Energy Charter Research Articles

ПЕРСПЕКТИВИ СПІВПРАЦІ ЄВРОПЕЙСЬКОГО СОЮЗУ ТА УКРАЇНИ В УМОВАХ ГЛОБАЛІЗАЦІЇ ЕНЕРГЕТИЧНИХ РИНКІВ

The article analyzes the prospects of cooperation between the EU and Ukraine in the context of globalization of energy markets. Cooperation between Ukraine and the EU in the energy sector is aimed at strengthening of energy security, competitiveness and sustainability, which is a complete condition for economic growth and provision of moving towards a market economy. This cooperation is based on partnership that covers all areas of cooperation in this area, guided by the following principles of coincidence of interest, reciprocity, transparency and predictability; by Energy Charter Treaty of 1994, Memorandum of Understanding on Cooperation in the field of Energy, Association Agreement between the EU and Ukraine, as well as other bilateral agreements. Therefore, for Ukraine in the implementation of energy independence policy, it is extremely important to integrate its united energy system into the European Transmission System Operators. For this purpose the Program of Activities of the Cabinet of Ministers of Ukraine was adopted by the Resolution of the Verkhovna Rada №26-VIII in December 11, 2014. Implementing this document, on June 28, 2017, NPC Ukrenergo together with the system operators, that are part of the ENTSO-E Regional Group “Continental Europe”, concluded an “Agreement on the conditions for the future integration of the energy systems of Ukraine and Moldova with the energy system of continental Europe”. In September 2019, the so-called Service Contract was concluded between NPC Ukrenergo and the Consortium of System Operators of ENTSO-E. On February 13, 2019, in Brussels, Agreement on participation of NPC Ukrenergo in the European Transmission System Operators Cooperation Program outside the membership for 2019-2021 was concluded. This program creates conditions for exclusive cooperation between ENTSO-E and NPC Ukrenergo. Its goal is to develop a basis for acquiring skills and cardinal practices from the most important issues for NPC Ukrenergo to join ENTSO-E. For the first time since independence, Ukraine has created a significant prospect in a relatively short period of time to take steps to strengthen its energy security and fully integrate with the European energy market. NPC Ukrenergo plays a crucial role in the accession of the UES of Ukraine to ENTSO-E. This process requires all stakeholders to provide opportunities to meet the requirements of the energy system and market participants.

Resolving Perceived Norm Conflict through Principles of Treaty Interpretation: The January 2019 EU Member States’ Declarations

In January 2019, EU Member States issued three declarations concerning the “consequences of Achmea” which stated that all claims under intra- EU BIT S were contrary to the EU legal order, and that tribunals presiding over such claims have no jurisdiction as there is no valid consent to arbitrate. The declaration signed by a majority of EU Member States (“Majority Declaration”) extended this proposition to intra- EU claims under the Energy Charter Treaty. Following this, a number of EU Member States have sought to argue that the Majority Declaration is a subsequent agreement between the States Parties to intra- EU investment treaties—or evidence of a subsequent practice establishing their agreement—that the dispute resolution provisions in those treaties must be interpreted to exclude intra- EU disputes from their scope and thus from the jurisdiction of tribunals constituted thereunder, relying on Article 31(3)(a) and (b) of the Vienna Convention on the Law of Treaties (“VCLT”). This paper considers: (i) the key cases in which the Majority Declaration has been invoked to contest jurisdiction in, or seek the termination of, intra- EU arbitration proceedings; (ii) the application of Article 31(3)(a) and (b) of the VCLT; and (iii) other fundamental tenets and rules of international law discussed in relation to those cases.

The Hague Court of Appeal Reinstates the Yukos Awards

In February 2020, the Court of Appeal in The Hague rendered its long-awaited judgment in the Yukos v. Russian Federation cases. These cases concern a series of awards rendered by an UNCITRAL tribunal constituted on the basis of the Energy Charter Treaty. In 2016, the District Court of The Hague had annulled the awards due to the UNCITRAL tribunal’s alleged lack of jurisdiction. That decision is now overturned and the awards are revived. This case note recalls and comments on the findings of the Court of Appeal.

Legal Stability and Legitimate Expectations: Does International Investment Law Need a Sense of Proportion? – Joint 2nd Prize Winner of the Essay Competition 2020

In the aftermath of the Achmea judgment and with the European Commission’s continued efforts to curtail investor- State arbitration, EU law and international investment law may seem antithetical. However, this article considers how EU law may contribute to the development of investment law through the concept of proportionality, a general principle of EU law and various national legal systems. Tribunals have increasingly applied a proportionality analysis in their reasoning, most recently in several cases brought by renewable energy investors against Spain and Italy under the Energy Charter Treaty. These cases concern the controversial issue of when a change in the regulatory framework violates investors’ legitimate expectations and their right to fair and equitable treatment. This article argues that the proportionality standard has the potential to clarify this area of law and to promote “defragmentation” between international investment law and other legal systems.

