Energy & Environment, Free comment, World Trade Organization

COMMENT: Towards a coherent system of global energy trade and investment rules

LNG tankers at sea, vector illustrationIt is time to reassess the relationship between the WTO and Energy Charter Treaty, writes Anna Marhold.

 

 

 

 

 

The necessity of mitigating climate change and shifting to cleaner energy sources points to the need for a far more coherent approach to today’s fragmented global energy governance. This approach should take into account the linkages between the different pillars of energy governance. These are trade, investment, transit, energy security, and climate change mitigation.

 

renewable energy idea

The WTO and the Energy Charter Treaty (ECT) are two treaty-based regimes that are highly relevant in international energy regulation: while the WTO regulates the international trade in goods and services, including energy products and services, the ECT offers a specialised system for the regulation of trade and investment in energy products.

 

 

The importance of energy has long been downplayed in the WTO context. However, the amount of energy related disputes in the forum is growing and brings about difficult legal, policy and political questions regarding renewable (Canada-Feed in Tariffs case) as well as non-renewable energy (EU – Russia Third Energy Package Case ).

 

Roughly twenty years after the WTO’s and ECT’s establishment, it is time to reassess the relationship between the two treaty-regimes. Both treaties intersect and overlap in several places, especially with respect to energy trade regulation, potentially causing conflict. Moreover, vast changes in membership to both treaties have far-reaching implications for the place of the energy debate in the WTO and the relevance of the trade rules of the ECT.

 

The great number of energy giants acceding to the WTO is difficult to square with the limited and even receding membership of the ECT. The treaty had to face withdrawals by Russia, and, more recently, Italy. The withdrawal of the latter has caused confusion with respect to the competence of the EU in the treaty.

 

With an eye on future energy governance, both treaty regimes would highly benefit from increased cooperation and coordination. Cooperation between the WTO and the ECT could, for instance, lead to the creation of a common working group on energy trade and transit.

 

But efforts in this direction may also go a step further and lay the foundations for a wider energy agreement covering all aspects of a modern and sustainable system of energy governance. This would be particularly useful considering the ambitions of the Energy Charter Secretariat – in view of the 2015 International Energy Charter – to function as a hub in modern international energy regulation.

 

Promoting a holistic approach to global energy governance

 

The EU should play a key role in these efforts as it has a proven track record of being at the forefront in taking a more holistic approach towards global energy governance.

 

In several of its recently concluded FTAs, the EU has already started to take into account this wider approach to energy governance vis-à-vis its trading partners. Illustrative hereof is Chapter 11 on Trade-Related Energy in the EU – Ukraine DCFTA . This chapter combines obligations from the WTO as well as the ECT and provides specific provisions on the pricing of energy goods (electricity, crude oil and natural gas), transport and transit of energy goods, as well as non-discriminatory access to the exploration and production of hydrocarbons.

 

The 2015 energy chapter in the EU – Singapore FTA, on ‘Non-Tariff Barriers to Trade and Investment in Renewable Energy Generation’, also takes a comprehensive approach to energy. Here, energy trade and investment are directly linked to climate change mitigation and the need to scale up renewable energies. Instead of viewing the objectives of promoting trade and investment flows and environmental protection, including renewable energy promotion, as irreconcilable, the provisions of the chapter do the opposite. This shows us that these objectives can be perfectly united into one instrument and cover more than just one pillar of energy governance.

 

To promote more coordination and cooperation between the WTO and the ECT, the EU could kick-start the process by facilitating more informal, bottom-up meetings bringing together the WTO Secretariat and the Energy Charter Secretariat experts to discuss issues of common interest and identify the low-hanging fruits in cooperation between the two institutions.

 

EU energy and sustainable development strategies in TTIP

 

The EU should further not hesitate to continue to deal with energy governance comprehensively in its TTIP negotiations. So far, energy and raw materials are negotiated as separate issues in the framework of TTIP. In its TTIP energy strategy, the EU’s goal is, amongst others, to secure access to US LNG supplies in the treaty.

 

On the sustainable development side, the EU is convinced that TTIP offers ‘a comprehensive and ambitious approach to trade and sustainable issues’. It therefore aims to add a Trade and Sustainable Development (TSD) chapter to TTIP. To contribute to sustainable development through trade and investment, the negotiations of the TSD chapter are currently focusing on environmental goods and services and climate-friendly technologies;  sustainability assurance schemes; and corporate social responsibility practices. Last but not least, the focus of a potential TSD chapter should be on the sustainable use and management of natural resources.

 

However, to stand stronger and having a higher probability of reaching some of its energy objectives in TTIP, the EU may benefit of linking these two topics of energy and sustainable development, at least to a certain extent. In short, the EU should not shy away from negotiating energy and raw materials together with sustainable development in the TTIP context. When placing its energy negotiations in the wider context of not only energy security, but sustainable development as well, the EU’s rather bold energy negotiation strategy may be easier to digest for the US.

 

Anna Marhold is Assistant Professor in Energy Markets Regulations at Tilburg Law School. She is author of the report The Nexus between the WTO and the Energy Charter Treaty in Sustainable Global Energy Governance published by the ICTSD.

 

 

 

 

 

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