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Energy Efficiency as New Paradigm of the European External
Energy Policy
The Case of the EU-Russian Energy Dialogue
Anatole Boute
Abstract:
In the face of the twin energy-related challenges of climate change and security of
supply, the promotion of energy efficiency in third countries, and especially in energy
producing countries, takes an increasing importance in the external energy relations of
the European Union. It has, for instance, evolved as one of the main pillars of the EURussian Energy Dialogue. The EU institutions understand that its main energy supplier is
not only rich in natural gas, oil, coal and uranium. It also holds an enormous potential
for the so-called “fifth energy source”: energy conservation. Developing this potential
would not only contribute to secure the future availability of energy resources for the EU.
It would also participate in the European and international efforts to combat climate
change. This contribution analyses how the promotion of energy efficiency has been
institutionalised in the external energy relations of the European Union with non-EU
countries, and in particular with Russia. The aim of this analysis is to delimitate the
concept of energy efficiency in the external energy relations of the European Union. Can
energy efficiency be seen as a new paradigm for understanding the European external
energy policy? Based on this conceptual delimitation, this contribution purports to
describe and assess the legal mechanisms that the EU institutions have proposed to
implement this approach in practice. What specific legal constraints and incentives can
be developed to generate energy savings in the countries that determine Europe’s
security of energy supply?

University of Groningen. The author can be contacted at a.j.r.t.boute@rug.nl and anboute@yahoo.fr. This
paper was written for the Political Economy of Energy in Europe and Russia (PEEER) Warwick Workshop
on “Governing Energy in Europe and Russia” organised on 3 and 4 September 2010 at the University of
Warwick.
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TABLE OF CONTENTS
INTRODUCTION ........................................................................................................................................ 3
1. ENERGY EFFICIENCY IN THE EU EXTERNAL ENERGY POLICY: THE DEVELOPMENT
OF A NEW PARADIGM? ........................................................................................................................... 5
1.1. THE PROMOTION OF ENERGY SAVINGS IN NON-EU COUNTRIES TO SECURE ENERGY SUPPLY AND
COMBAT CLIMATE CHANGE......................................................................................................................... 5
1.2. ENERGY EFFICIENCY IN THE EU-RUSSIAN ENERGY DIALOGUE ..........................................................10
1.3. ENERGY EFFICIENCY IN BILATERAL RELATIONS BETWEEN RUSSIA AND EU MEMBER STATES ............13
1.4. PRELIMINARY ASSESSMENT ................................................................................................................15
2. THE POLICY AND REGULATORY INSTRUMENTS OF THE EU EXTERNAL ENERGY
EFFICIENCY POLICY ..............................................................................................................................18
2.1. INTERNATIONAL LAW AND THE PROMOTION OF ENERGY EFFICIENCY .................................................18
2.1.1. The Energy Charter Treaty and the Protocol on Energy Efficiency ..........................................19
2.1.2. The Kyoto Protocol ....................................................................................................................21
2.1.3. The International Agreement on Energy Efficiency ...................................................................24
2.2. EUROPEAN LAW AND THE PROMOTION OF EXTERNAL ENERGY EFFICIENCY ........................................25
2.2.1. The “export” of the acquis communautaire ...............................................................................25
2.2.2. Joint Projects with third countries under the Renewable Energy Sources Directive .................27
2.2.3. Linking under the EU Emissions Trading Scheme .....................................................................28
3. EVALUATION OF THE POLICY AND REGULATORY INSTRUMENTS ..................................29
3.1. EVALUATION CRITERIA .......................................................................................................................29
3.2. DECLARATIVE NATURE .......................................................................................................................33
3.2.1. The “significance” of the Energy Charter Treaty and the Protocol on Energy Efficiency ........33
3.2.2. The significance of the G8+5 International Partnership for Energy Efficiency Cooperation
(IPEEC) ...............................................................................................................................................34
3.2.2. The significance of the export of the acquis communautaire .....................................................34
3.3. FINANCING .........................................................................................................................................35
3.4. INVESTMENT RISKS .............................................................................................................................37
3.4.1. The protection of energy efficiency investments under the investment regime of the ECT ........37
3.4.2. Improving investment stability for energy efficiency projects by exporting the acquis
communautaire ....................................................................................................................................38
3.5. PRELIMINARY CONCLUSIONS ..............................................................................................................39
4. CONCLUSIONS ......................................................................................................................................41
4.1. THE CONCEPT OF ENERGY EFFICIENCY IN THE EXTERNAL ENERGY POLICY .........................................41
4.2. THE SPECIFIC INSTRUMENTS OF THE EXTERNAL ENERGY EFFICIENCY POLICY .....................................42
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INTRODUCTION
Energy efficiency is since long considered as a major pillar of the European energy
policy.1 It lies today at the heart of the European strategy to create a sustainable, secure
and competitive European energy market. Indeed, by generating primary energy savings,
energy efficiency constitutes an important instrument in the combat against climate
change. According to the European Commission, it constitutes “without doubt the
quickest, most effective and most cost-effective manner for reducing greenhouse gas
(GHG) emissions”.2 Moreover, energy efficiency contributes to increased security of
supply by providing an alternative to additional energy production and network
infrastructure.3 By the same token, it enables the European Union to reduce its
dependency on imported fossil fuels. Finally, energy efficiency is likely to introduce
competition on the demand side and so participate to the completion of the internal
energy market, and more generally to the increased competitiveness of the European
economy. The potential for such improvement and its beneficial impact for Europe are
huge. It is indeed estimated that, by 2020, the European Union could reduce “at least 20
percent of its present energy consumption in a cost-effective manner, equivalent to 60
billion of Euros per year.”4 This potential of 20 percent cost-effective primary energy
savings is nowadays generally considered by the EU institutions as a political target to be
attained by 2020.5
More recently, the concern for improved energy efficiency has shifted from the realm of
the EU internal energy market to the EU external energy relations. Traditionally, the
external energy policy aimed to guarantee the future availability of sufficient energy
sources to meet the consumption needs of the EU by focusing on issues such as the
promotion and protection of EU investments in the upstream energy sector of energyproducing countries, trade and contractual arrangements, and the transit of energy
1
See among others European Commission, Communication of 13 May 1987 Towards a Continuing
Policy for Energy Efficiency in the European Union (COM(87) 223 final); European Commission,
Communication of 14 October 1991 on A Community Strategy to Limit Carbon Dioxide Emissions and to
Improve Energy Efficiency (COM(91) 1744 final); European Commission, Communication of 26 April
2000 on an Action Plan to Improve Energy Efficiency in the European Community (COM(2000) 247
final); European Commission, Green Paper 29 November 2000 on Towards a European Strategy for the
Security of Energy Supply (COM(2000) 769 final).
2
European Commission, Green Paper of 22 June 2005 on Energy Efficiency or Doing More with
Less (COM(2005) 265), at 4.
3
European Economic and Social Committee, Opinion of 23 January 2004 on the Proposal for a
Directive of the European Parliament and of the Council on Energy End-Use Efficiency and Energy
Services (OJ 2005 C 120/115).
4
European Commission, Green Paper on Energy Efficiency, at 4.
5
See European Commission, Communication of 9 October 2006 on an Action Plan for Energy
Efficiency: Realising the Potential (COM(2006)545 final), at 3; Council of the European Union, Presidency
Conclusions of 23 November 2006 (15295/06); European Parliament, Resolution of 1 June 2006 on Energy
Efficiency or Doing More with Less – Green Paper (P6_TA(2006)0243), Item 3.
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resources to the EU.6 The EU institutions now advocate energy efficiency improvements
in non-EU countries as an alternative, or at least complement, to this traditional
instruments.
More than in Europe, the potential for energy savings in many EU partner countries is
considerable. In Russia, for instance, the public authorities estimate the potential for the
improvement of the energy efficiency of the general Russian economy by 2020 at at least
40 percent in comparison to Russia’s energy consumption in the year 2007.7 Under
international energy law, energy efficiency or energy conservation qualifies as an energy
source.8 It can thus be said that Russia is not only an energy power because of its huge
reserves of natural gas, oil, coal and uranium. It also holds an enormous potential for the
so-called “fifth energy source”: energy conservation.
This contribution aims to analyse the policy and regulatory approach that the EU
institutions have developed in order to exploit the considerable energy savings potential
of non-EU countries. I first examine the integration of energy efficiency in the EU
external energy policy from a conceptual perspective. What place does energy efficiency
hold in the current external energy relations of the EU? What are the reasons that underlie
this approach and what are its objectives? I try to analyse whether the concept of energy
efficiency in the EU external energy policy provides a new paradigm for understanding
and approaching the new energy challenges to which the EU is confronted.
Based on this conceptual delimitation, I identify the specific policy and regulatory
mechanisms that the EU institutions propose to improve the energy efficiency of the EU
partner countries. The focus is on “the EU’s most important energy supplier”9 – the
Russian Federation.
In a third step, I evaluate the effectiveness of the EU “external energy efficiency policy”
in the light of the main regulatory barriers that prevent energy efficiency investments in
Russia today, i.e. the declarative nature of the national regulation on energy efficiency,
For a legal analysis, see S Haghighi, Energy Security – The External Legal Relations of the European
Union with Major Oil and Gas Supplying Countries (Oxford: Hart Publishing, 2007).
7
Концепция долгосрочного социально-экономического развития Российской Федерации на
период до 2020 года, Утверждена Распоряжением Правительства Российской Федерации от 17
ноября 2008 г. № 1662-р (Conception for the Long-term Social and Economic Development of the
Russian Federation until 2020, as adopted by Regulation of the Government of the Russian Federation No.
1662-r of 17 November 2008, as modified by the Regulation of the Government of the Russian Federation
No. 1121-r of 8 August 2009), at 64. See also Энергетическая стратегия на период до 2030 года,
Утверждена Распоряжением Правительства Российской Федерации от 13 ноября 2009 г. № 1715-р
(Russia’s Energy Strategy for the Period up to 2030, as adopted by Regulation of the Government of the
Russian Federation No. 1715-r of 13 November 2009), at 15–16. On the Russian energy savings potential,
see P Opitz, “Energy Savings in Russia – Political Challenges and Economic Potential” (2007) Russian
Analytical Digest 5.
8
See Article 1, para. 1 Energy Charter Treaty Protocol on Energy Efficiency and Related
Environmental Aspects, signed in December 1994 and entered into force in April 1998. This provision
considers “the promotion of energy efficiency” as a “considerable source of energy”.
9
European Commission, Green Paper of 8 March 2006 on a European Strategy for Sustainable,
Competitive and Secure Energy (COM(2006) 105 final), at 15.
6
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the absence of a legal framework that enables the financial viability of these investments,
and the risks of regulatory changes that face energy efficiency investments.
1. ENERGY EFFICIENCY IN THE EU EXTERNAL ENERGY POLICY: THE
DEVELOPMENT OF A NEW PARADIGM?
1.1. The promotion of energy savings in non-EU countries to secure energy supply and
combat climate change
The European Commission’s Green Paper Towards a European Strategy for the Security
of Energy Supply of 29 November 2000 is often considered as the start of a new
approach to the European policy to guarantee security of energy supply.10 In this
document, the Commission advocated energy efficiency as an indispensable instrument
to tackle the dual security of supply and climate change challenges that characterise the
“new energy landscape of the 21st century”.11 Simultaneously, it proposed to integrate the
promotion of energy efficiency and renewable energy sources in the EU external energy
relations. In 2008, the Commission confirmed this approach in its Second Strategic
Energy Review and stated that “[i]t is at least as important to achieve improved energy
efficiency in other industrialised countries and emerging economies as in Europe”.12
According to the Communication of the European Commission of 26 May 2003 on the
Development of Energy Policy for the Enlarged European Union, its Neighbours and
Partner Countries, such an external energy efficiency policy would be “necessary in the
long term to assure our energy security”.13 Indeed, in accordance with the European
Commission:
[i]nvestments into energy saving more broadly would free up resources that could be
exported in the interest of both our neighbouring countries and the EU. Therefore, cooperation in the fields of energy efficiency and energy saving should be given even higher
priority than is presently the case under the EU-Russia Energy Dialogue and the EuroMediterranean Partnership.14
10
See for instance European Commission, Communication of 26 June 2002 Final Report on the
Green Paper ‘Towards a European Strategy for the Security of Energy Supply’ (COM(2002) 321 final), at
2.
11
See European Commission, Green Paper of 8 March 2006 on A European Strategy for
Sustainable, Competitive and Secure Energy(COM(2006) 105 final), at 4.
12
European Commission, Communication of 13 November 2008 on the Second Strategic Energy
Review: an EU Energy Security and Solidarity Action Plan (COM(2008) 0781 final), at 13.
13
COM(2003) 262 final, at 5-6.
14
European Commission, Communication on the Development of Energy Policy for the Enlarged
European Union, its Neighbours and Partner Countries, at 29. On this approach, see J Anderson, S Bassi
and V Aufenanger, “Discussion Paper: The Energy and Climate Change Dimensions of the European
Neighbourhood Policy” (2005) WWF and Institute for European Environmental Policy, at 17.
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Following this reasoning, energy efficiency improvements in non-EU countries
contribute to Europe’s security of supply because they reduce, or at least limit, energy
consumption world-wide and so improve the availability of energy sources for the
European Union. The potential for energy savings abroad – (and thus indirectly the
positive impact on Europe’s energy security) – is considerable. Indeed, according to the
Commission, the “efficiency of the energy systems of our partner countries (…) could be
improved significantly.”15 These “low hanging fruits” in terms of energy savings abroad
are an additional reason to integrate energy efficiency as a new pillar of the EU external
energy policy.