Using the LSTM Network to Forecast the Demand for Electricity in Poland

The impact of environmental regulations introduced by the European Union is of key importance for electricity generation systems. The Polish fuel structure of electricity production is based on solid fuels. Moreover, the generating base is outdated and must gradually be withdrawn from the power system. In this context, Poland’s energy policy is undergoing a transformation as climate and environmental regulations are becoming increasingly stringent for the energy sector based on solid fuels (hard coal and lignite). However, the transformation process must be adapted to market demands, because the overriding goal is to ensure energy security by maintaining the continuity of energy supplies and an acceptable electricity price. This directly contributes to the development of the entire economy and the standard of living of the society, in accordance with the European Agreement establishing an association between the Republic of Poland and the European Communities and their Member States, signed on 16 December 1991, and the European Energy Charter, signed on 17 December 1991. Ensuring energy security is the most important goal of the energy policy. Therefore, energy companies must forecast the demand. The main goal of this article is to develop a mathematical model of electricity consumption by 2040 by all sectors of the economy: industry, transport, residential, commercial and public services, agriculture, forestry, and fishing. In order to achieve the intended goal, a model was developed by using Long Short-Term Memory (LSTM) artificial neural networks, which belong to deep learning techniques and reflect long-term relationships in time series for a small set of statistical data. The results show that the proposed model can significantly improve the accuracy of forecasts (1–3% of mean absolute percentage error (MAPE) for the analyzed sectors of the economy).

Green energy and environmental protection: Problems of state regulation in Ukraine and EU experience

The problems of state regulation in the field of green energy have been examined in the paper. In particular, a comparison of management principles in the field of green energy in Ukraine and in the European Union has been carried out. It has been emphasized that in Ukraine, in contrast to the European Union countries, management in the field of green energy is carried out exclusively by the state. Measures for the reformation of the Ukraine’s green energy have been analyzed. It has been also noted that the development of a set of measures to bring the Ukrainian energy market closer to the European one was completed. In addition, Ukraine joined the International Energy Charter, which, in turn, provides an opportunity to successfully meet the current and future challenges of global energy industry with the support of other countries.

Nord Stream 2: A Political Economic Crime Novel and Its EU Legal Consequences

Hardly any other energy infrastructure project is as politically and legally controversial in the EU as Nord Stream 2, with the project company’s headquarters in Zug, to export gas from Russia through the Baltic Sea to Germany. This European infrastructure project is an excellent example of the intertwined economic, political and legal implications inherent in any such energy project in the EU single market. Just like an exemplary model case of a European law textbook, the following article aims to give an insight into the constantly developing new architecture of European energy law in the internal gas market, together with its European policy background, by means of concrete individual questions raised by this case. To this end, it proposes to take the concrete legal questions of this case and selectively illustrate the detailed and complex nesting of European law competences of the EU with the national competences of an EU Member State, here the Federal Republic of Germany, that regulates the EU internal gas market. This article focuses on the legal regime of exemptions from the legally required competitive conditions for the EU internal gas market, which is established by the relevant EU Gas Directive 2009/73EG in its Article 36 and Article 41a and its German implementation under Article 28a and 28b EnWG (Energiewirtschaftsgesetz, i.e. Energy Industry Act). This also includes a detailed presentation of the history of amendments to these standards. Finally, it should be made clear which legal, political and ultimately also economic risks await any investor in infrastructure projects with a construction period of several years on the EU internal market should they try to push through their large-scale project unchanged during the amendment of decisive relevant legal regulations by standard-setting EU authorities and against expanding political resistance in the EU and in EU Member States. These risks affect every investor who is involved in the EU internal market. Nord Stream 2, EU gas market, competition requirements, Russia, Gazprom, European energy security, Energy Charter Treaty, US sanctions, German Federal Network Agency, German Energy Industry Act (EnWG=Energiewirtschaftsgesetz)

The Energy Charter Treaty: A Commentary. Hobér, K.

Hobér, K. (2020) The Energy Charter Treaty: A Commentary. Oxford: Oxford University Press, 688 p.

