can be held accountable to the European citizenry. Thus the ETS Directive itself must spell out the policy choices on the allocation of allowances and not leave material choices to executive rulemaking by the European Commission. Furthermore, this calls for deep judicial review of the rule-making of the Commission against the directive rather than a shallow review that would accord the Commission large discretion to account for its expertise and factual and scientific 182 183

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Presidency text, note 173, amended Article 10(1). Decision 2011/278/EU determining transitional Union-wide rules for harmonised free allocation of emission allowances pursuant to Article 10a of Directive 2003/87/EC, (2011) OJ L 130/1. For instance, ‘The UK’s National Implementation Measures for Phase III of the EU Emissions Trading System’, 13 December 2011. European Commission Decision 2013/448/EU concerning national implementation measures for the transitional free allocation of greenhouse gas emission allowances in accordance with Article 11(3) of Directive 2003/87/EC, (2013) OJ L 240/27.

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uncertainties.186 The Court engages in this deep review. The Borealis jurisprudence demonstrates this, finding that the Commission’s Benchmarking Decision had set the corrective factor too low to achieve the directive’s overall emissions objective.187 The legislative priority then is to remove the need for any corrective factor after 2021. The European Council had halted the extension of auctioning to energyintensive industrial sectors. Free allocation of allowances is to continue ‘as long as no comparable efforts are undertaken in other major economies’.188 This refers to the so-called carbon leakage that might result from industrial activity being relocated outside of the European Union. The proposal advances four principles for the amended directive189: focusing on the sectors at highest risk of relocating their production outside the European Union, free allowances for new and growing installations, aligning the amount of free allowances with production figures and updating of benchmarks to reflect technological advances since 2008. But consistency with the ‘polluter pays’ principle should and could be achieved through harmonising action of all Parties on carbon leakage under the Paris Agreement, which is what the presidency text envisages.190 This para-prohibitive regulation of carbon fuels must guarantee the fundamental rights of market participants, procedurally and substantively. The right to property of companies (Article 17 of the CFR) is a yardstick for the procedure of allocating allowances. The Court recognises that the right to property protects administrative permits, enabling the holder to act for its benefit.191 Allowances are such permits for the future use of the public resource of the climate. Yet, because they are issued provisionally, any legitimate expectation that they will not be altered later is removed.192 The right to conduct a business (Article 16 of the CFR) is the substantive yardstick. The progressive reduction of available allowances restricts it. While climate change mitigation through the polluter pays principle is a Treatyrecognised legislative objective, proportionality must be secured for the conventional power sector where it is exceptionally hard hit. And the 186

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But see A. Vermeule, Judging under Uncertainty: An Institutional Theory of Legal Interpretation (Harvard University Press, 2006). Borealis Polyolefine (Case C-191/14), 28 April 2016, at [95] (finding that the Commission had set the amount of freely allocated allowances too high to achieve the Directive’s objective of a 20 per cent reduction in carbon emissions by 2020); Borealis AB (Case C180/15), 8 September 2016. Energy Union Framework Strategy COM(2015) 80, at 14. Presidency text, note 173, Amended Article 10a and b. 190 Amended Article 30(2). Sky Österreich (Case C-283/11), at [34]. Borealis, note 187, Opinion of AG Kokott, at [164].

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obligation on operators to provide information on future emissions must not disproportionately interfere with economic planning.193

d Market Oversight For the carbon market to operate efficiently, market oversight is required to ensure adequate price discovery. Parliamentary democracy demands legislation for this market oversight by the European Commission. Thus the Commission could take the one-off decision to back-log some allowances based on the un-amended ETS Directive. The Commission has established ad hoc oversight over the development of the primary carbon market. It thus intervened to correct the surplus of unused allowances because of the 2008 economic crisis, creating systemic risks for the carbon market by weakening its scarcity price signal. The Commission responded by amending its Auctioning Regulation to postpone (backload) the auctioning of some allowances decision.194 Creation of an institutional market oversight function through a market stability reserve requires a decision of the legislature.195 EU legislation has also created a market stability reserve for the fourth trading period.196 The Commission can stabilise the market by releasing additional allowances from a reserve, but the proposal does not redesign the secondary market for allowances.197 The general financial market regulation will apply to the secondary carbon market.198 This reflects the trend towards commoditising energy. e Support for Socioeconomic Adaptation Accelerated decarbonisation has socioeconomic implications for the power sector and carbon-dependent industry and the workforce, and 193 194

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E.On Kraftwerke (Case C-461/15), 8 September 2016. European Commission Regulation (EU) No. 176/2014 amending Regulation (EU) No. 1031/2010 in particular to determine the volumes of greenhouse gas emission allowances to be auctioned in 2013–20, (2014) OJ L 56/11. See above. Decision of the European Parliament and Council 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 L 264/1. The trading of allowances is referred to as the ‘spot market’. Direct trading is known as ‘over the counter’ (OTC); alternatively, there is trading through a broker or on an exchange. Two private auction platforms are in place. The European Energy Exchange in Leipzig is the common platform for the large majority of Member States participating in the ETS. The second auction platform is in London for the United Kingdom. European Commission, ‘The Challenges in Commodity Markets and on Raw Materials’, COM(2011) 25.

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these are unevenly distributed across the Member States. The proposed amendment to the ETS Directive takes account of these consequences in two ways. Energy-dependent industry will continue to receive free allowances and be compensated by Member States for passed-through prices. After 2021, Member States will also be able to use proceeds from the auctioning of allowances to ‘promote skill formation and reallocation of labour affected by the transition of jobs in a decarbonising economy in close coordination with the social partners’.199 Both instruments have fiscal and distributional effects between the Member States. They amount to energy solidarity with the economically weaker Member States, trumping the environmental polluter pays principle. The proposal foresees the permanent exception that mainly Central and Eastern European Member States with a gross domestic product (GDP) per capita below 60 per cent of the EU average give free allowances to their energy sector until 2030. A second instrument is the dedicated financial support for energy reform in disadvantaged Member States that the Modernisation Fund provides. Two per cent of allowances will be set aside and the proceeds used to facilitate investments in power-sector energy efficiency in ten lower-income Member States.200 The governance structure of the fund will balance centralised oversight with decentralised subsidiary determination by each Member State of its industrial energy policy.

f Carbon Dioxide Reductions from Other Sectors Decarbonisation is an economy-wide objective. The current EffortSharing Decision covers sectors not falling under the ETS Directive, such as road transport, buildings, small-scale industry, waste and agriculture.201 These account for about 60 per cent of total GHG emissions in the European Union. In particular, transport and heating and cooling of buildings are still heavily carbon fuel dependent. The post-2020 regulatory programme retains a decentralised regulatory approach, declaring Member States responsible for defining and implementing policies and measures to limit emissions from these sectors. However, there are 199 200 201

Amended Article 10(3)(l). Further, ‘Clean Energy for All’, note 69, at [12]. Amended Article 10(d). Decision No 406/2009 of the European Parliament and of the Council on the effort of Member States to reduce their greenhouse gas emissions to meet the Community’s greenhouse gas emission reduction commitments up to 2020, (2009) OJ L 140/136.

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binding overall emission-reduction targets for each Member State of between −20 and +20 per cent compared to 2005 levels and binding annual emission limits – so-called annual emission allocations – for the period 2021–23, for which there are annual reporting obligations and compliance checks by the Commission. The Commission proposal for an Effort-Sharing Regulation allocates targets on the basis of the GDP per capita of each Member State, operationalising energy solidarity with the economically weaker Member States.202 Targets are further adjusted to reflect cost-effectiveness within the group of Member States with aboveaverage income. The regulation will provide for flexibility mechanisms with a harmonised procedure for trading between Member States. The proposed legal form of a regulation corresponds to its now setting forth fully harmonised rules.

8 Energy Innovation The objectives triad of the European Energy Union drives a transformation of the European energy system that is innovation driven. The decarbonisation and interconnectivity targets cannot be achieved with the presently available technologies. Innovation thus covers all three aspects of the energy cycle: generation, transport and consumption. Article 179 of the TFEU is the normative parameter for the regulatory action of the European Union to complement Member State actions. Under this supporting competence, the European Union may deploy financial instruments to advance its priorities, while the primary responsibility remains with the Member States. The guiding principle of the internal market demands private-sector driven and financed innovation, leveraged by public support. The first regulatory priority is to accelerate innovation throughout its cycle while guarding against any negative environmental effects of new technological innovation (a). The second priority is to coordinate the actions of the European Union, Member States, and the private sector (b).

a Accelerating Energy Innovation The European Union has been providing financial support for energy technology innovation through grants ranging from structural policy, to 202

Land use, land-use change and forestry are separately dealt with; European Commission, ‘Proposal for Regulation on Binding Annual GHG Emission Reductions by Member States’, COM(2016) 479.

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infrastructure policy, to climate policy, to research policy. Thus NER 300 is the EU funding programme for innovative low-carbon energy demonstration projects financed from the proceeds of the New Entrants Reserve allowances of the ETS. The European Investment Bank carries it out. It evaluates proposals submitted by Member States which the European Commission adopts,203 sells NER allowances and manages the revenues and payment of funds to Member States during project implementation. The next iteration, set out in the proposed amended ETS Directive, will give this facility a fund-like structure and allocate additional resources. The general Horizon 2020 research programme of the European Union is grant based. Its procedure combines elements of top-down decisionmaking, in that the common-interest project categories eligible for support are fixed at the EU level in a procedure inclusive of the European Commission, all Member States and stakeholders. By contrast, the European Fund for Strategic Investments (EFSI) uses the new instrument of guarantees, providing risk coverage as leverage for other European funding operations.204 The guarantees are financed from the EU general budget. They are granted primarily for European Investment Bank financing and investment operations. Eligible are operations accord with the European Energy Union priorities on secure supply and the 2020, 2030 and 2050 climate and energy frameworks.205 This European guarantee is designed to attract further private investment to the operation.206 This function is supported by certain in information-based instruments.207 203

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European Commission Implementing Decision, Award Decision under the second call for proposals of the NER 300 funding programme, C(2014) 4493. Regulation 2015/1017 on the European Fund for Strategic Investments, the European Investment Advisory Hub and the European Investment Project Portal – the European Fund for Strategic Investments, (2015) OJ L 169/17. More than €27 billion have been ring-fenced to support the shift towards a low-carbon economy in the first phase, in particular, through (i) expansion of renewable energy; (ii) energy efficiency and energy savings, such as demand-side management and the refurbishment of buildings; and (iii) development and modernisation of energy infrastructure, such as interconnections, smart grids at distribution level, energy storage and synchronisation of networks. The EIB has signed a first guarantee agreement under EFSI, with Sustainable Sàrl committing up to €62 million into the SUSI Renewable Energy Fund II. This Fund II offers investment opportunities in renewable energy infrastructure (wind and solar) to institutional investors (European Commission, Press Release, 29 July 2016). The European Investment Project Portal lists the operations, the so-called pipeline of investment opportunities, to provide information for investment decisions, and the European Investment Advisory Hub provides support by sharing good practices etc. The European Energy Research Alliance and the European Industrial Initiatives are complementary private-sector organisation.

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This EU-level support is focused on developing new technologies. For carbon capture and storage,208 the regulatory action is concentrated on large-scale commercial deployment. The NER 300 facility supports carbon capture and storage (CCS) demonstration programmes. The regulatory framework for this deployment comprises the ETS Directive. It incentivises the use of this technology, as emissions captured, transported and stored will be considered as not emitted.209 The CCS Directive regulates the associated environmental risks of carbon storage in all geological formations.210 The provisions on the capture and transport components amend the Environmental Impact Assessment Directive or the Industrial Emissions Directive and the Large Combustion Plants Directive. Barriers to CCS in existing waste and water legislation are removed. However, the European Energy Union aim of innovation-driven transformation demands to extend EU action beyond new technologies to the demonstration and commercialisation phases of the innovation cycle. This requires greater access to innovative risk-financing instruments211 to complement existing grant-based programmes, in particular, the NER 300 programme and its successor, the Innovation Fund, and the European Fund for Strategic Investments, for whose second phase the Commission has proposed that 40 per cent of projects in the infrastructure and innovation window should contribute to climate and energy action.212 The Commission proposals are expected for 2017.

b A Governance Procedure The Integrated Strategic Energy Technology (SET) Plan is the governance procedure for coordinating the policies of Member States and the private sector on energy innovation and support for the European Energy 208

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The X Power Plant in Canada is the only example of its successful industrial application in a power plant yet. ETS Directive, note 69, Annex I. Directive 2009/31/EC of the Parliament and of the Council on the geological storage of carbon dioxide and amending Directives 85/337/EEC, 2000/60/EC, 2001/80/EC, 2004/ 35/EC, 2006/12/EC, 2008/1/EC and Regulation (EC) 1013/2006, (2009) OJ L 140/114. The review report of the CCS Directive accompanies the annual climate action progress report, COM(2015) 576. The InnovFin Energy Demonstration Projects (EDP) facility was launched in June 2015 by the European Commission and the EIB to provide loans and loan guarantees for firstof-a-kind commercial-scale industrial demonstration projects in renewables. European Commission, ‘Strengthening European Investments for Jobs and Growth: Towards a Second Phase of the European Fund for Strategic Investments and a New European External Investment Plan’, COM(2016) 581.

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Union objectives.213 It implements the principle of cost-effectiveness of different sources and forms of public support at both EU and Member State levels.214 Managed by a steering group,215 the SET Plan pursues an energy system-wide approach, prioritising research support at EU and Member State levels through the instrument of projects of common interest. These combine the available resources with a common procedure for their delivery. The SET Plan develops priority categories of projects worthy of common support. There are four core priorities with ten actions: developing the next generation of RES technologies, participation of consumers through smart grids and smart home appliances, efficient energy systems and increasingly sustainable transport systems.216

III Constitutional Order of the External European Energy Union In its previous two sections, this chapter has focused on the internal constitutional regulatory framework of the European Energy Union. The Energy Union Strategy comprises, however, the essential external aspect of cooperating with third States on reordering the global energy system with which the European system is interconnected. This strategic impulse results in international law-making on energy. The Lisbon Treaty constitutionalises all external action of the European Union, including the common foreign and security policy.217 This constitutionalisation enables the European Union to use heteronomous international law as an effective and legitimate instrument for the regulation of energy, on par with autonomous internal law. In this symmetrical construction, federalism enables external action by the European Union on energy (1), subject to the constraints of dual representative democracy, the rule of law and fundamental rights (2). The programme of the European Union’s external regulatory intervention through treaty-making and other action will be the topic of the next section. 213

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European Commission, ‘Towards an Integrated Strategic Energy Technology (SET) Plan: Accelerating the European Energy System Transformation’, C(2015) 6317. European Commission Communication, ‘Energy Technologies and Innovation’, COM (2013) 253 final. Composed of representatives from the Member States, the EEA parties and Turkey. The SET Plan and the Strategic Transport Research and Innovation Agenda will be complemented by the Global Technology and Innovation Leadership Initiative. ‘Final Report of Working Group VII of the Constitutional Convention on External Action’, Doc. CONV 459/02, 16 December 2002.

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1 Enabling an External EU Policy on Energy The European Union is empowered by its external competences to conclude treaties.218 It has certain express external competences that cover energy (a). These competences need to be delimitated from Article 194 of the TFEU that now confers an implied external competence over energy (b) the scope of which needs to be delimited (c), and whose exercise must remain subsidiary (d).

a Express Competences for Commercial and Neighbourhood Policies The European Union is vested with the exclusive competence for a common commercial policy, which now includes trade and also intellectual property and foreign direct investment,219 though it remains doubtful whether this extends beyond market access for investments to protection from expropriation and to portfolio investments.220 This exclusive competence converts into efficient one-voice negotiations.221 The extension of the exclusive commercial competence to investment and intellectual property rights has automatic effect, precluding the Member States.222 Most energy-related trade agreements will be mixed, however. Mixed agreements need to be ratified by the European Parliament and the parliaments of all Member States to enter into force, with each then being responsible for their fulfilment towards the other Parties. Trade agreements have to be mixed if they concern the energy mix of the Member States (Article 194(2)(2) of the TFEU) or any other reserved competence or transport (Article 207(5) of the TFEU). The scope of the 218 219

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Article 216(1) first alternative of the TFEU. Article 207, 3(1)(e) of the TFEU. Further, R. Basedow, ‘A Legal History of the EU’s International Investment Policy’, (2016) 17 Journal of World Investment & Trade 743. Compare European Commission, ‘Towards a Comprehensive European International Investment Policy’, COM(2010)343 and Proposal for a Regulation of the Parliament and of the Council establishing a framework for managing financial responsibilities linked to investor-State dispute settlement tribunals established by international agreements to which the European Union is a party, COM(2012) 335, 2; with Council Conclusions, 25 October 2010. Further, A. Dimopoulos, EU Foreign Investment Law (Oxford University Press, 2011), 105. The matter is the subject of Opinion 2/15 (pending). In her Opinion, delivered 21 December 2016, on the scope of Article 207 of the TFEU, AG Sharpston has included expropriation but excluded portfolio investment. See W. Shan and L. Wang, ‘The China-EU BIT and the Emerging Global BIT 2.0, (2015) 30 ICSID Rev. 260–7. Daiichi Sankyo Co. Ltd. and Sanofi-Aventis Deutschland GmbH (Case C-414/11), 18 July 2013.

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exclusive commercial policy is ultimately for the Court to determine223; it at the same time determines the space for procedural safeguards of federalism in trade, for rather than exercising its shared competences over the agreement, the Council may then treat an agreement as mixed, coupled with the decision to provisionally apply these agreements upon signature. It has done so for the recent spate of preferential trade agreements, setting a political precedent.224 In addition, the European Union has the express but shared external competences for a neighbourhood policy and for association agreements (Article 8 of the TEU and Articles 212 and 217 of the TFEU), for climate policy (Article 191(1) of the TFEU) and for a broadly conceived development policy (Articles 208 and 209 of the TFEU),225 all of which may relate to energy. Finally, the exclusive Common Foreign and Security Policy broadly covers energy-related treaties that serve collective security (Articles 24 and 37 of the TEU).226

b Implied External Competence for Energy Article 216(1) of the second alternative TFEU provides that every internal competence of the European Union implies a parallel external competence to conclude a treaty, where that is necessary to achieve Treaty objectives.227 Article 194 of the TFEU therefore confers on the European Union the implied competence for external action on energy. The scope of this implied external competence for energy is determined by the set of objectives that Article 194(1) of the TFEU defines, turned outwards of the European Union. The ‘necessity’ of the treaty-making is a justiciable criterion. Article 218 of the TFEU prescribes the procedure. c Article 194 of the TFEU and Its Alternatives The scope of this implied competence is to be delimited from the express competences of the European Union for commercial, neighbourhood 223 224 225 226

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Opinion 2/15, 16 May 2017, relating to the Free Trade Agreement with Singapore. Article 30(7) of the CETA. Commission v. Council (Philippines) (Case C-377/12), 11 June 2014, at [37]. Parliament v. Council (Somali Pirates II) (Case C-263/14), 24 June 2016, at [49] (narrow reading of Article 87 of the TFEU); Al Qaida, note 48, at [42–44] (narrow reading of Article 75 of the TFEU). See P. Eeckhout, EU External Relations Law (2nd edn, Oxford University Press 2011), 120; D. Geradin, ‘The External Relations of the European Union and Its Member States’, in C. Chinkin and F. Baetens (eds.), Essays in Honour of James Crawford (Cambridge University Press, 2015), 406–20, 407. Doubtful, P. J. Kuijper et al., The Law of EU External Relations (Oxford University Press, 2013), 19.

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and climate policy and from other implied external competences for supply security and networks. (1) The External Energy Market The external energy market (Article 194(1)(a) of the TFEU) is to be delimited from the commercial policy. In European Convention on Services, the Court recognised that treaties can be concluded under the internal market competence of Article 114 of the TFEU to protect the intra-EU movement of goods, services and people.228 However, this needs to be the primary purpose. Where the treaty primarily serves to facilitate trade with third States, only the commercial policy is applicable.229 Thus Article 207 of the TFEU applies to agreements on trade in energy-related goods and services to and from EU territory, while Article 194(1)(a) only covers treaties primarily relating to the completion of the intra-EU energy market. The rationale of European Convention on Services of preserving the commercial policy narrows the scope of litera b, c and d in a similar manner. (2) Externally Secure Energy Supply Energy supply in the European Union can be made more secure through trade agreements with resource-endowed third States to secure access to those resources. These fall under the commercial policy. It can also be made more secure through intergovernmental agreements on energy commodities and infrastructure. Article 194(1)(b) is the legal basis for these treaties that are commercial in nature. This is also the basis for the European Union controlling such agreements concluded by Member States against the objective of externally secure supply. (3) Renewables and Efficiency Promotion Agreements on trade in renewables or energy-efficiency technologies again fall under Article 207 of the TFEU. By contrast, Article 194(1)(c) is the applicable legal base where the European Union wishes to cooperate internationally on promoting renewables and energy efficiency or where the treaty primarily serves to improve the workings of a pertinent internal measure in these matters.

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(4) Interconnection of Energy Networks Network interconnectivity may extend beyond the EU territory. Again, rules on network access can be included in a trade agreement, bringing them within the scope of Article 207 of the TFEU. Articles 194(1)(d) and 171(3) provide the implied competence to enter into treaties on international energy network construction.

d Exercise by the European Union of Its Implied External Competence for Energy The implied external competence for energy is shared with the Member States. These may conclude treaties, autonomously or as a mixed agreement, unless the Council of the European Union decides to conclude an exclusive EU agreement, pre-empting treaty-making by the Member States.230 The Energy Community fits this model. The subsidiarity principle of Article 5(3) of the TEU requires the Council to justify such decisions. The European Union can turn this shared external competence over energy into an exclusive competence, pre-empting all Member State treaty-making. Article 3(2) of the TFEU in its third indent provides for internal EU law on energy to have this effect. The Green Network case confirms this.231 In that case, Italy had wanted to enter into an international agreement with Switzerland regarding certification of green electricity produced there. The Court ruled that the matter had already been dealt with by the Renewables Directive’s providing for certified green electricity produced outside the European Union, precluding Member State international action. 2 Dual Representative Democracy, the Rule of Law and Fundamental Rights as Constraints on External Energy Action The Lisbon Treaty extends the institutions of dual representative democracy, the rule of law and fundamental rights to external action and, in particular, to making treaties binding on the European Union and Member States.

a External Democracy and the Making of Treaties on Energy The Lisbon Treaty extends its dual representative democracy to treatymaking. Article 218(6)(a)(iv) of the TFEU now establishes symmetry 230

Article 2(2) of the TFEU.

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Green Network (Case C-66/13), 26 November 2014.

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between the internal legislative and the external treaty-making procedures.232 Treaties covering fields to which internally the ordinary legislative procedure or the special legislative procedure with parliamentary consent would apply therefore require the consent of the Parliament. So do treaties that are institutionalised, have budgetary implications or associate third States.233 The Parliament has to be informed of the negotiations (Article 218(10) of the TFEU). Non-information makes the Council act concluding the treaty unlawful.234 Therefore, scrutiny by the Parliament covers the breadth of the European Union’s treatymaking on energy, and its consent is required for treaty-making under the commercial and implied external energy policy.235 It is true that the Council alone concludes treaties concerning the Common Foreign and Security Policy. But it still needs to consult the Parliament.236 The democratic responsibility of Parliament thus extends to this policy as well. This parliamentarisation generates a strong presumption that essential external decisions be taken by treaty. The Court has operationalized this presumption in French Guiana Fisheries,237 relating to the allocation of fisheries surplus off French Guiana to third States. The Court qualified that allocation as falling under the common fisheries policy of Article 43(2) of the TFEU because it required a parliamentary decision and thus a treaty. It was not subject to external executive action by the Council. This strong presumption has implications for external energy supply, much of which the Commission and the Council have conducted executively through non-binding instruments with supplier and transit states. These may constitute but steps in the direction that will eventually lead to the conclusion of binding agreements.238 232 233

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Somali Pirates I, note 47, at [81]. Article 218(6)(a)(i)–(iv) of the TFEU, including agreements on the accession of new states to the Union and the Union’s accession to the European Convention on Human Rights. Somali Pirates I, note 47, at [86]; Somali Pirates II, note 226, at [70–85]. Article 218(6)(a)(iv) of the TFEU with Article 207(2), respectively, and Article 194(2) of the TFEU. Article 218(6)(b) of the TFEU. Parliament and Commission v. Council (French Guiana Fisheries) (Joined Cases C-103/ 12 and C-165/12), 26 November 2014. An example are the energy relations with Ukraine, which were originally based on a nonbinding memorandum of understanding but later formalised through the Deep and Comprehensive Free Trade Agreement with the consent of Parliament.

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This joint responsibility of Parliament extends to external energy policy conducted by foreign policy instruments. The Parliament has asserted that responsibility.239 It also extends to decision-making in international bodies.240 It is true that the Council fixes the European Union’s position (Article 218(9) of the TFEU), but it must inform the Parliament beforehand (Article 218(10)), violation of which entails the illegality of the Council’s act. But such institutionalised decision-making becomes an ever more important feature of the evolving international legal regime of energy; prior parliamentary consent will be required eventually.

b External Rule of Law and Judicial Protection The external rule of law demands not only respect for international law and in particular the UN Charter on the international plane (Article 21(1) of the TEU) but also internal bindingness and implementation of treaties. Treaties concluded by the European Union are integral to the EU legal order.241 They become binding on the institutions of the European Union, prevailing over secondary EU law,242 and on the Member States as EU law. They must be implemented effectively, uniformly and consistently. To this effect, the Court has exclusive jurisdiction over their interpretation.243 It will interpret the treaty in harmony with the international judicial consensus and manage potential conflicts in favour of the treaty by interpreting EU law consistently with it.244 Article 47 of the CFR guarantees judicial protection for treaties that have become part of the law of the European Union, provided that they create individual rights. Both the EU legislature and the Court have taken an increasingly restrictive stance on this threshold condition. Recent preferential trade agreements expressly exclude that they confer rights on individuals, rendering them internally unenforceable.245 The Court 239

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Parliament resolution on towards a common European foreign policy on energy, 26 September 2007, 2007/2000(INI). Further, pre-Lisbon, see G. de Baere, Constitutional Principles of EU External Relations (Oxford University Press, 2008), 90. Article 216(2) of the TFEU. Intertanko and Others (Case C-308/06), [2008] ECR I-4057, at [52]. Intertanko, at [42]. Member States courts are pre-empted any autonomous interpretation of treaties, except where a mixed agreement touches on an exclusive Member State competence. Hoesch (Case C-142/88), [1989] ECR 3413, at [30–33]. Article 30(6) of the CETA, although the joint interpretive declaration suggests that remedies before national courts may be available. See A. Semertzi, ‘The Preclusion of

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has accepted this practice.246 Where the treaty makes no provision, the Court demands, first, that the broad logic of the treaty does not preclude its internal enforceability. Only if this condition is fulfilled will it apply the usual doctrine and inquire whether a concrete treaty provision is sufficiently precise and unconditional to have direct effect and confer a corresponding right. In practice, the Court has declined the condition for all law-making treaties, the WTO Agreement,247 the Kyoto Protocol248 and the UN Convention on the Law of the Sea.249 Even for multilateral law-making treaties that pass this hurdle, the Court has declined the direct effect of their provisions.250 By contrast, it has found bilateral treaties to create rights on environmental protection,251 commerce, cooperation and partnership and association.252 Such treaties do form one layer of the international law on energy. Nevertheless, the Court’s jurisprudence much diminishes the EU internal effectiveness of the multilateral law-making treaties that are the backbone of the international law on energy. They cannot be relied upon as legal yardsticks for secondary EU acts253 by private attorneys254 or for Member State acts. This jurisprudence creates an asymmetry within the

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direct Effect in the Recently Concluded EU Free Trade Agreements’, (2014) 51 Common Market Law Review 1125–58. Council and Others v. Vereniging Milieudefensie and Stichting Stop Luchtverontreiniging Utrecht (Joined Cases C 401/12 P and C 403/12 P), 13 January 2015, at [53]. FIAMM and Others v. Council and Commission, (Case C-120/06 P), [2008] ECR I-6513, at [110, 111 and 120]. ATAA, note 176, at [54]. 249 Intertanko, note 242, at [55–64]. Vereniging Milieudefensie, note 246, at [55] (concerning Article 9(3) of the Aarhus Convention). But see Lesoochranárske Zoskupenie VLK (Brown Bears II) (Case C-243/ 15), 8 November 2016, at [46] (concerning Article 6 of that Convention). Environmental agreements have been found to create such a right; see Pêcheurs de l’étang de Berre (Case C-213/03), [2004] ECR I-7357, at [47]. Further, F. Jacobs, ‘Direct Effect and the Interpretation of International Agreements in the Recent Case Law’, in A. Dashwood and M. Maresceau (eds.), Law and Practice of EU External Relations (Cambridge University Press, 2008), 13–33. ATAA, note 176, at [94 and 100], for the Open Skies Agreement with the United States; Simutenkov (Case C-265/02, at [27, 28]) for the Partnership Agreement with the Russian Federation. See also IATA and ELFA (Case C-344/04) [2006] ECR I-403, at [35], for the multilateral Convention for the Unification of Certain Rules for International Carriage by Air (‘Montreal Convention’). Vereniging Milieudefensie, note 246, at [56], also interprets the exception narrowly that such treaties may serve as yardsticks for EU acts that are designed to implement them. This exception remains applicable to the WTO; further, Rusal Armenal (Case C-21/14 P), 16 July 2015, at [41]. Or by any Member State; Portugal v. Council (Case C-149/96), [1999] ECR-8395, at [39– 40]). But see the annulment action Netherlands v. Parliament and Council (Case C-377/ 98) [2001] ECR I-7079, at [54].