The European Commission further elaborated this idea in its Green Paper on Energy
Efficiency or Doing More with Less of 22 June 200516 where it considered that:
[t]he recent increase in oil prices highlighted the impact of increased energy demand
resulting from rapid growth in energy consumption in a number of countries, including
China. Given the scarcity of energy resources and the limited spare production capacity,
especially for hydrocarbons, it is obvious that energy importing countries increasingly
become competitors for the same energy resources (…). Therefore, energy efficiency is an
issue in the interest of all energy importing countries, including the Union, and should be
integrated into their global strategy for security of energy supply. 17
The European Union should support the domestic efforts of non-EU countries, with
priority for countries experiencing rapid economic growth, such as China and India.18
The EU should also work in this field with major consuming countries with developed
economies, such as the United States of America, Canada and Japan. According to the
European Commission’s Green Paper on a European Strategy for Sustainable,
Competitive and Secure Energy of 8 March 2006:
[i]f these countries [e.g. China, India, the US, Canada and Japan] reduce the use of fossil
fuels, it will also be beneficial for Europe’s energy security. The EU could significantly
step up bilateral and multi-lateral cooperation with these countries with the objective of
encouraging the rational use of energy worldwide (…). 19
The main reasons for energy efficiency cooperation with non-EU countries are thus
primarily related to the “geopolitical and strategic interests of the EU”, i.e. guaranteeing
the future availability of energy sources to supply Europe.20
15
European Commission, Communication on the Development of Energy Policy for the Enlarged
European Union, its Neighbours and Partner Countries, at 29.
16
COM(2005) 265 final.
17
European Commission, Green Paper on Energy Efficiency or Doing More with Less, at 33.
18
European Commission, Green Paper Towards a European Strategy for the Security of Energy
Supply, at 49.
19
European Commission, Green Paper on a European Strategy for Sustainable, Competitive and
Secure Energy, at 17.
20
European Commission, Green Paper on Energy Efficiency or Doing More with Less, at 33. See
also Annex 1 of Communication from the Commission of 10 January 2007 on An energy policy for Europe
(COM(2007) 0001 final).
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In addition, this strategy aims to contribute to the European efforts to combat climate
change. According to the European Commission, the promotion of energy efficiency in
non-EU countries would be “called for in the light of our shared commitment with our
neighbouring countries to combat climate change.”21 Here to, however, the European
approach is not totally disinterested. It is not solely based on moral considerations related
to Europe’s “commitment to combat climate change”. Indeed, the Commission defends
the view that “[a]ction to tackle climate change reinforces security of energy supply”.22
Energy efficiency investments can generate a “double dividend”23 by guaranteeing
security of supply in a climate-friendly way. Moreover, this external climate change
policy pursues commercial objectives. The European Commission argued in its Green
Paper on Energy Efficiency or Doing More with Less that:
[d]ue to the fact that the EU, since the first energy crisis in the early 1970’s, has put in
place coherent policies and programmes for energy efficiency promotion, the EU’s
energy-efficiency manufacturing industry is now well placed to make the most of new
opportunities and to gain new markets in third countries. European industry is at the
forefront in technology, and occupies the strategic high ground in the global competition
on energy-efficiency technology in most sectors (…). Renewed efforts for an international
drive on energy efficiency could play a key role in consolidating the European industry’s
role as world leader in this field and could contribute to boosting Europe’s competitive
edge in the energy sector.24
The implementation of energy efficiency measures abroad would thus be a way to
stimulate the realisation of business (export) opportunities for EU companies, in addition
to the positive impact on Europe’s security of energy supply and climate change policy.
Following the European Commission’s 2000 Green Paper on an EU Strategy for the
Security of Energy, the importance to promote energy efficiency improvements in the EU
external energy policy has been endorsed by the other EU institutions. The European
Council considered in the Presidency Conclusions of 24 March 2006 that:
[i]n its energy dialogues with third countries, the EU should facilitate the development of
sustainable and efficient energy systems and assume a more proactive approach in
21
European Commission, Communication on the Development of Energy Policy for the Enlarged
European Union, its Neighbours and Partner Countries, at 29.
22
European Commission, Green Paper “Towards a European Strategy for the Security of Energy
Supply”, at 49.
23
A Palacio, in G Coop and C Ribeiro (eds.), Investment Protection and the Energy Charter Treaty,
(Huntington: JurisNet, 2008), at xxvii. See also A Boute, “Combating Climate Change and Securing
Electricity Supply: The Role of Investment Protection Law” (2007) 16 European Environmental Law
Review 227.
24
Ibid, at 34. See also Communication from the Commission of 7 October 2009 on Investing in the
Development of Low Carbon Technologies (SET-Plan) COM(2009) 519 final.
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combating climate change, promoting renewables, low emission technologies and energy
efficiency and the implementation of the Kyoto Protocol mechanisms.25
The Council meeting on Energy of 19 February 2009 confirmed that:
[d]ue to increasing energy demand worldwide and in order to ensure a more diversified
and secure supply, energy policy represents a key part of external relations of the EU and
its Member States. Building on the ‘Energy Policy for Europe’ Action Plan, the Council
stresses that (...) [m]essages to third countries should be consistent with the EU policy
objectives, focusing on the reduction of GHG, energy efficiency, renewable and lowemission technologies.26
Along the same line, the European Parliament the European Parliament in its Resolution
of 23 March 2006 on Security of Energy Supply in the European Union27 stressed “the
importance of including in the new energy diplomacy of the EU a constructive dialogue
with all major consumers of energy and notably emerging economies on energy
efficiency and energy conservation”.28 Moreover, in its Resolution of 26 September 2007
on towards a Common European Foreign Policy on Energy29 the European Parliament
advocated the:
creation of a common European foreign policy on energy, covering security of supply,
transit and investment related to energy security, and the promotion of energy efficiency
and energy savings as well as clean and renewable energy sources, particularly in relations
with countries whose energy consumption is growing rapidly.30
Similarly it noted in its Resolution of 3 February 2009 on the Second Strategic Energy
Review31 that “China's growing energy consumption and greenhouse gas emissions
represent a huge challenge to environmental goals and security of energy supply”. It
called on this basis for “an enhanced cooperation between the EU and China to promote
the transfer of low carbon technology, in particular energy efficiency and renewable”.32
25
Annex III of the Brussels European Council of 23/24 March 2006, Presidency Conclusions
7775/1/06 REV 1 (18 May 2006), at 34. See also the European Council Action Plan (2007 – 2009) Energy
Policy for Europe (EPE), Annex I of the Brussels European Council of 8/9 March 2007, Presidency
Conclusions 7224/1/07 REV 1 (2 May 2007), at 19.
26
Council of the European Union, Press Release 2924th Council Meeting – Energy, 19 February
2009 (6670/09 Presse 43).
27
P6_TA(2006)0110.
28
European Parliament, Resolution on Security of Energy Supply in the European Union, para. 10.
29
P6_TA(2007)0413.
30
European Parliament, Resolution on towards a Common European Foreign Policy on Energy,
para. 3.
31
P6_TA(2009)0038.
32
European Parliament, Resolution of 3 February 2009 on the Second Strategic Energy Review,
para. 62.
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The promotion of energy efficiency in the EU external energy policy is not limited to
“key consumer countries”33 such as China, India, the United States of America, Canada
and Japan. It is also directed to the major energy producing countries that supply Europe.
In this respect, energy efficiency holds an important place in the European Neighborhood
Policy.34 The concern for energy savings in the national economy of the energy suppliers
of the EU has been integrated in the Partnership and Cooperation Agreements,35 Action
Plans36 and Memoranda of Understanding37 between these countries and the EU. By the
same token, it is a key aspect of the so-called INterstate Oil and GAs To Europe
(INOGATE) Program,38 the Baku Initiative39 and the Eastern Partnership and the Black
Sea Synergy initiative.40 Moreover, the European Commission supports New
Partnerships for Renewable Energy41 and Energy Efficiency Cooperation with the
Mediterranean and Gulf states.42 Along the same line, the European Parliament recently
called on the European Union to cooperate with the countries of the Mediterranean
region, and of North Africa “in view of their significant energy resource potential”.43 It
considered, in particular, that “the use of solar and wind energy should be researched and
encouraged” and called, therefore, for “common objectives for renewable energy and
energy efficiency”.44
As for major consuming countries, the reasoning underlying the promotion of energy
savings in energy producing countries is primarily related to the “geopolitical and
An external policy to serve Europe’s energy interests – Paper from Commission/SG/HR for the
European Council of 15/16 June 2006.
34
European Commission, Communication of 12 May 2004 on the European Neighbourhood Policy
– Strategy Paper (COM(2004) 373 final), at 17. See also European Commission, Communication of 5
December 2007 on A Strong European Neighbourhood Policy (COM(2007) 774 final), at 8.
35
See for instance Article 55 of the Partnership and Cooperation Agreement between the European
Communities and their Member States, of the one part, and the Republic of Azerbaijan, of the other part Protocol on mutual assistance between authorities in customs matters, 22 April 1996, OJ 1999 L 246/3.
36
See
for
instance
the
EU/Azerbaijan
Action
Plan,
available
online
at
http://ec.europa.eu/world/enp/pdf/action_plans/azerbaijan_enp_ap_final_en.pdf.
37
See for instance the Memorandum of Understanding on a Strategic Partnership between the
European Union and the Republic of Azerbaijan in the Field of Energy, 7 November 2006.
38
See the Astana Ministerial Declaration of 30 November 2006 on Enhanced Energy Cooperation
between the EU, the Littoral States of the Black and Caspian Seas and their Neighbouring Countries, that
considers action in the field of the support of “sustainable energy development, including the development
of energy efficiency, renewable energy sources and demand side management”.
39
See the Conclusions reached at the Energy Ministerial Conference organised in Baku on 13
November 2004, www.inogate.org/inogate/en/baku-initiative.
40
See European Commission, Communication of 11 April 2007 on the Black Sea Synergy – A New
Regional Cooperation Initiative (COM(2007) 160 final), at 5.
41
B Ferrero-Waldner, “Opening Remarks” to the EU-Mediterranean-Gulf Renewable Energy
Conference, Brussels, 9 October 2009 (SPEECH/09/456). See also “Commission goes step further in
developing renewable energy with Mediterranean and Gulf countries”, Press release of 8 October 2009
(IP/09/1494).
42
European Commission, Publication: EU, Mediterranean and Gulf States: New Partnerships for
Renewable
Energy,
5
November
2009,
available
online
at
http://ec.europa.eu/external_relations/library/publications/2009_med_gulf_en.pdf.
43
European Parliament, Resolution of 3 February 2009 on the Second Strategic Energy Review,
para. 50.
44
Ibid.
33
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1 September 2010
strategic interests of the EU”. Indeed, the EU is helping these countries to focus on
alternative energy sources and energy efficiency in order to “release important energy
resources.”45
In addition to major energy consuming and producing countries, a third target group for
the EU external energy efficiency policy is constituted of transit countries. The European
Commission has for instance undertaken action to modernise and thus improve the
energy efficiency of the Ukrainian transit system.46 Following the Russo-Ukrainian gas
crises, leading analysts pointed to Ukraine’s very energy-inefficient economy47 as one of
the causes of its heavy dependence on imported Russian gas and thus one of the major
concerns for the European Union. In this context, they argued in favour of reducing
energy consumption via the implementation of energy-saving measures in the Ukrainian
economy.48
1.2. Energy efficiency in the EU-Russian Energy Dialogue
Energy efficiency also plays a central role in the relations between the EU and its main
energy supplier – the Russian Federation. It has been included in the Partnership and
Cooperation Agreement between Russia and the EU49 and is one of the cornerstones of
the EU-Russian Energy Dialogue. Former EU Commissioner for Energy Piebalgs and
Russian Energy Minister Shmatko considered in this respect that:
[i]mproving energy efficiency in all sectors of the economy and increasing the share of
renewable energy resources has been one of the main priority areas of the EU-Russia
Energy Cooperation since the beginning of the Energy Dialogue. 50
45
See European Commission, Communication on the Black Sea Synergy, at 5.
European Commission, European Bank for Reconstruction and Development, European
Investment Bank, World Bank and Government of Ukraine, Joint Declaration of 23 March 2009 on the
Joint EU-Ukraine International Investment Conference on the Modernisation of Ukraine’s Gas Transit
System.
47
According to Pirani, Stern and Yafimava, “the most energy-inefficient economy in the world. (…)
Gas is used in unusually large quantities (…).” S Pirani, J Stern and K Yafimava, “The Russo-Ukrainian
gas dispute of January 2009: a comprehensive assessment”, (2009) Oxford Institute for Energy Studies, at
58, available online at www.oxfordenergy.org/pdfs/NG27.pdf.
48
Ibid. See also C van der Linde and J de Jong, “Upping the Stakes – Some Lessons for the EU
from the Recent Russia-Ukraine Gas Crisis”, (2009) Clingendael International Energy Programme
Briefing Papers 1, at 5.
49
See Article 65, para. 2 of the Agreement on Partnership and Cooperation Establishing a
Partnership between the European Communities and their Member States, of one part, and the Russian
Federation, of the other part, 24 June 1994 (OJ 1997 L 327/0003). See also the Road Map for the Common
Economic Space – Building Blocks for Sustained Economic Growth, available online at
www.eu2005.lu/en/actualites/documents_travail/2005/05/10-4spaces/4spaces.pdf.
50
A Piebalgs and S Shmatko, Energy Dialogue EU-Russia – The Tenth Progress Report, November
2009. See also Common Strategy of the European Union of 4 June 1999 on Russia (1999/414/CFSP), OJ
1999 L 157/0001, considering that “[t]he European Union will, in particular, cooperate with Russia in: (a)
energy and nuclear safety, by enhancing the Russian commitment to energy sector reform, including
46
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Moreover, energy efficiency is a central part of the recent EU-Russian Partnership for
Modernisation agreed at the EU – Russia Summit in June 2010 in Rostov-on-Don.51
In accordance with the general idea of energy efficiency promotion in the EU external
energy policy, the EU institutions aim to stimulate the realisation of energy savings in
Russia to guarantee the availability of energy resources for future supply to the EU.
