For energy regulation, think globally

06.08.2015 energy

TTIP negotiations present an opportunity to lift export restrictions on American oil and gas in force since 1938. Europe would gain increased security in the supply of energy commodities, and the US could reinforce the eastern borders of NATO while competing on the European market.

The energy sector is one of the central areas of joint policy in the EU, historically built out of the European Coal and Steel Community. But it continues to be influenced by strong national regulations, which European political interests sometimes must bow to. The same is true of other regulated markets (telecommunications, transport, pharmaceuticals), where international trade and investment agreements are sometimes interpreted as a limitation on the right of governments of individual states to create autonomous “regulations in the public interest.”

One of the functions of international commercial law is to impose limitations on the state, e.g. in following practices protecting domestic industry. In EU law, protectionism is generally forbidden, but in the energy sector it often takes highly complex forms, so it is not easy to avoid or break up protectionism. This is encouraged, however, by the extensive achievements of the Court of Justice of the European Union, whose case law influences the interpretation of EU law in all of the member states.

Lots of work in Brussels

It is somewhat easier to reach agreement within the EU on regulations opening up the sectoral market to totally new technological solutions, e.g. in the area of renewable energy sources. Competitiveness in new investments is easier to accept when their effect on old technologies is mainly indirect, e.g. through environmental standards. But the impression that established market oligopolies limit the range of systemic market changes is misleading.

Despite the heavy representation of Eurosceptic parties in the current makeup of the European Parliament, there is growing initiative to create new regulations for energy production, transmission systems, and commodities. In July 2015 alone, the European Commission announced public consultations for new legal acts and strategies in several key fields:

These are just a few fresh examples; the list of legislative and political tasks for the months and years ahead is long. It requires those involved in the sector to depart from the “safe locality” tactic. It is becoming imperative to understand the evolving external conditions and to adjust strategies to suit the regional, European and global context. Intensive involvement in debate at forums in Brussels is required. This is the goal served by such organisations as the think tank originated in Poland known as CEEP (Central Europe Energy Partners, www.ceep.be). It represents the interests of firms from across this region of Europe, creating a chance to influence decision-making processes at the highest level of EU institutions. One of the strategic challenges in this respect is the negotiations between the EU and the US on the free-trade zone contemplated by the Transatlantic Trade and Investment Partnership.

Energy and commodities aspects were only recently raised in TTIP negotiations, mainly because other market problems dominated the main thrust of the negotiations: areas where increased competition between American and European firms is limited by discrepancies in standards or differences in legal regulations. But agreement on investments in the energy sector (a priority for the Americans) and on supplies of oil and gas (a priority for the Europeans) has a special dimension apart from the potential benefits from general easing of trade in goods and services. It would be fundamentally important for the entire world economy, because it would restructure the geopolitical map of influences. Thus CEEP’s definition of the specific interests of firms from Central & Eastern Europe is so important, regardless of what individual firms think of their current position on their own market.

TTIP unwanted and desired

TTIP’s supporters claim that it is the path to protection of liberal world trade rules. After lowering barriers and increasing the transparency of regulations, positive effects are typically expected, but experience teaches that the reality can be more complex. From the perspective of global policy, TTIP is the last chance for the West to maintain the power to set rules for the system of world trade.

Opponents of TTIP frighten the public with the spectre of the collapse of many sectors of the economy under the pressure of special interests of huge corporations. This would supposedly lead to disintegration of the standards that Europe has developed for protection in the area of foods, the environment and chemicals, worsening working conditions and the security of society. Some of these concerns are not groundless, particularly in agriculture, foods, and SMEs. But if both sides have enough political will, these problems should gradually be resolved.

The debate over the proposed energy union in Europe revealed how differently the fundamental interests of the specific member states in the area of commodities, production and transmission of energy can be interpreted. Here the success of the EU/US negotiations could change a lot.

Piotr Rutkowski, New Technologies Practice, Wardyński & Partners