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internal scope of Article 47 of the CFR, contrary to the Lisbon design of a symmetrical constitution. And the dichotomous treatment of multilateral and bilateral treaties leads to a paradoxical position. As the opinion in Rosneft relating to the EU Partnership Agreement with Russia points out, bilateral treaties often incorporate principles and rules of multilateral law-making treaties. If they create enforceable rights in a bilateral treaty, that should also be the case in a multilateral treaty.255 This jurisprudence also goes against a trend in the international judicature. The International Tribunal for the Law of Sea has indicated that the Law of the Sea Convention is in fact capable of creating substantive rights for private parties, which the flag State can enforce at the international level through the Convention procedures.256 In line with its principle of an internationally harmonised interpretation, the Court should acknowledge this trend when ruling on the Convention and international law broadly.

c Standards for the Content of Treaties The European Union’s external constitution also determines the content of treaties the Union may conclude. It yields standards for the content particularly of the institutionalised law-making treaties forming the backbone of the international regulation of energy.257 The European Union’s political institutions are responsible for meeting these standards and for designing appropriate arrangements in the treaty or a separate protocol.258 Such arrangements may place the European Union in a privileged position over other Parties, threatening the viability and legitimacy of the treaty. The arrangements therefore need to be proportionate with the European Union achieving its objectives by way of international law (Article 3(5) of the TEU, Article 21 of the TFU).259 255

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Opinion of AG Wathelet, in Rosneft Oil Company OJSC (Case C-72/15), 31 May 2016, at [117], discussing the general most-favoured-nation clause, the MFN clauses for services and capital movements and the free movement of capital in the form of direct investment. The Grand Chamber judgment of 27 March 2017 leaves the issue open, at [109]. The Arctic Sunrise Case (Kingdom of the Netherlands v. Russian Federation), [2013] ITLOS Reports 224, at [67–69] (obligation to promptly release detained crews, not just vessels). se The M/V ‘Virginia G’ (Panama/Guinea-Bissau), [2014] ITLOS Reports 4, at [438] (damages claim by ship owners for violation of Convention provisions). Kadi and Al Barakaat International Foundation v. Council and Commission (Kadi I) (Case C-402/05P), [2008] ECR I-6351, at [285]. ECHR Opinion, note 22, at [185–86]. See Commission and Others v. Kadi (Kadi II) (C-584/10 P), 18 July 2013, at [104] (effective implementation of the Security Council measure included in the proportionality analysis).

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The democratic standard applies to institutionalised decision-making within the treaty on its dynamic implementation and development. Under Article 218(7) and (9) of the TFEU, the Council fixes the Union’s position in such institutionalised decision-making.260 Yet, given the quasi-legislative function of such decision-making, the Parliament must be in a position to control that position. This requires safeguards in EU law but possibly also in the treaty itself. The rule-of-law standard applies to dispute-settlement machinery institutionalised in a treaty. To protect the autonomy of the EU legal order in disputes under the Treaty, the Court must retain exclusive jurisdiction over the interpretation of all EU law involved and, in particular, the division of competences between the European Union and Member States.261 The international court or tribunal must be limited to ruling on the basis of that interpretation. Different arrangements may serve to safeguard this exclusive jurisdiction of the Court. Article 344 of the TFEU already confers on the Court the exclusive jurisdiction over all disputes between Member States concerning mixed agreements that are also EU law.262 In regard to third Parties, the European Union may make a declaration under the Treaty, determining its competences with binding effect. Thereby, it alone becomes internationally responsible towards other Parties for implementing the Treaty in these areas.263 The competence of the European Union may also be recognised in practice by other Parties only holding the Union responsible for the implementation of a treaty, as is the case for the WTO Agreement.264 As an 260

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The position of the Court on this issue so far is inconclusive. Hellenic Republic v. Commission (Case 30/88), [1989] ECR 3711, at [12] (status of international decisions there of the EECTurkey Association Council); Commission v. Sweden (Case C-246/07), [2010] ECR I-3317, at [69] (competences of the Commission and the Member States to propose an international decision, there under the Stockholm Convention on Persistent Organic Pollutants). ECHR Opinion, note 22, at [234]. ‘The question of the apportionment of responsibility must be resolved solely in accordance with the relevant rules of EU law and be subject to review, if necessary, by the Court of Justice, which has exclusive jurisdiction to ensure that any agreement between co-respondent and respondent respects those rules.’ Commission v. Ireland (Mox Plant) (C-459/03), [2006] ECR I-4635. See Article 305(1)(f) of the UNCLOS. In Request for an advisory opinion submitted by the Sub-Regional Fisheries Commission (SFRC), Case No 21, Advisory Opinion, 2 April 2015, ITLOS used the Union’s statement on the division of internal competences pursuant to Article 4 of Annex IX to the Convention to determine that the Union was solely responsible for the implementation of the Convention law on illegal, unreported and unregulated fishing, including for Member States carrying out EU law. A. Delgado Casteleiro and J. Larik, ‘”The Odd Couple”: The Responsibility of the EU at the WTO’, in M. Evans and P. Koutrakos (eds.), The International Responsibility of the European Union (Hart, 2013).

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alternative to such substantive arrangements, a so-called co-respondent procedure allows the Union to determine in each instance whether it or a Member State is competent to defend the international action. The ECHR Opinion is adamant that a co-respondent procedure must, in a legally binding form, accord the Union the exclusive right to determine whether it or a Member State should be the respondent. This applies to both human rights and investment protection treaties that the European Union and its Member States conclude as mixed agreements. In addition, a procedure of prior involvement of the Court may, in certain instances, be necessary to ensure that its interpretation of any applicable EU law becomes binding on the international court or tribunal.265 The Charter of Fundamental Rights (CFR) yields the third standard for all treaties. The CFR rights potentially ensure a higher protection level than the parallel European Convention of Human Rights (ECHR)266 or international human rights treaties. Of the substantive rights, the fundamental right to data protection has prominence. In Schrems, the Court found that the European Union is under a positive obligation to protect data collected from European consumers extraterritorially, which demands inserting verifiable safeguards into treaties.267 The fundamental right to judicial protection protects against any interference by international authorities under a treaty. Pending equivalent protection becoming available at the international level, this protection is exercised by the EU judicature.268 Finally, the federalism standard demands that treaties preserve privileged inter-se relations between Member States based on solidarity and trust. Thus no treaty concluded by the European Union may limit the principle of energy solidarity between the Member States. As the ECHR Opinion makes clear, this can require arrangements in the treaty or accession protocol for the Union to enjoy exceptions from substantive treaty obligations that apply in the relations with and between non–Member States.

IV Realising the External European Energy Union Within the boundaries of this external constitutional order, the Energy Union Strategy defines a viewpoint from which to reflect on the action to realise the external European Energy Union. It is supplemented by the 265 266 267

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ECHR Opinion, note 22, at [236]. ECHR Opinion (autonomy of the Charter under Article 52(3)). Schrems (Case C-362/14), 6 October 2015, at [72]. Further Opinion of AG Mengozzi in Opinion 1/15 (PNR with Canada), 8 September 2016, at [208]. Kadi II, note 259.

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Energy Diplomacy Action Plan269 and the European Council conclusions on the external energy action.270 The strategy directs the European Union to work towards establishing international rules-based governance of the global energy system, of which the European energy system is an integral part. The legal form of this governance is regulation of the global energy cycle based on international law that binds the European Union and its international partners in their energy-related policies. This section analyses this external regulatory intervention by the European Union. It explicates, first, the programme to advance that intervention on the backdrop of the international law on energy (1). It then examines the steps that the European Union has been taking to implement this programme by reference to the energy-functions that Articles 194 and 191 of the TFEU charge the Union with guaranteeing (2–6).

1 Programme of External Regulatory Action The programme of this external regulatory action corresponds to its internal equivalent: it is based on normative parameters, drivers and modalities.

a Normative Parameters The normative parameters for this external regulatory change also fall into the two categories of functions and guiding principles. Article 194 of the TFEU determines the functions that the European Union’s external regulatory intervention system must guarantee.271 These functions define the European public interest in the global system. It is to advance

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Foreign Affairs Council Conclusions, ‘Energy Diplomacy Action Plan of the Commission and the High Representative’, July 2015, Doc. 10995/15, Annex. It has four pillars: (a) strengthen strategic guidance through high-level engagement; (b) establish and further develop energy cooperation and dialogues, particularly in support of diversification of sources, suppliers and routes; (c) support efforts to enhance the global energy architecture and multilateral initiatives; and (d) strengthen common messages and energy diplomacy capacities. The general CFSP strategy of the High Representative also has an energy security element; ‘Shared Vision, Common Action: A Stronger Europe’, 2016, available at http://europa.eu/globalstrategy/sites/globalstrategy/files/ eugs_en_0.pdf. TTE Council, ‘Follow-up to the European Council of 22 May 2013: Review of Developments on the External Dimension of the EU Energy Policy’, 12 December 2013, Doc. 17745/13; and Commission Report, Doc. 13997/16. Article 21(3) of the TEU indicates that all EU policies potentially have such an external aspect.

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sustainable energy with renewables and efficiency promotion, diversified supplies, open energy markets and connected infrastructure. This energy system lies in the interest of the Union, but Article 194 of the TFEU in conjunction with Article 21(1) of the TEU makes the claim that it also lies in the universal interest. Article 191 of the TFEU on a decarbonised energy system and Article 207 of the TFEU on a commercial policy in energy become complementary parameters. These energy functions are embedded in the principles that guide all external action by the European Union.272 Article 3(5) of the TEU and Article 21(2) of the TFEU make sustainable development, free and fair trade and the eradication of poverty the objective principles of the external action on energy. Article 21(1) of the TFEU states the means principle to promote multilateral solutions to these common problems within the framework of the United Nations. Consequently, the Union’s external energy action is to aim to establish worldwide governance of energy based on multilateral international law. Furthermore, Article 21(3)(2) of the TEU calls for consistency of external and internal policies. This means transmitting the internal regulatory action on energy outwards, including on the energy market, renewables and efficiency and decarbonising the energy system.

b Drivers The objectives triad of the European Energy Union (EEU) is the overall driver of its external aspect. In fact, the first-order objectives of the EEU are global, not European. Thus, attaining the climate protection objective of stabilising the world temperature rise presupposes transforming the global energy system and economy through the joint effort of the major economies. The Union’s own carbon-reduction action is a means to that end, a second-order objective, given that it produces less than a tenth of global emissions and this proportion is falling.273 The same is true for the security-of-supply objective: energy supply should be globally secure, from which a more secure supply of energy to the heavily importdependent European Union will result. This objectives triad is concretised by external targets and policy priorities. The EEU targets in a 2030 perspective on carbon dioxide emission, RES and energy efficiency reflect the Union’s self-perception 272 273

Article 205 of the TFEU. European Commission, ‘The Paris Protocol: A Blueprint for Tackling Global Climate Change beyond 2020’, COM(2015) 81, at [6].

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as a global leader in climate change action and are calculated so that the Union can make a significant contribution to permanently halting the global temperature rise. The Energy Union Strategy also formulates policy priorities of external regulatory action for its five dimensions. The weight of these external priorities is relative to the respective internal priorities under each dimension.

c Modalities The external programme employs five modalities: treaty, organisation, procedure, financing and technology. The first modality of the external regulatory programme is treaty. Treaty serves to establish international rules-based governance of energy outside and inside the European Union. It has as its reference in the complex international legal regime of energy centred on the universal norm of sustainable energy. The animating idea is to develop this regime under the conditions of decentralised international law. The approach is multilayered, multilateral treaty-making, in which successive treaties overlap as to scope and membership, supplemented by bilateral treaties. The multiple layers of a single international normative order then bind the Union and third States. Such treaties need to contain guarantees for the Union’s constitutional standards. The second modality is organisation. There are two principal models for organizing the cooperation between the Union, third States and international organisations on energy. The first is the multilateral architecture formed of international organisations, meetings of Parties and ministerial conferences. These institutionalise a constituent treaty for governance, leadership, oversight, best-practice exchanges and rulemaking.274 The second model concerns organised cooperation with certain strategic partners.275 These range from intra-OECD cooperation, for which the EU-US Energy Council276 and the High-Level Energy Dialogue with Canada stand; to supply cooperation, such as the Southern Gas Corridor–Advisory Council,277 EU-OPEC and the Union 274

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See Chapter 2. The Clean Energy Ministerial is a meeting of members for the exchange of best practice on clean energy based on the non-binding Framework for the Clean Energy Ministerial, 1 June 2016, available at www.cleanenergyministerial.org/Portals/2/pdfs/ CEM7-CEMFramework-approvedFinal.pdf. See European Commission, ‘Reports to the Energy Council’, June and December 2016, Doc. 8237/16 and Doc. 14484/16. European Commission, ‘EU-U.S. Energy Council in Washington: Joint Statement’, 4 May 2016, Doc. 8812/16. Joint Declaration signed at the second meeting of the Council in February 2016.

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for the Mediterranean and Energy Cooperation; to energy partnerships with producing, consuming and transit States or regions.278 The third modality is procedure to coordinate internal and external decision-making by the Union. The procedure sequences the internal policy commitment, the decision to turn this commitment into an internationally binding obligation, the negotiation of the treaty, the conclusion of that treaty and its internal implementation. It also coordinates positions of the European Union and Member States under energy-relevant mixed agreements and in international organisations. Where the Union is a Party or member, the European Commission will lead the negotiations. The Member States have to coordinate with the Union in international organisations where only States can be members. The principle is crystallising that the Union speaks with one voice,279 compensating for the broad shared competences for the external European Energy Union. Financial instruments form the fourth modality of external action on energy. They can be used to support energy dialogues and diplomatic initiatives on a case-by-case basis. These instruments can be developed to enable support for energy dialogues, trade negotiations, energy diversification policies and the transition to low-carbon energy systems.280 The new external dimension of the European Fund for Strategic Investments is to serve these latter two priorities.281 The non-treaty instruments of the Common Foreign and Security Policy are a fifth modality.

2 The External Energy Market Under Article 194(1)(a) of the TFEU, the European Union shall act to extend the energy market beyond its borders.282 The Energy Community 278

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Algeria and Turkey, Azerbeijan and Turkmenistan, the region of Middle East Africa and the Eastern Mediterranean; High Level Energy Dialogue with Iran on non-nuclear energy; Dialogue with China; EU-Russia Energy Dialogue. ‘Outcome of the December TTE Council’, note, at [19]. The European Neighbourhood Instrument, the Instrument for Pre-accession Assistance, the Partnership Instrument and the Development Cooperation Instrument/Global Public Goods and Challenges. European Commission’, Strengthening European Investments for Jobs and Growth: Towards a Second Phase of the European Fund for Strategic Investments and a New European External Investment Plan’, COM(2016) 581, at [6]. A. Bradford, ‘The Brussels Effect’, (2012) 107 Northwestern University Law Review 1 (distinguishing the cooperative and unilateral regulatory extensions by the European Union).

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is designed to export the Union energy acquis to neighbouring non– Member States.283 Only the Union is a Party to the founding treaty. The European Council exercised the implied shared external competences for concluding this treaty, reducing the Member States to observers.284 The covered acquis includes the three energy packages as well as energy efficiency and energy-related environmental legislation and potentially all fundamental freedoms. The Energy Community thus harmonises the energy laws of neighbouring States with those of the Union and its Member States. That, in turn, makes it possible to extend internal legislation under the European Energy Union to these States. Thus the proposed security-of-supply regulation would require Member States to include the energy storage capacity of these States in their supply risk assessment.285 The Energy Charter Treaty (ECT) denotes another extension mechanism. The implementing International Energy Charter contains a programme of intergovernmental cooperation on energy market design, energy efficiency and renewables that enables the soft transfer of the Union acquis to Asia and Africa. A second aspect is the preventive application of internal energy market law to import pipelines into the Union. This concerns the principles of Gas Directive 2009/73 of unbundling (Article 16), third-party access (Article 13) and security-of-supply risks being taken into consideration when certifying operators involving non-EU companies (Article 11, the so-called Gazprom clause).286 The better view, however, is that this legislation only applies to the connectors located on EU territory but not to import networks that non-EU promoters build for purposes of importing oil, gas or electricity to the internal market.287 By contrast, EU 283

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M. Hunt and R. Karova, ‘The Energy Acquis under the Energy Community Treaty and the Integration of South East European Electricity Markets’, in B. Delvaux, M. Hunt and K. Talus (eds.), EU Energy Law and Policy Issues (Intersentia, 2011), 51–86 Council Decision on the conclusion by the European Community of the Energy Community Treaty (2006/500/EC), based on Articles 47(2), 55, 83, 89, 95, 133 and 175 of the then EC Treaty. Note 520, Article 15. T. Cottier, S. Matteotti-Berkutova and O. Nartova, ‘Third Country Relations in EU Unbundling of Natural Gas Markets: The “Gazprom Clause” of Directive 2009/73 EC and WTO Law’, Working Paper 6/2010. In line with Article 79 of the UNCLOS on the free laying of submarine pipelines and cables on the continental shelf of a Member State. See Andreas Goldthau, ‘Assessing Nord Stream 2: Regulation, Geopolitics and Energy Security in the EU, Central Eastern Europe & the UK’, July 2016, at 22, available at www.kcl.ac.uk/sspp/departments/warstu dies/research/groups/eucers/pubs/strategy-paper-10.pdf. Different, A. Riley, ‘Why Nordstream 2 Risks Failure’, December 2015, availablr at www.energypost.eu/nord stream-2-risks-failure/.

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competition law can be applied to anti-competitive behaviour by non-EU companies that is implemented within EU territory.288 This prohibits differentiating pricing decisions that suppliers make for different customers in the European Union. The antitrust case by the European Commission against Gazprom is based on this rationale.

3 Securing External Supply Pursuant to Article 194(1)(b) of the TFEU, the European Union secures its energy supply through external action. The Union imports come from a small number of third States endowed with fossil fuel resources. The EEU priority is for access to diversified sources, suppliers and supply routes.289 For this access to be secure, it needs to be based on international law.290 This generates two regulatory priorities: a multilayered, multilateral framework for rules-based access to energy (a) and intergovernmental agreements on energy commodities and infrastructure (b). This strengthening of international legal regulation must remain compatible with external constitutional standards (c).

a Multilayered Framework for Network Energy The European Union is constructing this framework in a centralising fashion on the basis of its competences for a commercial, a neighbourhood and an external energy policy. While the preferential trade agreements and the neighbourhood agreements are mixed agreements, the Union will be applying these provisionally. The framework for multilateral rules-based access to energy resources outside EU territory,291 developed by means of all EU external policies under the consistency principle,292 has three layers. The ECT forms the foundational layer.293 This Treaty sets forth the rules on network-bound trade in energy and 288 289

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Ahlstrom and Others v. Commission (Wood Pulp) (Case 89/85), [1993] ECR 5193. TTE Council, ‘On Strengthening the External Dimension of the EU Energy Policy’, 25 November 2011, Doc. 17615/11, 2 S. Salem Haghighi, Energy Security: The External Legal Relations of the European Union with Major Oil- and Gas-Supplying Countries (Hart, 2007). S. Blockmans and B. Van Looren, ‘Revitalising the European Neighbourhood Economic Commmunity: The Case for Legally Binding Sectoral Multilateralism’, (2012) 17 European Foreign Affairs Review 577. Article 21(3(2) of the TEU; Article 205 of the TFEU. TTE Energy Council, ‘On Strengthening the External Dimension of the EU Energy Policy’, 25 November 2011, Doc. 17615/11, 2, 4 (the ECT ‘might become a global instrument, recognised as the basis for internal energy regulation’).

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European investment in energy exploitation abroad, as well as cooperative environmental and energy efficiency policies. The investment protection also of the ECT now comes under the exclusive competence of the Union, given the automatic effect of the amendment of Article 207 of the TFEU. The 2015 International Energy Charter broadens the geographical scope and deepens the application of the Treaty. Both the European Union and Member States are signatories of this non-binding instrument. The second layer is formed by the preferential trade agreements that the Union has been negotiating.294 These address the principal shortcomings of the WTO regime for trade in energy, providing for export disciplines, services, infrastructure access and investment promotion as well as protection. These rules preferably should be put into a stand-alone chapter, underpinned by mandatory State-State dispute settlement. The EU negotiating strategy on the TTIP reflects this,295 although CETA and the Singapore Free Trade Agreement (FTA) do not. The third layer is formed by treaties concluded under the EU neighbourhood policy.296 The EU-Ukraine Association Agreement includes the Deep and Comprehensive Free Trade Area (DCFTA). Chapter 11 has four pillar provisions on trade and transit in energy subject to compulsory dispute settlement covering electricity, crude oil and natural gas in gaseous state or as liquefied natural gas (LNG). First, the rules on pricing, being an international first, commit the Parties not to regulate prices for industry and not to impose prices for exporting energy products which are higher than domestic prices (prohibition of dual pricing). Second, the chapter prohibits interrupting transit or taking energy goods destined for the other Party, enforceable through an expedited (fast-track) dispute-settlement procedure. Third, each Party must set up a legally distinct and functionally independent regulator to ensure competition and the efficient functioning of the gas and electricity 294

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After the negotiations on the EU-ASEAN Free Trade Agreement were paused in May 2009, the European Union launched bilateral FTA negotiations with ASEAN members Singapore and Malaysia in 2010. The Free Trade Agreement with Singapore (EUSFTA) and the essentially identical Comprehensive Economic and Trade Agreement with Canada (CETA) are mixed agreements. CETA was signed by the European Union, the Member States and Canada on 30 October 2016, accompanied by a Joint Interpretive Declaration, Article 31(2)(a) of the VCLT, and applies in part provisionally; Council Decision, 5 October 2016, Doc. 10974/16. EU Textual Proposal, ‘Energy and Raw Materials’, 14 July 2016, with Article 5 on thirdparty access to energy transport infrastructure. P. Offenberg, ‘The European Neighbourhood and the EU’s Security of Supply with Natural Gas’ (Jacques Delors Institute, 2016).

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markets. Fourth, there is non-discriminatory access for investors to the exploration and production of gas and oil once an area has been made available for exploration and production. These three treaty layers cumulatively bind key third States. Ukraine is an example, being a Party to the ECT, the Energy Community and the DCFTA.

b Intergovernmental Agreements for Supply and Infrastructure Within this multilateral trade and investment regime, the diversified supply of energy commodities is based on intergovernmental agreements (IGAs). Attempts by the European Commission to define a EU competence over IGAs by legislation pursuant to Article 216(1) third variant of the TFEU, which would be exclusive by virtue of Article 3(2) of the TFEU, have been rejected by the European Council. Thus Article 194(1)(b) of the TFEU will be the legal basis for the European Union to enter into such agreements. Yet the supply of energy from resource-endowed third States has been based on so-called memoranda of understanding concluded by the European Commission.297 Those need to be eventually translated into the form of treaties so that the Parliament may assert full democratic control. The Union’s efforts now focus on conventional gas supply from the Southern Caucasus and Central Asia through the Southern Gas Corridor,298 the Eastern Mediterranean region, the Euro-Mediterranean energy cooperation in the Southern Neighbourhood and the wider Middle East region.299 The Union is also entering into agreements to secure the transit of gas through third States.300 The shale gas revolution in North America and Australia adds the vessel-borne import of LNG as a source of comparatively clean energy.301

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European Commission, ‘Implementation of the Communication on Security of Energy Supply and International Cooperation and of the Energy Council Conclusions of November 2011’, COM(2013) 638, at [4]. European Commission, ‘Memorandum of Understanding on a Joint Approach to Address the Natural Gas Diversification and Security of Supply Challenges as Part of the Central and South-Eastern European Gas Connectivity (CESEC)’, available at https://ec.europa .eu/energy/sites/ener/files/documents/CESEC%20MoU_signatured.pdf. Foreign Affairs Council Conclusions, note 269; Energy Diplomacy Action Plan, note 269 and Commission Implementation Report. Tripartite agreements between Russia, Ukraine and the European Union securing gas delivery to Ukraine and transit to the Union were signed in 2014 and 2015. European Commission, ‘Fifth EU-US Energy Council: Joint Press Statement’, 2 April 2014 (P/14/365).

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c Constitutional Standards for the International Regulation of Network Energy This regulation of network energy must be compatible with constitutional standards. (1) Representative Democracy and International Rule-Making in Energy Trade The standard of representative democracy demands that the dynamic rule-making under preferential trade agreements, for instance, by the CETA Joint Committee, is controlled by the European Parliament as well as the national parliaments.302 (2) The Autonomy of EU Law and Investor-State Dispute Settlement The Lisbon Treaty accepts that the European Union concludes institutionalised treaties that vest international courts or tribunals with the jurisdiction to apply the international rules.303 The autonomy of the EU legal order demands, however, that the Court retains exclusive jurisdiction to interpret EU law, in particular, the competence order. This standard applies to the settlement of disputes in energy investments. The design of investor-State dispute settlement under the multilateral ECT sets the benchmark for meeting this standard, with implications for preferential trade agreements that protect energy investments. Under this treaty, investors from third States or other Member States can bring disputes against either the Union or a Member State without prior exhaustion of local remedies.304 The ECT contains no provision for the Union to make a binding declaration of its competences. It rather designs a co-respondent procedure.305 This procedure has been used in practice. In AES(II), the European Commission requested to file a 302

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See Federal Constitutional Court of Germany, Case 2 BvQ, Decision on provisional measures, 13 October 2016 (control of German Parliament of government position in the CETA Joint Committee). Opinion 1/91 (European Economic Area), at [40, 50]. Arbitral proceedings against the European Union cannot be brought under the ICSID Convention or the Additional Facility to which only States can become Party but can only be submitted to a sole arbitrator or an ad hoc arbitral Tribunal established under UNCITRAL or to the Arbitration Institute of the Stockholm Chamber of Commerce. Article 26(3)(b)(iii) of the ECT. Upon signature, the European Communities submitted a statement to the Secretariat that reads in part: ‘The EC and the Member States have both concluded the Energy Charter Treaty and are thus internationally responsible for the fulfilment of the obligations contained therein, in accordance with their respective competences. The Communities and the Member States will, if necessary, determine among them who is the respondent Party to arbitration proceedings by an Investor or another Contracting Party.’