Indeed, in accordance with the Communication of the European Commission of 13
December 2004 on the Energy Dialogue between the European Union and the Russian
Federation between 2000 and 2004:
[t]he modernisation of the Russian economy, support to its high rate of growth (around 7%
p.a.) makes it all the more essential that Russian industry adopts efficient energy practices
in order to increase capacities for export, including towards the EU.52
Moreover, according to the Thematic Group on Energy Efficiency of the EU–Russian
Energy Dialogue, deepening cooperation in the field of energy efficiency between Russia
and the European Union is “a crucial issue in order to intensify EU-Russia energy
relations.” Indeed, such cooperation would:
increase the [European] security of energy supply because (…) energy savings in Russia
would contribute to the availability of a higher level of Russian energy supply for export
to the EU.53
More than in other partner countries, the necessity to influence the domestic demand for
energy resources in Russia is considered to be of particular importance for Europe’s
security of energy supply given concerning levels of investment in the development of
Russia’s energy infrastructure. In this view, the European Commission considered in its
Communication of 12 October 2006 on External Energy Relations – From Principles to
Action that:
[w]ith the current levels of investment in production, transport and distribution of energy
products, concerns have been expressed that Russia may not be able adequately to satisfy
nuclear safety and environmental protection; for example by working with Russia to improve energy
efficiency and by providing technical assistance on energy conservation in Russia”.
51
Council of the European Union, Joint Statement on the Partnership for Modernisation EU-Russia
Summit 31 May-1 June 2010 (10546/10 PRESSE 154). See C Belton, “Russia and EU Agree
Modernisation Pact”, 1 June 2010, Financial Times, available online at www.ft.com/cms/s/0/9c4e97a66d9c-11df-b5c9-00144feabdc0.html.
52
COM/2004/0777 final
53
See Thematic Group on Energy Efficiency of the EU–Russian Energy Dialogue, Terms of
Reference,
27
September
2007,
Annex
2,
available
online
at
http://ec.europa.eu/energy/russia/groups/efficiency_en.htm. See also G César et al., Russie: Puissance ou
interdépendence énergétique? (Sénat Français, 2009), available online at www.senat.fr/noticerap/2009/r09182-notice.html.
11
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the growing demand on both its export and domestic markets. There should, therefore, be
a strong joint effort to improve the energy efficiency of the Russian economy. 54
The Commission’s concerns about the threat that the inadequacy of investments in the
Russian energy sector, combined with rising domestic demand, poses for Europe’s
security of energy supply, and the Commission’s conclusions about the necessity to
stimulate energy savings in Russia to guarantee future supplies are shared by many
observers. The International Energy Agency, for instance, is concerned that rising
domestic gas demand “will begin to affect Russia’s position as a secure and reliable
supplier”.55 Therefore, Russia could use its considerable energy efficiency potential to
slow demand growth and help manage the above problems.56 According to the IEA:
[t]he economic value of the saved gas justifies the identified energy-efficiency
improvements, which would also enhance energy security for Russia and importing
countries. It will thus reinforce Russia’s role as a reliable supplier of natural gas in the
coming decades.57
Along the same lines, a report drafted by French senators on behalf of the EU delegation
on EU-Russian relations expressed:
a real concern about Russia’s capacity to honour its commitments towards the European
Union as regards the supply of hydrocarbons, given the increases in domestic demand and
the lack of investments, in particular in the gas sector. 58
In the face of these challenges for Europe’s security of energy supply, the senators, in a
similar way to the European Commission and the International Energy Agency
highlighted Russia’s “huge potential in the field of energy efficiency and energy
savings”.59
Similarly to the general idea underlying the promotion of energy efficiency in the EU
external energy policy, European support for energy efficiency improvements in Russia
would not only contribute to Europe’s security of supply, but also to the European
54
COM(2006) 590 final, at 3.
International Energy Agency, Optimising Russian Natural Gas – Reform and Climate Policy
(Paris: IEA, 2006), at 16. See also World Bank Russia Country Office, Russian Economic Report No. 17
(Washington: The World Bank Group, 2008), at 40. On the uncertainty concerning future investments in
gas fields in Russia, see Cambridge Energy Research Associates, Securing the Future – Making Gas
Interdependence Work (Cambridge Massachusetts: CERA, 2007), at Executive Summary-13.
56
In this view, see also A Goldthau, “Rhetoric versus Reality: Russian Threats to European Energy
Supply” (2008) 36 Energy Policy 686, at 687 and 690; D Johnson, “EU-Russian Energy Links: A Marriage
of Convenience” (2005) Government and Opposition 256, at 262.
57
International Energy Agency, Optimising Russian Natural Gas, at 16.
58
Translation from French by the present author of Y Pozzo di Borgo, et al., Rapport d’information
fait au nom de la délégation pour l’Union européenne sur les relations entre l’Union européenne et la
Fédération de Russie, (Sénat Français, 2007), at 46
59
Ibid, at 49. See also G César et al., Russie: Puissance ou interdépendence énergétique? (Sénat
Français, 2009), available online at www.senat.fr/noticerap/2009/r09-182-notice.html.
55
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1 September 2010
commitment to combat climate change.60 Stimulating energy savings in Russia would
avoid nullifying European efforts to reduce domestic emissions of greenhouse gases
through an increase of energy consumption in Russia. The European Parliament, for
instance, called in its Resolution of 14 November 2007 on the EU-Russia Summit61 on
the Russian Federation to “invest heavily in energy efficiency measures, given the urgent
need to address the problem of climate change”. Moreover, it considered in its Resolution
of 26 September 2007 on Towards a Common European Foreign Policy on Energy that
“the principle of developing environment-friendly and energy-efficient technologies
should be incorporated into a new agreement between the EU and Russia.”62
Also in relation to Russia, the external energy efficiency and climate change agenda of
the EU institutions can be considered to pursue commercial benefits. The participation of
European companies in the modernisation and improvement of the energy efficiency of
the national economy is expected to bring substantial economic gains. 63 The
modernisation of the electricity production infrastructure, for instance, represents a huge
business opportunity for European energy companies. Indeed, the Russian electricity
market is considered as “one of the world’s largest and fastest growing”.64
Additional reasons could be mentioned to justify the European support for energy
efficiency improvements in Russia. Energy efficiency investments could be considered as
less strategically important and sensitive than traditional upstream energy investments.
Cooperating in this field could thus be seen as a way to reinforce the mutual trust
between the European and Russian partners.
1.3. Energy efficiency in bilateral relations between Russia and EU member states
The promotion of energy efficiency and energy savings in Russia is not only part of the
“common” EU external energy policy. It is also actively supported by many EU member
states individually in their bilateral relations with Russia. The Netherlands,65 Germany,66
In this view, see also A Goldthau, “Improving Russian Energy Efficiency: Next Steps” (2008) 46
Russian Analytical Digest 9, at 11.
61
P6_TA(2007)0528.
62
P6_TA(2007)0413, at 51.
63
See for instance Ministry of Economic Affairs of the Netherlands, Energy Efficiency Sector in
Russia: Market Survey of Equipment and Services (EVD, 2006).
64
W Bernotat, Transcript of the Telephone Conference on the Acquisition of Shares in OGK-4 by
E.ON,
17
September
2007,
at
2
and
3,
available
online
at
www.eon.com/en/downloads/Rede_Bernotat_OGK_4_en.pdf. According to Bernotat, chief executive
officer of the German energy concern E.on, the Russian market is characterised with an “almost unrivalled
appetite for electricity”. See also G Dinmore and C Belton, “Italy’s Power Force Sees New Frontier in
Russian Market”, Financial Times, 30 October 2007, at 2.
65
See for instance, Ministry of Economic Affairs, Russia: Energy Efficiency (2009), available
online at www.evd.nl/zoeken/showbouwsteen.asp?bstnum=159915.
66
See
www.auswaertigesamt.de/diplo/en/Aussenpolitik/RegionaleSchwerpunkte/Russland/Russland-Wirtschaft-Energie.html#t4.
60
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Italy,67 Finland,68 France,69 and even Greece70 have discussed, concluded and/or
implemented bilateral cooperation agreements with Russia in the field of energy
efficiency improvements in Russia. Germany and France have even institutionalised this
cooperation with the creation of joint Russian-German and Russian-French energy
centres. The Russian-German Energy Agency (RuDEA)71 primarily focuses on the
development of the Russian potential in energy efficiency and renewable energy sources.
This agency takes place within the German-Russian Modernisation Partnership.72
It is arguable that this bilateral approach to the promotion of energy efficiency pursues
the same goals as the EU external energy policy, i.e. guaranteeing the future availability
of Russian energy sources in a climate-friendly way.73 Energy efficiency could be seen as
a way to tighten the bilateral links with Russia. By working together in this less strategic
domain, the individual EU member states would actually aim to, or at least hope to, be
the preferred partners when it comes to concluding deals on major upstream energy
developments. In this way, cooperation in the field of energy efficiency in Russia could
be considered as a strategy to increase the mutual bilateral trust and ties in order to more
easily conclude traditional bilateral energy contracts in the future.
In addition, EU member states also purport to harness the commercial potential that the
huge investment needs in the modernisation of the Russian economy represent for their
companies.74
“Состоялась встреча министра энергетики РФ Сергея Шматко с министром
экономического развития Италии Клаудио Скайола” (“The Minister of Energy of the Russian
Federation Sergey Shmatko Met the Minister for Economic Development of Italy Claudio Scajola”), 28
July 2008, available online at www.minenergo.gov.ru.
68
See Memorandum of Understanding (MoU), signed in Helsinki by Sergei Shmatko, Minister of
Energy of Russia, and Mauri Pekkarinen, Minister of Economic Affairs of Finland, 4 February 2010,
www.energy-enviro.fi/index.php?PAGE=2&NODE_ID=4&ID=3008.
69
See the Inter-Ministerial Agreement on Energy Efficiency between Minenergo (the Russian
Ministry of Energy) and the French Ministry of Sustainable Development, September 2008. See
www.ademe.fr/htdocs/publications/international/14/p1.htm.
70
“Состоялась встреча Министра энергетики РФ Сергея Шматко с Министром развития
Греции Христосом Фолиасом” (“The Ministry of Energy of the Russian Federation Sergey Shmatko Met
with the Ministry of Development of Greece Christos Folias”), 28 July 2008, available online at
www.minenergo.gov.ru.
71
See http://rudea-energy.com.
72
See
www.auswaertiges-amt.de/diplo/en/Infoservice/Presse/Interview/2010/100531-BMFAZ.html.
73
Viëtor argues that “[o]bviously, both sides can benefit from RuDEA’s work and an increase in
energy efficiency in Russia: Not only can Germany and Russia massively reduce their CO2 emissions and
combat climate change. Russia, by decreasing its domestic consumption, can also free capacities for the
export of natural gas—to its own economic benefit and at the same time to an increased security of supply
in Germany and the EU.” M Viëtor, “IRENA and RuDEA – Germany Promotes Renewable Energy and
Energy Efficiency Globally”, DGAPaktuell, June 2009, at 4, available online at www.dgap.org/midcomserveattachmentguid-1de66e539d24bc266e511deab61bfafa2bd0fd00fd0/2009-05_dgapaktuell_vi-tor_irena-and-rudea.pdf.
74
Viëtor further considers that “[t]he application of German experience and technology can also
help develop new markets for the German economy and simultaneously modernise the Russian economy –
a cooperation to the benefit of all parties.” M Viëtor, “IRENA and RuDEA – Germany Promotes
Renewable Energy and Energy Efficiency Globally”, at 4.
67
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1.4. Preliminary assessment
It appears from this overview of EU policy and regulatory documents that energy
efficiency became one of the pillars of the EU external energy policy of the 21st Century.
The promotion of energy savings in major non-EU energy consuming, producing and
transit countries aims to achieve the overarching goals of EU energy policy, i.e. to
guarantee energy security, combat climate change and improve competitiveness. This
approach contrasts with the traditional understanding of external energy policy as a
policy aiming at stimulating investments in the upstream energy sector. Energy efficiency
can therefore, to a certain extent, be considered as proposing a new “paradigm” for
understanding external energy relations.
It is arguable that the EU institutions have opted to integrate the promotion of energy
efficiency in the external energy policy because of the limited EU competences in this
field. Energy efficiency is historically an EU competence. Internal rules were adopted in
this field. According to the so-called “effect-doctrine” of the ERTA Judgment of the
Court of Justice of the European Communities, this would allow the EU to exercise
implied external powers in this field.75 In this view, it could be said that the limited EU
competences would have forced the EU institutions to develop the energy efficiency
“paradigm” in order to pursue some action in its energy relations with third countries.
This new approach provides key conceptual answers to the necessity to guarantee energy
security in a carbon-constrained world. By reconciling energy security with climate
change mitigation, it provides an ideal solution to the common energy challenges that the
EU and its partner countries face. However, the energy efficiency paradigm as developed
by the EU appears to suffer from important deficiencies in its approach to external energy
relations.
Indeed, the promotion of energy efficiency in the external energy policy cannot be seen
as a uniform policy that could be universally applied independently from the specific
features of the recipient (non-EU) state. The opportunities and challenges related to the
promotion of energy efficiency in non-EU countries may significantly differ depending
on the qualification of the recipient countries concerned as major consuming, producing
or transit countries.
In all the scenarios the promotion of energy efficiency contributes to improving the
general availability of energy sources. However, energy savings in energy-producing
countries offer potential additional benefits. The EU or its member states could for
instance argue that their support for the realisation of energy savings in energy-producing
75
Case 22/70, Commission v. Council (European Road Transport Agreement) Judgment of 31
March 1971 [1971] ECR 263. On the relevance of the ERTA Judgment for the external energy relations of
the EU, see S Haghighi, Energy Security – The External Legal Relations of the European Union with Major
Oil and Gas Supplying Countries (Oxford: Hart Publishing, 2007), at 88-98.
