To be published in December 2009, this book looks at the political and legal components of the energy relationship between the European Union (EU) and Russia. It analyses the legal framework and instruments in place to deal with EU-Russia energy trade.
Of particular interest for lawyers is: Section II on Legal Aspects of EU-Russia Energy Relations; and Section III on Changing the Rules for the EU Natural Gas Markets - From State to Market and Plan to Contract. I look forward to reading and commenting section III as it relates to the manner EC competition rules affect energy trade and gas projects with Russia. Several questions are raised here: the regulation of cross-border gas pipelines, the effect of unbundling rules, the third country clause implications, EC rules on third party access effects on gas agreements with Russia, the legacy and legality of the 2009 recent gas conflict. I guess a review of competition rules of vertical nature in gas supply contracts is also included, such as the international framework for laying of new pipelines.
As said, look forward to reading it and will report on it.
References: EU Russia Energy Relations - Legal and Political Issues, OGEL/Euroconfidential, December 2009.
22.10.09
What to Expect from the Re-Launch of the Single Market for the Internal Energy Market
Energy is a good subject to the rules of the internal market. Energy is also much more when it comes to the wideness of the sectors it impacts, the strongness of this economic activity, and the political dimension of it. My intention here is not to encompass all these dimensions, but to try to understand which changes may bring the "re-launch of the single market" in the energy sector, as it is proposed by president Barroso in his Political Guidelines for the next Commission. Defining the internal energy market is to that respect a narrower exercise than defining European energy policy.
The "EU 2020" vision defended in the Guidelines is enshrined in the values of the internal market and contains two dimensions:
"Internally, it is based on a staunch defence of the internal market, and the competition and state aid rules, which provide a level playing field guaranteeing access and opportunity for all, irrespective of size or might - namely consumers and SMEs. Externally, it is based on the rejection of all forms of economic protectionism, whilst defending the European interest firmly and without being naïve." (p.3) (my underlying)
Applied to the energy sector, a reading of president Barroso's vision allows the following interpretation:
- The objective is not to reinvent the European Union, but to "bring the different strategies and instruments (developed in recent years) together, adapting them where necessary" (p.3). The policy line will be "smart regulation for open markets", in order to ensure "transparency, fair play and ethical behaviour." This will be supported by the use of existing instruments, i.e.: EC treaty provisions related to Community action, both those in force and those provided by the forthcoming Lisbon Treaty; competition rules, and in particular actions against market abuses; policy tools, such as market monitoring exercises, done on a more regular basis (e.g., Consumer Markets Scoreboard - the 3rd one relates to Electricity and gas (2009)). The challenge of smart regulation will be, on the one hand, to "focus on the essentials" (p.29), and, on the other hand, keep an eye on the details of implementation;
- The Political Guidelines announce a strong focus on the retail sector, for "an active consumer policy" (p. 28);
- The internal market rules must serve "the networks of the future", which requires massive investments. President Barroso is clear about the necessity to build "a new European supergrid for electricity and gas" (p.3). A major challenge will be the combination and necessary adaptation of state aid guidelines and exemption regimes to competition rules, and the application of competition law as the main legal tool to ensure fair, transparent and competitive access to markets.
- Strengthen an internal market able to compete and include itself in international markets. "Europe faces particular risk from the damage the crisis has done to world trade, so Europe must now take the lead in combating protectionism in all its forms" without being naïve (p.30).
To sum up, smart regulation of the internal energy market will need to balance support/exemptions regimes and full competition. It shall be able to act at all levels, from multinationals to customers, while avoiding centralisation and bureaucracy. Although the exercise is not new for the Commission, the innovation relies in the strong commitment expressed in the two objectives of support and competition to be pursued concommitantly. This might well lead to some prioritizations in practice, both in terms of support to investments (e.g. supply infrastructures, local energy efficiency measures) and a strict enforcement of antitrust rules (e.g. removal of long-term supply contracts, independence of energy regulators, retail competition through tariff regulation).
Because "the dream has not been achieved", president Barroso announces the adoption of a
"major package for tomorrow's single market", encompassing both new legislative proposals and actions able to "plug the gaps in today's single market" and to "ensure that the benefits of the internal market get through to the final consumer" (pp.28-29).
To do so, he recently entrusted Mr. Mario Monti (former Commissioner and curently president of the Bocconi University), to elaborate a report detailing options and recommandations for making "the re-launch of the single market" a reality.