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submission as a non-disputing party under Rule 37(2) of the ISCID Arbitration Rules in regard to the law of the then European Community on state aid applicable to Hungary from 2004.306 The Tribunal granted the request but made no reference to the content of these submissions. In Electrabel, by contrast, the Tribunal acknowledged the submission of the European Commission, accepted its interpretation of EU law and stated that the Treaty had to be interpreted in harmony with it. It did not rule on the further submission of the Commission that the Union had the right to substitute itself as the sole defendant for the Member State. Regardless of this practice under the ECT, it is doubtful that this design passes muster with the standard for co-respondent procedures that the ECHR Opinion defines. There the Court demanded that the ECHR be obligated to accept the respondent designated by the European Union. CETA now contains an elaborate version of the co-respondent procedure to meet this standard.307 The investor may only submit a claim on the basis of the determination by the Union whether it or a Member State shall be the respondent, which binds the CETA Tribunal. Where no such determination has been made, a formal rule of attribution applies, depending on whether the measures identified in the notice include those of the Union or are exclusively those of a Member State. The Union internal procedure is laid down in Regulation 912/2014,308 with the determination being a reviewable act within the meaning of Article 263(1) of the TFEU. Representation of the European Commission in the proceedings ensures that relevant EU law is presented in its interpretation by the Court. CETA Tribunals will be bound by this interpretation.309 This does not help with new questions, but requiring a prior involvement procedure analogous to Article 267 of the TFEU arguably would be disproportionate, as it would significantly blunt the structural advantage of speedy arbitration. Investor-State dispute-settlement mechanisms must also be compatible with the judicial protection guarantee. Article 48 of the CFR entrusts 306

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AES Summit Generation Ltd. v. Hungary (II), ICSID Case ARB 07/22, 23 September 2010, at [3.22]. Article 8.21 of the CETA, ‘Determination of the respondent for disputes with the European Union or its Member States’. Regulation 912/2014 of the Parliament and of the Council establishing a framework for managing financial responsibilities linked to investor-State dispute-settlement tribunals established by international agreements to which the European Union is a party, (2014) OJ L 257/121. Article 8.31(2) of the CETA.

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exclusively independent courts with the protection of individual rights arising under EU law, although this guarantee is subject to proportionate limitations.310 The precondition is that the treaty creates individual rights for investors in the EU legal order. The ECT does not determine this question, and the Court has yet to rule on it. The treaty arguably creates individual rights under the general test.311 It is meant to be enforceable before national courts and provides precise protection standards in the interest of the investor. Thus, if the investor opts for adjudication pursuant to Article 26(2)(a) of the ECT, the Treaty can be relied on, as EU law, in support of an action for annulment of a EU act or in an action before national courts. Even where a treaty expressly excludes creating individual rights,312 the external rule of law still incorporates the requirements of Article 48 of the CFR to ensure legitimate international adjudication. This constitutional concern is being addressed by the Investment Court System (ICS) of CETA, composed of an investment Tribunal of the parties’ appointees and an Appellate Tribunal.313 It is intended to be the precursor of a multilateral investment Tribunal and Appellate Mechanism for the resolution of all investment disputes.314 (3) Compatibility of Investment Protection with Primary EU Law Foundational substantive EU law generates legality standards for any treaty concluded by the European Union.315 Investment protection potentially challenges the EU provision for the energy market, as enshrined in primary State aid and competition law and in the legislation of the Third Package and the proposed Electricity Directive.316 Again, the ECT provides the benchmark. The arbitral practice reveals a harmonious interpretation of the Treaty’s investment protection standards of the EU energy market law. The leading cases concerned power agreements signed by investors and Hungary in the mid-1990s, with provisions 310 311

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Otis, note 59. In Milieudefensie, note 246, the Court proceeded directly to the second leg of the test, finding Article 9(3) of the Aarhus Convention not to contain any unconditional and sufficiently precise obligation capable of directly regulating the legal position of individuals. CETA. 313 Article 8.27 and 8.28 of the CETA. 314 Article 8.29 of the CETA. ECHR Opinion, note 22, at [191]. The Court has held that Member States’ courts must refuse to enforce an arbitral award contrary to EU competition law that amounts to public policy under Article V(2)(b) of the New York Convention; Eco Swiss China Time Ltd. v. Benetton International NV (Case C-126/97), [1999] ECR I-3055.

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regarding pricing and market privileges in return for an investment in the electricity infrastructure. Upon Hungary’s accession to the European Union in 2004, the European Commission decided that these agreements violated EU State aid law.317 After Hungary had adopted new energy legislation to end the agreements, the companies claimed a violation of Hungary’s obligations of investment protection under the ECT. The AES(II) Tribunal found the Hungarian decision to be unrelated to the EC State aid decision, but it found that the new price regulation was not an arbitrary or unreasonable measure and did not, therefore, infringe the ECT protection.318 The Electrabel Tribunal went further, applying a principle of reverse consistent interpretation, under which the ECT is interpreted consistently with EU law. This comes close to the Bosphorous formula of the European Court of Human Rights, under which acts of the Union are presumed to be in conformity with the ECHR.319 This principle operates within a judicial architecture that provides for the judicial review of the offending State aid decisions under EU law before the General Court.320 The Court has followed a similar principle. In Commission v. Slovakia, the European Commission had argued that the preferential market access granted to the Swiss energy company ATEL violated the principle of nondiscriminatory third-party access of Electricity Directive 2004/54.321 Slovakia contended that forcing ATEL to renounce its priority access right would amount to an expropriation under the ECT. The Court did not consider the ECT, presumably because it considered EU energy law to be compatible with it.322 Conflicts may also arise between EU environmental law and ECT investment protection standards. Vattenfall I concerned a challenge of the non-issuance of construction permits for a coal-fired power station under Article 10 of the ECT. The case was settled, with the settlement providing that the German authorities will issue the requisite permits.323 317

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European Commission Decision of 4 June 2008 on the state aid C 41/05 awarded by Hungary through Power Purchase Agreements, (2009) OJ L 225/53. A. Boute, ‘Challenging the Re-Regulation of the Liberalised Electricity Prices under Investment Arbitration’, (2011) 32 Energy Law Journal 511. Bosphorus Airways v. Ireland (Application No. 45036/98), 30 June 2005. Budapesti v. Commission (Case T-80/06), 13 February 2012. Commission v. Slovakia (Case C-264/09), 15 September 2011, at [40–51]. AG Jääskinen had suggested that the Third Package should be interpreted in conformity with the ECT, Opinion of 15 March 2011, at [60]. Vattenfall AB, Vattenfall Europe AG, Vattenfall Europe Generation AG v. Federal Republic of Germany (Vattenfall I), ICSID Case ARB/09/6, 11 March 2011.

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The case is inconclusive not least because the complaint was based on specific representations creating the legitimate expectation that the permits would be issued.324 The Commission alleges, however, that the permits were issued without a correct environmental impact assessment, infringing Habitat Directive 92/43.325 This demonstrates, though, the need for harmonious interpretation, also by the EU judiciary, acting under their respective legal orders which dictate their perspectives. This principle of reverse consistent application applies to investment protection under preferential trade agreements. The basis is recognition of the power to regulate energy in the public interest.326 This survey demonstrates that conflicts between ECT protection standards and energy-related EU law have been avoided, at both the international and the EU levels. The mechanism is a doctrine of harmonious interpretation, which integrates into the investment protection standard the international consensus on legitimate regulatory interests regarding energy. It ought to be concretised with fine-tuned doctrines of multi-tiered administrative law and the procedural coordination of judicial and arbitral proceedings, developed and applied within a judicial architecture composed of the EU judiciary, investment Tribunals and national judiciaries.

4 Promoting Renewables, Energy Efficiency and Research The objective of promoting generation from renewables and energy efficiency (Article 194(1) lit c) is integrated into the ECT and EC. Preferential trade agreements provide the instrument to promote the export of the respective technologies by driving down tariff and nontariff barriers to trade in these goods and services. Within international climate law, the Paris Agreement embodies horizontal cooperation between all Parties on the means of climate change control, in particular, through the transition to RES-produced climate-friendly energy. The technology transfer from the European economy is effectuated by the Green Development Fund and the flexibility mechanisms. Cooperation on standards is to be effectuated within the global architecture, such as the Energy Charter Conference and the International Renewable Energy Agency (IRENA) and by means of the bilateral energy diplomacy channels and any local representations of the External Action 324 325 326

Request for Arbitration, 30 March 2009. Commission v. Federal Republic of Germany (Case C-142/16), 9 March 2016. Article 8.9 of the CETA.

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Service. Innovation in these technologies is supported by international cooperation on research and development and financial support.327

5 Decarbonising the Global and European Energy Systems Under Article 191(1) of the TFEU fourth indent, the European Union is charged with combating climate change as a worldwide environmental problem through external action. The rules-based multilateralism of Article 20 of the TEU, the consistency of internal and external policies and the environmental policy principles of Article 171(2) of the TFEU all apply to this external action. Internal decarbonisation alone would not suffice to stop climate change and would put the European economy at a disadvantage against carbon-using competitors. External action is an enabler of a sustainable European energy. This objective drives the regulation of global energy systems with the aim of decoupling GDP growth from carbon dioxide emissions. Decarbonisation becomes an integrated regulatory process at international and EU law. The priority thus has been to conclude a legally binding universal and decentralised instrument within the UN Framework Convention on Climate Change (UNFCCC) that extends the Union’s internal decarbonising action (a). After adoption of the Paris Agreement, the current priority is its implementation, internally and externally (b).

a Designing the International Climate-Related Regulation of the Global Energy Economy The ‘Road to Paris’ Strategy Document states four choices for the agreement that ensure that it closely matches internal decarbonisation.328 The instrument is to contain the internationally agreed objectives for carbon dioxide emission reductions, exclusive of other international law. These are not to become part of trade agreements. Also, the instrument should be binding under international law rather than take any of the alternative forms of action that contemporary international law offers, for international law 327

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Under Article 10(3) of the ETS Directive, at least half the revenues obtained by the Member States should be used for one or more climate change or energy-related purposes specified in that article. Under Article 3(d)(4), revenues from auctioning allowances in respect of aviation should be used for similar purposes. These proceeds should fund contributions to the Global Energy Efficiency and Renewable Energy Fund (GEEREF), providing global risk capital through private investment for energy efficiency and renewable energy projects in developing countries and economies. European Commission, ‘The Paris Protocol: A Blueprint for Tackling Global Climate Change beyond 2020’, COM(2015) 81.

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expresses the strongest form of the collective political commitment of the international community of States to the long-term goal of transitioning to a low-carbon economy. By preventing changes of political direction, also by the European Union itself, it provides the requisite legal certainty for transformative investments. Furthermore, it is to be a universal instrument, comprising the critical mass of the major polluters, overcoming from this functional perspective the formal classification of States as developed or developing. Finally, the agreement is to adopt a bottom-up approach in which Parties self-determine their individual emission-reduction objectives, complemented by top-down oversight towards the collective objective. The European Union was one of the principal forces in bringing about the Paris Agreement, with the European Commission leading the negotiations and the European Union speaking with one voice. The actual Paris Agreement corresponds to that blueprint. It amounts to transmitting the objectives and structures of decarbonisation to the international plane that the Union applies internally. The Union has cast its internal target at 40 per cent reduction in carbon emissions by 2030 into an intended nationally determined contribution (INDC) under the Paris Agreement in the stringent form of a quantified emissions-reduction commitment (target) while not making any higher conditional offer.

b Implementation and Integration But this treaty-making also adds international normativity to the internal regulation. The integration of international and EU regulation of carbon emissions requires procedural sequencing of internal and external decisionmaking. This sequencing comprises four steps. The EU internal target agreed by the European Council in October 2014 marks the first. The second is the agreement of the European Council in March 2015 to commit to this target in an internationally binding fashion. The third step has been to make the Paris Agreement binding for the European Union and its Member States.329 The fourth step will then be the internal implementation of the Agreement, for which the European Commission published a strategy in June 2016.330 The strategy calls for passing the 329

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With consent of the Parliament, the Council ratified the agreement on 5 October 2016, bringing it into force; Council Decision on the conclusion on behalf of the European Union of the Paris Agreement adopted under the United Nations Framework Convention on Climate Change, (2016) OJ L 103/1. European Commission, ‘The Road from Paris: Assessing the Implications of the Paris Agreement and Accompanying Proposal for a Council Decision on the Signing, on Behalf of the European Union, of the Paris Agreement Adopted under the UNFCCC’,

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internal legislation on emissions trading, RES and energy efficiency as planned for in the Energy Union Strategy. However, this likely will not suffice. The Paris Agreement creates a decarbonisation target in which the world temperature rise is to be limited to less than 2°C and aspirationally to 1.5°C. The concretisation of the target lies with the meeting of the Parties deciding on scientific advice and does not require an additional treaty. The proposed new governance procedure is the mechanism for the seamless transmission of these decisions. This will require the European Union to set more ambitious targets in a 2050 perspective.331 The implementation stage reveals the impetus of the Paris Agreement. International law is driving the internal development of EU law. Both become fully integrated. Implementation of the Paris Agreement would be more legally secure if it were judicially enforceable. Since the Agreement does not specify its effect in the internal legal orders of the Parties, this is left to the Court. Its case law requires that the ‘broad scheme’ of the Agreement is conducive to creating individual rights. In ATAA, the Court denied the Kyoto Protocol this capacity.332 However, the focus there was on the Kyoto Protocol as a legality yardstick for Directives 2003/87 and 2008/101 incorporating international aviation into the ETS. It was advanced to diminish internal implementation. The Court may find differently for the Paris Agreement. Its recent jurisprudence sees international law and EU law as integrated, in the sense that they work together towards achieving a common objective.333 This implies an approach to primary and secondary EU law so that effective internal implementation of law-making treaties is achieved.334 French Guiana Fisheries even provides a model for the Court to review the external and internal implementations of a law-making treaty.335

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COM(2016) 110; the Commission has informed the Parliament and the Council on progress towards the EU NDC; ‘Implementing the Paris Agreement: Progress of the EU towards the at Least −40% Target’, with annexes, Council Doc. 14299/16, 11 November 2016. Outcome Environment Council, March 2016, Doc. 6792/16, at 4; in this direction also, European Commission, ‘Impact Assessment for a Policy Framework for Climate and Energy in the Period from 2020 up to 2030’, SWD(2014) 15. ATAA, note 176. Critical J. Klabbers, ‘Völkerrechtsfreundlich? International Law and the Union Legal Order’, in P. Koutrakos (ed.), European Foreign Policy (Elgar, 2011), 95–114. Somali Pirates II, note 226 (interpreting the legal base for transfer agreement in the light of the UN Charter and UNCLOS); French Guyana Fisheries, note 237 (interpreting the legal base for a fisheries treaty in the light of UNCLOS). French Guiyana Fisheries, (there the UN Convention on the Law of the Sea).

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Under this integrating approach, the poor internal implementation of the Agreement would be judicially reviewable, at least in objective procedure initiated by the Parliament or a Member State.336 The Paris Agreement also gives the impulse for its implementation through external action. It is decentralised, and Parties are to take the operational decisions under national law. However, an internationalised emissions trading systems will be running for international aviation. The EU legislature has decided to limit the scope of the ETS to flights within Europe until 2016, in response to the October 2013 decision of the International Civil Aviation Organisation (ICAO) Assembly to develop a global market-based mechanism to address international aviation emissions by 2016 and to apply it by 2020.337 Furthermore, the ETS is being linked with compatible systems of other Parties to form a global emissions trading system.338 And the European Union is using its neighbourhood policy to transmit the approach to climate action that it also applies internally.

6 Foreign Energy Policy Article 24 of the TEU is the basis for an external policy in the pursuit of the objectives triad of the European Energy Union and the Energy Diplomacy Strategy, which is to establish broad energy relations and dialogues with third States and to construct the underpinning international architecture. It is conducted by the European Council, the Council of the European Union, the High Representative and the European Commission. But Article 24 of the TEU is also the basis for restricting these relations in order for the European Union to further collective security and the principles of the UN Charter. Respect for these principles is the overarching rationale of the European Union’s foreign policy (Article 21(1) of the TEU). This priority underlies the EU acts

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Portugal v. Council (Case C-149/96), [1999] ECR-8395, at [39–40], rejects review by Member States, although that may have to do with the quasi-exclusive internal competence of the Union under the WTO. But in the annulment action Netherlands v. Parliament and Council (Case C-377/98), [2001] ECR I-7079, at [54], the Court considered the review of a directive against the Convention on Biological Diversity, a mixed agreement, brought by a Member State possible even if the provisions of that treaty do not have direct effect. Article 28(a) of the ETS Directive, continued in the Commission proposal for an amended ETS Directive, note 69, at p [3]. See Chapter 2.

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sanctioning the Russian energy sector in response to Russia’s action destabilising Ukraine.339 The compatibility of these acts with the energy-related EU-Russia Partnership Agreement was examined in Rosneft. Under the constitutional principle of external judicial protection for individual rights enshrined in Article 47 of the CFR, the Rosneft Court read the exceptions for the reviewability of CFSP acts in Article 24(1)(2) of the TEU and Article 275(1) of the TFEU narrowly.340 That Agreement is a suitable legal yardstick for these acts, yielding individual rights.341 However, the Court acknowledges the Council’s broad discretion under the Agreement’s reserve of measures each Party considers necessary for the protection of its essential security interests.

V Conclusions Translating the Energy Union Strategy into binding EU law becomes a constitutional-regulatory project opening itself towards international law. The design of the constitutional order of energy is centred on the competence grant of Article 194 of the TFEU, enabling central-uniform legislation by the European Union on energy but preserving the space for decentral-plural law-making of Member States under their primary and reserved competences; it does not foresee the comprehensive harmonisation of a common policy over energy. The constraints on that EU legislation result from the principles of full parliamentary control, judicial protection for individual rights and the fundamental rights of equal access and economic freedom enshrined in the Charter of Fundamental Rights. This constitutional order sets the boundaries for regulatory intervention on energy by the European Union. This intervention aims at transformation of the European energy system through reordering of its generation, transmission, distribution, storage and consumption elements. It follows a programme composed of normative parameters, drivers and modalities. The principal Treaty-derived parameter is for substituting fossil fuels with renewable and efficient energy and a remaining role for natural gas traded on a Europe-wide energy market. The guiding principles are a market and innovation-driven transformation 339

340 341

Decision 2014/512, (2014) OJ 229/1; and Council Regulation 833/2014, (2014) OJ L 229/1. Rosneft, note 225, at [73–76]. Opinion of AG Wathelet in Rosfneft, note 255, at [117, 118]. The Court leaves the question open.

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and the energy citizen as producer and consumer. The key drivers are the targets on decarbonisation and interconnected networks. The modalities combine legislative instruments organisation for the cooperation of Member States and market operators and oversight over regional markets and a comprehensive governance procedure that coordinates the energy policies of the Member States. The process of implementing this programme in legislation started in 2016. The shift in energy generation is effectuated through the revised renewable and energy efficiency and retooled ETS directives. Transmission and distribution are the objects of the recast Electricity Directive and Regulation and the Projects of Common Interest on infrastructure. The main areas of consumption – electricity generation, heating and cooling and transport – are targeted through efficiency and renewables measures. The indispensable external aspect of this European Energy Union results in making heteronomous international law. The reference point of this external action is the developing complex international regime of energy. The European Union will be designing the international law to fit with its priorities and then seek effective internal implementation of the international law. Thus, the Paris Agreement on climate change contains the dynamic impetus for the European Union to adapt its policies on energy. Also, externally, preferential trade agreements change the production of energy consumed in Europe in regard to both where that energy is produced and what its sources are. The European Energy Union assumes overall responsibility for energy and thus an essential public good. The transformed European energy system is to guarantee a supply of energy that is sustainable and affordable to consumers – households and companies. The European Union guarantees this good through central and decentral regulation, while delivery is the responsibility of the market. The ultimate beneficiary of this energy is the EU citizen. This transformative animus is set apart from liberalisation, levelling the playing field between Member States while leaving the economies of the Member States otherwise unaffected. The European Energy Union fulfils two promises of the Lisbon Treaty. Article 3(1) of the TEU declares it to be the aim of the European Union to promote the well-being of its peoples, which aim Article 3(5) of the TEU extends to the wider world. This is a social-State function for which the Union directs financial resources, private investment and public funds of its own. This social-State function rests on rights-based equal access for all. EU energy citizenship then emerges as the common reference. Energy

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citizenship becomes an extension of the classic conception of citizenship as the inclusive right to vote and the right to move (Articles 20 and 21 of the TFEU). Yet energy citizenship is not just a status but a freedom. The energy citizen is a self-determining active consumer enabled to manage the individual and, collectively, the overall demand of society. He or she is also a self-determining producer of his or her own energy and, with the surplus, an active participant in the near-zero marginal cost energy economy and, in addition, invested with equal access rights to an essential public good. The distributional and re-distributional effects throw up questions of economic cost-effectiveness, fairness and social justice within and between Member States. The Lisbon dual representative democracy that includes the Member States and their citizenries in the EU decision-making process becomes a necessary condition for the European Union to legitimately embark on its social-State project of guaranteeing access to clean energy for all EU citizens.

4 The Role of Coordinated Member State Law in a European Energy Union

Chapter 3 showed that regulation of the European energy system in EU law is neither exclusive nor self-contained but needs to be supplemented by national law. The strategy designs a decentralised European Energy Union (EEU) architecture to achieve the transition to a decarbonised energy economy cost-effectively and legitimately. This chapter analyses energy regulation through legal change in Member States’ law, spurred on by the Energy Union Strategy on a constitutional and regulatory tier and in co-evolution with international law and EU law. In the past, Member States made energy-related decisions in the national interest. By ratifying the Lisbon Treaty, each Member State accepts that it is responsible for achieving the Treaty-objectives on energy. This responsibility is predicated on the paradigm of a common interest of all Member States, expressed in the EEU objectives triad of secure, sustainable and competitive energy for all citizens. The Energy Union Strategy constitutes the intergovernmental agreement to allocate to Member States the primary responsibility for the promotion of energy efficiency, renewables, infrastructure and research. Article 194 of the Treaty on the Functioning of the European Union (TFEU) is the basis for realising this responsibility by way of Member State law-making. Member State law is to autonomously regulate the European energy system, but within a framework that permits the European Union to coordinate the policy and law-making cycles of the Member States. This bottom-up approach to energy regulation is thus complemented by topdown steering towards the collective achievement of the EEU objectives. This framework consists, first, of a general governance procedure for overseeing the planning of national energy policies. It also contains parameters for the regulatory intervention of Member States in energy. In addition to the energy-specific parameters of Article 194(1) and the related EU legislation, there are the important non-energy-specific parameters of the internal market and environmental protection. Their interpretation and application lay in the hands of the Court of Justice of the European Union and the 199

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European Commission. The Court’s methodology in relation to interpretation of the Treaty objectives on energy secures a considerable space for Member State experimentation, while the Commission’s practice has turned State aid law into a powerful instrument of further coordination. It is within this coordinating framework that the energy law of the Member States converges in regulating the European energy cycle. This chapter progresses in four steps. The first section explains the constitutional order for policy and law-making by Member States on energy. The second section examines Member State policy-making and the Union’s procedure coordinating it. The discussion in the next three sections then turns to regulatory intervention by the Member States. The first of these three considers the competence for internal energy lawmaking and the coordinating functions which the objectives of Article 194(1) of the TFEU, the internal market and environmental protection provide. The fourth section turns to external treaty-making by Member States and its control by the European Commission, and the fifth section considers the exercise by Member States of their reserved competence for their energy mix and its limits. Throughout, this discussion will focus on essential features of legal change at the Member State level, space preventing in-depth discussion of any individual Member State.1 The chapter concludes that the law of the Member States on energy is converging towards the regulation of energy in line with the objectives of a European Energy Union.

I Constitutional Guarantee of Autonomous Member State Policy and Law-Making on Energy The Lisbon constitutional order rests on the idea that Member States are responsible for the objectives that the Founding Treaties define. It is expressed in Article 1 of the Treaty on European Union (TEU), stating that the Member States found the Union to advance their common objectives. The concept of shared competences operationalises it. The Member States thus become responsible for the new energy objectives that Article 194(1) of the TFEU sets forth. The Lisbon Treaty guarantees Member States the competence to meet this responsibility by policy and law-making. This guarantee is part of the federalism of the Lisbon Treaty. It has three justiciable elements. First, the competence for energy is 1

Further, M. Roggenkamp, C. Redgwell, A. Rønne and I. del Guayo, Energy Law in Europe (2nd edn, Oxford University Press, 2007).

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shared. Member States may legislate under these competences if the Union has not done so on the precise matter (Article 2(2) of the TFEU). They also have the shared external competence to enter into treaties with third States. Second, the Member States also are competent to implement any EU legislation, legislatively, administratively and judicially (Article 4(1) of the TEU). Both branches of the Court of Justice of the European Union have protected Member State implementation discretion against the EU legislature and the European Commission.2 The third element is the exclusive competence of each Member State for its energy mix regarding the governance of certain energy sources. This competence reserve is justiciable. The Court takes a robust interpretive approach based on the wording and historic understanding of such competence reserves,3 which will also apply to the terms of Article 194(2)(2) of the TFEU. Read in this literal-historic sense, ‘choice between different energy sources’ refers to individual Member States not using or using any specific energy source, as well as using each to a certain level, namely, nuclear energy, coal and shale gas, but also renewable energy source (RES)–generated electricity and efficiency. The reserve is limited, in turn, by the EU competence under Article 194(2)(1) of the TFEU to provide the legal framework for a coordinated exercise of these competences by the Member States. This includes promoting certain energy sources over others. However, such uniformity must be balanced with particularity and respect different contributions from individual Member States. Although the European Union may define policy models for implementation by Member States, it may not prescribe the level of intervention of each Member State.

II Coordinating Broad Member State Energy Policy While all Member States have been pursuing broad energy policies under their shared competence, the EEU governance strategy seeks to coordinate 2

3

In Estonia v. Commission (Case T-263/07), [2009] ECR II-3463, at [52], the General Court emphasised that the Member States implement EU law. Under subsidiarity, the Commission then had the burden of proving to what extent EU legislation, there Article 10 of the ETS Directive, restricted them. In AvestaPolarit Chrome (Case C-110/03), [2003] ECR I-8725, a preliminary reference for interpretation rather than the validity of Directive 91/156 on waste, the Court opined that pursuant to the subsidiarity principle, Article 1 of the directive had to be interpreted to leave the Member States space for its implementation through existing national legislation. Melki and Abdeli (Case C-188/10), [2010] ECR I-5667, at [64 and 68] (discussing Article 72 of the TEFU).

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these policies so that the overarching objectives triad and the specific objectives of each dimension are realised. The means is an oversight procedure in which these national policies are assessed against the EUlevel targets in the light of the progress across all Member States. This procedure is being developed by the gubernatorial function of a European Energy Union.4 In March 2015, the European Council directed the European Commission to develop a governance procedure for coordinating national energy policies. In November 2015, the Energy Council then established three principles to guide further work on the procedure5: an iterative dialogue between the Commission and Member States should allow for benchmarking against the collective targets on the basis of clear indicators and methodologies across the five dimensions. This procedure should not lead to outcomes with legally binding effect for an individual Member State but to non-binding recommendations (Article 288(4) of the TFEU). It should also pool and make accessible to all stakeholders relevant data, analysis and intelligence. Pursuant to these principles, the Commission has issued ‘Guidance on the National Energy and Climate Plans’ as part of its 2015 State of Energy Union communication.6 The principal instrument of the procedure is strategic planning. All Member States are to produce a comprehensive ‘national plan of climate and energy policy’ for 2021. The guidance offers a harmonised template as to format, content and methodology of the plan. The plan will then be the object of the iterative interaction.7 Member States will be placed under a reporting obligation, have to engage in a dialogue with the Commission and must accept the individualised policy recommendations published as part of the annual State of the Energy Union communication. In addition to facilitating regional cooperation, the Commission should also have complementary instruments to react to deviations from the path towards the agreed targets for the European Union as a whole, which will be laid out in the revised RES and energy efficiency (EE) directives. The final step is, necessarily, to put this procedure of rules-based governance into legislation. The Commission produced a proposal on the governance procedure of the European Energy Union in November 2016 for draft national plans being submitted in 2017 and assessed and finalised in 2018. There are clear parallels with the 4 5

6

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See Chapter 1. ‘Council Conclusions on the Governance System of the Energy Union of 26 November 2015’, Doc. 14459/15. European Commission, ‘Guidance to Member States on National Energy and Climate Plans as Part of the Energy Union Governance’, COM(2015) 572. COM(2015) 572, no. 5.