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1 September 2010
countries gives them the “right” to be supplied with the amount of energy saved.76 As
seen above, one of the arguments that could justify member states’ support for energy
savings in Russia is related to the opportunities that such cooperation could generate as
regards their future participation to upstream energy projects. In this respect, being
involved in the Russian energy efficiency sector offers much bigger opportunities than in
energy consuming countries.
In addition, the opportunities that the realisation of energy savings in energy consuming
countries77 represent for the EU could be considered as a threat to energy exporting
countries. Energy savings reduce the need for additional energy sources or at least limit
increases of energy consumption. This could have a potentially very damaging impact on
the long-term financial viability of upstream energy projects. Uncertainty about the
impact of energy efficiency measures on the energy demand of certain regions could
dissuade the development of these projects. The impact that energy efficiency
programmes in energy consuming countries could have on energy producing countries
was for instance highlighted in the reactions of Russian officials to EU’s energy
consumption forecasts in the Second Strategic Energy Review.78
Also within energy-exporting countries themselves interests can diverge significantly.
Energy efficiency can represent different benefits and challenges for the federal
(national) and regional authorities. In Russia, for instance, the federal authorities
advocate the necessity to modernise the economy and reduce the general energy intensity.
However, the implementation of energy efficiency measures by the regional authorities
could have negative consequences for the future allocation of gas to their region. Indeed,
energy savings at the regional level could reduce the amount of gas to which the regions
that implemented these savings were initially entitled. Energy efficiency is therefore seen
as a sensitive issue by certain regional authorities. The federal interests are not always
aligned with the regional interests.
Furthermore, differences can be identified as regards the strategic importance of the
energy infrastructure that undergoes energy efficiency improvements. In Russia, for
instance, the pipeline infrastructure for the transportation of oil and gas is considered to
be of strategic national importance.79 The access of foreign parties to this infrastructure is
76
As seen above, international law (the Protocol on Energy Efficiency to the Energy Charter Treaty)
considers energy savings (energy conservation) as an energy source. Contracts for the realisation of energy
savings could for instance provide that the necessary investments will be paid with a certain percentage of
the energy saved.
77
Including energy savings in the EU itself.
78
See P van Leeuwen, “EU en Externe Energierelaties”, Nederlands Vereniging voor Energierecht,
Pels Rijcken & Droogleever Fortuijn N.V., The Hague, 4 March 2009. In accordance with the Second
Strategic Energy Review, at 2, “Europe’s new Energy Policy will fundamentally alter the EU's energy
outlook. The package will reduce energy consumption in the EU in 2020 by as much as 15%, and lead to a
reduction of expected imports of energy by up to 26% compared to the developments before the 20-20-20
initiative.”
79
See the Federal Law No. 57 of 29 April 2008 “On Procedures for Foreign Investments in
Companies of Strategic Importance for National Defense and Security” (Федеральный закон от
29.04.2008 N 57-ФЗ О порядке осуществления иностранных инвестиций в хозяйственные общества,
имеющие стратегическое значение для обеспечения обороны страны и безопасности государства).
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historically a very sensitive topic. It can thus be expected that the national authorities
would be particularly reluctant to allow foreign investments improving the efficiency of
the pipeline infrastructure. Similarly, the access to the Russian gas network by oil
producers in order to reduce the amount of “associated gas” being flared is a very
controversial issue. In contrast, in energy consuming countries, the participation of
foreign investors to the development and modernisation of the energy network
infrastructure could not necessarily always be so controversial.
Energy efficiency projects related to the network segment of the energy industry illustrate
the fact that, while cooperation in the field of energy efficiency is in theory much less
strategically sensitive than traditional upstream energy investments, this cooperation
could in practice prove to be much more challenging. In the context of the EU-Russian
energy relation, the sensitivity of network related energy efficiency projects has recently
been highlighted by Russia’s heavy criticism of the Joint EU-Ukraine Declaration of 23
March 2009 on the Joint EU-Ukraine International Investment Conference on the
Modernisation of Ukraine’s Gas Transit System.80 Russia’s Prime Minister Putin
threatened to review Russia’s energy relations with the EU after the European
Commission announced plans to modernise Ukraine’s gas transit system without
involving Russia in this project. Putin argued that since Russia – as energy producing
country – provides the gas that transits through this infrastructure, it should be involved
in these modernisation plans in the transit country.
Moreover, the interests pursued with the promotion of energy efficiency in the EU
external energy relations could differ from the agenda of the EU member states in their
bilateral relations with Russia. Analysts often argue that Europe’s fundamental problem
in its approach towards Russia is its inability to “speak with one voice”. Building upon
this criticism, it is arguable that also in the field of energy efficiency a bilateral approach
towards Russia could possibly undermine the common EU policy. Officially the RussianGerman Modernisation Partnership promotes the idea that “[the Russian-German]
bilateral experiences will benefit the European-Russian project.”81 Nevertheless, as
mentioned above, energy efficiency could be seen as a political strategy to increase
mutual trust and so gain priority access to the future development of traditional energy
projects. In this view, it is arguable that energy efficiency could reinforce the divisions of
the member states in their external energy policy towards Russia.
Energy efficiency does thus not provide a clear and unambiguous approach to external
energy relations. It needs to be decomposed in function of the type of the recipient
country concerned (energy consuming, energy producing and transit) and in function of
“Russia Keen to Join EU in Revamping Ukraine’s pipelines” (2010) Euractiv, available online at
www.euractiv.com/en/energy/russia-eager-join-eu-revamping-ukraine-s-pipeline-network-news-421013.
See also “La perspective d’une intégration de l’Ukraine au marché unique européen de l´énergie irrite la
Russie” (2009) Europe Energies ; А Габуев, “Россия повышает давление газа”, 26 March 2009,
Коммерсантъ (A Gabuev, “Russia Increases the Gas Pressure”, Kommersant), available online at
www.kommersant.ru/doc.aspx?DocsID=1144186.
81
See
www.auswaertiges-amt.de/diplo/en/Infoservice/Presse/Interview/2010/100531-BMFAZ.html.
80
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the entity that advocates this principle in its external energy relations (the EU or the EU
member states). Such a conceptual decomposition is essential in order to grasp the
different challenges (sensitivities) and opportunities at stake. It is essential to balance the
risks and benefits related to the promotion of energy efficiency in non-EU countries.
Only based on such a balanced approach, it is possible to propose an efficient policy that
would allow attaining the dual energy security and climate change mitigation goals of EU
energy policy.
Having examined the notion and raison d’être of energy efficiency in the EU external
energy policy, I now look at the more practical content of this new approach. What
concrete measures do the EU institutions propose to improve the energy efficiency of
their partner countries and in particular of Russia?
2. THE POLICY AND REGULATORY INSTRUMENTS OF THE EU
EXTERNAL ENERGY EFFICIENCY POLICY
The EU develops its external energy efficiency policy by promoting the adoption of
international political and legal documents. In addition to this diplomatic role on the
international scene, the EU acts directly in its bilateral relations with partner countries by
making use of internal EU legal rules in the field of energy efficiency and renewable
energy.
The focus of this chapter is on the policy and regulatory instruments that the EU
institutions proposed and developed to create a legal framework in non-EU countries that
is conductive to energy efficiency investments. I aim to examine general financial and
institutional answers that are designed to facilitate energy savings abroad or at least have
the potential to reduce the energy intensity of the EU partner countries, in particular of
Russia.
Funds (e.g. TACIS funds, the Global Environmental Facility,82 the Global Energy
Efficiency and Renewable Energy Fund83) and pilot projects (e.g. the EU energy
efficiency projects in Arkhangelsk, Astrakhan and Kaliningrad,84 the Carnot project on
clean coal85) are excluded from the scope of this analysis.
2.1. International law and the promotion of energy efficiency
82
www.thegef.org/gef.
European Commission, Communication of 6 October 2006 on Mobilising Public and Private
Finance towards Global Access to Climate-Friendly, Affordable and Secure Energy Services: The Global
Energy Efficiency and Renewable Energy Fund (COM(2006) 583 final).
84
A Piebalgs and A Shmatko, Ninth Progress Report on the EU-Russian Energy Dialogue, October
2008, at 6-7.
85
http://ec.europa.eu/energy/international/russia/projects_en.htm.
83
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2.1.1. The Energy Charter Treaty and the Protocol on Energy Efficiency
The Energy Charter Treaty (ECT)86 results from a European initiative87 aiming at
facilitating Western, especially European, investments in the energy sectors of Russia and
the Newly Independent States (NIS) following the breakdown of the Soviet Union.88 It
was considered that the penetration of Western investments in the Eastern energy sector
would generate a win-win exchange.89 On the one hand, it would contribute towards the
improved security of energy supply in Europe. On the other hand, it would provide an
impulse to transition the former Soviet countries towards market economies and stimulate
the transfer of Western technology.90
In addition to provisions on energy trade, transit, investment protection and dispute
resolution, the ECT also contains provisions that directly deal with energy efficiency.91 In
accordance with Article 19 of this Treaty, the Contracting Parties “shall strive to
minimise in an economically efficient manner harmful Environmental Impacts occurring
(…) from all operations within the Energy Cycle in its Area.” Importantly, Article 19 of
the ECT recognises the precautionary principle and the “polluter pays” principle.
Moreover this provision imposes specific “obligations” that are related to energy
efficiency. The Contracting Parties shall “have particular regard to Improving Energy
Efficiency, to developing and using renewable energy sources, to promoting the use of
cleaner fuels and to employing technologies and technological means that reduce
pollution.” Moreover, they shall promote market-oriented price formation and a fuller
reflection of environmental costs. In addition, the parties shall “promote and co-operate
in the research, development and application of energy efficient and environmentally
sound technologies, practices and processes which will minimise harmful Environmental
Impacts of all aspects of the Energy Cycle in an economically efficient manner”, and
shall “encourage favourable conditions for the transfer and dissemination of such
technologies”.
86
Signed in December 1994, entered into force in April 1998. On the participation of the European
institutions, see Council and Commission Decision 98/181/EC, ECSC, Euratom 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, OJ 1998 L 69/1.
87
More precisely, the Energy Charter process was launched by R Lubbers, Prime Minister of The
Netherlands, in June 1990.
88
It is based on the reasoning that “Russia and many of its neighbours were rich in energy resources
but needed major investments to ensure their development, whilst the states of Western Europe had a
strategic interest in diversifying their sources of energy supplies.” See Energy Charter Secretariat, “An
Introduction to the Energy Charter Treaty”, op cit., at 13.
89
See R Lubbers, “Foreword”, in T Wälde (ed.), The Energy Charter Treaty – An East-West
Gateway for Investment and Trade (The Hague/London/Boston: Kluwer, 1996) xiii, at xiv. See also A
Konoplyanik and T Wälde, “Energy Charter Treaty and its Role in International Energy” (2006) 24 Journal
of Energy and Natural Resources Law 523, at 524.
90
Ibid.
91
On the energy efficiency provisions of the Energy Charter Treaty, see A Bradbrook, “Significance of the
Energy Charter Treaty” (1999) 64 Applied Energy 251.
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As its name indicates, the Energy Charter Treaty Protocol on Energy Efficiency and
Related Environmental Aspects (PEEREA)92 specifically focuses on the promotion of
energy efficiency. Building on Article 19 of the Energy Charter Treaty, the Protocol on
Energy Efficiency defines in more detail the basic policy principles that can achieve
energy savings, including market based reforms and “reduction of barriers to energy
efficiency”. In accordance with Article 4, each Contracting Party “shall strive to ensure
that energy efficiency policies are coordinated among all of its responsible authorities.”
Article 5 enjoins the parties to “formulate strategies and policy aims for Improving
Energy Efficiency (...) as appropriate in relation to their own specific energy conditions.”
Article 8 provides that “[i]n order to achieve the policy aims formulated according to
Article 5, each Contracting Party shall develop, implement and regularly update energy
efficiency programmes best suited to its circumstances.” This provision proposes policies
instruments such as the development of standards to improve the efficiency of energy
using equipment, and efforts to harmonise these internationally to avoid trade distortions,
as well as the support and promotion of energy efficient techniques such as combined
heat and power (CHP) generation. Article 6 provides that the parties “shall encourage the
implementation of new approaches and methods for financing energy efficiency and
energy-related environmental protection investments, such as (…) Third Party
Financing.” Moreover, they “shall endeavour to take advantage of and promote access to
private capital markets and existing international financing institutions in order to
facilitate investments in Improving Energy Efficiency”. Following Article 7, the parties
“shall encourage commercial trade and co-operation in energy efficient and
environmentally sound technologies, energy-related services and management practices.”
From an institutional perspective, the Charter Conference shall, in accordance with
Article 10 of the PEEREA, adopt procedures for keeping under review the
implementation of these provisions, including reporting requirements. It shall also
identify areas of cooperation. The Annex specifies areas of international cooperation,
including the “development of economic, legislative and regulatory measures” and
financing measures such as the “development of legal framework”, Third Party
Financing, joint ventures and co-financing.
Russia signed the ECT on 17 December 1994. This Treaty has however never been
ratified as required by Articles 14 and 15 of the Federal Law No. 101-FZ of 15 July 1995
on the International Treaties of the Russian Federation for its entry into force. 93 On 20
August 2009, the Russian Federation officially informed the Depositary (Portugal) that it
did not intend on becoming a Contracting Party to the ECT and the PEEREA.94 The
absence of ratification does not mean that Russia lacks rights and obligations under the
92
Also signed in December 1994.
As modified by Federal Law No. 318-FZ of 1 December 2007 (Федеральный закон от 15 июля
1995 № 101-ФЗ О международных договорах Российской Федерации).
94
Regulation of the Government of the Russian Federation No. 1055-r of 30 July 2009 on the
Intention of the Russian Federation not to Become a Participant to the Energy Charter Treaty and to the
Protocol to the Energy Charter Treaty on Energy Efficiency and Related Environmental Aspects
(Распоряжение Правительства РФ от 30.07.2009 № 1055-р “О намерении Российской Федерации не
становиться участником Договора к Энергетической Хартии, а также Протокола к Энергетической
Хартии по вопросам энергетической эффективности и соответствующим экологическим аспектам”).