An educational awareness program to reduce energy consumption in schools

Energy consumption can be significantly reduced by targeting consumers behaviour to achieve sustained energy savings and promote sustainable consumption patterns. In this context, the younger generations are a privileged target group to promote virtuous energy behaviours in the whole community.This paper describes the Schools4energy initiative, a program developed within the Interreg MED PrioritEE project, aimed at increasing energy efficiency in municipal public buildings by raising energy awareness in public schools while demonstrating the effectiveness of pupils’ engagement to promote energy savings through virtuous behaviours.Schools4energy was based on a multifold “learning by doing” methodology implemented in the Living Lab of the Potenza case study. During the 2018/2019 school year, children aged between 3 and 14 belonging to four primary and middle schools owned by the Municipality of Potenza (Southern Italy) were involved in three sets of activities designed to valorise the power of young generation in promoting more conscious behaviours: a competition among schools to reduce energy consumption (School Race) based on the adoption of good energy practices based on a common Energy Charter, an artistic competition among students to support creative thinking (Art4energy) and gamification as an alternative method to learn about energy (Play4energy). The consumptions of natural gas and electricity were monitored from August 2018 to April 2019 to highlight the effects of the adoption of Energy Charter in terms of energy and money saved. Data analysis highlighted different trends among the participating schools, underlining their different commitment and the infrastructural barriers. Despite the harsher winter, an average decrease of 4% in natural gas consumption was observed in the school in which energy saving measures complemented technical interventions and a limited increase in electricity consumption (between 0.5% and 4.3% per capita), which led to savings on the energy bill of about 1122 Euro. The enthusiastic participation of the children highlighted the great potential of educational programmes in driving a steady change of mentality in the society.

Competence-Based Approach, Normative Control, and the International Responsibility of the EU and Its Member States

Within the debate on the attribution of international responsibility to international organizations and/or its Member States, the role that the internal rules of the organization may play is not settled. The competence-based approach, where a relationship is supposed to exist between the EU/Member States’ division of competences and international responsibility, and the normative control doctrine, where the Union is deemed responsible for the actions of its Member States in the course of implementing EU law, are at the heart of such debate. This contribution aims to investigate whether the recent practice concerning the Union’s international responsibility in the fields of fisheries and investment adds clarifying elements. The analysis will specifically focus on the 2015 ITLOS Advisory Opinion (Case No 21), an award under the Energy Charter Treaty (Electrabel v Hungary), and the investor-to-state dispute settlement mechanisms laid down in the recent EU bilateral investment agreements. Although one of these cases seems to implicitly recognise the normative control as a rule for the attribution of conduct to the EU when its Member States act implementing Union acts, what is missing, however, is a clear and deep debate on its specific elements. Discussions on a competence-based approach and normative control seem generally confused at the EU as well as at the international community level, suggesting that important opportunities have been missed to properly re-open the debate on the role of the organizations’ internal rules for the attribution of international responsibility.

The setting aside and enforcement of intra-EU investment arbitration awards after Achmea

Abstract By rendering its preliminary ruling in Achmea v Slovakia, the European Court of Justice (ECJ) declared intra-EU investment treaty arbitration to be incompatible with fundamental principles of the European legal order. This decision does not only illustrate the challenge of regime interaction in international economic law but is also of highest practical relevance. Diverse and critical reactions from arbitral practice and legal scholarship suggest that it will ultimately be up to the courts within and outside of the EU to clarify how the ECJ’s findings in Achmea relate to the legal fate of arbitral awards. Against this background, the aim of the present contribution is to shed light on the judgment’s legal consequences on the post-award phase. As a starting point, an analysis of the judgment finds that the ECJ’s reasoning in Achmea is applicable to investor–State dispute resolution (ISDS) clauses contained in all intra-EU investment treaties, including the Energy Charter Treaty (ECT) when applied in an intra-EU context (Section 2). Based on these findings, we evaluate how the incompatibility of intra-EU investment treaty arbitration with the law of the European Union (EU law) affects setting aside proceedings (Section 3) and applications for recognition and enforcement of awards (Section 4) within and outside of the EU. We show that possible solutions may range from fully enforcing intra-EU investment awards to completely disregarding any legal effect. Evaluating the complex legal landscape applicable to both types of proceedings clearly illustrates that there is no simple ‘yes-or-no’ rule. Instead, factors such as the applicability of the ICSID Convention, the seat of the arbitral tribunal or the jurisdiction in which enforcement is sought are relevant but should not be considered in isolation. Instead, it is concluded that these factors must be considered as inter-related aspects of an analytical framework which may lead to a coherent understanding of the relationship between the European legal order and the settlement of intra-EU investment disputes (Section 5).