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procedural coordination of the broad policies of Member States within the European Union’s economic governance, but the two procedures will be managed separately.8 These refer budgetary plans prior to their adoption by parliaments to the European Commission for scrutiny against EU-level agreed priorities. In parallel with the economic field, the energy governance procedure will have the EU-level reference of the Energy Union Strategy and the targets contained therein, with concrete priorities for that regulatory activity, in particular, in regard to cross-border cooperation and protection of vulnerable consumers in the energy market, promotion of RES and EE and the planning of interconnected energy infrastructure. The procedure coordinates the concrete regulatory intervention of the several Member States. In economic governance, the Commission may adopt specific individual recommendations and propose to the Council to adopt binding measures. This is not envisaged for the energy and climate procedure, although some Member States had asked for stronger sanctioning mechanisms to be included.9 It is, however, not clear from the experience of economic governance that binding Council action contributes to the effectiveness of such coordination. To be cost-effective and to enhance transparency, this procedure ought to streamline planning and reporting requirements on energy and climate, although the Commission continues to include sectoral procedures in its legislative proposals for a European Energy Union.10 More important for the effectiveness of the procedure is that emission reductions by Member States are verifiable. The reform proposal for the Monitoring Mechanism Regulation (MMR) establishes a central EU inventory system building on national inventories over which the Commission has oversight, as well as comprehensive reporting obligations for Member States on their climate policies.11 Article 5(1) of the TFEU 8

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European Commission, ‘On Steps towards Completing Economic and Monetary Union’, COM(2015) 600. The so-called European semester is the annual cycle covering the budgetary and economic policies that Member States intend to pursue. The European semester comprises the Stability and Growth Pact, the Macro-economic Imbalances Procedure, and the Europe 2020 Strategy. Critical V. Hatzopoulos, ‘Why the Open Method of Coordination Is Bad for You: A Letter to the EU’, (2007) 13 ELJ 309. Further, L. Tholoniat, ‘The Career of the Open Method of Coordination: Lessons from a ”Soft” EU Instrument’, (2010) 33 West European Politics 93. ‘Council Conclusions on the Governance System of the Energy Union’, 26 November 2015, Doc. 14459/15, at 1. See above, Chapter 3. Regulation 525/2013 of the Parliament and the Council on a mechanism for monitoring and reporting greenhouse gas emissions and for reporting other information at national and Union level relevant for climate change and repealing Decision No 280/2004/EC, (2013) OJ L 165/13.

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establishes the separate category of EU competences to provide for the EUlevel coordination of the Member States’ economic, employment and social policies. This makes clear that the European Union needs to establish the procedure for the coordination of the broad energy and climate policies of Member States through legislation. This is to provide for its legally binding form but also to ensure parliamentary scrutiny of the procedure itself as well as its application and in contrast to Council oversight in economic governance. The legal basis is Article 194(2) of the TFEU, which also covers procedural measures.

III Member State Law-Making on Energy on the Objectives of Article 194(1) TFEU and the Constraints of the Internal Market and Environmental Protection The shared competence of Article 194(2) of the TFEU enables the Member States to continue enacting national law on energy.12 This law-making is powerfully coordinated by the objectives that Article 194 sets forth in its first paragraph. They become primary normative parameters for each Member State legislature. They exhaustively define the functions that this law-making may fulfil. Member State energy legislation that does not serve these is without a legal base and violates the Treaty. The chapeau of Article 194(1) of the TFEU references the internal market and protection of the environment (Article 3(3) of the TEU). These become secondary normative parameters. The internal market as an economic concept reflects the efficiency of EU-wide trade. The legal concept of the internal market is based on the free movement of goods, services, workers and capital (Article 26(2) of the TFEU). These are objective legality yardsticks for Member State legislation.13 Interpretation by the Court ultimately determines their constraining effect. Analytically, the freedoms are principles. Their rationale is the non-discriminatory and otherwise unhindered access to national markets, limited only by countervailing principles or other valid considerations. The standard judicial methodology converts this into a three-legged test: scope of application of the freedom, restrictions that are prima facie unlawful and their possible justification if pursuing a recognised overriding public interest with 12 13

Including intra-Union treaties; Pringle (Case C-370/12), 27 November 2012, at [92]. All fundamental freedoms also confer individual rights falling under the judicial protection guarantee (Article 47 of the CFR).

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proportionate means. The Court’s handling of this general methodology in the energy context accords the Member States considerable regulatory space. The Court does define the scope of application of the fundamental freedoms broadly when it comes to the energy economy. But it then interprets the possible overriding public interests broadly as well, recognising as such the objectives of Article 194(1) lit a–d of the TFEU and of the related EU legislation and, according Member States judicatures, a margin of appreciation in regard to the proportionality criterion. As a result of this jurisprudence, planks of the internal market that otherwise apply, such as the non-territoriality of markets and the right to invest across borders, can be suspended. The EU-wide internal market is also protected by the prohibition of State aid (Article 107 of the TFEU) that has a similar doctrinal structure of prohibition and possible justifications. While the Court has adopted a similarly lenient interpretation to the fundamental freedoms, the European Commission has used this space to nudge the Member States towards internal market-friendly reforms. The following discussion refers to each of the objectives of Article 194(1) and to decarbonisation under Article 191 of the TFEU. It sets out the applicable EU law parameters for and the trends in regulatory action at national law.

1 The Energy Market Pursuant to Article 194(1)(a) of the TFEU, Member States are to regulate for their national energy markets (a), for cooperative regional energy markets (b) and for protecting vulnerable consumers (c). EU legislation and the primary EU law on the internal market coordinate the regulatory action. However, Member States retain considerable scope for experimentation to secure the supply of energy, as long as there is a reasonably close relation to the Treaty’s energy objectives.

a Structuring the National Energy Markets The Third Package formulates a framework for structuring national markets in gas and electricity that are open and competitive and in which consumers can freely choose their suppliers.14 The harmonisation is not exhaustive, leaving Member States with discretion.15 Member 14 15

ANODE (Case C-121/15), 7 September 2015, at [26]. P. Cameron, Legal Aspects of EU Energy Regulation: Implementing the New Directives on Electricity and Gas across Europe (Oxford University Press, 2005).

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States may go further in their implementing legislation to effectuate the principles of unbundling and regulated third-party access.16 They may, however, exempt interconnectors, storage facilities and liquefied natural gas (LNG) import terminals from third-party access, and some have made use of this discretion.17 By contrast, the objective of the Third Package would exclude energy price regulations of any type as well as restrictions on new entrants from other Member States. The Court’s approach to Member State implementation of the Third Package has been to balance the legislative interests in the EU-wide energy market with the secure supply of energy to its citizens that each Member States owes pursuant to Article 194(1)(b) of the TFEU. Thus, in Commission v. Poland and in ANODE, the Court found that securing energy supply was a public interest in the sense of Article 3(2) of the Gas Directive 2009/73 that can justify a price regulation.18 However, such intervention has to be non-discriminatory, necessary ratione personae and temporis and otherwise proportionate and fully transparent. In the infringement action Commission v. Poland, the Court found that the scheme by which the government set the price of natural gas was not necessary for being unlimited in time. In ANODE, it left it to the referring court to determine the necessity of the national scheme. The same interpretive approach applies to the constraint that the fundamental freedoms exercise on that implementation. Thus the free movement of capital and free establishment does guarantee operators the right to make direct and portfolio investments in the energy sector of other Member States.19 But the Court has broadened the overriding public interests that may justify restrictive Member State measures. Essent concerned the prohibition of privatisation of transmission system operators (TSOs) contained in the Dutch legislation on unbundling to transpose the Third Package.20 The Court qualified the prohibition as a restriction on private capital moving to the Netherlands. However, that restriction served the overriding public interest of consumer welfare against distorted competition and secure energy supply (Article 194(1)(b) of the TFEU).21 It was for the 16

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For the United Kingdom, see www.gov.uk/government/uploads/system/uploads/attach ment_data/file/43248/2573-eu-third-package-trans-note-directive-2.pdf. European Commission, SWD(2016)23; Sections 3 and 4 list exempted LNG terminals. ANODE, note 14, at [48]. Commission v. Netherlands (Joined Cases C-282/04 and C-283/04), [2006] ECR I-9141, at [19]; and Commission v. Portugal (Case C-171/08), at [49]. Essent and Others (Case C-105/12), 22 October 2013. Essent and Others, at [58] and [59].

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referring national court to determine whether the prohibition was proportionate to these objectives.22 The rationale of Essent can be transferred to the other freedoms.

b Cross-Border Cooperation on Integrating Energy Markets EU legislation provides models for regional cross-border cooperation, but their realisation depends on the autonomous initiative of the Member States and private operators. This is on display for the three physical cross-border markets for trading electricity: forward market, day-ahead market and intraday market before delivery hour. Organised markets and over-the-counter (OTC) trading markets are complementary in this respect. Trading on a power exchange gives non-discriminatory access to transparent, liquid and secure crossborder intraday markets. OTC trading provides tailor-made products and possibilities to trade closer in time, in particular, for national products within a balancing zone. For pan-European markets on these time frames, there is the framework for managing transmission capacity established by Commission Regulation 1222/2015 that the proposal for a recast Electricity Directive incorporates.23 The regulation enshrines the result of the cooperative work of ENTSO-E. It sets out minimum harmonised rules for the ultimately single-day-ahead and intraday coupling.24 The regulation sets requirements for TSOs, nominated electricity market operators (NEMOs) and other parties to cooperate on the level of Capacity Calculation Regions (CCRs), on a pan-European level and across bidding-zone borders. NEMOs shall act as market operators in national or regional markets to perform in cooperation with TSOs single-day-ahead and intraday coupling.25 Implementation of the target model of a single, integrated Europe-wide market is the responsibility of power exchanges and TSOs under the regulatory framework of national law and within broader intergovernmental 22

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On the basis of the preliminary ruling, the Dutch Supreme Court determined that the prohibitions included in the Unbundling Act were appropriate to the objectives pursued by the Act and did not go further than necessary to attain those objectives; Judgement of 26 June 2015. Regulation establishing a guideline on capacity allocation and congestion management (CACM Regulation), (2015) OJ L 197/24, was adopted on the basis of Article 18 of Regulation 714/2009 of the Parliament and Council on conditions for access to the network for cross-border exchanges in electricity and repealing Regulation (EC) No 1228/2003. It entered into force 14 August 2015. Preamble, at [3]. 25 Article 7.

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cooperation, such as the Pentalateral Energy Forum for regional cooperation on the energy markets between states in Northwest Europe. It is the laboratory for the software of the energy market. Established power exchanges are private parties regulated in national law, such as EPEX, SPOT and APX, that cooperate with each other on the basis of private law contracts.26 Their implementation of the target model for the dayahead market went into operation in February 2014, covering approximately 75 per cent of the consumption in Europe. The cross-border intraday project (XBID Project) is a joint initiative by power exchanges and transmission operators from twelve States. The single intraday market will enable continuous cross-border trading across Europe.27 Its governance rests on the contract for the XBID Project and the support of national regulators.28 XBID will later be expanded to other regions of Europe. The final objective is to extend the mechanism for cross-border intraday trading to all Member States and connected States.

c Protecting Vulnerable Consumers Consumers are vulnerable if they cannot represent their interests in the energy market and are more likely to suffer detriment because they are of pensionable age, have a disability, are chronically ill, on low incomes or living in rural areas. This is a social-State function to consider and mitigate distributional consequences. Protecting vulnerable consumers in the integrated energy market is the primary responsibility of the Member States.29 The regulatory action seeks to protect consumers 26

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Cross-border intraday trading between Germany and France was put in place by EPEX SPOT in 2010 and extended to Austria in 2012 and Switzerland in 2013. The intraday markets of APX and Belpex in the Netherlands and Belgium have been coupled since 2011. There is intraday trading in Germany with access to Denmark under Nord Pool, owned by the Nordic and Baltic TSOs and licensed in Norway, which is appointed as a Nominated Electricity Market Operator (NEMO) in nine states. The European Power Exchanges (PXs) APX, Belpex, EPEX Spot, GME, Nord Pool Spot and OMIE (PXs), together with the transmission system operators (TSOs) from twelve countries, have launched an initiative called the XBID Market Project to create an integrated intraday market. The single intraday cross-zonal market solution will be based on the hardware of a common IT system, linking the local trading systems operated by the Power Exchanges, as well as the available cross-zonal transmission capacity provided by the TSOs. Orders entered by market participants in one Member State can be matched by orders similarly submitted by participants in any other within the IT system’s reach. Conclusions of the European Regulatory Forum (Florence Forum), June 2016. European Commission, ‘Delivering a New Deal for Energy Consumers’, COM(2015) 339.

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through specific measures within the parameter of a price signal– driven, competitive and information technology–driven energy market.30 The action is coordinated by the Council of European Energy Regulators (CEER), a non-profit organisation set up under Belgian law by independent regulators which assists in identifying best practices and documents the legislation for this purpose.31 The United Kingdom is a Member State that is currently reviewing its regulation. The national regulator is proposing prescriptive rules for prepayment meters used by some of the most vulnerable consumers.32 Otherwise, it suggests deploying non-legislative instruments to nudge consumers into switching to lower-cost suppliers that range from simple interventions, such as stipulating how energy suppliers present the options when they bill customers, to creating a database of customers who consistently pay over the odds and should receive offers from rivals. In other Member States, the phase-out of prices regulated below cost creates specific risks for vulnerable consumers and must be complemented by protective measures. Access to this integrated energy market extends beyond the circle of Member States to non–Member States that are nevertheless affiliated with the European Union in one of two ways. Thus, qua its EEA membership, Norway has access to the internal market for electricity within the meaning of Articles 26 and 194 of the TFEU. No tariffs, discriminatory charges33 or hindering measures may be imposed on the electricity trade from either side. For the Contracting Parties of the energy community, full access presupposes equivalence of the regulatory regime. The final version of the proposal for a recast Electricity Directive dropped a previous clause34 that would have generally opened the door for ‘third countries’ to take part in the internal energy market. The issue thus calls

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For analysis of Member State laws, see Steve Pye and Audrey Dobbins, ‘Energy Poverty and Vulnerable Consumers in the Energy Sector across the EU: Analysis of Policies and Measures’, Insight E Policy Report, May 2015, available at https://ec.europa.eu/energy/sites/ener/files/ documents/INSIGHT_E_Energy%20Poverty%20-%20Main%20Report_FINAL.pdf. National reports are available on the CEER webpage: www.ceer.eu/portal/page/portal/ EER_HOME/EER_PUBLICATIONS/NATIONAL_REPORTS/. UK Ofgem, ‘Prepayment Meters Installed under Warrant: Final Proposals Policy Consultation’ (September 2016). Articles 28(1) and 30 of the TFEU. Regardless of the nature or form of the charge, Commission v Luxembourg (Cases 2/62 and 3/62), [1962] ECR 813. Available at www.politico.eu/wp-content/uploads/2016/11/11_14-Electricity-Directive.pdf.

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for joint actions based on reciprocity under the Energy Community Treaty (ECT).

2 Security of Supply In regard to security of supply within the meaning of Article 194(1)(b) of the TFEU, all Member States regulate the exploration and exploitation of energy resources underground and above ground.35 Indigenous RES raise, however, specific security-of-supply concerns that relate to their intermittency and that become more acute as its share of the overall energy supply grows. Member States have been supporting (backup) capacity mechanisms to compensate for this intermittency, for example, coal including lignite and gas power plants.36 This support falls under Article 194(1)(b) of the TFEU but will conflict with other energy objectives, in particular, affordable and sustainable energy. This conflict is internalised in the Treaty State aid rules. The European Commission is using its institutional position as the central direct administrator of these rules to ensure that public intervention for such capacity remains limited to what is necessary, targeted and cost-effective. The instrument is the 2014 ‘Guidelines on State Aid for Environmental Protection and Energy’.37 The premise of these guidelines is that any public support for such mechanisms constitutes State aid. They generally require Member States to demonstrate that the measures are necessary when compared to securing supply through the energy market. Capacity mechanisms must not distort the market or contradict the EU objective of phasing out environmentally harmful subsidies including for fossil fuels. The Commission is also identifying design principles to nudge Member States towards cost-efficient public intervention.38 Thus 35

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D. Zillman, A. McHarg, A. Bradbrook and L. Barrera-Hernandez (eds.), The Law of Energy Underground (Oxford University Press 2014). European Commission, ‘Final Report of the Sector Inquiry on Capacity Mechanisms’, COM(2016) 752. The inquiry found twenty-eight capacity mechanisms in the eleven Member States covered: Belgium, Croatia, Denmark, France, Germany, Ireland, Italy, Poland, Portugal, Spain and Sweden – concluding that they can increase the security of the electricity supply, but many Member States must be more thorough assessing whether they are necessary and in their design to ensure they are targeted and cost-effective. European Commission, ‘Guidelines on State Aid for Environmental Protection and Energy 2014–2020’, Pt 220. European Commission, ‘Delivering the Internal Electricity Market and Making the Most of Public Intervention’, C(2013) 7243; European Commission, ‘Generation Adequacy in the Internal Electricity Market: Guidance on Public Interventions’, SWD(2013) 438.

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distortions should be removed that may in the first place prevent the market from delivering the right incentives for investment in generation capacity, such as regulated prices for fossil fuel energy, on the one hand, and high subsidies for renewable energy, on the other. Renewable electricity producers should react to market signals. Flexibility on the demand side should be supported, for example, by promoting tariffs that differentiate peak times. The United Kingdom is the first Member State to have designed a ‘capacity market’. Under this scheme, the UK government offers payments to electricity suppliers.39 Member States have a general obligation to monitor the resilience of security of electricity supply.40 Under national law, TSOs are the main entity involved in the preparation of the risk assessment and monitoring reports. They have a responsibility in the adoption of risk preparedness plans or measures in a significant number of Member States. The most commonly used emergency measures include restriction of electricity consumption, generation increase, use of contracted and strategic reserves and load shedding plans. Market suspension measures are foreseen in all Member States. Cooperation at governmental level takes place via the Electricity Coordination Group or in regional groups such as the Pentalateral Forum. Cooperation of the TSOs takes place via private agreements.41

3 Renewables Under Article 194(1)(c) of the TFEU, Member States are obliged to promote RES. Member States are spurred on by the RES Directive, which in its current form sets forth a legally binding target for each Member State, although the recast directive will drop these.42 This directive sets forth policies but does not provide fully harmonised rules. The Member States retain discretion as to type and level of their regulatory intervention, but the exercise of this discretion is constrained by the 39

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Capacity Market Rules 2014. National Grid is the EMR delivery body. In 2014, the CM was allowed by the Commission (DG Competition). In its latest auction for back-up capacity. several battery storage facilities – which absorb surplus electricity at times of excess generation and release it when needed – won contracts; National Grid, ‘Provisional Auction Results Report’, T-4 Capacity Market Auction 2020/21 (2016). European Commission, ‘Review of Current National Rules and Practices Relating to Risk Preparedness in the Area of Security of Electricity Supply’ (2016). CORESO in Centre West Europe, NordAm between Nordic countries, BRELL between Baltic countries. See Chapter 3.

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internal market and the disciplines of the fundamental freedoms (a) and free and fair competition (b). Within this coordinating discipline, Member State law has been converging on designing financial support schemes to promote RES cost-effectively (c). It has also been converging on environmental risks of RES projects (d).

a National Support Systems for Renewables and the Free Movement of Electricity The free movement of goods (Article 34 of the TFEU) acts as a benchmark for the design of financial support schemes by Member States. It protects the cross-border movement of RES-generated electricity. While the status of electricity as a good or service has been and continues to be debated in world trade law, the Court has clearly qualified electricity as a good within the meaning of Article 34 of the TFEU.43 Thus all obstacles – pecuniary charges and normative measure – are prima facie prohibited. The test rather lies in the concrete restrictions caught and their possible justification. The jurisprudence cast such justification wide. The leading Ålands Vindkraft case arose out of the transposition of the RES Directive in Sweden.44 Sweden had set up a support scheme under which energy suppliers had to hold a certain number of energy certificates allocated to energy producers in proportion to their renewable energy production. Ålands Vindkraft AB, a Finnish company, sought to sell its wind-generated electricity to Swedish suppliers, but the Swedish courts interpreted the Swedish law to have a strict territoriality requirement. Finding that the RES Directive does not exhaustively harmonise the matter, the Court assessed the legislative transposition by Sweden under Article 34 of the TFEU.45 The support scheme only for domestically produced electricity hindered imported electricity, placing a restriction on its free movement. But the Court found an overriding public interest in both the Treaty (Article 194(1)(c) of the TFEU) and the RES Directive propagating renewables promotion by each Member State. It also found the territoriality requirement necessary, as no alternative means less restrictive of trade were available to meet the mandatory targets the directive stipulates for each Member State. The Court thus completed the proportionality analysis itself. In Essent Belgium, the Court accepted the territoriality requirement in the Belgium legislation, which implements 43 44 45

Essent Netwerk Noord and Others (Case C-206/06), [2008] ECR I-5497, at [43]. Ålands Vindkraft AB (Case C-573/12), 1 July 2014. AG Bot had suggested that the directive exhaustively harmonised the matter and thus had to be measured against and was incompatible with Article 34 of the TFEU.

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the quota model for financially supporting RES-generated electricity. However, the Court there sought to protect some internal market component: proportionality required that the scheme set up a functioning market for suppliers to procure themselves national green certificates if they had obtained energy from other Member States.46 Ålands Vindkraft and Essent Belgium safeguard, within free movement, Member State autonomy in pursuit of the treaty- and directivedefined objective of RES promotion. They retain broad discretion as to the level of public support and the means of delivering it, deviating from the disciplines of non-territoriality and market access. However, the key rationale of that discretion will be much weakened, if not fall away, by reform of the RES Directive national targets. Member State support schemes will have to become more aligned with an EU-wide internal market, unless some powerful reasons of workability can underpin them. The free movement of services, of establishment, and of capital all are susceptible to the specific balancing in the energy sector that underlies the Court’s judgement in these cases.

b State Aid: Nudging Market-Oriented Reform In the absence of a specific legislative rule book for RES promotion under Article 194 of the TFEU, the strongest guidance results from State aid law (Articles 107–109 of the TFEU). Designed to curtail the use of marketdistorting subsidies, it is of primary importance for the energy sector, which has seen a large degree of public intervention, historically for fossil fuels and more recently for renewables.47 The 2014 European Council Conclusions already emphasise that the EU-level target does not prevent Member States from setting more ambitious national targets for RES, provided that this is ‘in line with state aid guidelines, as well as taking into account their degree of integration in the internal market’.48 The institutional interpretation is complementary. The Court inserts the Treaty objective of RES promotion into the State aid rules to accord Member State discretion in designing their support schemes, while the Commission has been nudging Member States to adapt more market-oriented schemes. Under settled case law, Article 107(1) of the TFEU prohibits aid that selectively favours certain undertakings or the production of certain 46 47

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Essent Belgium NV (Case C-204/12), 11 September 2014, at [115]. The European Council Conclusions of May 2013 confirmed the need to phase out environmentally or economically harmful subsidies, including for fossil fuels, EUCO 75/13. ‘European Council Conclusions’, 21 March 2014, EUCO 7/1/14.

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goods. Aid covers not only the transfer of positive benefits, such as subsidies, but any state measure that mitigates the charges normally included in the budget of an undertaking. Aid is selective if the measure favours certain undertakings or the production of certain goods in comparison with others in a comparable factual or legal situation. The prohibition applies regardless of the form or technique of the measure. The Court has, however, interpreted Article 107 of the TFEU as not standing in the way of a Member State intervening to support the generation of electricity from renewables. The leading Preussen Elektra case concerned the feed-in tariff scheme in German law for support of RES-generated electricity.49 This support scheme guaranteed the producers of RES-generated electricity a purchase price fixed over twenty years. Energy providers could recover that price from a surcharge levied on consumers. The Court held that this scheme did not make up prohibited State aid. It arrived at that conclusion by inserting an added requirement into its standard test: there is State aid only where the funds are transferred from the state to the recipient but not where such funds flow between private parties. The surcharge is thus no State aid for the RES producers. Differentiated taxation for energy sources through tax measures could fall under Article 107 of the TFEU, provided that their discriminatory effect can be established. That condition allows for the differentiated taxation of different sources of energy, which relate to their objective characteristics. The differentiated taxation of nuclear power to cover the cost of the disposal of radioactive waste, in other words, the negative externalities specific to that source of energy, is thus justified and does not constitute State aid for alternative energy sources.50 This jurisprudence interprets the State aid prohibition, as previously the fundamental freedoms, in concordance with the objective of promoting the use of RES under Article 174(1)(c) of the TFEU. The Treaty makes no comparably strong endorsement of natural gas or other fossil fuels, and the principle of the competitive market economy therefore prevails. Accordingly, the Court has held that price guarantees for fossil fuels are suspect under the internal market and the Third Package legislation.51 The European Commission administers the State aid law within these broadly defined parameters to steer the development of internal-market-compatible support schemes. The basis is Article 107(3)(c) 49 50 51

Preussen Elektra (Case C-379/98), [2001] ECR I-2099. Kernkraftwerke Lippe-Ems (Assel II), (Case C-5/14), 4 June 2015. Commission v. Poland (Case C-36/14), 14 September 2015, at [51–53]; ANODE, note 14, at [36].

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of the TFEU, pursuant to which the Commission may consider compatible with the internal market State aid to facilitate the development of certain economic activities within the Union. The Commission’s sectoral interpretations of this provision acquire normative quality for the Member States.52 The Commission’s 2014 ‘State Aid Guidelines for Environment and Energy’ lay down the principles which the Commission will apply when assessing intervention for renewables.53 The aim is to progressively reduce support schemes to a minimum in view of their complete phase-out in the period from 2021, while protecting investors’ legitimate expectations concerning the returns on existing investments. This policy is based on the premise that the economic rationale for the public intervention for certain maturing renewable energy technologies has been falling away, with RES expected to become grid competitive with fossil fuel power stations between 2020 and 2030. A key principle of the guidelines is that the Commission will allow support schemes to achieve the climate targets but that it favours the design of market instruments.54 As policy instruments to implement these principles, feed-in tariffs should be replaced by market-based instruments that give incentives to producers to respond to market developments, such as schemes where Member States auction a certain capacity of renewable energy production, for example, wind power, to the lowest bidder. Second, support schemes should be gradually opened across borders. This signalling for grid parity of RES medium term is being acted on by industry.55 Under the European Energy Union, the priority is to accelerate this regional cooperation. The RES Directive for the period up to 2020 already creates ‘cooperation mechanisms’ to help cross-border support of renewable energy. These mechanisms give Member States flexibility to take renewable electricity produced in another Member State into 52

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‘Guidelines on State Aid for Environmental Protection and Energy 2014–2020’, (2014) OJ C 200/1. See also Energy Council of 6 June 2016, Annex, ‘Messages from the Presidency on Electricity Market Design and Regional Cooperation’, Part 4, ‘Considering the need for cost-effective and market based renewable support schemes, it is necessary to respect the State Aid Guidelines for environment and energy.’ The guidelines build on the earlier and fully reasoned ‘Delivering the Internal Electricity Market: Making the Most of Public Intervention’, COM(2013) 7243. Note 52, at [109]. In 2016, leading European energy companies have pledged to cut the cost of offshore wind farms closer to that of gas and coal power stations, and Denmark’s Dong Energy has won a bid to build two offshore wind farms off the Dutch coast. The projects will be built for €72.70 a megawatt hour, below the €103 MWh record set in 2015 by Sweden’s Vattenfall for a scheme off the coast of Denmark. Financial Times, 10 June 2016.