See also www.encharter.org/fileadmin/user_upload/document/EN.pdf.
93
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1 September 2010
Treaty. Indeed, the ECT provides for its provisional application. In accordance with
Article 45, paragraph 1 of the ECT, each Signatory Party agrees to apply the Treaty
provisionally pending its entry into force, to the extent that such provisional application is
not “inconsistent with its constitution, laws or regulations”.95
In the famous Yukos cases, the Arbitral Tribunal ruled that the principle of provisional
application was not inconsistent with Russia’s internal legislation.96 Russia was thus
bound to apply the energy efficiency provisions until the 18th October 2009.
Russia has effectively participated to the energy efficiency reviews by the Energy Charter
Secretariat.97 It is arguable that Russia could still participate to the Energy Charter based
on its signature of the Energy Charter Declaration. The ECT and the PEEREA have
however no binding effect on Russia after the 18th of October 2009.
For foreign companies that committed to energy efficiency investments in Russia before
this date (e.g. the huge investments of E.ON, ENEL and FORTUM in the modernisation
of the Russian electricity production sector), the acceptance of jurisdiction on the basis of
Article 45 of the Energy Charter Treaty in the Yukos cases can be held to be of
considerable importance.98 Following this ruling, the investment chapter of the Energy
Charter Treaty and the dispute resolution clause, remain in force for these investors until
18 October 2029.
2.1.2. The Kyoto Protocol
The promotion of the flexible mechanisms (Joint Implementation (JI) and Clean
Development Mechanism (CDM)) of the Kyoto Protocol99 constitutes one of the central
aspects of the external EU energy efficiency policy. The EU institutions consistently
95
Article 25 Vienna Convention on the Law of the Treaties allows for the provisional application of
treaties. This provision leaves the details of provisional application to specific arrangements in each treaty.
See K Hobér, “The Role of the Energy Charter Treaty in the Context of the European Union and Russia”,
in G Coop and C Ribeiro (eds.), Investment Protection and the Energy Charter Treaty (Huntington, New
York: JurisNet, 2008) 235, at 275–276.
96
Yukos Universal Limited v. The Russian Federation, Interim Award on Jurisdiction and
Admissibility, 30 November 2009, PCA Case No. AA 227 (UNCITRAL); Veteran Petroleum Limited
(Cyprus) v. The Russian Federation, Interim Award on Jurisdiction and Admissibility, 30 November 2009
(PCA Case No. AA 228, UNCITRAL); Hulley Enterprises Limited (Cyprus) v. The Russian Federation,
Interim Award on Jurisdiction and Admissibility, 30 November 2009 (PCA Case No. AA 226,
UNCITRAL).
97
Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects, Russian
Federation – Regular Review of Energy Efficiency Policies (Brussels: The Energy Charter, 2007).
98
It has, according to Gaillard (that represents the claimants) “a huge precedent value”. E Gaillard
quoted in “Court Rules Against Russia in Yukos Case” (2009) Euractiv, available online at
www.euractiv.com/en/energy/court-rules-russia-yukos-case/article-187869?_print; See also A Riley, “The
Yukos Decision: Profound Implications for the EU-Russia Energy Relationship” (2009) CEPS
Commentary, available online at www.ceps.be/book/yukos-decision-profound-implications-eu-russiaenergy-relationship, at 1, speaking of “the pyrrhic victory of pyrrhic victories.”
99
Signed on 11 December 1997, entered into force on 16 February 2005.
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highlight the opportunities that the JI and CDM mechanisms offer in terms of energy
savings and GHG emission reductions. Indeed, the JI and CDM mechanisms represent an
important source of financing for GHG emission reduction projects, such as energy
efficiency and renewable energy projects, at least for the period from 2008 to 2012.100
Support for the implementation of the Kyoto Protocol is for instance central to the
INOGATE program.101 The flexible mechanisms are a core component of the Astana
Ministerial Declaration of 30 November 2006 on Enhanced energy co-operation between
the EU, the Littoral States of the Black and Caspian Seas and their neighbouring
countries.
The Kyoto Protocol and its flexible mechanisms have been, and continue to be, of crucial
importance in the context of EU-Russia Energy Dialogue, in particular as regards the EU
efforts to improve the energy efficiency of the Russian economy. The European
Commission considered for instance in its Communication of 17 December 2001 on EURussia Environmental Cooperation102 that:
[t]he EU and Russia have a common interest in implementation of the UN Framework
Convention on Climate Change (UNFCCC) and the Kyoto Protocol. Further co-operation
on climate change under the Partnership and Cooperation Agreement should maximise the
synergies with the EU-Russia Energy Dialogue, outcome of which aims at attracting
investments in the energy sector in Russia and improved energy efficiency. In this respect,
the EU-Russia Energy Dialogue should also facilitate the development of Joint
Implementation projects in Russia.
It later stated in its Communication of 13 December 2004 on The Energy Dialogue
between the European Union and the Russian Federation between 2000 and 2004103 that:
[s]ince the start of the energy dialogue with Russia, the Commission has underlined the
importance which it attaches to commitments under the Kyoto Protocol on climate change.
In the framework of the dialogue, the Commission has insisted on raising the question of
Russian ratification of the Protocol, without which the Protocol could not come into force.
Russia’s implementation of the Kyoto Protocol should help Russia move towards a more
efficient use of its energy resources. 104
100
Under the Kyoto Protocol, greenhouse gas mitigation projects can benefit from support by being
registered as Clean Development Mechanism (CDM) or Joint Implementation (JI) project activities. This
registration entitles them to an amount of emission credits corresponding to the reduction of greenhouse gas
emissions achieved by the concerned projects. These emission credits can be traded on the international
carbon market for use by Annex I Parties to meet their emission reduction targets under Article 3 of the
Kyoto Protocol and can be traded on the international carbon market. They thus constitute an additional
financial income for climate-friendly investments.
101
See
also
www.inogate.org/inogate_programme/inogate_projects/ongoing-inogateprojects/support-kyoto-protocol-implementation-skpi.
102
COM(2001) 772 final, at 12.
103
COM/2004/0777 final.
104
See also the Resolution of the European Parliament of 14 November 2007 on the EU-Russia
Summit (P6_TA(2007)0528), considering that “flexibility mechanism provided for in the Kyoto Protocol
could attract investment to modernise the Russian energy and energy end-uses sector.”
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Russia ratified the Kyoto Protocol.105 It is generally agreed that the EU has played a key
role as regards Russia’s ratification. This ratification enabled the subsequent entry into
force of this treaty.
Russia’s ratification of the Kyoto Protocol was a very controversial issue in national
politics.106 Opponents of the Kyoto Protocol argued that, although the economic decline
following the collapse of the Soviet Union left Russia with a large surplus of GHG
emissions,107 the expected rapid economic development of the country could nullify this
excess.108 Binding Russia to limitations of its GHG emissions could therefore constrain
its economic growth.109 On the other hand, proponents of Russia’s ratification (e.g. the
former electricity quasi-monopoly RAO UES) pointed to the country’s great potential for
emission reductions. They argued that the JI mechanism could contribute to the financing
of the modernisation of Russia’s energy infrastructure and to the attraction of foreign
technologies.110 RAO UES, for instance, counted on the JI mechanism to attract
investments in the refurbishing of the existing installations, the construction of new stateof-the-art plants and the development of renewable energy. 111 Analysts argue that,
105
Federal Law No. 128-FZ of 4 November 2004 on the Ratification of the Kyoto Protocol to the
United Nations Framework Convention for Climate Change (Федеральный закон от 04.11.2004 № 128ФЗ “О ратификации Киотского Протокола к Рамочной Конвенции Организации Объединенных
Наций об Изменении Климата”).
106
A Firsova and R Taplin, “A Review of Kyoto Protocol Adoption in Russia: Joint Implementation
in Focus”, (2008) 15 Transitional Studies Review 480, at 483-487; See also B Buchner and S Dall’Olio,
“Russia and the Kyoto Protocol: the Long Road to Ratification” (2005) 12 Transition Studies Review 349.
107
The sale of this excess of CO2 emissions is often referred to as “hot air”.
108
See among others М Я Лебедева и Ю И Пахомова, “Международно-Правовые аспекты
участия России в Киотском протоколе” (2006) 4 Нефть, Газ, Право (M Y Lebedeva and Y I
Pakhomova, “International Law Aspects of Russia’s Participation to the Kyoto Protocol” (2006) 4 Oil, Gas,
Law, at 58); B Buchner and S Dall’Olio, op cit., at 352, referring to the declarations of Andrei Illarionov, at
that time chief economic adviser of President Putin; T G Avdeeva, “Russia and the Kyoto Protocol:
Challenges Ahead” (2005) 14 Review of European Community and International Environmental Law 293,
at 295–296.
109
Moreover, a warmer climate would have positive consequences for Russia’s agriculture and
would reduce the expenses in heating. Y A Izrael, “Statement of the Advisory Board of the Russian
Academy of Sciences Regarding the Possible Anthropogenic Climate Change and Problems of the Kyoto
Protocol”, Nauka v Sibiri, at 22-23, quoted in A Firsova and R Taplin, op cit., at 486. In addition to these
reasons, some argue that the decision of the United States not to ratify the Kyoto Protocol removed an
important potential buyer of Russia’s emission credits. This decreased the economic attractiveness of
carbon trade for Russia. See A Firsova and R Taplin, op cit., at 485.
110
L A Henry and L McIntosh Sundstrom, “Russia and the Kyoto Protocol: Seeking An Alignment
of Interests and Image” (2007) 7 Global Environmental Politics 47, at 54–55 and 57; B Buchner and S
Dall’Olio, op cit., at 366–367. See also B Muller, “The Kyoto Protocol: Russian Opportunities” (March
2004) The Royal Institute of International Affairs – Briefing Note, at 7, available online at
www.chathamhouse.org.uk/files/3166_bmmar04.pdf; F Laroui, E Tellegen and K Tourilova, “Joint
Implementation in Energy Between the EU and Russia Out Look and Potential” (2004) 32 Energy Policy
899, at 905, 907 and 911.
111
To stimulate the deployment of state-of-the-art technologies in electricity production by making
use of the financial mechanisms of the Kyoto Protocol, the RAO UES created the “Energy Carbon Fund”
(see www.carbonfund.ru). Following the dismantlement of the RAO UES, the Energy Carbon Fund has
been transferred to the Federal Grid Company. On the role of this Fund, see O Pertsovsky, “Implementation
of Kyoto Protocol Mechanisms in the Russian Power Sector”, presentation given at the conference on RAO
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ultimately, Russia’s decision to ratify the Kyoto Protocol was driven by political reasons.
It is considered as a bargaining move to secure the support of the European Union for its
accession to the World Trade Organisation and to obtain a special status for the
Kaliningrad Oblast.112 The potential offered by JI projects, as well as by emissions
trading, only played a secondary role.113
2.1.3. International Agreement on Energy Efficiency
The European Commission has actively promoted its external energy efficiency agenda
in the context of the G8. The initial idea advocated by the European Commission was to
create an International Agreement on Energy Efficiency with specific targets and
standards.114 With a view to promoting energy efficiency world-wide, the European
Commission’s Communication of 19 October 2006 on an Action Plan for Energy
Efficiency: Realising the Potential115 proposed an international framework agreement
involving both developed and developing countries, including Brazil, China, India, Japan,
Russia and the United States. This agreement should have been done in collaboration
with the United Nations, the International Energy Agency, G8 (Gleneagles Dialogue on
Climate Change), the World Trade Organisation, the World Bank, the European Bank for
Reconstruction and Development, the European Investment Bank and other institutions.
In accordance with the Commission, the aim of such a “framework agreement” would
have been to:
develop closer co-operation on energy efficiency measurement and evaluation, minimum
performance requirements for goods and services, labelling and certification, energy
audits, stand-by losses, codes of conduct, and more. It should [have covered] all end-use
sectors, including transport, as well as energy transformation, where the global potential is
particularly large.116
Along the same lines, in its Resolution of 23 March 2006 on Security of Energy Supply
in the European Union,117 the European Parliament stressed:
UES of Russia and the Kyoto Protocol, 20 September 2007, Moscow, available online at
www.carbonfund.ru/doc/carbonfund/prezentation/02_pertsovskiy.pdf.
112
L A Henry and L McIntosh Sundstrom, op cit., at 58; A Firsova and R Taplin, op cit., at 486; B
Buchner and S Dall’Olio, op cit., at 354–355 and 376. See also J Karas, “Russia and the Kyoto Protocol:
Political Challenges” (March 2004) The Royal Institute of International Affairs – Briefing Note, at 13,
available
online
at
www.res.ethz.ch/kb/search/details.cfm?fecvnodeid=129061&dom=1&fecvid=21&v21=129061&lng=en&i
d=23039.
113
A Firsova and R Taplin, op cit., at 486.
114
Lesage, D., et al., “G8+5 Collaboration on Energy Efficiency and IPEEC: Shortcut to a
Sustainable Future?” (2009) Energy Policy, doi:10.1016/j.enpol.2009.09.043, at 3
115
COM(2006)545 final, at 19.
116
See also “IEA Ministerial Meeting: Andris Piebalgs Calls for an International Agreement on
Energy Efficiency”, Press Release of 15 May 2007 (IP/07/671).
117
P6_TA(2006)0110, Item 10.
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the importance of including in the new energy diplomacy of the EU a constructive
dialogue with all major consumers of energy and notably emerging economies on energy
efficiency and energy conservation, with the aim of setting minimum efficiency standards
for global goods like cars, appliances, consumer electronics and office equipment, to be
harmonised in phases, and promoting at global level the integration of the environment
into transport and energy decisions.