The changing ecosystem of Dutch BITs

Abstract This article reviews the recent changes of the Dutch model BIT text. It provides a background of the political changes at the domestic as well as the European Union (EU) level, which have been driving these changes. The consequences of the Achmea judgment are of particular importance for the intra-EU BITs and potentially for the Energy Charter Treaty. Subsequently, the article highlights the most dramatic changes compared to the previous Dutch model BIT text and Dutch BIT practice. The author concludes that these changes will ultimately result in a lowering of the level of investor and investment protection.

‘Authority Shifts’ in Global Governance: Intersecting Politicizations and the Reform of Investor–State Arbitration

<p>The global investment regime is a prime example of the so-called ‘politicization beyond the state.’ Investment agreements with an Investor–State Dispute Settlement (ISDS) mechanism have become contested in several corners of the globe, triggering a widespread reform process encompassing national, regional and multilateral levels. This article examines the consequences of this confluence of politicization processes, focusing on the European Union (EU) and two key venues of ISDS reform: the United Nations Commission on International Trade Law (UNCITRAL) and the Energy Charter Treaty (ECT). Combining different strands of politicization literature in International Relations and Political Science, the article advances a nuanced conceptualisation of the institutional consequences of politicization that goes beyond a deepening/decline dichotomy. Instead, the article examines whether and how politicization generates ‘authority shifts,’ either through a vertical move between international and national levels; and/or through a horizontal recalibration between public and private forms of governance. The article argues that although the EU’s initiative for global ISDS reform intended to rebalance public and private authority while strengthening its international character, the on-going reform processes at the UNCITRAL and the ECT may eventually lead to a (partial) dismantling of international authority.</p>

The Incompatibility of Intra-EU Investment Treaty Arbitration With European Union Law – Assessing the Scope of the ECJ’S Achmea Judgment

In March 2018, the European Court of Justice rendered its Achmea judgment, by which the Court considered the investor-State dispute settlement (ISDS) clause contained in the Dutch-Slovakian investment treaty to be incompatible with EU law. Even though the judgement is considered to be a landmark decision, its potentially far-reaching consequences remain, due to a rather obscure legal reasoning, difficult to assess. The aim of the present contribution is to assess the scope of the Achmea judgment in order to shed light on its relevance for pending and future intra-EU investment arbitrations. In view of the ECJ’s Opinion 1/17 rendered in April 2019 and in consideration of recent arbitral practice it is concluded that the scope of the Achmea judgement concerns the incompatibility of intra-EU investment treaty arbitration with EU law. This means on the one hand that the reasoning in Achmea is transferable not only to ISDS clauses in other intra-EU BITs, but also to Art. 26 of the Energy Charter Treaty. On the other hand, the analysis shows that contract-based investment arbitrations are not concerned by the ECJ’s findings. Finally and in view of its clarified scope of application, the relevant factors for analyzing the consequences of the Achmea judgement are identified.

The legitimate expectation of regulatory stability under the Energy Charter Treaty

AbstractOne of the main catalysts for the shift towards renewable energies has been the practice of support schemes in a key number of EU member states. Some of these states have since withdrawn or revoked much of their original support, which has resulted in investment treaty arbitrations being filed against them under the Energy Charter Treaty. Arguably, a balance should be found between investors’ legitimate expectations concerning the stability of the legal framework and the host states’ right to adapt regulations to new needs. This can be achieved by clarifying and delimiting the principle of fair and equitable treatment, and by encapsulating it in a more precise set of rules. Due to its open character, this principle could otherwise become too intrusive a standard of judicial review for the exercise of sovereign power by host states. It could be diluted into a rhetorical framework inviting uncertainty and subjective judgment. While the focus of this article is on energy, the concern for legal stability equally applies to all those sectors where large upfront investments are required, which can only be recouped in the long run.

The Achmea Judgment and the Applicability of the Energy Charter Treaty in Intra-EU Investment Arbitration

Abstract The Energy Charter Treaty is the most frequently used investment treaty worldwide to launch investment arbitration against host states. The vast majority of disputes is of intra-European Union nature in that they involve an EU investor as claimant and an European Union member state as respondent. The recent Achmea judgment of the Court of Justice of the European Union may thus have ramifications for the Energy Charter Treaty. The judgment has triggered a heated legal and political debate within the European Union over the future of intra-European Union investment arbitration. In the context of this debate, the European Commission claimed that the application of the Energy Charter Treaty in intra-European Union investment disputes is based on an incorrect interpretation of this treaty. This article critically assesses the Commission’s statement by evaluating the travaux préparatoires of the Energy Charter Treaty as a supplementary means of interpretation. It finds that the European Union member states and the European Commission in all likelihood opted for a mixed ratification for legal reasons rather than to ensure its intra-European Union applicability. Indeed, the EU initially pushed for a disconnection clause to prevent the application of the Energy Charter Treaty in intra-European Union relations but dropped this request during the negotiations. At least from a historical perspective then, the Commission’s claim that the Energy Charter Treaty is not meant to apply in intra-European Union relations is inaccurate in that the European Union consciously accepted this possibility.