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account for the achievement of their renewable energy target.56 The proposal for the recast RES Directive for the period up to 2030 designs further cooperation mechanisms.

c Member State Support Systems for RES: Converging Models and Levels of Support The support of the Member States for RES, if not the level of intervention, converges on three models.57 In feed-in premiums schemes, renewable energy producers are paid a market price plus a premium. In feed-in tariffs, producers receive a fixed price per kilowatt-hour independently of the market price. Under quota obligations, energy suppliers must ensure that a certain share/quota of the electricity they supply comes from renewable or green certificates. The price of the renewable energy is a market price. The quota obligation can apply to all forms of renewable energy, thereby increasing competition. At the forefront of this supportbased intervention have been Germany and the United Kingdom, which thus have the highest percentages of RES-generated electricity in their national energy mix.58 The following concentrates on the development of their support schemes. In Germany, the 2009 Renewable Energy Law (EEG) set guaranteed prices or ‘feed-in tariffs’ for twenty years for electricity generated from carbon-free sources. This has incentivised the strongly decentralised production of RES.59 However, in July 2016, the legislature reformed this model, prompted by rising consumer bills, limited network capacity and the EU energy State aid guidelines, towards a more market-based 56

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Statistical transfers; accounting of the renewable energy produced in one Member State towards the target compliance of another; joint projects which are supported by more than one Member State and where the resulting energy is also shared for target accounting; and joint support schemes, whereby Member States create a common cross-border support regime for the renewable energy sector or sub-sectors thereof. These have so far not been used, however. D. Jacobs, Renewable Energy Policy Convergence in the EU (Ashgate, 2012);G. Boyle (ed.), Renewable Energy (3rd edn, Oxford University Press, 2012). Germany 35 per cent, UK 25.7 per cent, France 17 per cent. France uses a range of support schemes. Electricity generation from renewable sources is promoted through a feed-in tariff, tenders and tax benefits. The generation of heat through renewable energy plants is promoted through several energy subsidies, tax regulation mechanisms as well as through a zero per cent interest loan. The main support scheme for renewable energy sources used in transport is a quota system. Furthermore, biofuels are supported through fiscal regulation. Roughly half of Germany’s total renewable energy capacity was installed by decentralised entities (energy co-operatives and ‘citizen’s initiatives’).

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method of supporting carbon-free power.60 From 2017, feed-in tariffs will be replaced with a system of competitive auctions.61 The reform calibrates the amount of new wind and solar capacity Germany will tender out over the next few years.62 The policy shift to auctioning should not affect the decentralised supply structure. Small photovoltaic arrays below 750 kilowatts will be exempt, as well as tidal and geothermal energy; documentation must be kept simple. The legislation also allows labelling green electricity that has been generated locally. To be compatible with Article 34 of the TFEU under Alands Vindkfraft, the labelling must proportionately promote the effectiveness and acceptance of the transition to a low-carbon economy in that Member State. In the United Kingdom, the Electricity Market Reform (EMR) has introduced contracts for difference for less established technologies including offshore wind.63 The generator is paid the difference between the ‘strike price’ – a price for electricity reflecting the cost of investing in a particular low-carbon technology – and the ‘reference price’– a measure of the average market price for electricity in the UK market. Financial support is shifting to innovative technologies such as tidal and storage for those to make the transition to marketability.64 The Treaty and the climate targets impose on Member States a duty of observation of the regulatory change that includes monitoring the effects of their legislation and taking corrective action. Thus, in Germany, the intermittency of RES-generated power has been compensated for by the substantial increase in the use of lignite and coal.65 Germany must curb the use of coal and lignite to meet its target of a 40 per cent reduction in carbon emissions by 2020 from 1990s levels. It abandoned a first possible corrective measure, plans to raise emissions charges for older coal-fired 60

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Bundestags-Drucksache, 18/1304, available at http://dip21.bundestag.de/dip21/btd/18/ 013/1801304.pdf. A pilot auction to supply 150 megawatts of photovoltaic energy was conducted in 2016. The percentage of RES-generated electricity is to rise gradually from the present level to 40 to 45 per cent in 2025, to 55 to 60 per cent in 2035 and to at least 80 per cent in 2050. Department for Business, Energy and Industrial Strategy, ‘Draft Budget Notice for the Second CFD Allocation Round’, 9 November 2016. The Department of Energy expects tidal power capacity in the United Kingdom to range up to 30 gigawatts, equivalent to about 12 per cent of electricity demand. The privately financed Pentland Firth Project in Scotland is the world’s largest tidal stream power project. The UK government-funded trial on the Scottish Island of Gigha is to demonstrate that vanadium redox flow is now commercially viable energy storage option that can also be used for tidal energy. Financial Times, 13 September 2016. Thus 26 and 18 per cent, respectively, of electricity output in 2015.

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power stations in July 2016. Instead, 2.7 gigawatts of lignite-fired plants will be placed into a reserve from 2017 and then closed after four years.

d Environmental Risks of RES Projects Environmental protection is a parameter of regulatory change towards RES. The exploitation of environmentally friendly, renewable energy using wind power or hydropower can lead to conflict with other environmental objectives, and the directives that protect these objectives must be respected. In reviewing Member State action, the Court reads the Treaty energy objectives into these directives and then reviews whether there has been proper balancing between the competing objectives. In so doing, it accords Member States latitude in the legislative and administrative implementation of the directives. Thus, in two recent infringement action cases, the Court has found the Water Framework Directive’s66 derogation against overriding public interests to include the Treaty objective of promoting renewable energy.67 It then reviewed the Member State decision-making focused on the requirement that the two objectives had been weighed in a concrete, evidence-based manner, not on the outcome. Both judgements left Member States space for decision-making in favour of renewable projects. However, the strict implementation of environmental directives can create a conflict with the European Union’s energy objectives. The quasijudicial review in the preliminary reference case, Azienda AgroZootecnica Franchini, illustrates this.68 The Italian legislation at issue protected sites forming part of the Natura 2000 network more stringently than required by the Habitats and Birds Directives, generally proscribing construction of commercial wind turbines there. The Court read into Article 193 of the TFEU and the directives that Member States may only adopt more stringent protective measures provided the conditions of Article 194 of the TFEU and those of the RES Directive are met.69 It opined further that the directive required proportionality of the limitation and non-discrimination of RES technologies vis-à-vis other 66

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Directive of the Parliament and Council establishing a framework for Community action in the field of water policy, (2000) OJ L 327/1, as amended by Directive 2013/39/EU of the European Parliament and of the Council, (2013) OJ L 226/1. Commission v. Austria (Case C-346/14), 4 May 2016, at [82] (small hydropower plant on a largely untouched section of a small river in the Austrian Alps). Commission v. Bulgaria (C-141/14), 14 January 2016 (windpower plant in pristine area). Azienda Agro-Zootecnica Franchini and Eolica di Altamura (Case C-2/10), [2011] ECR I6561. Deponiezweckverband Eiterköpfe (Case 6/03), [2005] ECR I-2753, at [58].

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industrial applications. In the case, the Court found the prohibition was proportionate because it allowed other RES technologies and noncommercial wind turbines on these sites.

4 Energy Efficiency Pursuant to Article 194(1)(c) of the TFEU, Member States are also primarily responsible for promoting energy efficiency, and they discharge this responsibility within the same structure. Also, currently spurred on by the Member State–specific targets of the EE Directive, the proposed reform after 2020 retains the rate of 1.5 per cent energy savings and the policy models of energy efficiency obligation schemes and alternative measures. But Member States must also exercise their discretion within the further normative parameters of the internal market and environmental protection. The resulting constraints are those discussed for renewables promotion, even if they have not yet become practical for Member State EE policy.

5 Infrastructure Development Under Article 194(1)(d) of the TFEU, planning and authorisation of energy infrastructure, that is, pipelines and electricity networks, takes place at the Member State level under national law. EU law provides the framework for the cross-border cooperation of the Member States. From EU law – the Projects of Common Interest legislation70 – comes the impetus for the forming of groupings for cooperation on strategic infrastructure to connect regions, within which sub-regional cooperation on concrete projects can take place. Such groupings have been formed by Member States, and they have been joined by non–Member States if the logic of the matter so demands. A principal instance of such regional cooperation is the North Sea Countries Offshore Grid Initiative (NSCOGI), aiming at the harvesting of the vast wind energy resources of the Northern Seas. Developed within the Pentalateral Forum, a means of informal intergovernmental cooperation, ten riparian states of the Northern Seas signed a politically binding Memorandum of Understanding in 2010.71 The objective of NSCOGI is to establish a submarine network of high-voltage direct-current cables 70 71

See Chapter 2. Belgium, Denmark, France, Germany, Ireland, Luxembourg, the Netherlands, Sweden and the United Kingdom, later joined by Norway. Norway’s access to the energy market creates the legal certainty for the necessary long-term investment in interconnectors.

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connecting the offshore wind farms located in the exclusive economic zones of the participating States with the mainland grids. The organisation of the NSCOGI comprises a steering group and three working groups on spatial planning, infrastructure and regulatory issues.72 On these are represented the participating states, ENTSO-E, ACER, and the European Commission. In June 2016, the project received renewed support of the participating States and the Commission, which signed a political declaration and action plan to streamline the work until 2019 and strengthen the governance of the intergovernmental cooperation.73 Substantively, cooperation will focus on the areas of maritime spatial planning, the grid infrastructure and the planning of and support for wind energy generation.74 Spatial planning will include data sharing, finding common approaches to environmental impacts and the coordination of permitting procedures. Work on the grid includes coordinated planning and cost allocation. Planning wind energy generation involves sharing information about generation needs, aligning support schemes, harmonising technical rules and standards by identifying best practice and the mutual recognition of national standards throughout the life cycle of wind energy generation facilities. The governance innovation relates to the organisation of a high-level group of ministerial-level representation, co-chaired by the Commission and one of the participating States.75 It is at working level replicated in the coordinators committee that oversees the work of the four support groups mirroring the work streams in Annex I. These consist of national administration experts, the Commission and relevant stakeholders. The Commission is ‘driver in substance’ of concrete concepts for cost-effective cooperation of the participating States pursuant to national planning laws, within the harmonised rules that the TEN-E Regulation contains.

6 Decarbonisation All Member States have been decarbonising their energy systems, progressively reducing the percentage of highly polluting fossil fuels and 72

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The regulatory issues must do with the differences and the territoriality of the support schemes and the allocation of construction and operation cost; European Commission, ‘Study on Regulatory Matters Concerning the Development of the North Sea Offshore Energy Potential’ (January 2016). ‘Political Declaration on Energy Cooperation between the North Seas Countries’, available at https://ec.europa.eu/energy/sites/ener/files/documents/Political%20Declaration% 20on%20Energy%20Cooperation%20between%20the%20North%20Seas%20Countries% 20FINAL.pdf. Annex I. 75 Annex II: ‘Governance and support structure’.

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particularly coal, albeit from highly diverse levels of current usage.76 It includes the adoption of carbon levies in one form or another by most Member States. The UK Climate Change Act77 requires legally binding ‘carbon budgets’ over a five-year period to achieve the goal of an 80 per cent reduction in greenhouse gases by 2050 compared with 1990 levels. Emissions are currently down by 38 per cent largely because of the phaseout of coal and the support for wind and solar renewables.78 This trend is not limited to Member States but includes third States that are affiliated with the European Energy Union.79 Thus, EEA Member States Norway and Iceland will be participating in the joint action by the European Union and its Member States under Article 4(16) of the Paris Agreement.80

IV Member State Treaty-Making on Energy The Member States share the external competence to enter into treaties with third States within the scope of application of Article 194(1) lit a–d of the TFEU. The amended Lisbon Treaty and EU legislation coordinate the exercise of this competence. The protection of energy investments in third States had been the domain of such treaty-making by Member States.81 By extending the exclusive commercial policy competence of the European Union to this matter, the Lisbon Treaty has precluded any new bilateral investment treaties (BITs) of the Member States, whereas legislation authorises Member States to maintain existing BITs for the time being.82 The Union has been replacing these with collectively negotiated international investment protection, either as part of preferential trade agreements or as stand-alone treaties. This exclusive commercial policy does not extend 76

77 78

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D. Zillman, C. Redgwell, Y. Omorogbe and L. Barrera-Hernández (eds.), Beyond the Carbon Economy: Energy Law in Transition (Oxford University Press 2008). Climate Change Act of 2008, chap. 27. The targets of the fourth budget cover the early 2020s. Those of the fifth budget set in June 2016 require a 57 per cent cut in emissions by 2032. See recital 86 of the last but final draft of the recast Electricity Directive. COM(2016) 231, at 3. On EU law standards for such extra-EU BITs, see Commission v. Austria (Case C-205/06), [2009] ECR 2009, I-1301. Regulation 1219/2012 of the Parliament and Council establishing transitional arrangements for bilateral investment agreements between Member States and third countries, (2012) OJ L 351/40; further, J. Kokott and C. Sobotta, ‘Investment Arbitration and EU Law’, (2016) 18 Cambridge Yearbook of European Legal Studies 3, 14–17. Provided the BITS are compatible with Union law otherwise, Commission v. Austria (note 81) (external capital control).

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to internal, so-called intra-EU BITs between Member States. However, such agreements are arguably pre-empted by substantive83 and procedural84 EU law. Intra-EU BITs are valid under international law.85 After Lisbon, Member States remain competent for intergovernmental agreements with third States on supply and infrastructure of energy commodities in gas, oil and electricity, many have these particularly for the supply of gas.86 However, EU legislation provides for procedural coordination against the EEU objectives. This legislation has been strengthened. Under the previous Decision on Intergovernmental Agreements (IGA Decision), the Commission only had ex post oversight over agreements ‘likely to have an impact on the operation or the functioning of the internal market for energy or on the security of energy supply in the Union’.87 It was for each Member State to self-assess whether to notify an agreement for review and then to perform any changes through the limited means of the international law on treaties.88 In the reformed IGA Decision for the EEU, this Commission’s oversight has been strengthened, procedurally and substantively.89 The reformed decision provides for obligatory ex ante review of binding agreements on gas and possibly oil, which will have a suspensory 83

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European Commission, ‘June 2015 Infringement Package, Requesting Termination of Intra-EU BITs as Discriminatory’. As a multilateral treaty binding Member States in their inter-se relations, the ECT does not discriminate between investors based on their nationality. Further, J. Kleinheisterkamp, ‘Investment Protection and EU Law: The Intra- and Extra-EU Dimension of the Energy Charter Treaty’, (2012) 15 Journal of International Environmental Law 100. Request for a preliminary ruling in Achmea (Case C-284/16), 23 May 2016 (Articles 344 and 267 of the TFEU). Eureko v. Slovak Republic, PCA Case 2008-13, Award on Jurisdiction, 25 October 2010, at [217–293]. One hundred and twenty-four IGAs were notified to the European Commission, ‘Impact Assessment’, SWD(2016) 27, and report on the application of the previous legislation. Sixty per cent concern general energy cooperation and forty per cent import or transit of oil, gas and electricity, development of energy infrastructure or rules for the exploitation of oil and gas fields. The Nord Stream pipeline, for which no IGA was concluded, is ‘tolerated’ by the Commission. Decision 994/2012 of the Parliament and Council setting up an information exchange mechanism regarding intergovernmental agreements between Member States and third countries in the field of energy, (2012) OJ L 299/13. On the basis of this decision, the Commission opposed the bilateral agreements of some Member States on the South Stream pipeline project to bring 63 billion cubic metres of Russian gas to the Union, for running against the unbundling rules of the Third Package that prevented Gazprom from dominating both upstream gas supply and distribution and other rules, the exclusive powers of the national regulator to approve transmission tariffs, and favourable tax regimes to Gazprom. The reformed IGA Decision was adopted at the third trilogue, 7 December 2016, based on the Slovak presidency compromise proposal, (2017) OJ L 99/1.

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effect. Member States stay competent to sign the agreement but will have to take ‘utmost account’ of the Commission’s opinion. The Commission may request to be involved in the negotiations. By contrast, electricity agreements will continue to be reviewed ex post, and the practically important non-binding instruments will only be subject to voluntary notification.90 Under the reformed decision, the Commission will be substantively assessing draft agreements against the energy market legislation and competition law.91 Agreements will also be assessed against the security-of-supply standard of Article 194(1)(b) of the TFEU and ‘any legislation adopted pursuant to the Energy Union’.92 This would entail that new agreements must consider the repercussions on the supply situation of other Member States and not increase existing dependence on established suppliers and supply routes. In this wording, the reformed decision now extends the Commission oversight to import pipelines, including certification by national regulators against the unbundling and third-party access provisions and the prohibition of discriminatory pricing of the recast Electricity Directive. The legal basis is the external security of supply and energy market competences of the Union of Article 194(1)(a) and (b) of the TFEU.

V Exclusive Competence of the Member States for Their Energy Mix Article 194(2)(2) of the TFEU protects the competence of each Member State to determine its energy mix. On this basis, Member States have been deciding on the use or non-use, as well as the relative use, of certain energy sources. These decisions are subject to EU-defined coordination through general non-energy-specific Treaty parameters: the fundamental freedoms and the State aid and competition disciplines apply to Member States acting under their exclusive competences.93 90

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The European Commission had proposed ex ante review of all binding agreements and nonbinding instruments (‘NBIs’), such as Memoranda of Understanding, Proposal for a Decision of the Parliament and of the Council on establishing an information exchange mechanism with regard to intergovernmental 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. But see ‘Outcome of the Energy and Transport Council of 6 June 2016, Doc. 9736/16, 5, and Doc. 13444/16. Article 5. Article 4. See Slovak Presidency compromise proposal, in line with the European Council conclusions on an Energy Union, point I.2(d), March 2015, Doc. EUCO 11/15. See Johnston v. Chief Constable of the Royal Ulster Constabulary (Case 222/84), [1986] ECR 1651.

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1 Nuclear Energy and the Internal Market The Energy Union Strategy does not make nuclear energy a part of the collective strategy, but it acknowledges the exclusive competence of each Member State to include this source in its energy mix. Member States have made decisions in both directions. In addition to France as a long-standing user, there has been a revival of nuclear energy in some Member States.94 For the United Kingdom, the rationale for nuclear power to form an important part of the energy mix over the long term is that it could provide reliable low-carbon and cost-competitive electricity.95 Until 2035, around 14 gigawatts of new nuclear generating capacity may be built.96 The new government is continuing in this vein.97 Sweden aims to produce all of its power from renewable sources by 2040, but in June 2016 it determined in the meantime that the replacement of nuclear reactors will be allowed with a maximum of ten reactors,98 lifting the moratorium on new nuclear power plants.99 The constraints that EU law imposes on this decision pertain to its fiscal implications. Nuclear energy projects may receive national financial support falling under the State aid regime pursuant to Article 108(2) of the TFEU. The respective considerations are exemplified by the Commission decision on the UK measure supporting the nuclear power plant project to be built by the French State-controlled company EDF in Hinckley Point 94

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There are currently four nuclear reactors under construction, one in France, one in Finland and two in Slovakia. Twenty-three other new build projects are in the pipeline in Bulgaria, Czech Republic, Poland, Finland, Hungary, the United Kingdom, Slovenia and Romania. UK National Audit Office, ‘Report by the Comptroller and Auditor General’, Nuclear Power in the UK (13 July 2016), at [4], available at www.nao.org.uk/wp-content/uploads/ 2016/07/Nuclear-power-in-the-UK.pdf. Department of Energy and Climate Change. The Secretary of State for Business, Energy and Industrial Strategy granted consent for the application for the new Hinkley Point C nuclear power plant on 15 September 2016, after a review to ensure the ownership and control of critical infrastructure for the purposes of national security. The Low Carbon Contracts Company will offer a Contract for Difference to EDF for a set price of £92.50 per megawatt hour of electricity provided by Hinkley Point C for thirty-five years once it begins generating. The difference between the strike price and the wholesale price is paid for through consumer bills in parallel with other clean energy forms. Swedish energy policy agreement of 10 June 2016, available at www.regeringen.se/ contentassets/b88f0d28eb0e48e39eb4411de2aabe76/energioverenskommelse20160610.pdf; unofficial English translation available at http://analys.se/wp-content/ uploads/2016/06/swedish-political-energy-agreement-2016.pdf. The 1997 Act on phasing out nuclear power, Swedish Statute Book 1997: 1320, had effectively been repealed in 2010.

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and thus making use of the fundamental freedoms of the energy market.100 The measure comprises a ‘contract for difference’ providing revenue support during the operational phase of the plant as well as other elements. The Commission found this to be prima facie prohibited State aid, as it would provide the operator with a selective advantage.101 However, it considered the measure justified under the internal market ground of Article 107(3)(c) of the TFEU. The Commission interpreted this ground to include Article 194(1)(b), stating that the aid aimed at a diversified and thus a more secure supply.102 The Commission also found the aid instrument to be proportionate and to offer an adequate incentive to the beneficiary. There is no deep review of the costs and benefits.103 Thus the Commission interprets the State aid law to endorse Member State experimentation within the EEU objectives triad. On the other side lies the German decision to phase out the production of nuclear energy and close all reactors by 2022.104 This decision is, in turn, subject to the Treaty establishing the European Atomic Energy Community (EA). Article 1 of the EA defines the objective of that Community to create the conditions necessary for the speedy establishment and growth of nuclear industries. Member States are to abstain from any measure that could jeopardise its attainment (Article 192(2) of the EA). However, the Assel II Court interpreted that Treaty so that it does not stand in the way of Member States removing nuclear energy from their energy mix, ensuring conformity with the exclusive competence of the Member States under Article 194(2)(2) of the TFEU. The case concerned the duty that German law imposes on producers of nuclear energy for the commercial use of nuclear fuel to cover the cost of final disposal of nuclear waste provided by the State.105 The Court found that the objective of the EA was to set up a regime of supply of nuclear fuels, not to guarantee that such fuel can then be used in a commercially attractive way. There was no obligation for Member States to maintain

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Aid measure notified under document C (2014) 7142. Commission Decision (EU) 2015/ 658 of 8 October 2014 on the aid measure SA.34947 (2013/C) (ex 2013/N) which the United Kingdom is planning to implement for support to the Hinkley Point C nuclear power station, (2015) OJ L 10944/1. At [342]. 102 At [374]. For cost and benefit of nuclear power, see Nuclear Power in the UK, note 95. This is constitutional subject to some compensation, Federal Constitutional Court of Germany, 2 BvR (Vattenfall), 6 December 2016. Kernkraftwerke Lippe-Ems (Assel II) (Case C-5/14), 4 June 2015.

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or increase their level of nuclear fuel.106 In this vein, the Court read the free movement disciplines that the Treaty imposes narrowly. Modelled on Article 34 of the TFEU, Article 93 of the EA guarantees the movement of energy material between Member States free from the obstacle of this duty. Yet the duty was justified as it was not specifically imposed on imported fuels, although most nuclear fuel was imported.

2 Shale Gas Non-conventional (shale) gas and oil comprise a technology for exploiting natural shale gas reserves that were previously inaccessible. The decision to exploit these resources rests exclusively with Member States as part of their permanent sovereignty.107 The United Kingdom in particular has been moving towards this use under its national law, which serves as a legal laboratory.108 The Infrastructure Act of 2015 simplifies the procedure for obtaining the right to use underground land 300 metres and below for the purpose of any exploiting oil and gas (petroleum) and deep geothermal energy. The procedure of obtaining consent to drill a well is the same whether the well targets conventional or unconventional gas. Operators bid for exclusive rights to an area in competitive license rounds. The operator then needs planning permission, which may require an environmental impact assessment, and the landowner’s consent. The UK Environment Agency is the statutory consultee in the planning process and provides local mineral planning authorities with advice on the potential risks to the environment from individual gas exploration and extraction sites. The Oil and Gas Authority, a newly created executive agency, has oversight. Intervention by the European Union is limited to guarding against environmental risks associated with fracking.109 The Union has concretised standards for the environmental sustainability of the technology under its environmental competence. Under the EIA Directive, deep drillings need to be assessed, in particular, for the waste they produce, 106

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The Opinion of AG Szpunar, 3 February 2015, at [91], squarely states that the EA creates the preconditions for the speedy development of nuclear industries in the Member States but does not require the Member States to introduce or develop nuclear energy. For an overview see Commission, ‘Report on the Effectiveness of Recommendation 2014/70’, COM(2016) 794, 2. A 2013 review by the UK Department of Energy and Climate Change estimates that lifecycle GHG emissions from shale gas are similar to those of conventional natural gas. ‘Fracking’ is defined as hydrocarbons exploration or production using high-volume hydraulic fracturing.

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their effects on water and soil, the use of natural resources, the risk of accidents and any cumulative effects they may have with other similar projects or activities. The non-binding recommendation110 seeks to ensure mainly that a calibrated environmental impact assessment is conducted. The Habitats Directive requires Member States’ authorities to follow a procedure that aims at avoiding environmental damage and, if that is not possible, to compensate for such damage.111.

3 Coal and the Subsidisation of Fossil Fuels Different from nuclear energy and shale gas, coal is a disfavoured energy source at the EU level on the grounds of climate protection. However, the use of coal remains acceptable, for the time being, for each Member State under Article 194(2)(2) of the TFEU. The reference to Article 192(2)(c) of the TFEU confirms that the Union may prescribe a phase-out of coal for climate protection, albeit only with the consent of every Member State. Still, the strategic EU goal of carbon neutrality by 2050 amounts to an effective phase-out of coal from energy generation and industrial applications. The legislative practice of several Member States converges with this objective, enshrining the decision to phase out the use of coal on their territory and setting their own respective timetables.112 It is estimated that the Member States, collectively, subsidise fossil fuel at around €42 billion annually, mainly through preferential tax treatments,113 a fraction of the funding for renewables.114 This subsidisation contradicts the legal commitments under the Paris Agreement incumbent on each Member State, as well as the political commitments to the G7 and G20. However, the European Union has no direct competence to remedy what remains, in principle, a decision for each Member State. By contrast, the general internal market disciplines apply to this as to all 110

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European Commission, “Recommendation on Minimum Principles for the Exploration and Production of Hydrocarbons (such as Shale Gas) Using High-Volume Hydraulic Fracturing’, (2014) OJ L 39/72, and ‘Review Report’, COM(2016) 794. Council Directive 92/43/EEC on the conservation of natural habitats and of wild fauna and flora, (1992) OJ L 206/ 7. The Reasoned Opinion of the Commission under Article 258 of the TFEU of 28 April 2016, 20144095, contends that Austria did not apply this procedure correctly in the case of the hydro-power plant ‘Ferschnitz’. The United Kingdom aims to end to all coal power by 2025. Germany’s ‘coal compromise’ of 1997 was an agreement between the government, business and the mining union under which subsidies were gradually cut and pits closed. OECD, ‘Fossil Fuel Subsidies and Government Support in 24 OCED Countries’, (2012). European Commission, ‘Energy prices and costs in Europe’, COM(2016) 769.

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subsidisation. This comprises removing all priority dispatch for coal, gas and peat.115 The strict necessity test for capacity mechanism under state aid,116 the overall oversight over Member States’ energy policies,117 and finally the competence for taxation provide the Union with additional levers.118

VI Conclusions Respecting the constitutional design of the EU energy policy and competence after Lisbon, the Energy Union Strategy aims at decentral-plural regulation and thus autonomous decisions in national law on the European energy cycle. This chapter has demonstrated that this autonomy is hedged by a threefold EU-defined framework to coordinate the national policy and law-making cycle. The top-down governance procedure provides the European Commission with oversight to ensure that the different national contributions collectively achieve the common objectives enshrined in the Energy Union Strategy. It is iterative and facilitative, leading to the best possible contribution by each Member State over time. The chief instrument is the strategic plan that the Member States will have to prepare within a unified template, with inventory reporting on carbon emissions for effectiveness monitoring. Complementary EU measures may aim at improving collective performance. Furthermore, the Treaty exerts a coordinating function on law-making. Under the shared competence of Article 194 of the TFEU, Member States are responsible for meeting the parameters of secure supply in a EU-wide energy market and to promote RES, new sources, energy efficiency and infrastructure. The general Treaty parameters of the EU-wide internal market also apply. Finally, EU legislation on regional cooperation on the energy market and its infrastructure coordinates national law development. The density of this coordination lies in the hands of the Court as interpreter of EU law. Its choice has been to prioritise the pursuit of the regulatory programme of the European Energy Union by Member States to the detriment of the general internal market 115

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Proposal for a Directive of the European Parliament and of the Council on common rules for the internal market in electricity (recast), COM(2016) 864. Proposal for a Directive of the European Parliament and of the Council on the promotion of the use of energy from renewable sources (recast), COM(2016) 767. Proposal for a Regulation of the European Parliament and of the Council on the Governance of the Energy Union, COM(2016) 759. The Energy Tax Directive 2003/96, (2003) OJ L 283/51, prevents distortions in competition and trade within the single market.

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and environmental disciplines. The methodological means is to internalise the energy objectives of the Treaty to then seek concordance between those and any competing objectives of applicable legality yardsticks. National promotion of RES and supply of affordable energy thus become legitimate objectives of the same normative value as the efficiency of an unimpeded internal market and general environmental protection. While this jurisprudence has effectively allowed Member States to renationalise their markets within a European Energy Union, it has created the institutional space for the European Commission to use State aid law to shift Member State law towards more internal market compatible designs. Within this coordinating framework, national energy laws have been converging in their substantive provision and, more fundamentally, in developing a consensus viewpoint of energy regulation. This consensus substitutes the traditional introspection with cross-border cooperative regulation of energy, both under EU and international law. National law on energy co-evolves with international and EU law. This national law comprises the law of the Member States but also that of States that are not its members but affiliated with it in concentric circles, through the EEA/EFTA, the Energy Community and the Energy Charter Treaty and through joint implementation under the Paris Agreement. By virtue of this convergence, national law forms a third constitutive normative order in the multi-tiered regulation of European energy.