The "EU 2020" vision defended in the Guidelines is enshrined in the values of the internal market and contains two dimensions:
"Internally, it is based on a staunch defence of the internal market, and the competition and state aid rules, which provide a level playing field guaranteeing access and opportunity for all, irrespective of size or might - namely consumers and SMEs. Externally, it is based on the rejection of all forms of economic protectionism, whilst defending the European interest firmly and without being naïve." (p.3) (my underlying)
Applied to the energy sector, a reading of president Barroso's vision allows the following interpretation:
- The objective is not to reinvent the European Union, but to "bring the different strategies and instruments (developed in recent years) together, adapting them where necessary" (p.3). The policy line will be "smart regulation for open markets", in order to ensure "transparency, fair play and ethical behaviour." This will be supported by the use of existing instruments, i.e.: EC treaty provisions related to Community action, both those in force and those provided by the forthcoming Lisbon Treaty; competition rules, and in particular actions against market abuses; policy tools, such as market monitoring exercises, done on a more regular basis (e.g., Consumer Markets Scoreboard - the 3rd one relates to Electricity and gas (2009)). The challenge of smart regulation will be, on the one hand, to "focus on the essentials" (p.29), and, on the other hand, keep an eye on the details of implementation;
- The Political Guidelines announce a strong focus on the retail sector, for "an active consumer policy" (p. 28);
- The internal market rules must serve "the networks of the future", which requires massive investments. President Barroso is clear about the necessity to build "a new European supergrid for electricity and gas" (p.3). A major challenge will be the combination and necessary adaptation of state aid guidelines and exemption regimes to competition rules, and the application of competition law as the main legal tool to ensure fair, transparent and competitive access to markets.
- Strengthen an internal market able to compete and include itself in international markets. "Europe faces particular risk from the damage the crisis has done to world trade, so Europe must now take the lead in combating protectionism in all its forms" without being naïve (p.30).
To sum up, smart regulation of the internal energy market will need to balance support/exemptions regimes and full competition. It shall be able to act at all levels, from multinationals to customers, while avoiding centralisation and bureaucracy. Although the exercise is not new for the Commission, the innovation relies in the strong commitment expressed in the two objectives of support and competition to be pursued concommitantly. This might well lead to some prioritizations in practice, both in terms of support to investments (e.g. supply infrastructures, local energy efficiency measures) and a strict enforcement of antitrust rules (e.g. removal of long-term supply contracts, independence of energy regulators, retail competition through tariff regulation).
Because "the dream has not been achieved", president Barroso announces the adoption of a
"major package for tomorrow's single market", encompassing both new legislative proposals and actions able to "plug the gaps in today's single market" and to "ensure that the benefits of the internal market get through to the final consumer" (pp.28-29).
To do so, he recently entrusted Mr. Mario Monti (former Commissioner and curently president of the Bocconi University), to elaborate a report detailing options and recommandations for making "the re-launch of the single market" a reality.
14.10.09
On the Usefulness of Green Certificates
During the last two days, the economic section of the Norwegian newspaper Aftenposten has echoed existing divergences on the usefulness of a green certificates scheme, and ultimately the necessity to introduce it nationally and/or regionally with Sweden (see my previous post).
On Monday, Economics professor M. Hoel criticised the scheme for being expensive and ineffective as regards renewable energy ("Grønne sertifikater er dyr og formåløs moro med fornybar energi.") He argues that if the purpose is to reduce greenhouse gases (GHG) emissions, better do it by buying emissions allowances on the European market. The Norwegian minister in charge of energy answered today the criticisms (see picture) in an article that was a release to read. The minister is very right when he recalls that green certificates do not aim to directly reduce greenhouse gas, but to support primarily renewable energy production.
Beside any collaboration within Nordic or European countries, there are some fundamental interests in securing a national production of green energy that argue in favour of national support instruments. A "sustainable" renewable energy production capacity cannot only rely on hydropower and offshore wind farms. Other renewable energy sources should be supported. Diverse instruments exist to do so, and green certificates should be designed as to be as efficient and sustainable as they can. Climate change is a global concern, but national economies need local mitigation solutions than does not provide emissions trading. This is where green certificates and emissions trading differ fundamentally.
One interesting point that makes Hoel is on the fact that Norwegian customer could indirectly finance, through the green certificates, electricity which will be exported and sold to the continent. (Something I will come back to.) On the other hand, Norwegian customer also benefit from the revenues of the exported electricity (through notably the ownership structure of companies like Statkraft).
This is true that Norway has been a net exporter of electricity to the continent during the last few years, in particular to Denmark (forwarding to Germany before the entry into function of the NorGer cable in 2013) and to the Netherlands in particular. But this is not a historical situation, not a given fact. Norway is still importing electricity for national needs and for balancing its grid. In 2003, 2004 and 2006 for example, Norway was importing more electricity than exporting it (figures: Statnett). This is due to the fact that the national consumption is increasing along the years. Is that not better to supply this new demand with green electricity (which needs support to take off) than imported coal and conventional sources, subject to emission allowances, or even nuclear power?