Eventually, at the G8 Energy Ministerial in Aomori in June 2008, the G8 countries plus
China, India, South Korea and the EU adopted a declaration on the creation of an
International Partnership for Energy Efficiency Cooperation.118 The International
Partnership for Energy Efficiency Cooperation (IPEEC) aims to support the on-going
work of the participants to promote energy efficiency by, for instance, compiling best
practices, exchanging information, enabling joint-research and developing public-private
partnerships. In contrast to the EU proposal, the IPEEC does not purport to develop
binding standards or energy efficiency targets for the participants.119
2.2. European law and the promotion of external energy efficiency
2.2.1. The “export” of the acquis communautaire
The European Commission considered in its Communication of 13 December 2004 on
The EU-Russian Energy Dialogue between 2000 and 2004 that:
[t]he energy dialogue (…) has opened the way for the convergence of strategies in the
Russian and EU markets. The principles of the internal energy market, such as energy
efficiency, reform of internal industrial structures, reform in the electricity sector and
unbundling, could provide part of the reference framework for the restructuring of
Russia’s energy sector. Even if the two markets are separate, they should be inspired by
shared principles.
The notion of “regulatory convergence”, “harmonisation” or approximation refers to the
integration of EU legal principles into foreign countries. In contrast to the harmonisation
of national regulations within the European Union, these countries do not participate to
the creation of these principles, but are invited to unilaterally integrate ready-made rules
into their legal systems. Regulatory convergence could thus, in a certain sense, be
compared with the adoption of the acquis communautaire by candidate Member States in
the context of their accession to the European Union. This later process can be described
as “an obligation to fully align national laws, regulations and procedures in order to give
effect to the entire body of EU law contained in the acquis communautaire.”120
Regulatory convergence needs however to be distinguished from this “full” incorporation
118
See http://ipeecshare.org.
Lesage, D., et al.
120
Environmental Resource Management, Convergence with EU Environmental Legislation in
Eastern Europe, Caucasus and Central Asia: A Guide, (Luxemburg: Office for Official Publications of the
European Communities, 2003), p. 9.
119
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of EU legislation into national law. It does indeed not require ‘the entire and wholesale
exportation of all standards and regulatory frameworks pertinent to the energy sector’ 121,
but would rather refer to the process of “bringing two legal systems closer together.”122 It
is based on the adoption of common or equivalent, not identical, rules and standards. In
this sense, regulatory convergence could be defined as the integration of EU principles in
the legal regimes of Partner countries of the European Union, disconnected from any
direct ambition of accession. This “external Europeanisation”123 could thus be considered
as a unilateral approach, based on the recognition of the EU principles as “models”.
The acquis communautaire in the field of energy efficiency consists of a considerable
amount of documents.124 Among these documents, Directive 2006/32/EC on Energy EndUse Efficiency125 provides a general framework to enhance the cost-effective
improvement of energy efficiency in the Member States.126 It aims to remove the existing
bottlenecks impeding the efficient use of energy and by creating a market for energy
services and other energy efficiency improvement measures.127 In this view, this
Directive establishes a general indicative energy savings target of 9 percent to be attained
by the Member States for the ninth year of application of the Directive. 128 Moreover, it
requires Member States to publish so-called Energy Efficiency Action Plans (EEAPs)
describing the measures taken to achieve the target. Besides, the Directive mentions some
mechanisms among which Member States have to choose in order to promote energy
efficiency. These mechanisms among others include the obligation imposed on energy
suppliers to offer energy services, the implementation of a white certificate scheme and
the conclusion of voluntary agreements. Furthermore, the Directive determines some
informative (e.g. energy audits, specific metering and belling obligations, certification
schemes and the dissemination and exchange of best energy-savings practices) and
financial (e.g. energy performance contracts, third party financing, funds) mechanisms.
Moreover, it provides some specific criteria as regards the role of public authorities, and
in particular public procurement, in relation to energy efficiency.
121
European Commission, Communication on the Development of an Energy Policy for the
Enlarged European Union, its Neighbours and Partner Countries, at 5.
122
Environmental Resource Management, at 10.
123
A Magen, “The Shadow of Enlargement: Can the European Neighbourhood Policy Achieve
Compliance” (2003) 12 Columbia Journal of European Law 384, at 386.
124
For an overview of the acquis communautaire in the field of energy efficiency, see among others
A Boute, “Energy Efficiency in the European Union – The Policy Framework”, in M Roggenkamp and U
Hammer (eds.), European Energy Law Report VII (Mortsel: Intersentia, 2007) 135.
125
Directive 2006/32/EC of 5 April 2006 on energy end-use efficiency and energy services and
repealing Council Directive 93/76/EEC, OJ 2006 L 114/64.
126
For a further analysis of Directive 2006/32/EC on Energy End-Use Efficiency see BERTOLDI,
“The Energy Efficiency and Energy Services Directive” in WERRING, EU Energy Law, Volume III – EU
Environmental Law: Energy Efficiency and Renewable Energy Sources, Claeys and Casteels, Leuven,
2006. See also A Boute and A De Geeter, “Directive 2006/32/EC on Energy End-Use Efficiency and
Energy Services: Realising the Transition to Sustainable Energy Markets?” (2006) Journal for European
Environmental and Planning Law 414.
127
Article 1 of Directive 2006/32/EC on Energy End-Use Efficiency.
128
See Article 4 of Directive 2006/32/EC on Energy End-Use Efficiency.
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A second document of considerable relevance for energy efficiency improvements in the
European Union consists of Directive 2003/87/EC of the European Parliament and of the
Council of 13 October 2003 Establishing a Scheme for Greenhouse Gas Emission
Allowance Trading within the Community,129 as modified by Directive 2009/29/EC. The
operators of the installations that fall within the scope of application of this Directive are
required to cover their GHG emissions with a corresponding amount of emission rights
(allowances). The expected scarcity of such allowances is supposed to create a pressure
to reduce GHG emissions. The installations that are covered by the EU Emissions
Trading Scheme are excluded from the scope of application of Directive 2006/32/EC on
Energy End-Use Efficiency.
Moreover, it is essential to refer to Directive 2004/8/EC of 11 February 2004 on the
Promotion of Cogeneration based on a Useful Heat Demand in the Internal Energy
Market130 and Directive 2009/28/EC of 23 April 2009 on the Promotion of the Use of
Energy from Renewable Sources.131
Following the regulatory convergence approach of the EU external energy efficiency
policy, non-EU partner countries would have to integrate these legislative documents in
their internal legal order.
2.2.2. Joint Projects with third countries under the Renewable Energy Sources Directive
Directive 2009/28/EC on the Promotion of the Use of Energy from Renewable Sources
allows Member States to reach their mandatory national targets for the use of renewable
sources through cooperative measures with third countries.132 Member States can support
the construction of renewable energy installations in non-EU countries and take the
electricity produced by these installations into account to comply with their national
targets. Therefore, the following conditions must be fulfilled.133
Firstly, the electricity produced from renewable energy sources in a third country must be
“consumed in the Community”.134 This requirement is considered met where an
equivalent amount of electricity to the electricity accounted for has been firmly
nominated to the allocated interconnection capacity.
Secondly, the electricity must be produced by new installations.135 This means
installations that have been constructed since 25 June 2009, as well as increases in
capacity after that date of existing installations. The rationale of this requirement is to
129
OJ L 2003 275/32.
OJ 2004 L 52/50.
131
OJ 2009 L 140/16.
132
See Article 3 Directive 2009/28/EC.
133
See Article 9 Directive 2009/28/EC.
134
Article 9 Directive 2009/28/EC does not require that this electricity has to be consumed in the
Member State that implements the joint project and aims to take the electricity produced by this project into
account for compliance with its national target.
135
Article 9 (b) Directive 2009/28/EC.
130
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avoid the diversion of existing renewable energy sources to the Community and their
replacement in the third country by conventional energy sources.136 The proportion of
renewable energy sources in the fuel mix of the third country may not be reduced as a
consequence of the implementation of a “Joint Project”. On the contrary, the Member
States should facilitate the domestic use by the third country concerned of a part of the
electricity produced by the installations covered by the joint project.137 Moreover, the
Member States should encourage the third countries to develop a renewable energy
policy and adopt ambitious targets for the share of renewable energy in domestic
consumption.
Thirdly, the support by Member States of renewable energy production in third countries
must be exclusive. This means that the amount of electricity produced and exported must
not have received support from a support scheme from a third country other than the
investment aid granted to the installation.138
The electricity systems of different regions of Russia (e.g. the Murmansk Oblast, the
Leningrad Oblast, the Karelian Region, the Pskov Region, Kaliningrad, etc.) are
interconnected within the European network (ENTSO). The “Joint Projects” mechanism
thus offers interesting financial opportunities for electricity production from renewable
energy sources in these regions.139 Article 16 of Directive 2009/28/EC obliges Member
States to take “appropriate steps” to develop their interconnection capacity with third
countries so as to stimulate the development of electricity production from renewable
energy sources. This provision is an important legal basis for removing one of the main
barriers to the developments of Joint Projects in Russia: the limited amount of
interconnection capacity between Russia and the EU network.
2.2.3. Linking under the EU Emissions Trading Scheme
The EU Emissions Trading Directive (Directive 2003/87/EC) authorises the operators of
installations that fall within the scope of this Directive to use emission credits generated
by JI and by CDM projects (respectively Emission Reduction Units (ERU) and Certified
Emission Reductions (CERs)) to fulfil their obligations. The EU-ETS can thus, to a
certain extent, be considered as a mechanism that can contribute to financing investments
in energy efficiency projects in (Annex I and non-Annex I) non-EU countries.
Russia is an Annex I country. It has adopted a national regulation for the implementation
of JI projects.140 Energy efficiency projects implemented in Russia in accordance with
136
See Recital 37 and 38 of Directive 2009/28/EC.
See Recital 38 of Directive 2009/28/EC.
138
Article 9 (c) Directive 2009/28/EC.
139
See A Boute, “The Development of Renewable Energy in the Northwest of Russia with European
Support – The Opportunities Offered by the New RES Directive”, presentation given at the Northwest
Russia Renewable Energy Forum, Murmansk, 16 September 2009.
140
Постановление Правительства РФ от 28-10-2009 № 843 “О мерах по реализации статьи 6
Киотского Протокола к Рамочной Конвенции ООН об Изменении Климата” (Decree No. 843 on
Measures for the Implementation of Article 6 of the Kyoto Protocol to the UNFCCC).
137
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this procedure could thus in theory generate ERUs that could be purchased by EU
companies.
3. EVALUATION OF THE POLICY AND REGULATORY INSTRUMENTS
3.1. Evaluation criteria
In order to effectively contribute to the improvement of the energy efficiency in non-EU
countries, the EU external energy efficiency policy must be adapted to the needs of the
recipient non-EU countries in this field. To be efficient, the policy and regulatory
approach that the EU institutions developed to stimulate energy savings abroad must
contribute to tackle the barriers that prevent realising energy efficiency investments in
these countries. An evaluation of the efficiency of the EU external energy efficiency
policy can only be made in relation to the contribution of this policy to the neutralisation
of these barriers.
What are the main regulatory barriers to energy efficiency investments? What prevents
the transition of the Russian economy towards more energy efficiency patterns?
Firstly, most experts agree that, in general, the most important barrier to the
implementation of energy efficiency projects consists of the lack of a regulatory
framework that enables the financial viability of these projects. In Europe, for instance,
the European Commission stated that “financing is one of the major problems to be
resolved” to ameliorate the energy efficiency of the economy.141 The difficulty to finance
energy efficiency projects result from the current lack of internalisation of CO2 and other
environmental and health externalities in energy prices.142 Current pricing for energy
products “does not point consumers towards patterns of consumption which offer a more
economical and rational use of energy”.143 Moreover, the European Commission
identifies a lack of financing instruments adapted to energy-efficiency projects.
In Russia, the pricing issue is exacerbated by a tradition of “cost plus” tariffs, crosssubsidisation and comparatively low energy prices, far below international levels.144
Moreover, in contrast to the European Union, the presence of large reserves of fossil fuels
on the Russian territory decreases the necessity to promote energy efficiency and
Commission’s Green Paper on Energy Efficiency, op cit, p 17.
The World Bank, Clean Energy and Development: Towards an Investment Framework
(Washington:
The
World
Bank,
2006),
at
21,
available
online
at
http://siteresources.worldbank.org/DEVCOMMINT/Documentation/20890696/DC2006-0002(E)CleanEnergy.pdf.
143
Commission’s Green Paper on Energy Efficiency, op cit, p 11.
144
International Energy Agency, Russian Energy Prices, Taxes and Costs 1993 (Paris: International
Energy Agency, 1994), at 9.
141
142
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renewable energy sources to diversify and guarantee the availability of energy supply.145
In addition, commercial financial institutions have limited experience in energy
efficiency projects.146 Analysts consider that do not they have an interest in developing
such experience because they are focusing on other opportunities.147
Secondly, analysts highlight the declarative nature of energy efficiency regulations as one
of the main flaws of the legal and political answers proposed in this field. In Europe, for
instance, the use of declarative, and not mandatory, national energy efficiency targets in
Directive 2006/32/EC on Energy End-Use Efficiency has been heavily criticised.148
Along the same line, in Russia, commentators critically appraised the declarative content
of the Federal Law No. 28-FZ of 3 April 1996 on Energy Efficiency.149 They also
underscored the fact that most concepts and tools remained undeveloped in the Law, and
thus had to be further implemented in future executive documents.150 The World Bank,
for instance, stated that:
[the] federal and regional legislation on energy efficiency is largely declarative. It does not
address key barriers, such as the lack of information and access to long-term funding.
Measures to remove these barriers and stimulate uptake of financially viable energyefficiency projects are essential to realising Russia’s energy efficiency potential.151
The Federal Law No. 261-FZ of 23 November 2009 on Energy Efficiency152 replaced the
Federal Law No. 28-FZ of 1996. This new Law provides for a much more detailed
regulatory basis for energy efficiency investments. It creates a system of labelling and
information for energy-consuming products and forbids the sale of incandescent lamps.