5 Regulating Energy through an Integrated Legal Regime Formation, Normative Questions and Global Regulatory Law

The European Energy Union (EEU) is based on the (political) commitment to rules-based governance for the purpose of transforming the European energy system into an interconnected global energy system. The regulatory strategy is to mobilise the resources of international law, EU law and the domestic law of the Member States and to set them on a path of multi-tiered rule-making. This book has discussed the ensuing lateral co-evolution of these normative orders. This chapter provides an overarching account of the law of the EEU. It argues that this law forms a legal regime, vertically integrating international law, EU law and Member State laws. This integrated, multi-tiered regime sustains regulation of the energy cycle Europe-wide and indeed worldwide. This argument departs from the traditional conception that international law, EU law and national law each are autonomous and isolated normative orders. Of course, the Court of Justice of the European Union has consistently held up the concept of an autonomous EU legal order, defending its isolation against challenges in the past from national law and recently from international law.1 It is only fair to say that this is mirrored by international law, where conceptions of autonomy and isolation from regional law have been prevalent.2 But this paradigm no longer reflects reality. The European Union increasingly is a global actor and, as such, 1

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Opinion 1/09 (International European and Community Patents Court), [2011] ECR 1137; Opinion 2/13 (Accession to the ECHR), 18 December 2014,; and Commission and Others v. Kadi (Kadi II) (C-584/10 P), 18 July 2013. Further, J. Klabbers, ‘The Validity of EU Norms Conflicting with International Obligations’, in E. Cannizzaro, P. Palchetti and R. Wessels (eds.), International Law as Law of the European Union (Nijhoff, 2012), 111. Case Relating to the Obligation to Prosecute or Extradite (Belgium v. Senegal), [2012] ICJ Reports 422, at [111] (denying relevance of regional African Union obligations under the international Convention against Torture). In Diallo, the Court uses regional human rights law to define the international human right standard on detentions; Ahmadou Sadio Diallo (Republic of Guinea v. Democratic Republic of the Congo), [2010] ICJ Reports 639, at [64–74].

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both a user and giver of international law. Thus international law and EU law are no longer isolated from each other; they interact. Scholars have been searching for convincing conceptions of this novel relationship and solutions to the issues it presents.3 Yet the essential features become perspicuous in specific contexts. The legal regime of energy is a suitable focal point. The Energy Union Strategy of rules-based governance and regulation transcends not just the borders of each Member State of the European Union, but it also transcends the borders of the European Union itself. It has initiated the process of putting in place a regulatory framework for the global energy cycle, of which the European energy cycle is an interconnected part, using international law, regional law and national law as normative resources. In the context of the highly internationalised matter of energy, the relationship between international law and EU law and then also the laws of the Member States intensifies. Complementing the conspicuous lateral co-evolution, there is also vertical integration. Integration denotes a much stronger form of coordination than other terms might indicate, such as interaction or interlocking. Where international law, EU law and domestic law integrate, they together provide the orderliness that citizens may place their trust in to take risks up front. They become mutually reinforcing in providing this orderliness. Such mutual reinforcement eases the burden on each normative order. It also has a powerful stabilising effect in the contingency of a Member State leaving the Union, for the strictures arising under international law will remain intact for that State. The flipside is mutual dependence: none of the normative orders is any longer capable of providing that orderliness by itself. The decarbonisation of the energy system evidences both aspects.4 Such integration turns on forming a single multi-tiered legal regime from the cloth of three constitutive normative orders – international law, EU law and domestic law – that remain autonomous but work together towards a common objective. This argument leads to a threefold enquiry. The first concerns the formation of the multi-tiered regime of energy. The second is a normative evaluation of this integrated legal regime focused on its legitimacy. And the third moves from analysis to synthesis, suggesting that global 3

4

For instance, E. Cannizzaro, P. Palchetti and R. Wessels (eds.), International Law as Law of the European Union (Nijhoff, 2012); D. Kochenov and F. Amtenbrink (eds.), The European Union’s Shaping of the International Legal Order (Cambridge University Press, 2013). The Paris Agreement on climate change reinforces the accelerated decarbonisation that had already been under way in EU law and the national law of the Member States, which, in turn, will reinforce the Paris Agreement.

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regulatory law is an institution sustaining global governance. The structure of this chapter reflects this threefold enquiry.

I Forming the Integrated Legal Regime of Energy How does the integrated legal regime of energy form? The European Energy Union Strategy’s mobilising international law, EU law and domestic law for its regulatory objectives potentially causes divergence and overlap that would be the opposite of order. The simultaneous development of international law, EU law and national law then creates the challenge to ensure that this multi-tiered rule-making process nevertheless produces legal order. To this challenge, law responds by advancing three principal ideas: responsibility, normativity and conceptual unity.5 These ideas are not law-generating by themselves but need to be institutionalised through autonomous legal decisions in international law, EU law and domestic law. This institutionalisation of responsibility, normativity, and conceptual unity then forms the single, integrated legal regime of energy whose tiers are made up of the legal decisions of its three constitutive normative orders. The integrated regime is, in other words, an emergent feature of the institutionalisation of responsibility, normativity and conceptual unity across international law, EU law and domestic law. This institutionalisation relies on doctrines. Identifying such doctrine is a principal payoff of the holistic methodology that this book espouses. The term is used here in the sense of operational legal principle established through past decisions. Doctrines prescribe certain legal options and exclude others in rule-making, administrative law applications, and adjudication. The practices of legislative and administrative bodies support the development of such doctrines. Yet it is ultimately for courts, as the central organisations and arbiters of the precepts of any normative order,6 to recognise practice as doctrine. Judicial doctrine-building on the relationship between international law, EU law and national law has been premised on maximising the effectiveness of each normative order in isolation from the others. But within the integrated legal regime of energy, doctrine now serves to effectuate the orderliness that can only result from their mutual reinforcement. Such doctrine emerges from the dialogue of all courts and tribunals within a nonhierarchical architecture. It ought to ensure that regulation is undertaken 5

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For further on law internal operations, see N. Luhmann, Law as a Social System (Oxford University Press, 2008), at 76–141. Ibid., at 274.

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on the correct tier, that rule-making is consistent between the tiers and that rules are effectively implemented by each tier. This section progresses by discussing, in turn, responsibility (1), normativity (2) and conceptual unity (3) in forming the integrated regime of energy from international law, EU law and Member State law. It concludes that they have started to transfer structural principles between them. As a result, the constitutive normative orders of the integrated legal regime of energy start appearing as being all-of-a-piece.

1 Responsibility Responsibility addresses the primary challenge. The idea of responsibility is to establish order within multi-tiered regulation by determining, in the common interest, for each normative what function it is to fulfil and what the lines of its accountability are.7 This responsibility presupposes, first of all, defining the common interest, the shared goal. Such shared goal is laid down in the strategy documents that represent the authority of the gubernatorial function of each normative order. In international law, the 2030 Agenda and the seventh Sustainable Development Goal (SDG) express that energy, worldwide, should be sustainable, accessible and affordable. The European Energy Union Strategy mirrors this goal. Its objectives triad of secure, sustainable and affordable energy for all in the European Union affirms the international goal while concretising it for the conditions prevalent in Europe. Member State law, in the climate and energy strategies already adopted or to be adopted, in turns, affirms this goal while further concretising it for the conditions prevalent in each State. In achieving this common goal, international law, EU law and the coordinated Member State laws fulfil distinct and indispensable functions. Broadly, international law provides the impetus and the internationally stable framework for energy action by all States and international organisations, including the European Union. EU law then produces principles, rules and organisation for regional cooperation within this framework. Member State laws implement these in a coordinated fashion. Each normative order works autonomously towards advancing the common objective within its thus defined responsibility. Each is accountable for the discharge of this responsibility. The point of the several oversight procedures discussed in this 7

Law shares the concept of responsibility with many other disciplines, such as philosophy and political science. Each law sub-discipline also has its own usage. The book uses it in the specific context of actors vested with public authority.

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book is to ensure that national law becomes accountable to EU law while EU law becomes accountable to international law. This responsibility is institutionalised in the doctrine of rational allocation of regulatory tasks. A given regulatory task ought to be allocated between and within the normative orders on criteria of objective effectiveness. The positive allocation to one normative order has at its corollary the negative effect that others are barred from regulating. The operation of this doctrine is instantiated by the regulation of energyrelated greenhouse gas emissions. The primary regulatory responsibility is allocated to international law. There the UN Framework Convention on Climate Change (UNFCCC) retains the broad residual competence to regulate such emissions, a competence that rests on the designation of the climate as the common concern of all States. Specific tasks have been allocated elsewhere within international law, though. Thus the International Maritime Organisation (IMO) and the International Civil Aviation Organisation (ICAO) regulate the carbon dioxide emissions of the maritime and aviation industries. The rationale of this allocation is the expertise of these specialised agencies. The international design of the implementing instruments and an operational carbon market is justified on the grounds that these industries are part of global value chains. The negative effect of this allocation lies in barring EU law from regulating these industries. Doctrine prevents the Union from exercising the jurisdiction that it has under international law. Consistent with the doctrine, the EU legislature has decided not to extend the EU Emissions Trading System to international flights but to establish an internationalised carbon market under the auspices of the ICAO. The doctrine also underlies the regulation of hydrofluorocarbons under the Montreal Protocol rather than the UNFCCC. While it is a potent greenhouse gas, it is also an ozone-depleting substance, and the Montreal Protocol provides the internationalised mechanism for phasing it out in an effective and timely manner, also realising huge energy efficiency gains. Responsibility is complemented by solidarity. The idea of solidarity is to render assistance to others in discharging their responsibilities. In the transformation of the global energy system, the capacity of States to fulfil their responsibilities to deliver sufficient and clean energy to their populations varies greatly. The responsibility of States is therefore complemented by solidarity of others: the international community of States at the international level and the European Union at the regional level. Such solidarity underpins all energy goals: secure access to energy as much as sustainable energy.

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2 Normativity The second challenge relates to the form of the multi-tiered regulation. The idea of normativity is that regulatory action on all tiers should be rule-making in binding law, which alone can bring predictability and stability to the exercise of political authority motivating private conduct, and that this rule-making should be consistent and indeed accept a material normative hierarchy with international law at its apex.

a Consistency Multi-tiered rule-making can motivate conduct only if it sends consistent signals. Such consistency is more than absence of conflict and contradiction. It means harmony, compatibility and correspondence among the principles and rules of the integrated legal regime of energy. Doctrine translates this idea into prescription for legal decision-making. Decisions ought to be taken in such a fashion that all objectives are reflected and that the value judgements and trade-offs on these are consistent in the said complete sense, both inter-tier and intra-tier. It concerns all legal decisionmaking, rule-making, rule-application and judicial interpretation. A doctrine of multi-tiered consistency applies first of all to rule-making. A manifestation is the important role of strategy in the transition to a lowcarbon energy economy. The consistency of the SDGs for international law and the Energy Union Strategy for EU law translates into consistency of the regulatory programmes and their eventual implementation in law. They also have that function for each tier internally, although each uses techniques geared to its features and modus operandi. Thus, in international law, consistency of new preferential trade agreements that secure access to energy resources with multilateral environmental agreements is achieved by the technique of incorporating the latter into the former. Furthermore, the machinery of the institutionalised treaties that form the backbone of the international regulation of energy can develop infra-treaty secondary rules to ensure this consistency. In EU law, the impact statements that have to accompany proposals of the European Commission for new legislation through the centralised legislative procedure must consider expressly its consistency with other EU law. The doctrine of multi-tiered consistency applies to judicial decisionmaking throughout the architecture of courts and arbitral tribunals – and forcefully so. Its mechanism is the transformation of goals and objectives on energy into legally operational principles and the subsequent balancing with countervailing principles through proportionality. This mechanism is

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internalised in the respective legal yardsticks under the court or tribunal having jurisdiction. This judicial doctrine applies to consistent decision-making between tiers. There must be no contradiction between decisions taken on the same questions, and there is a corresponding obligation to engage in mutual observation and dialogue. The building block of the doctrine therefore is that adjudication be consistent between all courts and tribunals that form part of the regime’s architecture. This implies the responsibility of each court and tribunal to observe and consider the practice of other courts and tribunals, a responsibility of mutual cognisance. The treatment of support schemes for renewable energy source (RES)–generated electricity under EU law and world trade law illustrates this. Both the Court of Justice of the European Union and the Appellate Body of the World Trade Organisation have effectively accepted the trade-off with the principles of discriminationfree market access that animate the internal market as much as the WTO, even if the legal means employed then vary. It thus becomes the responsibility of courts and tribunals to consider the consistency of their jurisprudence in parallel cases. The doctrines of multi-tiered energy regulation assist in discharging this responsibility, making the parallels perspicuous. This operation with principles-as-rationale coupled with the subsequent balancing with countervailing internal and external principles can also be performed inter-tiers. The Electrabel arbitration illustrates the conversion of objectives into the commensurate principles. It turns protection of energy investments into one principle and control of State aid for such investments into a second, countervailing principle. The first principle is located in international law. The second principle is located in EU law but is then lifted to the international level. The commensurability thus established, the Tribunal proceeds to the third stage of balancing both principles. The Court has also been performing this operation of turning objectives into principles. Energy regulation is driven by goals and principles. These objectives per se are not directly legally operational. That requires translating the objectives triad into principles. Principles are norms of unlimited application and are thus distinguished from rules.8 The term as used here refers to principle as rationale.9 The rationale underpins its optimisation by means of the interpretation of existing rules and the making of new rules. But the principle-as-rationale then can be balanced 8 9

N. MacCormick, Institutions of Law (Oxford University Press, 2008). A. Halpin, Principles in the Criminal Law (Hart, 1992), 5.

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with countervailing principles-rationales through the mechanism of proportionality. This aims at the practical concordance of both principles to safeguard as much as possible of the effectiveness of both in the concrete instance. The Court treats the objectives of energy regulation that Article 194(1) of the Treaty on the Functioning of the European Union (TFEU) sets forth as the rationales of legally operational principles. These principles can then be balanced with each other and with any other countervailing principles; the European Union and the Member States’ legislatures enjoying a certain margin of appreciation.

b Material Hierarchy The constitutive normative orders of the energy regime evolve autonomously from each other. Yet this does not exclude ordering their relations in a hierarchical manner. The centre-periphery dichotomy is a prism through which to see this hierarchy. Such dichotomies exist on two levels. International law forms one centre, and EU law and domestic law form its periphery. On the next level, EU law is the centre whose periphery is formed by the domestic law of the Member States. In both cases, the law of the centre enjoys a hierarchically superior status. Formal hierarchy exists where there are rules solving hard conflicts in favour of the legal centre. More important in conceptual and practical terms is the material hierarchy, in which the periphery becomes the implementing agency of the centre. There the centre’s precepts uncontestably and invariably – and in that sense mechanically – trigger action by the periphery to give them effect, often by very complex action. This active compliance is backed up by the centre’s power to control compliance. Such a material hierarchy is a pervasive feature of the energy regime, crystallising into a doctrine for its further design. The international law on energy demands compliant implementation and backs up this demand with machinery for controlling compliance by administrative oversight or by compulsory judicial or quasi-judicial dispute settlement.10 The complementary doctrine concerns the implementation of this international law by the European Union internally. It demands of the political institutions of the Union to align their decision, ex ante, to conclude a treaty with the capacity to implement it internally. But they also need to re-adjust, ex post, their initial implementation strategy should it subsequently prove insufficient to meet the international law. The European Commission’s proposals for conclusion of the Paris 10

Chapter 2, passim and conclusions.

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Agreement and the free trade agreements were thus coupled with measures for their effective internal implementation ex ante. The doctrine will be facing a sterner test in the adjustments to these initial measures after the entry into force of the Paris Agreement. EU internal Implementation is also operationalised by the Court through judicial doctrine-building. The Court’s general jurisprudence applies to the international law on energy that has become part of the EU legal order. It is supreme over EU secondary law, and any conflicts with EU law are being judicially managed. But so does the generally restrictive jurisprudence on the direct effect of multilateral international law. The development of this jurisprudence in the energy context should, however, consider the direct effect of treaties on the cooperation in energy, protection of investments and finally the use of the Paris Agreement to speed up its EU internal implementation. This hierarchy is reversed where the periphery articulates its preferences for the content of the law of the centre. The combination of the normative stability of hierarchy with the flexibility of reversing that hierarchy defines the energy regime. Thus the external aspect of the Energy Union Strategy embodies the very claim of the European Union’s political institutions to shape the international law on energy. The Court of Justice makes a similar claim by defining the standards for what energy-related treaties the Union may conclude. This inverse hierarchy is replicated at the next level, with national law serving to implement EU law. The Court’s jurisprudence ensures that EU law is effectively implemented within Member State law. The pertinent doctrines include direct effect of potentially all EU law, supremacy and effective and uniform application of EU law. All autonomous EU energy law and all EU law that implements international law on energy fall under this jurisprudence. The Member States that are bound to comply with and implement EU law reverse that hierarchy, by way of the national parliaments amending the Founding Treaties and the European Council setting the energy strategy.11

3 Unifying Concepts The third challenge relates to the material unity of multi-tiered regulation. Such material unity arises from shared unifying concepts. Energy citizenship becomes such a unifying concept. The European Energy Union 11

Peter Gauweiler (Case C-62/14), Opinion of AG Cruz Villalón, 14 January 2015.

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Strategy is based on a conception of the energy citizen or energy responsible citizen (after all, they must do certain things and not do others) in its three dimensions of political self-determination, equal access to public goods and the freedom to make self-determined choices. This enabling law also comprises international law. Energy citizenship embodies a protective obligation that the European Union discharges by means of both autonomous internal law-making and heteronomous external law-making. This energy citizenship provides a unifying concept, horizontally, for all regulatory policies. But it is limited in its unifying capacity by its exclusivity. As others beyond the citizenry are excluded, it cannot explain the regard for the energy interests of non-citizens, although such regard clearly exists, both polity internal and external. Human dignity is, in contrast, an inclusive concept. It pertains to all humans regardless of citizenship. In this capacity, human dignity is the vertically and horizontally unifying concept of the legal regime on energy. Human dignity is first of all extra-positive law, a value. It denotes the outer limit of all positive law. As a law internal concept with functions within the law, human dignity has no substantive limits. The primary EU law on human dignity reflects this understanding. Article 2 of the Treaty on European Union (TEU) declares human dignity a value of the European Union, and Article 1 of the Charter of Fundamental Rights (CFR) acknowledges human dignity to be inviolable, thus recognising its extra-legal origin. It then gives it law internal function, obligating all public power to respect and protect it. It provides the conceptual unity for all law of the EU, including the law under the Energy Union. The international recognition of the centrality of human dignity does the same for the international law on energy.

4 Convergence The institutionalisation of multi-tiered responsibility, normativity and conceptual unity drives the integration of international law, EU law and domestic law, for the purpose of establishing the European Energy Union. This progressive integration sets the stage for a convergence. There is Europeanisation of international law and internationalisation of EU law. These terms designate the transfer of organising principles on energy, the ensuing structural changes and the effect on the internal viewpoint of each constitutive normative order. Thus the international law on energy has been Europeanised. Rulesbased governance and comprehensive, central-uniform and objective regulation are the organising principle of the EU policy and law-making on

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energy. The transfer of this principle to the international level causes structural change. International law is generally decentralised and its provision therefore fragmented. Yet, in the energy field, international law employs a central law-making process to provide for the uniform regulation of energy throughout international law. It also advances towards objective reordering of energy in the common interest without the consent of individual States. This claim to objective legal order is grounded in the common but differentiated responsibility of all States for sustainable energy; no State is free to choose non-participation and even less to create deviating rights, unilaterally or by way of bilateral agreements. This underpins enlisting of the institutionalised, multilateral law-making treaties to form the backbone of the international law on energy. But there has also been also internationalisation of EU law. Internally, the Union turns itself into an implementing agency for this international law. And the organising principle that the international on energy law is decentralised, bifurcating into specific and non-specific development pathways becomes embedded into the external aspect of the Energy Union. For this indispensable external aspect can be realised only by working through this structure in order to shape it. From that viewpoint, international law, EU law, and national law, can be seen as being all-of-a-piece. This is the condition for regulatory standards to operate simultaneously at international, European and national level. In the realm of energy, the same regulatory and standards approaches operate in international law, EU law and domestic law through intergovernmental international law-making and through supranational law-making under the Treaties. Thus, after Paris, both international law and EU law have adopted the approach that combines bottom-up flexibility with top-down oversight in view of the shared objective of decarbonising the energy economy.

II Legitimacy Positive and normative are two separate inquiries, yet the gap between them can be bridged, and one can feed into the other.12 The positive account of the legal regime underpinning the European Energy Union that this book has given so far is indeed the basis for its normative evaluation. The European Energy Union (EEU) as a strategic, transformative project realised through 12

A. Vermeule, ‘Connecting Positive and Normative Legal Theory’, (2014) 10 U. Pa. J. Const. L. 387.

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the multi-tiered regulation of the energy cycle ought to be evaluated normatively for whether it should be undertaken at all and in this form. The approach favoured here is specific to the context of energy, instead of delivering a fully reasoned political theory. The principal criterion for this normative evaluation is the legitimacy, rather than effectiveness and legality, of this regulation. In other words, the type and level of regulatory intervention must be justified. This requires input legitimacy not just output legitimacy and cosmopolitan governance. The EEU is the project to bestow on the European Union a critical socialState function: the provision of citizens with modern energy. This function creates, if successful, an own output legitimacy in the sense that the action at the EU level is justified because of it benefits the citizens. However, such output legitimacy by itself cannot sustain the decisions on expenditure, distribution and redistribution that the regulatory intervention produces. This presupposes intense input legitimacy. The regulation entails costs to societal freedom altering behaviour that would otherwise occur. It also entails large economic financial costs. The regulated transformation of the European energy system so that it delivers the public good of secure, sustainable and affordable energy re-directs large-scale investments of the private sector in energy generation and infrastructure that would not be forthcoming but for political-legal signalling. It also entails costs for energy consumers. This private expenditure is supplemented by public funds from the European Union and Member States, for which the system of own resources of the European Union, respectively the national tax systems provide the resources. This entails discontinuing investment from disfavoured energy sources. The distributional effects of an investment-driven transition to a low-carbon energy economy are considerable for the Member States of the European Union, the industries concerned and consumers. These expenditures for the project and its distributional and redistributional consequences cannot be justified by the output alone – the public good. This public good cannot be evaluated by means of objective, scientific yardsticks: all available estimates of investment need to operate with normative assumptions, in particular, the discount rates. Nor can values alone provide sufficiently fine-grained justification. Legitimacy thus hinges on the broad input of all concerned into the decision-making process. This is legitimation through procedure, with its capacity to absorb protest.13 This input legitimacy demands democracy as the institutional means of inclusion and the formulation of policy alternatives. This 13

N. Luhmann, Legitimation durch Verfahren (2nd edn, Nomos, 1988), 11–30.

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presents a challenge for gubernatorial, executive-driven multi-tiered regulation on energy and the non-political, administrative character of decision-making above the State. It can succeed only if the division of responsibilities and thus lines of accountability are transparent. The Lisbon Treaty has conferred on the European Union the competence to pursue an energy policy; the Energy Union Strategy activates these powers for the entire of European energy. With this transfer of powers comes a transfer of responsibility from the Member States to the European Union. It now is primarily responsible that households and businesses receive energy that is supplied securely, sustainably and affordably for all. The Union is answerable to the EU citizenry for attaining this goal. This answerability is exercised institutionally, through the European Parliament. In turn, it constitutes this citizenry in a material sense of a shared political cause beyond the formal sense of an entitlement to elect representatives. The distributional and re-distributional consequences of the EEU fall asymmetrically both between the Member States and between different groups of energy producers and consumers within each Member State. The design principle of a decentralised EEU necessarily implies that the Member States are making differentiated contributions. In addition, there is the intended re-distributional effect between the Member States, which ensues from the carbon reduction targets for the Emissions Trading System (ETS) and non-ETS sectors and the centralised financial support for projects based on a broader measure of economic capacity of each Member State. Re-distributional is also the design principle of solidarity in energy security, internally and externally. These consequences must be justified, democratically, on the Member State level. This input legitimacy is institutionalised in parliamentary democracy at the EU level. Parliamentary democracy faces, however, essential challenges in providing legitimacy. The transformative project of the EEU is driven by gubernatorial initiative under the EU method of governance, institutionalised in the European Council and the European Commission. Scrutiny by the European Parliament has to attach to all stages of that executive action from the planning stage on in order to be effective and legitimising. This scrutiny must also extend to all executive actions on the international plane that fall within the ambit of a European Energy Union. Institutionalised treaties are integral to the integrated regulation of energy, and the critical decisions taken there have a predetermining capacity for legislation. These should require the prior consent of Parliament on the basis of a teleological interpretation of the rules set forth in Article 218(7), (9) of the TFEU.

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Democratic legitimacy then goes to the second level of the Member State parliaments. It demands full involvement of Member States’ parliaments in the legislative implementation of the EEU regulatory programme, which the subsidiarity procedure now permits. It also demands full parliamentary control over the actions of the national executives in the European Council and the Council and on strategic policy-planning stage not only at the stage of the legislative procedure. The constitutional law of the members is converging towards empowering parliaments to this effect. It also demands preserving the space for meaningful own energy policy and law-making by the Member State parliaments. Under the decentralised EEU, each Member State remains responsible for energy policy in regard to EU legislation, implementation of EU legislation, autonomous legislation under its primary competences and, finally, for their energy mix. The subsidiarity principle serves to preserve this space, backed by effective judicial review of EU legislation against the principle. The construction of a tiered legal regime involves trading off effectiveness with legitimacy. While uniform-central solutions may offer effectiveness, decentral-plural solutions offer cost-effective use of the ‘knowledge of the particular circumstances of time and place’ and two-level democratic legitimacy.14 Finally, the Member States, individually and collectively, retain the ultimate responsibility for the EEU. This responsibility is exercised through strategic oversight over the application of the Lisbon Treaty, with the possibility of treaty reform. For the exercise of this responsibility, each Member State is accountable to its citizenry. The EEU embodies the claim to also set the parameters for the international regulation of energy. In its external dimension, the European Union drives regulatory change at the international level and with effect not just for the EU’s citizenry but for the international community as a whole. This, in turn, makes the Union accountable for the provision of secure, sustainable and affordable energy. This accountability is to humanity.15 In this sense, it is cosmopolitan legitimacy. However, this accountability has so far not been institutionalised in a parliamentary template. It rather is institutionalised in the international community of states organising itself in the United Nations and the meeting of Parties to the Paris Agreement, which can hold each State and each supranational 14

15

F. A. Hayek, ‘The Use of Knowledge in Society’, (1945) XXXV American Economic Review 519–30. Expressed in the goal formulation of modern energy “for all” rather than all States.

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organisation accountable against the 2030 Agenda and its seventh goal. In these bodies, States as well as the European Union are represented by their executives to exercise peer review and increasingly to develop new rules. This modus of operation that the Paris Agreement provides does not require the treaty amendments that would presuppose consent of the European Parliament, but it cannot be justified merely through scientific evidence – it rather presupposes parliamentary input legitimacy.