Legal Stability and Legitimate Expectations: Does International Investment Law Need a Sense of Proportion? (Joint 2nd Prize Winner of the Essay Competition 2020)

In the aftermath of the Achmea judgment and with the European Commission’s continued efforts to curtail investor-State arbitration, EU law and international investment law may seem antithetical. However, this article considers how EU law may contribute to the development of investment law through the concept of proportionality, a general principle of EU law and various national legal systems. Tribunals have increasingly applied a proportionality analysis in their reasoning, most recently in several cases brought by renewable energy investors against Spain and Italy under the Energy Charter Treaty. These cases concern the controversial issue of when a change in the regulatory framework violates investors’ legitimate expectations and their right to fair and equitable treatment. This article argues that the proportionality standard has the potential to clarify this area of law and to promote ‘defragmentation’ between international investment law and other legal systems.

International investment arbitration: decisions 2017–2018 on the merits of the dispute

In the previous article, the author reviewed the decisions of international investment arbitration 2017–2018 on the jurisdiction and admissibility of claims. This article reviews the decisions of these arbitrations for the same period on the merits of the disputes. A special place among these decisions is taken by decisions on claims of foreign investors on violation by the host state of the regime (or standard) of fair and equitable treatment. This is quite natural: violation of this standard is the most common claim. In 2017–2018 in particular, many lawsuits in which such claims were made were related to the generation of electricity from renewable sources, mainly from solar energy. These claims were based on the 1994 Energy Charter Treaty. The article examines, in particular, cases of claims in which investors demanded compensation for damage caused by changes in the legislation of the host countries. The question before the arbitrators was: how strongly does the standard of fair and equitable treatment protect against legislative changes? The article also considers such aspects as: violation by the state of the national regime, the most favored nation regime and the standard of full protection and security of foreign investments; direct and indirect expropriation. The solutions in which the question arose about; the power of the arbitral tribunal to review its own preliminary decisions; the impact of environmental aspects on the behavior of the investor and the state; attempts by a party dissatisfied with the arbitration decision to have the decision annulled or overturned either by an ad hoc committee of ICSID or by national state courts. An analysis of the above decisions will reveal some trends in international investment law, which is important in the context of the fact that there cannot be truly uniform practice in investment arbitration due to the lack of a single source of law and a single dispute resolution body. Thus, only a careful analysis of the practice can tell which practice is well established and which is not.

The Hague Court of Appeal Reinstates the Yukos Awards

In February 2020, the Court of Appeal in The Hague rendered its long-awaited judgment in the Yukos v. Russian Federation cases. These cases concern a series of awards rendered by an UNCITRAL tribunal constituted on the basis of the Energy Charter Treaty. In 2016, the District Court of The Hague had annulled the awards due to the UNCITRAL tribunal’s alleged lack of jurisdiction. That decision is now overturned and the awards are revived. This case note recalls and comments on the findings of the Court of Appeal.

Resolving Perceived Norm Conflict through Principles of Treaty Interpretation: The January 2019 EU Member States’ Declarations

In January 2019, EU Member States issued three declarations concerning the ‘consequences of Achmea’ which stated that all claims under intra-EU BITs were contrary to the EU legal order, and that tribunals presiding over such claims have no jurisdiction as there is no valid consent to arbitrate. The declaration signed by a majority of EU Member States (‘Majority Declaration’) extended this proposition to intra-EU claims under the Energy Charter Treaty. Following this, a number of EU Member States have sought to argue that the Majority Declaration is a subsequent agreement between the States Parties to intra-EU investment treaties – or evidence of a subsequent practice establishing their agreement – that the dispute resolution provisions in those treaties must be interpreted to exclude intra-EU disputes from their scope and thus from the jurisdiction of tribunals constituted thereunder, relying on Article 31(3)(a) and (b) of the Vienna Convention on the Law of Treaties (‘VCLT’). This paper considers: (i) the key cases in which the Majority Declaration has been invoked to contest jurisdiction in, or seek the termination of, intra-EU arbitration proceedings; (ii) the application of Article 31(3)(a) and (b) of the VCLT; and (iii) other fundamental tenets and rules of international law discussed in relation to those cases.