Moreover, it establishes a system of energy efficiency requirements for buildings and
introduces metering obligations. The Law also imposes specific measures and energy
savings obligations on the public sector. Companies with state participation or that are
active in the regulated segments of the energy industry have to integrate energy
efficiency measures in their investment programs. In addition, the Law provides for a
system of mandatory energy audits. It also contains financial incentives, such as fiscal
I Øverland and H Kjærnet, Russian Renewable Energy – The Potential for International
Cooperation (Farnham: Ashgate, 2009), at 2.
146
International Finance Corporation, Financing Energy Efficiency in the Russian Federation – GEF
Project Brief (2004), at 10.
147
Energy Charter Secretariat, Investing in Energy Efficiency – Removing the Barriers (Brussels:
Energy Charter Secretariat, 2004), at 116.
148
On this criticism, see A Boute and A De Geeter, “Directive 2006/32/EC on Energy End-Use
Efficiency and Energy Services”, at 414.
149
Федеральный закон №28-ФЗ Об Энергосбережении.
150
See В Зарубина, “Правовые аспекты энергосбережения в Россия” (2002) 5 Юрист 23 (V
Zarubina, “The Legal Aspects of Energy Efficiency in Russia”, Yurist).
151
World Bank Russia Country Office, Russian Economic Report No. 17 (Washington: The World
Bank Group, 2008), at 43. See also International Finance Corporation (The World Bank Group), Energy
Efficiency in Russia – Untapped Reserves (Washington, The World Bank Group, 2008), at 65.
152
Федеральный Закон №261-ФЗ об энергосбережении и о повышении энергетической
эффективности.
145
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measures, and creates a system of contracts for energy services. The new Law on Energy
Efficiency thus contains important mandatory mechanisms. However, the practical
impact of this Law is limited by the fact that, like the Federal Law No. 28-FZ of 1996,
many measures must be further implemented by the competent executive authorities.
Moreover, the scope of some mandatory requirements is very limited. The obligation for
energy companies to audit their energy use, for instance, does not require these
companies to implement the energy efficiency improvements that are proved to be
economically justifiable.
A third barrier consists of the inconsistent and insufficient implementation of the
regulation on energy efficiency. According to the Energy Charter Secretariat:
[e]nforcement problems reduce the success of energy efficiency regulations. Enforcement
is poor, especially in Central and Eastern Europe, partly due to uncertainty about which
government bodies has the responsibility to enforce, partly due to lack of knowledge
among civil servants and lack of resources. 153
In addition, it is arguable that this barrier results from the lack of identification by the
executive and regulatory authorities, as well as by the industry and population, with the
necessity to act in this field. Moreover, the regulatory solutions proposed at the national
level do not always answer to the needs of the stakeholders.154 Some analysts, for
instance, criticise the “overreliance on Western energy efficiency program models.”155
These programs can help, “but need to be significantly adapted to suit local markets and
conditions.”156
Fourthly, from a general perspective, energy efficiency investments are hindered by the
instability and unpredictability of the regulatory framework that governs these
investments. Perceived risks of changes of the “rules of the game” that investors in
energy efficiency projects have taken into account to build their business case negatively
affect the development of these projects. The risks of regulatory changes are internalised
by adding a risk premium what increases the cost of capital for these projects. The impact
of regulatory risks can be considered to be particularly severe when the financial viability
of energy efficiency investments depends on support by the state (e.g. support schemes).
The European Commission, for instance, considered that:
[o]ne of the main concerns with national support schemes is any stop-and-go nature of a
system. Any instability in the system creates high investment risks (…). Thus, the system
needs to be regarded as stable and reliable by the market participants in the long run in
order to reduce the perceived risks. 157
153
Energy Charter Secretariat, Investing in Energy Efficiency, at 42.
International Finance Corporation, Financing Energy Efficiency in the Russian Federation, at 4.
155
A Sarkar and J Singh, “Financing Energy Efficiency in Developing Countries – Lessons Learned
and Remaining Challenges” (2010) 38 Energy Policy 5560, at 5562.
156
Ibid.
157
European Commission, European Commission, Communication of 7 December 2005 on The
Support of Electricity from Renewable Energy Sources (COM(2005) 627 final), at 16–17.
154
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In Russia, the risks of substantial modification of the rules on energy efficiency are
exacerbated by the perceived low quality of the investment climate. Many analysts argue
that the modernisation of the Russian economy is prevented by the general instability and
unpredictability, as well as by the absence of strong guarantees as regards the
enforcement of contracts. Indeed, according to North:
[t]he inability of societies to develop effective, low-cost enforcement of contracts is the
most important source of both historical stagnation and contemporary
underdevelopment.158
Former Energy Commissioner Piebalgs explicitly considered that:
Russia needs to ensure a secure and attractive investment climate which reduces, as far as
possible, the level of non-commercial risk. Worries or uncertainties about the legal,
legislative or taxation regime increases the ‘risk premium’ element in the discounting rates
that investors, Russian and foreign, use in evaluating investment projects.159
The Government of the Russian Federation explicitly recognises the necessity to improve
the stability and predictability of investment conditions to attract private investors in the
Russian energy sector.160
The Global Competitiveness Report 2009–2010 of the World Economic Forum puts
Russia 119th of 133 analysed countries as regards the protection of property rights, 161 96th
as regards the favouritism in decisions of government officials, and 116th as regards
judicial independence.162 Moreover, it is ranked 109th of 133 on the efficiency of legal
framework in settling disputes, and 111th on the efficiency of the legal framework in
challenging regulations.163
158
D North, Institutions, Institutional Change, and Economic Performance (Cambridge: Cambridge
University Press, 1990) quoted in E Martinot, “Energy Efficiency and Renewable Energy in Russia –
Transaction Barriers, Market Intermediation, and Capacity Building” (1998) 26 Energy Policy 905, at 910.
159
A Piebalgs, “EU and Russian Energy Strategies”, Speech delivered at the EU-Russia Energy
Dialogue Conference of 30 October 2006 (SPEECH/06/653). In this view, see also OECD, OECD
Investment Policy Review of the Russian Federation: Russia’s Energy Investment Policy (Paris: OECD,
2008), at 23.
160
See Russia’s Energy Strategy for the Period up to 2030, as adopted by Regulation of the
Government of the Russian Federation No. 1715-r of 13 November 2009, Chapter V, para. 1 (at 12) and
para. 2 (at 18), and Annex 5, para. 23 (at 13).
161
On the need to secure property rights, see also OECD, OECD Investment Policy Review of
Russia: Strengthening the Policy Framework for Investment (Paris: OECD, 2008), at 10. See also N Fabry
and S Zeghni, “Foreign Direct Investment in Russia: How the Investment Climate Matters” (2002) 35
Communist and Post-Communist Studies 289, at 294–295.
162
World Economic Forum, Global Competitiveness Report 2009–2010 (Geneva: World Economic
Forum,
2009)
at
27
and
268,
available
online
at
www.weforum.org/pdf/GCR09/GCR20092010fullreport.pdf.
163
World Economic Forum, op cit., at 268.
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The failure to complete these first-generation reforms in Russia constitutes an important
barrier for investments in the modernisation of the Russian economy.164 As regards
investments in renewable energy, Martinot defends the view that “[e]ven given
information, proper price signals, and a conductive regulatory and contractual
framework, one of the most serious barriers is (…) a perceived climate of high
investment risk.”165 As regards JI projects, Laroui, Tellegen and Tourilova argue that “the
attraction of possible investors for JI in Russia is also hampered by the overall unstable
investment climate in Russia”.166
3.2. Declarative nature
3.2.1. The “significance”167 of the Energy Charter Treaty and the Protocol on Energy
Efficiency
Similarly to the Russian legislation on energy efficiency, the provisions on energy
efficiency of the ECT and the PEEREA appear to be merely declarative. According to
Bradbrook, “[a]dherence by states can be regarded as purely discretionary, and the
obligations are no more than hortatory.”168 Article 19 of the ECT, for instance, only
requires states to “strive to minimise” the environmental impact of their energy activities.
Similarly, Article 4 of the PEEREA provides that states “shall strive to ensure” that
energy efficiency policies are coordinated.
While it is true that the ECT and the PEEREA contain more binding language, states’
obligations to act have been seriously limited by other considerations. Article 19 of the
ECT, for instance, requires states to promote market-oriented price formation and a fuller
reflection of environmental costs. It also provides for the obligation to promote and cooperate in research and to encourage favourable conditions for the transfer of energy
efficiency technologies. However, these obligations are secondary to economic
considerations.169 States shall act “in an economically efficient” and “cost-effective
manner.” Along the same line, Article 5 of the PEEREA enjoins the parties to “formulate
strategies and policy aims for improving energy efficiency”. However, states are only
required to act to the extent that their efforts are “appropriate in relation to their own
R Ahrend and W Tompson, “Fifteen Years of Economic Reform in Russia: What has been
Achieved? What Remains to be Done?” (2005) 430 Organisation for Economic Cooperation and
Development Economics Department Working Paper 1, at 39.
165
E Martinot, “Renewable Energy in Russia: Markets, Development and Technology Transfer”
(1999) 3 Renewable Energy and Sustainable Energy Reviews 49, at 60.
166
F Laroui, E Tellegen and K Tourilova, op cit., at 908. See also A Korppoo, “Russian Energy
Efficiency Projects: Lessons Learnt from Activities Implemented Jointly Pilot Phase” (2005) 33 Energy
Policy 113, at 125; M Evans, S Legro and I Popov, “The Climate for Joint Implementation: Case Studies
from Russia, Ukraine and Poland” (2000) 5 Mitigation and Adaptation Strategies for Global Change 319,
at 328 and 333–334.
167
A Bradbrook, “The Significance of the Energy Charter Treaty”, at 251.
168
A Bradbrook, “The Significance of the Energy Charter Treaty”, at 254 and 260.
169
A Bradbrook, “The Significance of the Energy Charter Treaty”, at 254.
164
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specific energy conditions” and are “best suited to their circumstances.” According to
Bradbrook:
[these clauses] effectively give each country carte blanche to do as much or as little in
relation to energy efficiency as it might wish at any given time. The article effectively
makes each country the sole arbiter of what is appropriate action.170
In addition to this subordination of energy efficiency policies to economic and local
conditions, the effectiveness of the ECT and the PEEREA appears to be seriously limited
by the fact that the energy efficiency provisions are vaguely formulated. Moreover, they
can hardly be enforced at the international level.171 The ECT and PEEREA only provides
for a system of review. As the 2007 Russian Energy Efficiency Review172 illustrates, this
follow-up can be regarded as mere window-dressing, rather than an attempt to critically
assess national policies implemented in this field.
An additional “vital weakness” of the ECT and the PEEREA is the absence of mandatory
targets for energy efficiency improvements.173
3.2.2. The significance of the G8+5 International Partnership for Energy Efficiency
Cooperation (IPEEC)
In contrast to the EU proposal on the creation of an International Energy Efficiency
Agreement, the G8+5 declaration on the creation of an International Partnership for
Energy Efficiency Cooperation has not endorsed the idea of developing mandatory
energy efficiency standards and targets for the participants.174 Following the opposition
of the United States and of the emerging economies participating to this initiative, the EU
proposal was “watered down to a voluntary ‘partnership’.”175 The IPEEC is thus another
declaration regarding the necessity to undertake action and cooperate to improve the
global energy efficiency. Here also, actions by the states appear to be purely
discretionary.
3.2.2. The significance of the export of the acquis communautaire
A Bradbrook, “The Significance of the Energy Charter Treaty”, at 256.
A Bradbrook, “The Significance of the Energy Charter Treaty”, at 254 and 260.
172
Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects, Russian
Federation – Regular Review of Energy Efficiency Policies (Brussels: The Energy Charter, 2007).
173
A Bradbrook, “The Significance of the Energy Charter Treaty”, at 261.
174
Lesage, D., et al.
175
Ibid.
170
171
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As already introduced above, Directive 2006/32/EC on Energy End-Use Efficiency does
not contain mandatory energy efficiency targets that Member States must achieve. 176 In
contrast to Directive 2009/28/EC on the Promotion of the Use of Energy from Renewable
Sources, Directive 2006/32/EC on Energy End-Use Efficiency only provides for
indicative targets. In addition, many of the provisions of this Directive are characterised
with non-binding language.177 Member States have thus considerable discretion in the
implementation of this Directive. The acquis communautaire in the field of energy
efficiency appears thus, at least to a certain extent, to suffer from similar deficiencies to
the Russian legislation on energy efficiency, inasmuch as it is also characterised with a
non-binding language. “Exporting” this part of the acquis to Russia is thus unlikely to
contribute to address the declarative nature of the Russian legislation on energy
efficiency.
3.3. Financing
The ECT and the PEEREA fail to address adequately the issue of financing of energy
efficiency investments.178 Article 6 of the PEEREA only requires the parties to
“encourage the implementation of new approaches and methods for financing energy
efficiency investments”. Besides this mere “encouragement”, the ECT and the PEEREA
do not contain other financing commitments.
In contrast, the Kyoto Protocol provides for financing mechanisms of GHG emission
reduction projects, including energy efficiency investments. As analysed above, the JI
mechanism enables investors to receive additional financial support for their low-carbon
(energy efficient) investments when these investments generate GHG emission
reductions that would not occur under a business-as-usual scenario and when the
financial viability of these projects is not possible under normal market conditions. The
Emission Reduction Units (ERUs) that these projects generate can be purchased by EU
investors or by the EU member states to fulfil their European and international emission
reduction obligations. European participation to JI projects in Russia could thus
contribute to the financing of the modernisation and improved energy efficiency of the
Russian economy.