III Global Regulatory Law The perspective of this chapter, which so far has been European, will now become that of global law. This section moves from the analysis, the breakdown of essential elements, to synthesis, the consideration of law in relation to its environment. Global law has emerged as a field of interest in the current period in which the traditional conceptions of law do not account for the burgeoning law outside the State.16 In order to make sense of the ‘disorder of normative orders’,17 a number of intellectual projects have sprung up, including international institutional law, international constitutional law, global administrative law, global public law and global constitutional law. These projects vary in focus and methodology but have in common that they take as their starting point one normative order, be it international or domestic, and then examine its universal extension. The findings of this book suggest a different starting point: global law is interstitial; it works between existing normative order. A normative approach would entail fashioning principles for such global law,18 but a positive approach is preferable to first apprehend the distinct reality of law in the global era. This should not be a theory of positive law, for global law cannot be understood in terms of own sources, of which there are none. It should rather grasp the essential characteristics through explanation, analysis and ultimately synthesis. The synthetic conception that this section offers is global regulatory law. It is the law underpinning the multi-tiered regulation of global value cycles for global legal 16

17

18

A. Galán and D. Patterson, ‘The limits of normative legal pluralism’, (2013) 11 Int’l J. Const. L. 783. N. Walker, ‘Beyond Boundary Disputes and Basic Grids: Mapping the Global Disorder of Normative Orders’, (2008) 6 Int’l J. Const. L. 373. D. Hovell, ‘Due Process in the United Nations’, (2006) 110 AJIL 2 (for global public law); C. Möllers, The Three Branches: A Comparative Model of Separation of Powers, (Oxford University Press, 2013), at 150 (for constitutional law).

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priorities. It exists at the interstices of international law, regional law and national law. The transformation of the global energy system becomes a prism through which to see the pressures that international law, EU law and domestic law are under in the global era and their consequences. In 2015, the international community of States has established its common interest, under the master norm of sustainable development, in a future energy system that will provide universal access to modern energy. This has initiated the process of putting in place a regulatory framework for the global energy cycle, relying on international law, regional law and national law. Starting with the explanatory definition that law is to provide order in which the norm users can place their trust; this global law is to fulfil this task for all States and all individuals. Global regulatory law forms an institution of law, the grandest of all, in the sense that it is inclusive of humanity.19 Institutions of law are located at a higher level of abstraction than rules and principles. They provide the platform for strategic reflection on the stance towards the environment. Institutions capture the essential role that ideas about law have in shaping it. The point of global regulatory law is to sustain global governance. This is objectives driven, it is teleological law that reflects a conception of the common future and the designation of a matter that used to be under national control for the national interest should now be governed in the common interest of humanity and be subject to globally binding regulation with global application. The institutional idea and purpose then are that global regulatory law protects the public interest of humanity. This public interest is the delivery of a global public good to all. It is a future state of affairs, the endpoint of a transformative re-ordering of the present legal order judged as correct by its practitioners. Global regulatory law orders transition processes affecting all parts of the globe. The common denominator is that a consensus has crystallised on the legal priority, the reception within the law of the prior political agreement, for the attainment of which a global activity should be regulated. This then leads to the key concept of regulation and thus of public authority. Analytically, regulation is the issuance of legal directive by public authority in the public interest to alter social behaviour. A key element of this is the concept of authority. Analytically, authority is the 19

See MacCormick, Institutions, note 8, 31–4 (Institutional normative order has explanatory power also for the law outside the State).

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right to issue collectively binding legal commands without the consent of those subject to them and possibly to enforce them.20 Such public authority is vested in international organisations, organisations of regional economic integrations and States.21 While the objective is the steering of the conduct of private actors, authority within this architecture is either direct or indirect. In principle, direct authority to bind individuals lies with the level closest to the individuals, primarily States. The more removed organisation possesses indirect authority, binding States to use their direct authority in a certain way. As much as global governance lies in the network rather than any single organisation, global regulatory law sustains this governance through a network of normative orders. This draws the perimeter within which normative developments outside and inside the State can be usefully seen together for their dynamic interaction. This operates a mechanism of inclusion and exclusion. It includes statal public law, international, regional and national. Non-statal law is excluded, although it may operate at the interstices. Global legal priorities do not do away with the existence of separate, autonomously operating normative orders at international, regional and national levels, but they have the power to render borders porous between public law at international, regional and national levels. In consequence, treaties, EU and other regional law and national law are not isolated from each other. Nor do they merely interact in an unspecified way. Rather, all become orientated towards an internationally defined objective, and each assumes a particular function in achieving it in relation to the functions fulfilled by others. This presupposes trust between the constitutive normative orders in their mutual capacity to fulfil their respective roles. Such trust presupposes transparency. It has the concrete consequence that rules and acts are trusted to be internally acceptable and are then further processed. This trust is an advance performance. Where it is disappointed on the basis of concrete evidence, full scrutiny ensues in the individual instance. The resulting legal regime is not identical with any of its constitutive normative orders. It has a degree of distinctiveness from its constitutive normative orders, even though observers may disagree on how much. This analytical distinctiveness first lies in its modus of operation 20

21

F. Peter, ‘Political Legitimacy’, in: E. Zalta (ed.), The Stanford Encyclopedia of Philosophy (Summer 2016), available at http://plato.stanford.edu/archives/sum2016/entries/ legitimacy. Further, J. Klabbers, ‘Theorising International Organisations’, in A. Orford (ed.), Oxford Handbook of the Theory of International Law (Oxford University Press, 2016), 618.

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characterised by lateral co-evolution and vertical integration. For this integration, international law then sets the broad parameters. It allocates the competences and then sets out the broad responsibilities of States for their exercise. The modalities range from hard disciplines of a negative or positive nature to setting an impetus. International law carries these functions out typically through objectified multilateral law-making treaties. It does not purport, however, to conclusively deal with any matter. It rather requires further concretisation at the regional level. Building on the framework that international law provides, regional law is to absorb the global priorities, drawing on their law-making machinery. The integrated regime is also distinctive in its functionality. The integration of the constitutive normative orders, each remaining intact and continuing to operate autonomously, sustains effective, multi-tiered regulation. This is so because only by working together with the others can each reach the internalised objective. Three factors contribute to this. First, each uses the reinforcing presence of the others to deliver the orderliness in which citizens can place their trust. It is in this conjunction that each delivers on the promise to prevent opportunistic policy changes that invalidates planning and up-front action of citizens. Second, regulatory standards and instruments can be supported on all tiers cumulatively, but these can also serve as alternative regulatory reservoirs. A carbon tax of global scope, for instance, could be realised in international law, in regional law or in coordinated domestic law. There is, third, substitutability on each tier. The European Union no doubt represents the most advanced manifestation of regional normative order. It is, however, by no means the only one. Other regional entities add to that tier. The Association of Southeast Asian Nations (ASEAN) is on the way to doing so. On the tertiary tier, States provide the rules in their legal orders. National law in its plurality becomes a normative tier of global regulatory law, on which the individual national legal orders become substitutable. The self-description of law is that it delivers justice,22 with private law delivering corrective justice, criminal law retributive justice and public claw distributional justice. Global regulatory law delivers distributional justice on a global scale. The modus of the legal realisation of this institution is incremental. While the sovereign State inexorably extended the scope of its legal order to all matters and the farthest corners of its territory, global governance 22

And thereby predictability Luhmann, Law as a Social System, note 5, 211–29.

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and thus global regulatory law form incrementally and sectorally in response to agreed priorities. The perimeter of global regulatory law is thus circumscribed by the legal priorities to regulate global activities in the collective interest. The list of these priorities is not fixed but depends on the consensus that such a collective interest exists and that a matter hitherto under national control for national interests should be elevated to the global level, considered a global interests for which all States and other stakeholders have shared responsibility. Examples of such processes are, in addition to energy and climate, international terrorism and the financial system. Matters that could follow are cyberspace, migration, education, health, lifestyle, and further sectors of the global economy. This signals the fundamental contingency of global regulatory law whose trajectory is contingent on the development of the political system of global society. There is no doubt about the current malaise of globalisation and its underlying values of liberalism. Another question is whether the political system expands by developing the procedures and mechanisms to engage with this malaise and the resulting protest. It may thus herald either a retrenchment or, on the contrary, an expansion of global governance and global regulation to deliver public goods that a market-driven globalisation could or will not.

IV Conclusions: European Energy Strategy in International Law Energy has emerged as a priority for the European Union in this parliament. The 2015 strategy for a European Energy Union aims, in the interest of delivering secure, sustainable and competitive/affordable energy to citizens, at the transformation of the European energy system over the medium to long term. It aims to create a European variety of energy capitalism that is distinct from any of the varieties existing in the Member States, based on the citizen as both producer and consumer of energy in a near-zero marginal-cost economy.23 A parallel project has been launched on the international plane in the same year. The 2030 Agenda and the seventh SDG mark the consensus of the community of States that energy, globally, should be accessible, sustainable and affordable for all and governed in the common interest. The 2015 Paris Agreement on the global decarbonisation agenda is the latest manifestation of this international 23

Further, J. Snell, ‘Varieties of Capitalism and the Limits of European Economic Integration’, (2011) 13 Cambridge Yearbook of European Legal Studies 415. D. Hovell, ‘Due Process in the United Nations’, (2006) 110 AJIL 2.

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consensus that the transformation of the energy system should be global and irreversible. This book has set out by making a threefold argument to apprehend this transformative project. First, the European Energy Union is bestowing on the European Union a social-State function, with equal access rights of all EU citizens to the public good of secure, sustainable and affordable energy. Second, the European Energy Union implies rulesbased governance and regulation of the EU and indeed global energy cycle based on a legal regime that integrates international law, EU law and Member State law. Third, the European Energy Union is a reference for global regulatory law. It will be useful to recall the main findings in this conclusion before pointing out the implications for analysts and decision-makers. First, the EEU signifies the conferral of a social-State function on the European Union. Energy – being a public good, just as education and healthcare – marks a social-State function that had traditionally been subsumed in the constitutional State. This book has demonstrated that by virtue of the EEU project, the European Union is assuming the responsibility to guarantee this function of critical concern for European and indeed global society, while responsibility for delivery is being assigned to the market. The Member States as masters of the Treaties retain final responsibility. Energy citizenship becomes the normative reference, with three dimensions: inclusion in the political decision-making process; rights-based equal access to secure, sustainable and affordable energy; and individual freedom to determine consumption and production of energy in a near-zero marginal-cost economy, ultimately of global reach. European energy citizenship is about empowering the individual to make informed choices on a truly Europe-wide canvas. It also addresses the asymmetry of such empowerment through the concept of the vulnerable energy consumer whose protection is at present the devolved task of the Member States. The European Energy Union then reflects the serial treaty-making since the 1990s, culminating in the 2007 Lisbon Treaty and tasking the European Union with guaranteeing public goods for EU citizens by means of transformative projects. The resulting political union complements the market-State paradigm of liberalisation in order for European integration to carry the citizens with it. Second, there is multi-tiered regulation of the European energy system. The transformative telos of the European Energy Union demands a managed transition. Strategy serves as an analytical category for elucidating the translation of commitment into law. Chapter 1 analysed the

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strategy for establishing the European Energy Union in a 2030 perspective that the European Council adopted in March 2015 and which becomes the guiding reference for the process of legal change that started in 2016. EU-level network governance is underpinned by regulation of the energy cycle on a European and ultimately global scale. This public good regulation signals to the private sector that the process is transformational, irreversible and global. The regulatory intervention in formal law is multi-tiered, taking place simultaneously in international law, EU law and national law. The European Energy Union is being established in the inherently global energy context and accordingly has an internal and an indispensable external aspect. This strategy for comprehensive EUlevel network governance and regulation of the energy cycle thus mobilises the resources of international law, EU law and national law. Receiving this strategic impulse, these normative orders evolve to constitute the integrated legal regime of energy, within which they become mutually reinforcing in achieving the shared goal. The two vectors for this fashioning of a single legal regime from the cloth of the three constitutive normative orders are lateral co-evolution and vertical integration. Chapters 2 to 4 have demonstrated that international law, EU law and the national law of the Member States and affiliated States are co-evolving in the matter of energy. All develop parallel strategies as references for lawmaking towards mid- and long-term objectives that will profoundly alter the legal status quo. The Energy Union Strategy is thus paralleled, on the international plane, by the 2030 Agenda and the International Energy Charter. All also design fundamental enabling and constraining rules on energy, enshrined within the respective constitutional systems that vary in bindingness and stability. The international law on energy is grounded in the norm of rules-based governance that underlies the 2030 Agenda. That norm then triggers the process for international law-making on energy. For the European Union, the constitutional law on energy rests on the new incontestable competence for policy and law-making in Article 194 of the TFEU; limited by a competence reserve for Member States for their energy mix, this competence structure demands combining central-uniform with decentral-plural law-making on energy. The European Union is constrained in bringing about legal change, however, by parliamentary democracy, the rule of law with judicial protection and fundamental rights, all of which fully apply to the EU’s energy policy. For their part, the Member States have absorbed the Treaty design of their EU-coordinated responsibility for energy. Furthermore, international law, EU law and Member

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State laws all are developing a regulatory stratum on the basis of a common programme that comprises normative parameters, drivers and modalities. This programme covers energy generation, transmission and consumption centred on the promotion of renewables and energy efficiency, interconnected infrastructure and decarbonisation. Finally, international law, EU law and national law all provide for their mutual opening. International law depends on complex, self-determined implementation in EU and domestic law. The European Union extends its constitutional-regulatory programme to international law and at the same time to Member State law-making to achieve the EEU objectives. Chapter 5 has shown the role of the ideas of responsibility, normativity and unifying concepts in creating the integrated legal regime sustaining the regulation of the European energy system. Working towards a common objective, international law, EU law and the domestic laws each assume a specific responsibility. Thus international law enshrines the impetus and provides the legal certainty for the transformative process, while EU law provides, to a large extent, principles for the coordinated implementation of these decisions which are then concretised in Member State law. Normativity in the sense of legal bindingness of this multi-tiered regulation demands both consistent rule-making and material hierarchy, where the commands of international energy law are mechanically complied with in EU law. This hierarchy is reversed where the European Union formulates preferences for international law. Conceptual unity results from the principle of human dignity, of which energy citizenship is a part. It provides the single common reference point for all constitutive normative orders of the integrated energy regime. This chapter has also pointed out that input legitimacy is the critical criterion for normatively evaluating this European Energy Union. Energy Union means that the final decisions about the normative parameters, the architecture and the direction of investment are made at the EU level. This project redirects large societal resources, in terms of private investment and disinvestment and public financial resources, with considerable distributional and re-distributional effects for Member States and the industries of carbon-dependent energy generation and economy. Commensurate with this is the need for input legitimacy. There is no objectively determined type and level of intervention, so the decisionmaking needs to be inclusive of the EU citizenry and the citizenries of the Member States. This inclusion underlies the need to take seriously the parliamentary democracy for both internal and external actions on energy. The European Energy Union will only be fully legitimate if it

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delivers access to secure, sustainable and competitive energy to all citizens in a 2030 perspective and if the Union remains accountable to its citizens for decisions through the democratic process. Outwards, the Union becomes accountable to humanity, via the international community of States, for bringing about rules-based energy governance worldwide for access for all to such energy. Third and finally, this European Energy Union instantiates global regulatory law as a field of legal knowledge. Chapter 5 makes the point that this global regulatory law does not have its own sources but exists interstitially between international law, regional law and domestic law. Global regulatory law forms an institution of law outside the state that sustains global governance. It is not concerned with the distinction between normative orders or managing conflicts between them, but with their strategic coordination so that they become mutually reinforcing in furthering a universally agreed priority. The reference of that institution is the protection of the public interest of humanity in public goods. This drives the regulation of global value chains, applicable at every point of the globe. Without a law-generating capacity of its own, the institution for this purpose deploys the available normative resources of international law, regional law and domestic law. Its basis is plural statal law in a descriptive sense. It fashions these normative orders into a system and its concrete expression: a legal regime. Such regimes have an independent existence, reflected in its vectors of co-evolution, integration and convergence. They rest on trust between the constitutive normative orders in their mutual compatibility with the concomitant transparency. Energy is but one instantiation of this broader institution of global regulatory law. Globalisation, in its first stage marked by liberalisation and deregulation, in its current second stage is about developing rules-based governance supported by regulation. That development is, however, contingent on the global political system and thus any crisis afflicting the development of that system. The implications of this book for legal analysts are methodological. The argument and general viewpoint of the book are grounded in a holistic methodology, the key tenet of which is that international law, EU law and domestic law form a whole and that no part can be understood outside of it. This methodology renders an accurate picture of the law of transformative projects in the era of globalisation. It does so by combining explanatory, analytical and synthetic elements. Starting from the explanatory definition that law provides order, in such projects order only arises from the mutual reinforcement of international law, EU law

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and national law. None can achieve it on its own. Functional integration substitutes for stratification, of which international law, EU law and other regional law and national law form mere segments. The inquiry how this integration is achieved leads to the roles of lateral co-evolution and the vertical integration that turn normative orders into the tiers of a single legal regime. The power of this explanation can then be tested in the analysis of concepts familiar to lawyers. The context of an integrated regime shapes the analysis of the constitutional, regulatory and external openness strata that develop in each constitutive normative order. The domain of transformative processes is the future, and this implies a strategic turn, which emphasises the role of legislative material in analysing this dynamic law-development. The third step is to move from analysis to a synthesis that puts the elements together with reference to the political environment. The proposal of global regulatory law sustaining global governance is such a synthetic conception. This holistic methodology comes with a strong commitment to experiential legal reality to stay clear of political speculation, hence the close assessment of the fastdeveloping positive law throughout this book. Each normative order then should be approached from the viewpoint that it is operating within an integrated legal regime. The choice of this viewpoint has interpretive consequences. Interpretation turns on recognised types of legal arguments. A holistic interpretative method prominently uses three such arguments. Thus, with the strategic turn in legal analysis shifting the weight towards constitutional legislative decisions, practical concordance turns treaty and legislative objectives into principles that can be counterbalanced with competing other principles through the mechanism of proportionality. Further, the institutions of multi-tiered co-evolution, responsibility, multi-tiered normativity and conceptual unity, contain ideas that broaden the cosmos of judicially operational arguments for the interpretation of the law comprised in these institutions. Doctrine becomes the third argument of multi-tiered normativity. These are ratified in a dialogue between courts and tribunals within a non-hierarchical architecture. The implication for policy-makers is that the European Energy Union in a 2030 perspective indicates the path of future European integration towards functional unions. Functional unions strategically advance agreed priorities through rules-based governance and multi-tiered normativity. This model of the functional union is being replicated in other areas, ranging from banking and monetary union to the Internet economy, migration and security. All of these are conditioned on a European

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strategy in international law. More generally, global governance is underpinned by global regulation centred on tiered legal regimes. The presence of these tiered regimes presents policy-makers with choices as to the allocation of concrete regulatory tasks and standard-making among the tiers, subject to further constraining criteria such as rationality and costeffectiveness. These functional unions underpin the need for a dedicated legal methodology that elucidates and then marshals in descending order of abstraction the approaches, argument types and finally doctrines to operationalise these legal regimes. The focus of attention ought to turn to the extension of multi-tiered rule-making to further areas, such as the financial architecture, development and security.

INDEX

ACER. See Regulation on the Agency for the Cooperation of Energy Regulators (ACER) Addis Ababa Action Agenda, 41 Africa Renewable Energy Initiative (AREI), 90–91 Agenda 21, 38 Agreement on an International Energy Program, 10–11 Agreement on Subsidies and Countervailing Measures (SCM), 76 Agreement on Trade-Related Intellectual Property Rights (TRIPS), 47 Agreement on Trade-Related Investment Measures (TRIMS), 48, 76 Algeria, natural gas in, 145 APX, 208 Arbitration Institute of the Stockholm Chamber of Commerce, 54 Argument of work, 2–3, 249 Asia-Pacific Economic Cooperation (APEC), 78 Association of Southeast Asian Nations (ASEAN), 7, 185, 247 Assumptions regarding law, 8–9 ATEL (Swiss company), 190 Auctioning Regulation, 160–61, 163 Australia, LNG in, 145, 186 Autonomy energy security, autonomy of EU law and, 187–89 in national energy law, 200–1 Baltic Energy Market Interconnection Plan, 158 Barcelona Convention and Statute on Freedom of Transit, 68

Barroso, José Manuel, 19 Belpex, 208 Biodiversity protection, 92–93 Birds Directive, 218–19 Canada Comprehensive Economic and Trade Agreement, 185 High-Level Energy Dialogue, 181 LNG in, 145, 186 Capacity Calculation Regions (CCRs), 207 CCS Directive, 167 Central and South Eastern Europe Gas Connectivity Group, 158 CETA. See Comprehensive Economic and Trade Agreement (CETA) Charter of Fundamental Rights constitutional order of external Energy Union and, 196 dispute settlement under, 189 fundamental rights and, 129–30 human dignity and, 239 judicial protection and, 128–29, 174–76 rule of law and, 128–29, 174–76 treaty standards and, 178 Charter of Paris, 46, 53 Chicago Convention (Convention on International Civil Aviation), 91 Clean Energy Ministerial, 181 Clean Fuel Directive, 155–56 Climate change overview, 86–87 bottom-up approach, 88–89 consumer goods and, 92 international transport and, 91–92 Kyoto Protocol, 87

255

256

in de x

Climate change (cont.) nationally determined contributions (NDCs), 88–90 Paris Agreement, 87–90 rules-based governance and, 109 top-down approach, 87–88 Coal, 227–28 Co-evolution of law, 6 Common Foreign and Security Policy, 170, 173, 182 Comprehensive Economic and Trade Agreement (CETA) generally, 82 dispute settlement under, 187–89 energy investment and, 84–85 energy security and, 185, 187–89 horizontal regulation, 84 Joint Committee, 187 market access and, 83–84 sustainable energy and, 85–86 Concept of Energy Union, 3–5 Conceptual unity of integrated legal regime, 6–7, 238–39, 251 Connecting Europe Facility, 157 Conservation versus preservation of resources, 71 Consistency in integrated legal regime, 235–37 Constitutional order of external Energy Union overview, 168, 196–97 Charter of Fundamental Rights and, 196 dual-representative democracy and, 172–74 enabling energy policy in overview, 169 express competences, 169–70 implied competence, 170, 172 energy efficiency in, 171 energy market in, 171 energy security in, 171 judicial protection and, 174–76 network interconnectivity in, 172 renewable energy in, 171 rule of law and, 174–76 TFEU and, 196 treaty standards and, 176–78

Constitutional Treaty, 17 Consumer goods, climate change and, 92 Convention against Torture, 44 Convention on Environmental Impact Assessment in a Transboundary Context, 94 Convention on International Civil Aviation (Chicago Convention), 91 Convention on Long-Range Transboundary Air Pollution, 94 Convention on the International Sale of Goods (CISG), 11 Convention on the Law of the Sea generally, 13 overview, 95 division of competencies, 95–97 environmental risk, cooperation on, 98–99 exclusive economic zones (EEZs), 95–97 joint energy projects, 97–98 rule of law and, 175, 176 sovereignty over energy and, 108 Convention on the Protection of Biological Diversity (CBD), 92–93 Convention on Third Party Liability in the Field of Nuclear Energy, 94–95 Convergence of integrated legal regime, 239–40 Council of European Energy Regulators (CEER), 209 Court of Justice of the European Union, 120 Covenant of Mayors, 154 Cross-Border Intraday (XBID) Project, 208 DCFTA. See Deep and Comprehensive Free Trade Agreement (DCFTA) Decarbonisation overview, 25 in internal EU energy law

in dex overview, 158–59 allocation of allowances, 160–63 market oversight, 163 phase-out of carbon fuel, 159–60 public policy objective, 160 reduction from other sectors, 164–65 socio-economic adaptation, 163–64 national energy law and, 220–21 realisation of external Energy Union and overview, 192 design of, 192–93 foreign policy, 195–96 implementation of, 193–95 integration of, 193–95 Decision on Intergovernmental Agreements (IGA), 222–23 Deep and Comprehensive Free Trade Agreement (DCFTA) generally, 82 energy security and, 185–86 market access and, 83–84 Democracy standard, 177 Development, energy and, 102–3 Dimensions of action in Energy Union, 24–26 Distributional justice, 247 Domestic energy law. See National energy law Dual-representative democracy constitutional order of external Energy Union and, 172–74 internal EU energy law and, 126–28 Ecodesign Directive, 153–54 Economic policy, internal EU energy law and, 124–25 ECT. See Energy Charter Treaty (ECT) Efficiency. See Energy efficiency Effort Sharing Regulation, 159, 164–65 Electricity Coordination Group, 211 Electricity Directive generally, 197, 223 energy market and, 137, 138–39, 140, 142–43, 207, 209–10 investment protection and, 189, 190

257

renewable energy and, 151 Electricity Regulation, 137, 139–40, 197 Emissions Trading System (ETS) decarbonisation and, 194, 195 energy innovation and, 166 financial support, 150 phase-out of carbon fuel, 159–60 public policy objective, 160 rational allocation of regulatory tasks and, 234 Emissions Trading System Directive generally, 197 overview, 158 allocation of allowances and, 160–62 climate change and, 192 decarbonisation and, 164 energy innovation and, 166, 167 financial support, 150 market oversight and, 163 public policy objective, 160 socio-economic adaptation, 163–64 Energy Charter Treaty (ECT) generally, 11, 13, 186 overview, 45–46 Amendment to Trade-Related Provisions, 47 Arbitral Tribunals, 59–61 dispute settlement under, 53–55, 62–63, 187–89 ECHR compared, 55, 56–57 energy efficiency and, 109, 191–92 energy investment under overview, 49–50 balance between legal certainty and public interest regulation, 55–59 dispute settlement, 53–55 fair and equitable treatment (FET), 51–52, 55–56, 57–59 investments and investors, 50 most constant protection and security, 51–52 standards of promotion and protection, 50–53 umbrella clause, 51–52 uniform and effective application of, 59–61 energy market and, 183, 209–10

258

in de x

Energy Charter Treaty (ECT) (cont.) energy security and, 184–85, 187–91 energy trade and transit under overview, 46 energy market, 49 liberalisation of trade, 47–48 network transit, 48 free transit of energy, 74–75 GATS and, 47 GATT and, 47–48, 52–53, 73–74 investment protection under, 189–91 national energy law and, 229 nuclear non-proliferation and, 100 Protocol on Energy Efficiency and Related Environmental Aspects (PEEREA), 45, 61–62 renewable energy and, 191–92 rule of law and, 110, 112 sovereignty over energy and, 70, 108 sustainable energy under, 61–62 TFEU compared, 55 uniform and effective application of, 59–61, 62–63 WTO and, 47–48, 62, 73–74 Energy-citizenship, 238–39 Energy Community Treaty for Southeast Europe generally, 13, 186 overview, 65–66 energy market and, 66, 182–83 future of, 67–68 mechanisms of, 66 Ministerial Council, 67 national energy law and, 229 national law and, 66 regulation under, 66 secondary law under, 67 Energy Diplomacy Action Plan, 21, 178–79 Energy efficiency overview, 25 in constitutional order of external Energy Union, 171 in internal EU energy law overview, 152 building heating and cooling, 154 consumer goods, 153–54 decentralisation, 152–53

transport, 154–56 national energy law and, 219 realisation of external Energy Union and, 191–92 rules-based governance and, 109 Energy Efficiency Directive, 67, 152, 219 Energy infrastructure in internal EU energy law overview, 156 Projects of Common Interest (PCI), 156–57 regional cooperation, 157–58 national energy law and, 219–20 regional cooperation and, 157–58 Energy innovation overview, 25–26 in internal EU energy law overview, 126, 165 acceleration of, 165–67 governance procedure, 167–68 realisation of external Energy Union and, 191–92 Strategy of Energy Union, 25–26 Energy Labelling Directive, 25, 28–29 Energy Labelling Regulation, 153–54 Energy market in constitutional order of external Energy Union, 171 under ECT, 49 under Energy Community Treaty for Southeast Europe, 66 as goal of Energy Union, 24–25 in internal EU energy law overview, 124, 136–37 market coupling, 139–40 oversight, 141–42 regional cooperation, 140–41 supply and demand, 142–43 national energy law and overview, 205 integration of, cross-border cooperation on, 207–8 structuring market, 205–7 vulnerable consumers, protection of, 208–10 realisation of external Energy Union and, 182–84

in de x Energy Performance of Buildings Directive, 154 Energy Roadmap, 19, 28–29 Energy security overview, 99, 108–9 in constitutional order of external Energy Union, 171 fossil energy and, 100–1 as goal of Energy Union, 24 in internal EU energy law overview, 144 diversified supply, 144–46 LNG, 145 natural gas, 145 nuclear energy, 146 resilience, 146–48 management of, 99–102 national energy law and, 210–11 nuclear energy and, 99–100 realisation of external Energy Union and overview, 184 autonomy of EU law, 187–89 democracy standard and international rule-making, 187 intergovernmental agreements for supply and infrastructure, 186 investment protection, 189–91 investor-state dispute settlement, 187–89 multilayered framework for network energy, 184–86 risk to global stability, 99–100 rules-based governance and overview, 99, 108–9 fossil energy and, 100–1 management of, 99–102 nuclear energy and, 99–100 risk to global stability, 99–100 subsidiarity and, 147 Energy technology standards, 92–93 Energy 2020, 19 Environmental Goods Agreement (EGA), 78 Environmental Impact Assessment Directive, 167, 226–27 Environmental protection. See also specific agreement