To compare, the US market for green certificates is an excellent example of how the latter have contributed to finance projects falling outside the normal scope of support schemes. The voluntary market for green certificates, something totally underestimated in Europe, has proven the efficiency of such schemes. So, the question here might be: do we have properly evaluated the full potential of green certificates?
There is not one single magic cure to the problem of financing renewable energy production in competitive electricity markets. But green certificates are one of the experienced instruments to do so. There is not one single magic instrument to reduce GHG emissions around the globe, but emissions trading is the most convenient so far. Carbon capture and storage is a complementary one. There is not one single magic instrument to increase energy efficiency but a combination of several ones. The complexity comes from the need to achieve all these goals at the same time, i.e. investments in national green generation capacity, promotion of energy efficiency and reduction of greenhouse gases emissions through an international instrument. But not all the targets can be reached with the same instruments. The real question is rather how to combine them.
On Monday, Economics professor M. Hoel criticised the scheme for being expensive and ineffective as regards renewable energy ("Grønne sertifikater er dyr og formåløs moro med fornybar energi.") He argues that if the purpose is to reduce greenhouse gases (GHG) emissions, better do it by buying emissions allowances on the European market. The Norwegian minister in charge of energy answered today the criticisms (see picture) in an article that was a release to read. The minister is very right when he recalls that green certificates do not aim to directly reduce greenhouse gas, but to support primarily renewable energy production.
Beside any collaboration within Nordic or European countries, there are some fundamental interests in securing a national production of green energy that argue in favour of national support instruments. A "sustainable" renewable energy production capacity cannot only rely on hydropower and offshore wind farms. Other renewable energy sources should be supported. Diverse instruments exist to do so, and green certificates should be designed as to be as efficient and sustainable as they can. Climate change is a global concern, but national economies need local mitigation solutions than does not provide emissions trading. This is where green certificates and emissions trading differ fundamentally.
One interesting point that makes Hoel is on the fact that Norwegian customer could indirectly finance, through the green certificates, electricity which will be exported and sold to the continent. (Something I will come back to.) On the other hand, Norwegian customer also benefit from the revenues of the exported electricity (through notably the ownership structure of companies like Statkraft).
This is true that Norway has been a net exporter of electricity to the continent during the last few years, in particular to Denmark (forwarding to Germany before the entry into function of the NorGer cable in 2013) and to the Netherlands in particular. But this is not a historical situation, not a given fact. Norway is still importing electricity for national needs and for balancing its grid. In 2003, 2004 and 2006 for example, Norway was importing more electricity than exporting it (figures: Statnett). This is due to the fact that the national consumption is increasing along the years. Is that not better to supply this new demand with green electricity (which needs support to take off) than imported coal and conventional sources, subject to emission allowances, or even nuclear power?
To compare, the US market for green certificates is an excellent example of how the latter have contributed to finance projects falling outside the normal scope of support schemes. The voluntary market for green certificates, something totally underestimated in Europe, has proven the efficiency of such schemes. So, the question here might be: do we have properly evaluated the full potential of green certificates?
There is not one single magic cure to the problem of financing renewable energy production in competitive electricity markets. But green certificates are one of the experienced instruments to do so. There is not one single magic instrument to reduce GHG emissions around the globe, but emissions trading is the most convenient so far. Carbon capture and storage is a complementary one. There is not one single magic instrument to increase energy efficiency but a combination of several ones. The complexity comes from the need to achieve all these goals at the same time, i.e. investments in national green generation capacity, promotion of energy efficiency and reduction of greenhouse gases emissions through an international instrument. But not all the targets can be reached with the same instruments. The real question is rather how to combine them.
2.10.09
Towards a Common Green Certificates Scheme between Norway and Sweden
On 7 September 2009, the Norwegian and Swedish ministers in charge of energy concluded an agreement on the future establishment of a common green certificates scheme by 2012. This has been enabled by the adoption of Directive 2009/28/EC of 23 April 2009 on the promotion of the use of energy from renewable sources which repeals Directive 2001/77/EC (see Article 11 - Joint support schemes).
Here is the article I wrote on the issue recently published in the Bulletins Electroniques:
Politiques de soutien aux énergies renouvelables : Norvège et Suède adoptent le principe d'un marché commun de certificats verts pour 2012
http://www.bulletins-electroniques.com/actualites/60678.htm
Here is the article I wrote on the issue recently published in the Bulletins Electroniques:
Politiques de soutien aux énergies renouvelables : Norvège et Suède adoptent le principe d'un marché commun de certificats verts pour 2012
http://www.bulletins-electroniques.com/actualites/60678.htm
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