259

overview, 86 biodiversity protection, 92–93 climate change (See Climate change) energy technology standards, 92–93 internal EU energy law and, 125 marine energy overview, 95 division of competencies, 95–97 environmental risk, cooperation on, 98–99 exclusive economic zones (EEZs), 95–97 joint energy projects, 97–98 renewable energy, national energy law and, 218–19 transboundary harm, preventing, 93–95 wetlands protection, 92–93 Environmental risks, regulation of, 75–76 EPEX SPOT, 208 Establishment of Energy Union, 12–13, 15–17 ETS. See Emissions Trading System (ETS) European Atomic Energy Community (EA), 15, 125–26, 146, 225–26 European Coal and Steel Community, 15, 67 European Commission. See also European Union energy law generally, 8, 12–13, 15, 16–17, 33, 114 coordination of national energy law and, 201–4 evolution of strategy and, 17–22 material hierarchy and, 237–38 North Sea Countries Offshore Grid Initiative and, 219–20 nuclear energy and, 224–25 regulation and, 28–29, 32 State Aid Guidelines, 214–15 treaties and, 222–23 European Convention on Human Rights (ECHR), 55, 56–57, 178, 190

260

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European Council. See also European Union energy law generally, 12–13, 16–17, 33, 114 CETA compared, 85 coordination of national energy law and, 201–4 evolution of strategy and, 17–22 Framework Strategy for a Resilient Energy Union with a ForwardLooking Climate Strategy (See Strategy of Energy Union) legitimacy of Energy Union and, 243 regulation and, 28–29 European Court of Human Rights (ECtHR), 55, 56–57, 188, 190 European Court of Justice, 8, 11 European Economic Area (EEA), 209, 221, 229 European Economic Community, 15 European Emissions Trading System (ETS), 25 European Energy Charter, 45 European Energy Exchange, 163 European Energy Research Alliance, 166 European Fund for Strategic Investments, 157, 165–67 European Industrial Initiatives, 166 European Investment Advisory Hub, 166 European Investment Bank, 166 European Investment Project Portal, 166 European Network of Transmission System Operators (ENTSO), 140, 141, 156–57, 207, 220 European Parliament. See also European Union energy law generally, 16–17, 33, 114 dual-representative democracy in, 172–74 evolution of strategy and, 17–18, 19 legitimacy of Energy Union and, 242, 243–44 regulation and, 28–29 treaty standards and, 177 European Power Exchanges, 208

European Securities Market Agency (ESMA), 140–41 European Union energy law. See also specific Directive overview, 13–14, 114–15, 116 alternatives to, 122–24 constitutional boundaries of, 115–16 constraints on overview, 126 dual-representative democracy as, 126–28 fundamental rights as, 129–30 judicial protection as, 128–29 rule of law as, 128–29 decarbonisation in overview, 158–59 allocation of allowances, 160–63 market oversight, 163 phase-out of carbon fuel, 159–60 public policy objective, 160 reduction from other sectors, 164–65 socio-economic adaptation, 163–64 economic policy and, 124–25 enabling energy policy in, 116–19 energy efficiency in overview, 152 building heating and cooling, 154 consumer goods, 153–54 decentralisation, 152–53 transport, 154–56 energy infrastructure in overview, 156 Projects of Common Interest (PCI), 156–57 regional cooperation, 157–58 energy innovation in overview, 126, 165 acceleration of, 165–67 governance procedure, 167–68 energy market in overview, 124, 136–37 market coupling, 139–40 oversight, 141–42 regional cooperation, 140–41 supply and demand, 142–43 energy security in

in dex overview, 144 diversified supply, 144–46 LNG, 145 natural gas, 145 nuclear energy, 146 resilience, 146–48 environmental protection and, 125 European Community for Atomic Energy and, 125–26 global regulatory law and, 7 holistic view of, 7–8 information collection and, 126 internal market and, 124 proportionality in, 119–21 public good, regulation of energy as, 31 regulation in overview, 130–31 drivers of change, 133–34 financial instruments, 136 goals of, 133–34 instrumental legislation, 134–35 modalities of, 134 normative parameters, 131–33 organisation, 135–36 priorities of, 133–34 procedure, 136 targets of, 133–34 technology, 136 thematic packages, 131 renewable energy in overview, 148 decentralisation, 148–49 environmental protection, 151–52 financial support, 150–51 harmonised planning, 150 market share quota, 149–50 social-state function of EU, 249 solidarity and trust in, 121–22 subsidiarity in, 119–21 Third Package, 136–43, 189, 205–7, 222 trans-European networks and, 125 Exclusive economic zones (EEZs), 95–97 Exclusive jurisdiction standard, 177–78 Export duties, 77 External aspects of Energy Union, 28

261

Federalism standard, 178 Feed-in premiums, 216 Feed-in tariffs, 216–17 Fossil energy, 100–1, 227–28 Framework Convention on Climate Change (UNFCCC) generally, 20–21, 40, 71–72, 86–87 decarbonisation and, 192 international transport and, 91 rational allocation of regulatory tasks and, 234 rules-based governance and, 109 Framework Convention on Tobacco Control, 80 Framework Strategy for a Resilient Energy Union with a ForwardLooking Climate Strategy. See Strategy of Energy Union France, renewable energy in, 216 Free Trade Agreement with Singapore, 185 Free transit of energy, 74–75 Friedman, Lawrence, 4 Fuel Quality Directive, 151, 155 Functionality of integrated legal regime, 247 Functions of Energy Union, 3–5 Fundamental rights, 129–30 Gas Coordination Group, 147 Gas Directive, 145, 183–84, 206 Gas Exporting Countries Forum, 69 Gas Security of Supply Regulation, 146 Gazprom, 184, 222 General Agreement on Tariffs and Trade (GATT) ECT and, 47–48, 52–53, 73–74 environmental risks, regulation of, 75–76 free transit of energy, 74–75 market access and, 77, 83 trade in goods, application to energy, 73–74 General Agreement on Trade in Services (GATS) ECT and, 47 energy services and, 74

262

in de x

General Court. See European Union energy law Germany coal in, 227 feed-in tariffs in, 216–17 nuclear energy in, 59, 225–26 renewable energy in, 214, 216–18 Renewable Energy Law, 216–17 Global energy cycle, regulation of, 103–6 Global Energy Efficiency and Renewable Energy Fund (GEEREF), 192 Global Geothermal Alliance (GGA), 90–91 Global regulatory law, 7, 244–48, 252 Global Technology and Innovation Leadership Initiative, 168 Goals of Energy Union, 22–23 Governance. See Rules-based governance Green Development Fund, 191 Green trade, 77–78 G20 states, sustainable energy and, 41–42 Habitats Directive, 191, 218–19, 227 Harmonised Commodity Description and Coding System, 47 High Level Political Forum on Sustainable Development, 40 Horizon 2020, 166 Human dignity, 239 Human rights, rules-based governance and, 102–3, 106 Human Rights Council, 102–3 Hungary accession to European Union, 58–59 investment protection in, 189–90 Iceland, decarbonisation in, 221 IEC. See International Energy Charter (IEC) Implications of work, 252–54 Industrial Emissions Directive, 167 Information collection, internal EU energy law and, 126

Infrastructure. See Energy infrastructure Innovation. See Energy innovation Innovation Fund, 150, 167 InnovFin Energy Demonstration Projects, 167 Institutionalised cooperation in energy, 69–70 Integrated legal regime overview, 6–7, 14, 230–32 assumptions regarding, 8–9 conceptual unity of, 6–7, 238–39, 251 consistency in, 235–37 convergence of, 239–40 distributional justice in, 247 formation of, 232–33 functionality of, 247 global regulatory law in, 244–48 legitimacy of, 240–44, 251–52 material hierarchy in, 237–38 normativity in, 6, 235–38, 246–47, 251 rational allocation of regulatory tasks in, 234 responsibility in, 6, 233–34, 251 Integrated Strategic Energy Technology Plan, 167–68 Intergovernmental Conference for the Lisbon Treaty, 17 International Atomic Energy Agency (IAEA), 69–70, 100 International Centre of Investment Disputes (ICSID), 54, 78, 79, 187–88 International Civil Aviation Organisation (ICAO), 91–92, 195, 234 International Convention for the Prevention of Pollution from Ships (MARPOL), 91 International cooperation, 28 International Court of Justice (ICJ), 85, 112 International Covenant on Economic, Social, and Cultural Rights, 102–3 International Energy Agency (IEA), 10–11, 69–70

in de x International Energy Charter (IEC) generally, 46 overview, 63–65 energy efficiency and, 109 energy market and, 183 energy security and, 185 multi-tiered regulation and, 250 nuclear non-proliferation and, 100 sovereignty and, 70 International Energy Forum Charter, 70 International Labour Organisation (ILO), 85 International law overview, 37–38 energy in, 37–45 institutionalised cooperation in energy, 69–70 sovereignty over energy and, 70–71 strategy of Energy Union in, 33–35 sustainable energy, implementation of, 42–45 transnational energy purchases and projects, 68–69 International Maritime Organisation (IMO), 91–92, 234 International Monetary Fund (IMF), 80–81 International Renewable Energy Agency (IRENA), 70, 191–92 International Solar Alliance (ISA), 90–91 International transport, climate change and, 91–92 International Tribunal for the Law of the Sea, 176 Investment law overview, 108–9 ECT and overview, 49–50 balance between legal certainty and public interest regulation, 55–59 dispute settlement, 53–55 fair and equitable treatment (FET), 51–52, 55–56, 57–59 investments and investors, 50

263

most constant protection and security, 51–52 standards of promotion and protection, 50–53 umbrella clause, 51–52 uniform and effective application of, 59–61 energy and, 78–81 fair and equitable treatment (FET) generally, 78, 79–80 ECT and, 51–52, 55–56, 57–59 Investment protection, 189–91 Investor-state dispute settlement, 187–89 Iran, nuclear non-proliferation and, 100 Italy, renewable energy in, 218–19 Judicial protection constitutional order of external Energy Union and, 174–76 internal EU energy law and, 128–29 as treaty standard, 178 Juncker, Jean-Claude, 20 Kyoto Protocol, 87, 109, 175, 194 Large Combustion Plants Directive, 167 Legitimacy of Energy Union, 240–44, 251–52 Liquefied natural gas (LNG), 145, 186 Lisbon Treaty. See also European Union energy law generally, 3–4, 11, 12–13, 16–17, 33, 35, 197–98, 249 adoption of, 15 autonomy of national law under, 200–1 constitutional order of external Energy Union under, 168 (See also Constitutional order of external Energy Union) evolution of strategy from, 17–22 Intergovernmental Conference, 17 legitimacy of Energy Union and, 242, 243

264

in de x

Lisbon Treaty (cont.) national energy law and, 221–23 (See also National energy law) regulation and, 32 Literature review, 9–10 MacCormick, Neil, 9 Marine energy overview, 95 division of competencies, 95–97 environmental risk, cooperation on, 98–99 exclusive economic zones (EEZs), 95–97 joint energy projects, 97–98 Market. See Energy market Market access preferential trade agreements and, 83–84 trade law and, 77–78 Market coupling, 139–40 Markets versus political systems, 5 Material hierarchy in integrated legal regime, 237–38 Member state energy law. See National energy law Millennium Declaration, 39 Millennium Development Goals, 39 Modernisation Fund, 164 Monitoring Mechanism Regulation (MMR), 203 Monnet Method, 26 Montreal Protocol on Ozone Depleting Substances, 92, 234 Multi-tiered regulation, 33, 249–51 NAFTA. See North American Free Trade Agreement (NAFTA) National energy law overview, 14, 199–200, 228–29 autonomy in, 200–1 coal, 227–28 coordination of, 201–4 decarbonisation and, 220–21 Energy Community Treaty for Southeast Europe and, 66

energy efficiency and, 219 energy infrastructure and, 219–20 energy market and overview, 205 integration of, cross-border cooperation on, 207–8 structuring market, 205–7 vulnerable consumers, protection of, 208–10 energy security and, 210–11 law-making, 204–5 nuclear energy, 224–26 renewable energy and overview, 211–12 convergence of models, 216–18 environmental protection, 218–19 feed-in premiums, 216 feed-in tariffs, 216–17 national support systems, 212–13 quota obligations, 216 state aid, 213–16 shale gas, 226–27 treaties, 221–23 Natural gas, 19, 145 NER 300, 165–67 Network governance, 26–27 Network interconnectivity in constitutional order of external Energy Union, 172 New York Convention on Transit Trade of Land-Locked Countries, 68, 78 Nominated Electricity Market Operators (NEMOs), 207, 208 Non-renewable energy, institutionalised cooperation in, 69–70 Nord Pool, 208 Normativity in integrated legal regime, 6, 235–38, 246–47, 251 North American Free Trade Agreement (NAFTA) generally, 80–81, 82 market access and, 83 North Atlantic Treaty Organisation (NATO), 102 North Korea, nuclear non-proliferation and, 100

in de x North Sea Countries Offshore Grid Initiative (NSCOGI), 158, 219–20 Norway decarbonisation in, 221 energy market in, 209 natural gas in, 145 Nuclear energy, 99–100, 224–26 Nuclear Energy Agency (NEA), 69–70 Nuclear non-proliferation, 99–100 Offshore Safety Directive, 151–52 Oil Stocks Directive, 146 Open-ended Informal Consultative Process on Oceans and the Law of the Sea, 97 Organisation for Economic Co-operation and Development (OECD), 69–70 Organisation of Petroleum Exporting Countries (OPEC), 69, 181 Oslo Protocol on Further Reduction of Sulphur Emissions, 94 Outcome Document of the Rio+20 Conference, 38–39 Oversight, 141–42 Pact of Bogota, 44 Paris Agreement generally, 1, 20–21, 41–42, 65, 68, 80, 86–87, 109, 197, 248–49 allocation of allowances and, 162 decarbonisation and, 221 design of, 192 Energy Union and, 192–93 evolution of, 87–90 implementation of, 193–95 integration of, 193–95 legitimacy of Energy Union and, 243–44 material hierarchy and, 237–38 national energy law and, 229 phase-out of carbon fuel and, 160 procedural modality in, 104–5 rule of law and, 112 Pentalateral Energy Forum, 158, 207–8, 211, 219

265

Pentland Firth Project, 217 Plurilateral trade agreements, 77–78 Political systems versus markets, 5 Preferential trade agreements. See also specific agreement overview, 81–82 energy dimension of, 81–86 energy investment and, 84–85 horizontal regulation, 84 market access and, 83–84 sustainable energy and, 85–86 WTO and, 81–82 Preservation versus conservation of resources, 71 Projects of Common Interest (PCI), 156–57, 197, 219 Proportionality in internal EU energy law, 119–21 regulation and, 32 Protocol on Energy Efficiency and Related Environmental Aspects (PEEREA), 45, 61–62 Protocol on Strategic Environmental Impact Assessments, 94 Public good, regulation of energy as, 29–32 Quota obligations, 216 Ramsar Convention on Wetlands, 92–93 Rational allocation of regulatory tasks, 234 Realisation of external Energy Union overview, 178–79 decarbonisation and overview, 192 design of, 192–93 foreign policy, 195–96 implementation of, 193–95 integration of, 193–95 energy efficiency and, 191–92 energy innovation and, 191–92 energy market and, 182–84 energy security and overview, 184 autonomy of EU law, 187–89

266

in de x

Realisation of external Energy (cont.) democracy standard and international rule-making, 187 intergovernmental agreements for supply and infrastructure, 186 investment protection, 189–91 investor-state dispute settlement, 187–89 multilayered framework for network energy, 184–86 regulation in coordination of decision-making, 182 drivers of change, 180–81 financial instruments, 182 modalities of, 181–82 normative parameters, 179–80 objectives-triad, 180–81 organisation, 181–82 treaties, 181 renewable energy and, 191–92 Regional Comprehensive Economic Partnership (RCEP), 82 Regional cooperation, 140–41, 157–58 Regulation. See also Rules-based governance overview, 28–29 distributional justice and, 247 under Energy Community Treaty for Southeast Europe, 66 functionality and, 247 of global energy cycle, 103–6 global regulatory law, 7, 244–48, 252 in internal EU energy law (See European Union energy law) multi-tiered regulation, 33, 249–51 normative orders and, 246–47 proportionality and, 32 public authority and, 245–46 public good, regulation of energy as, 29–32 rational allocation of regulatory tasks, 234 in realisation of external Energy Union (See Realisation of external Energy Union) in rules-based governance, 5–6

Regulation on the Agency for the Cooperation of Energy Regulators (ACER), 137, 140, 141–42, 156–57, 158, 220 Regulatory Fitness and Performance Programme (REFIT), 32 Renewable energy in constitutional order of external Energy Union, 171 in internal EU energy law overview, 148 decentralisation, 148–49 environmental protection, 151–52 financial support, 150–51 harmonised planning, 150 market share quota, 149–50 national energy law and overview, 211–12 convergence of models, 216–18 environmental protection, 218–19 feed-in premiums, 216 feed-in tariffs, 216–17 national support systems, 212–13 quota obligations, 216 state aid, 213–16 realisation of external Energy Union and, 191–92 rules-based governance and, 109 Renewable Energy Directive, 149, 151, 155, 172, 211–13, 215–16, 218–19 Research. See Energy innovation Responsibility in integrated legal regime, 6, 233–34, 251 in rules-based governance, 105–6 Rhodes, R.W.A., 26 Rio Declaration on Environment and Development and Programme of Action environmental protection and, 86 marine energy and, 95, 98 sovereignty and, 70 sustainable energy and, 38, 40–41 Rule of law overview, 109–12 constitutional order of external Energy Union and, 174–76

in de x internal EU energy law and, 128–29 rules-based governance and, 109–12 Rules-based governance overview, 13, 36–37 assumptions regarding, 8–9 climate change and, 109 complexity of legal regime, 107–8 constraining effect of, 112–13 development and, 102–3 ECT (See Energy Charter Treaty (ECT)) enabling effect of, 112–13 Energy Community Treaty for Southeast Europe (See Energy Community Treaty for Southeast Europe) energy efficiency and, 109 energy security and overview, 99, 108–9 fossil energy and, 100–1 management of, 99–102 nuclear energy and, 99–100 risk to global stability, 99–100 environmental protection and (See Environmental protection) financial support and, 104 global energy cycle, regulation of, 103–6 global regulatory law, 7, 244–48, 252 human rights and, 102–3, 106 investment law and (See Investment law) marine energy and overview, 95 division of competencies, 95–97 environmental risk, cooperation on, 98–99 exclusive economic zones (EEZs), 95–97 joint energy projects, 97–98 Monnet Method, 26 multi-tiered regulation, 33, 249–51 network governance, 26–27 non-renewable energy and, 69–70 organisation and, 104 preferential trade agreements and overview, 81–82

267

energy dimension of, 81–86 energy investment and, 84–85 horizontal regulation, 84 market access and, 83–84 sustainable energy and, 85–86 WTO and, 81–82 procedural modality in, 104–5 regulation in, 5–6 renewable energy and, 109 responsibility in, 105–6 rule of law and, 109–12 SDG and, 104 sovereignty over energy and, 70–71, 108 sustainable energy and, 108–9 trade law and (See Trade law) transnational energy purchases and projects and, 68–69 transport and, 108–9 treaties and, 104 2030 Agenda and, 104 UNFCCC and, 109 WTO and, 108–9 Russia EU-Russia Partnership Agreement, 176, 195–96 expropriation in, 56–57 Gazprom, 184, 222 natural gas in, 145 Ukraine, natural gas dispute with, 19 Schiff Berman, Paul, 10 SDG. See Sustainable Development Goals (SDG) Security. See Energy security Security of Supply Regulation (proposed), 182–83 Šefčovič, Maroš, 20 Shale gas, 226–27 Social-state function of EU, 249 Solidarity in internal EU energy law, 121–22 responsibility and, 234 South-West Europe Interconnectivity Group, 158 Sovereignty over energy, 70–71, 108

268

in de x

Sovereignty (cont.) rules-based governance and, 70–71, 108 Spot market, 163 State Aid Guidelines, 214–15 Stockholm Chamber of Commerce, 54, 78 Strategic Transport Research and Innovation Agenda, 168 Strategy of Energy Union generally, 1, 242 overview, 3–5, 16 adoption of, 1 consistency in, 235 context of, 22 decarbonisation, 25 dimensions of action in, 24–26 energy efficiency, 25 energy innovation, 25–26 energy market, 24–25 energy security, 24 evolution of, 17–22 goals of, 22–23 in international law, 33–35 renewable energy in, 149 responsibility and, 233 targets of, 134 Subsidiarity energy security and, 147 implied competence and, 172 in internal EU energy law, 119–21 Supply and demand, 142–43 Sustainable Development Goals (SDG) generally, 13, 36, 248 overview, 39–42 adoption of, 1 complexity of legal regime, 107 consistency in, 235 responsibility and, 233 rules-based governance and, 104 Sustainable energy under ECT, 61–62 G20 states and, 41–42 implementation in international law, 42–45 preferential trade agreements and, 85–86 rules-based governance and, 109

United Nations and, 39 as universal norm, 38–42 Sweden, nuclear energy in, 224 TEU. See Treaty on European Union (TEU) TFEU. See Treaty on the Functioning of the European Union (TFEU) Third International Conference on Financing for Development, 41 Third Package, 136–43, 189, 205–7, 222 Tokyo Declaration, 65 Trachtman, Joel, 10 Trade law overview, 72–73, 108–9 Agreement on Subsidies and Countervailing Measures (SCM), 76 Agreement on Trade-Related Intellectual Property Rights (TRIPS), 47 Agreement on Trade-Related Investment Measures (TRIMS), 48, 76 ECT and overview, 46 energy market, 49 liberalisation of trade, 47–48 network transit, 48 energy services and, 74 Environmental Goods Agreement (EGA), 78 environmental risks, regulation of, 75–76 export duties, 77 free transit of energy, 74–75 GATS (See General Agreement on Trade in Services (GATS)) GATT (See General Agreement on Tariffs and Trade (GATT)) green trade, 77–78 market access and, 77–78 Plurilateral trade agreements, 77–78 preferential trade agreements overview, 81–82 energy and, 81–86 energy investment and, 84–85 horizontal regulation, 84

in de x market access and, 83–84 sustainable energy and, 85–86 WTO and, 81–82 trade in goods, application to energy, 73–74 WTO (See World Trade Organisation (WTO)) Transatlantic Trade and Investment Partnership (TTIP) generally, 82 energy security and, 185 horizontal regulation, 84 market access and, 83–84 Transboundary environmental harm, preventing, 93–95 Trans-European networks, 125 Trans-European Networks in Energy (TEN-E) Regulation, 67, 145, 156–57, 220 Transmission System Operators (TSOs), 137–39, 140, 141, 156–57, 207, 208, 211 Transnational energy purchases and projects, 68–69 Transpacific Partnership Agreement (TPP), 82, 85–86 Transport, rules-based governance and, 108–9 Treaties. See also specific Treaty democracy standard, 177 exclusive jurisdiction standard, 177–78 federalism standard, 178 judicial protection standard, 178 national energy law, 221–23 non-retroactivity of, 110 relevance of, 111 rules-based governance and, 104 standards, 176–78 Treaty on European Union (TEU) generally, 197–98 decarbonisation and, 195–96 energy efficiency and, 154 evolution of strategy and, 17–18 fundamental rights and, 129 human dignity and, 239 implied competence and, 172 judicial protection and, 128

269

normative parameters of regulation, 131–33 proportionality under, 119–21 rule of law and, 128 subsidiarity under, 119–21 Treaty on Nuclear NonProliferation, 100 Treaty on the Functioning of the European Union (TFEU) generally, 3–4, 11, 17, 34 alternatives to, 122–24 autonomy of national law under, 200–1 coal and, 227–28 consistency and, 237 constitutional order of external Energy Union and, 196 coordination of national energy law and, 201–4 decarbonisation and, 192, 195–96 dimensions of action and, 24 dual-representative democracy and, 126–28, 172–74 economic policy and, 124–25 ECT compared, 55 enabling energy policy under, 116–19, 169, 170 energy efficiency and, 154, 171, 219 energy infrastructure and, 156, 219 energy innovation and, 126, 165 energy market and overview, 136–37 Energy Union, 171, 182 from liberalisation to integration, 137–39 national energy law, 205–7, 209 regional cooperation, 140–41 energy security and overview, 144 Energy Union, 171, 184–85, 186 national energy law, 210 nuclear energy, 146 environmental protection and, 125 European Community for Atomic Energy and, 125–26 implied competence and, 172 information collection and, 126 instrumental legislation and, 134–35

270

in de x

Treaty on the Functioning (cont.) internal market and, 124 judicial protection and, 129 law-making by member states and, 204–5 multi-tiered regulation and, 250 national energy law and, 199–200, 221–23 (See also National energy law) network interconnectivity and, 172 normative parameters of regulation, 131–33, 179–80 nuclear energy and, 224–26 priorities of, 134 proportionality under, 119–21 public good, regulation of energy as, 31, 32 renewable energy and decentralisation, 149 Energy Union, 171 environmental protection, 151–52 financial support, 151 market share quota, 149–50 national energy law, 211–16 rule of law and, 129 solidarity and trust under, 121–22 subsidiarity under, 119–21 trans-European networks and, 125 treaty standards and, 177 Trust in internal EU energy law, 121–22 TTIP. See Transatlantic Trade and Investment Partnership (TTIP) Tusk, Donald, 19 2030 Agenda for Sustainable Development generally, 248 overview, 39–42 complexity of legal regime, 107 energy security and, 101 legitimacy of Energy Union and, 243–44 marine energy and, 97 multi-tiered regulation and, 250 procedural modality in, 104–5 responsibility and, 105, 233 rules-based governance and, 104 sovereignty over energy and, 70

Ukraine EU-Ukraine Association Agreement, 185–86 Russia, natural gas dispute with, 19 Union for Mediterranean and Energy Cooperation, 181 United Kingdom Climate Change Act, 221 coal in, 227 decarbonisation in, 221 Department of Energy, 217 Electricity Market Reform (EMR), 217 energy market in, 209 energy security in, 211 Infrastructure Act 2015, 226 nuclear energy in, 224–25 Oil and Gas Authority, 226 renewable energy in, 216, 217 shale gas in, 226 United Nations. See also specific agreement or entity Charter generally, 71–72 energy security and, 13, 99–102 rule of law and, 174 sovereignty and, 70–71 sovereignty over energy and, 108 Commission on International Trade Law (UNCITRAL) Arbitration Rules, 54, 78 Conference on Trade and Development (UNCTAD), 54 Economic and Social Council (ECOSOC), 40 Framework Convention on Climate Change (See Framework Convention on Climate Change (UNFCCC)) Human Rights Council, 102–3 Security Council, 99–102 Sustainable Development Goals (See Sustainable Development Goals (SDG)) sustainable energy and, 39 United States Clean Air Act, 75 energy self-sufficiency in, 2

in de x Environmental Protection Agency, 89 EU-US Energy Council, 181 ‘Gasoline Rule,’ 75 LNG in, 145 State Department, 80 Vattenfall, 59 Vienna Convention on the Law of Treaties (VCLT) ECT and, 44, 73–74 International Energy Charter and, 63 non-retroactivity and, 110 relevance and, 111 Voluntary Action Plan on Renewable Energy, 42 Water Framework Directive, 218 Wetlands protection, 92–93 World Bank, 58, 80–81

271

World Health Organisation (WHO), 80 World Trade Organisation (WTO) generally, 71–72 overview, 72–73 Agreement, 175, 177 Agreement on Trade-Related Investment Measures, 48 consistency and, 236 ECT and, 47–48, 62, 73–74 energy security and, 185 Environmental Goods Agreement (EGA), 78 International Energy Charter, 65 market access and, 77–78, 83 preferential trade agreements and, 81–82 rules-based governance and, 108–9 trade in goods, application to energy, 73–74