However, the JI mechanism in Russia could also provide financial resources to projects
that would be financially viable without this additional support (i.e. that are not
financially “additional” as required by Article 6 of the Kyoto Protocol). As seen above,
Russia is an Annex I country. Under the so-called “Track 1 procedure” it is entitled to
approve JI projects on the basis of its own guidelines and procedures. In accordance with
A Boute and A De Geeter, “Directive 2006/32/EC on Energy End-Use Efficiency and Energy
Services”, at 419-420. The indicative nature of the targets was the subject of stormy discussions between
the European Commission and the European Parliament, on the one side, and the Council, on the other.
177
Directive 2006/32/EC contains what can be considered as “discretionary requirements”, i.e.
Member States can choose between different instruments. See A Boute and A De Geeter, “Directive
2006/32/EC on Energy End-Use Efficiency and Energy Services”, at 421.
178
A Bradbrook, “The Significance of the Energy Charter Treaty”, at 261.
176
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the Decree of the Government of the Russian Federation No. 843 on Measures for the
Implementation of Article 6 of the Kyoto Protocol to the UNFCCC, JI projects are
approved on the basis of their energy efficiency. Energy efficiency being a criterion for
the competitive selection of JI projects, it can be assumed that only the most energy
efficient projects are selected on this basis. Nevertheless, such a selection process does
not guarantee that the additionality requirement within the meaning of Article 6 of the
Kyoto Protocol and the UNFCCC Guidelines on the Implementation of Article 6 of the
Kyoto Protocol will be fulfilled.179 Indeed, depending on the overall efficiency and
amount of projects submitted for approval, it cannot be excluded that relatively
inefficient projects that are not additional within the meaning of Article 6 of the Kyoto
Protocol could be approved. If most projects that are submitted to Sberbank – the
institution charged with the selection of JI projects – are relatively inefficient or could be
realised without additional financial support, Sberbank could approve some of these
relatively inefficient projects. This loose approval procedure runs the risk that Russia –
which for the time being has a large surplus of Assigned Amount Units (AAUs)180 –
would sell this “hot air” to other Annex I countries.181 In other words, the approval of JI
projects that do not reduce GHG emissions with respect to business-as-usual conditions
would enable Russia to sell it surplus of AAUs (“hot air”) in the form of ERUs. This
would affect the environmental and financial integrity of the JI mechanism.
Commentators argue that in this respect that:
[t]rack 1 opens a new channel for countries to ‘greenwash’ their AAUs. Under this
argumentation a large surplus of AAUs constitutes an environmental integrity risk for
Track 1 JI unless the projects are truly additional. Since JI projects can access the EU ETS
through ERUs, there would be a danger this ‘hot air’ could be allowed to the EU ETS. 182
It is arguable that by purchasing the ERUs generated by JI projects in Russia, EU
companies and member states primarily aim to achieve more easily and cheaply their
GHG emission reduction obligations in comparison to internal emission reduction efforts.
From the EU perspective, the JI mechanism provides for flexibility in the attainment of
CO2 obligations. EU companies are interested in implementing these projects because it
will allow them to meet their CO2 targets at least costs. If, as argued above, the Russian
JI approval scheme does not provide for strong guarantees that the projects will
effectively generate energy efficiency improvements that would not be implemented in
179
This would however not violate the Kyoto Protocol. Indeed, as mentioned before, under the
“Track 1 procedure”, host states can approve JI projects on the basis of their own procedures. The proof of
additionality and the determination of baselines are subject to the discretionary evaluation of the competent
national authorities. Strictly speaking, host states do not have to comply with the additionality and baseline
methodologies approved and used at the international level. Russia has therefore the right to follow the JI
approval procedure of its choice.
180
I.e. the emission credits that are allocated to Annex I Parties as a function of their GHG emission
limits provided in the Kyoto Protocol.
181
See A Korppoo and O Gassan-zade, “Joint Implementation: Looking Back and Forward”
(October 2008) Climate Strategies 1, at 19–20, available online at www.climatestrategies.org/ourreports/category/19/78.html.
182
A Korppoo and O Gassan-zade, op cit., at 20. Indeed, the JI mechanism is often considered as an
instrument for generating “greened AAUs”.
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the absence of this additional JI support, EU companies would simply benefit from
cheaper emission credits without participating in the modernisation and improved energy
efficiency of the Russian economy.
A similar criticism applies to the Joint Projects that EU member states can implement to
attain their national renewable energy targets in accordance with Directive 2009/28/EC
on the Promotion of the Use of Energy from Renewable Sources. These Joint Projects are
primarily aimed to facilitate the attainment of national renewable energy objectives, not
to promote the use of renewable energy and the realisation of energy efficiency
improvements abroad.
3.4. Investment risks
3.4.1. The protection of energy efficiency investments under the investment regime of the
ECT
The reduction of the non-commercial risks associated to energy investments is one of the
core objectives of the ECT. There is no doubt that energy efficiency and renewable
energy investments can, in theory, be considered as “investments” within the meaning of
Article 1, paragraph 6 of the ECT. These investments are thus in theory protected under
the investment and dispute resolution chapters of the ECT. For energy efficiency
investments in Russia, however, this protection is limited to foreign companies that have
entered the Russian market before the 18th October 2009.183 In accordance with the
Decision on Jurisdiction and Admissibility in the Yukos cases, energy investments that
are made after this date are not covered by the provisional application of the ECT.184
The protection of investments in Russia is one of the main topics of the current
negotiations on a future agreement between Russia and the EU. In this context, it is
important to question whether the investment protection provisions of the ECT could be
used as a model for a future agreement. Are the substantive investment protection
provisions of the ECT adapted to the specific characteristics of energy efficiency
investments?
The ECT was initially suggested as a mechanism to guarantee the EU energy security by
stimulating and protecting investments in the “traditional” upstream energy sector. The
investment protection regime of the ECT is largely inspired by the investment standards
that can usually be found in most Bilateral Investment Treaties. Cameron argues in this
respect that:
183
Yukos Universal Limited v. The Russian Federation, Interim Award on Jurisdiction and
Admissibility, 30 November 2009, PCA Case No. AA 227 (UNCITRAL).
184
Ibid.
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[m]ost BITs do not venture into the interrelationship between investment protection and
regulation to promote or enforce environmental standards (...). The ECT is (...) almost
explicitly not an environmental treaty. 185
Moreover, according to Wälde, most international investment treaties focus on
“traditional political risk.”186 They do not explicitly aim to address the specific risks that
characterise energy efficiency or climate change mitigation projects.187 This does not
mean that the classic investment protection standards would not adequately protect
energy efficiency investments. However, it calls for a thorough study of the interrelation
between energy efficiency investments and international investment protection law. It is
necessary to analyse the specific risks that are inherent to such investments in the light of
the investment protection standards and the arbitral case law that has been developed in
this field.
3.4.2. Improving investment stability for energy efficiency projects by exporting the
acquis communautaire
Could the integration of the acquis communautaire in Russia improve the stability of the
domestic regulatory framework for energy efficiency projects?
As introduced above, the European Commission considers regulatory changes as the most
important risks that investments based on public support schemes face in Europe.188 The
Commission reached this conclusion as regards the promotion of renewable energy
projects. A similar conclusion could however also be made for energy efficiency projects.
Directive 2006/32/EC on Energy End-Use Efficiency provides for the possibility to
create funds, subsidies and other support mechanisms (e.g. white certificates) to help
finance energy efficiency investments. It does, however, not oblige Member States to
guarantee long-term stability of these support schemes.
Recital 30 of Directive 2004//8/EC on the Promotion of Cogeneration provides explicitly
that:
[w]ithin the purpose of this Directive to create a framework for promoting cogeneration it
is important to emphasise the need for a stabile economical and administrative
environment for investments in new cogeneration installations. Member States should be
encouraged to address this need […] by avoiding frequent changes in administrative
procedures etc.
P Cameron, International Energy Investment Law – The Pursuit of Stability (Oxford: Oxford
University Press, 2010), at 203. See also I V Gudkov, “The Russian Conceptual Approach and the Energy
Charter Treaty – Part I” (2009) 7 Oil, Gas and Law 50, at 54 (И В Гудков, “Российский концептуальный
подход и Договор к Энергетической хартии”, Нефть, Газ и Право).
186
T Wälde, “Treaties and Regulatory Risk in Infrastructure Investment” (2000) 34 Journal of World
Trade 1, at 14.
187
United Nations Conference on Trade and Development, World Investment Report 2010 –
Investing in a Low-Carbon Economy (Geneva: United Nations Publication, 2010), at 137.
188
Communication The Support of Electricity from Renewable Energy Sources, at 4–5.
185
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However, Directive 2004//8/EC only refers to the importance of regulatory stability in its
(non-binding) recitals. Member States are not hold by any requirement in this respect.
As regards support schemes for renewable electricity production, Article 4 of Directive
2001/77/EC of 27 September 2001 on the Promotion of Electricity Produced from
Renewable Energy Sources in the Internal Electricity Market189 enjoined the European
Commission to foresee transition periods of at least seven years and “maintain investor
confidence” were it to present a harmonised European support scheme.190 However
Directive 2009/28/EC of 23 April 2009 on the Promotion of the Use of Energy from
Renewable Sources repealed Directive 2001/77/EC. It does not contain this stability
requirement anymore.191
The first European Emissions Trading Directive (Directive 2003/87/EC) has also been
heavily criticised because of the lack of predictability and long-term perspective for
investors generated by the allocation of allowances over short periods.192 Directive
2009/29/EC has somehow tackled this deficiency.
With some exceptions, it is thus doubtful that the export of EU regulations governing
energy efficiency investments could provide an answer to the risks of potential regulatory
changes of the Russian regulation on energy efficiency. Indeed, the EU acquis appears, at
least to a certain extent, to suffer from comparable risks and uncertainties to those
identified in the Russian context.
3.5. Preliminary conclusions
The EU efforts to stimulate the creation in non-EU countries of a legal framework that is
conductive of energy savings are characterised by important deficiencies. Interestingly,
these deficiencies are comparable to the regulatory barriers that affect the Russian
legislation on energy efficiency. Indeed, the policy and regulatory instruments developed
in the context of the EU external energy efficiency policy are merely hortatory; they do
not provide an adequate answer to the financing barrier of energy efficiency projects; and
they do not offer to energy efficiency investors an absolute guarantee of protection
against substantial changes of the “rules of the game” that form the basis of their
investments.
189
OJ 2001 L 283/33.
On this transitional provision, see A Gunst, “Impact of European Law on the Validity and Tenure of
National Support Schemes for Power Generation from Renewable Energy Sources”, Journal of Energy and
Natural Resources Law 23 (2005) 95, at 116–119.
191
Recital 25 Directive 2009/28/EC still refers to the need to “maintain investor confidence”.
192
High Level Group on Competitiveness, Energy and the Environment, First Report of 2 June 2006
on Contributing to an Integrated Approach on Competitiveness, Energy and Environment Policies –
Functioning of the energy market, access to energy , energy efficiency and the EU Emissions Trading
Scheme, available online at http://ec.europa.eu/environment/climat/emission/pdf/com_2008_16_en.pdf.
See also European Commission, Communication of 13 November 2006 on Building a Global Carbon
Market – Report Pursuant to Art. 30 of Directive 2003/87/EC, COM(2006) 676, at 5;
190
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Importantly, the EU legislation on energy efficiency is also affected by these deficiencies.
A considerable part of the acquis communautaire on energy efficiency is largely
declarative in nature (e.g. Directive 2006/32/EC). Moreover, investors in energy
efficiency improvements in Europe can be exposed to considerable risks of regulatory
changes and uncertainty that can affect the financial viability of their investments.
The European and Russian regulatory framework governing energy efficiency
investments is thus characterised with comparable flaws. Proposing Russia to unilaterally
integrate the EU acquis on energy efficiency will thus not address the barriers that
currently prevent the modernisation of the Russian economy.
In addition, the “prestige” of EU energy models in Russia currently suffers from the
present geopolitical and economic tensions between the European Union and Russia.193
In contrast to the post-Soviet transition period, Russia is unlikely to accept to unilaterally
align its legislation to the regulatory “models” developed by the European “normative
hegemon”.194 Moreover, Russia is increasingly critical towards the EU agenda to export
the EU model to the NIS countries in the context of the European Neighbourhood
Policy.195
These challenges should not prevent the EU institutions from promoting the creation of
rules that would enable to improve energy efficiency abroad. Nevertheless, the
effectiveness of the EU external energy efficiency policy will depend on the recognition
by the EU institutions of the limits of its unilateral approach towards Russia and of the
limits of its own regulatory model.
Following a “lesson-drawing” approach,196 the EU institutions should acknowledge the
deficiencies of the EU energy efficiency “model” and experience in this field. This
exercise will enable to identify regulatory flaws that are common to the regulation
governing energy efficiency both in the EU and in Russia. These shared EU-Russian
regulatory flaws should lie at the heart of the European policy to improve the Russian
On the EU approach, see among others J de Jong and C van der Linde, “EU Energy Policy in a
Supply-Constrained World” (2008) SIEPS European Policy Analysis 1, at 6.
194
For the role of the EU as a “normative hegemon”, see H Haukkala, “The European Union as a
Regional Normative Hegemon: The Case of European Neighbourhood Policy” (2008) 60 Europa-Asia
Studies 1601, at 1602.
195
H Haukkala, “Lost in Translation? Why the EU has Failed to Influence Russia’s Development”
(2009) 61 Europe-Asia Studies 1757; D Averre, “Competing Rationalities: Russia, the EU and the ‘Shared
Neighourhood’” (2009) 61 Europe-Asia Studies 1689, at 1710. As regards energy, see Cambridge Energy
Research Associates, Securing the Future – Making Gas Interdependence Work (Cambridge,
Massachusetts: CERA, 2007) at II-9. This can be understood by the fact that the promotion of the EU
market principles is advocated as a way to “keep a regional hegemon at distance.” H Prange-Gstöhl,
“Enlarging the EU’s Internal Energy Market: Why Would Third Countries Accept EU Rule Export?”
(2009) 37 Energy Policy 5296, at 5300.
196
K Holzinger and C Knill, “Causes and Conditions of Cross-National Policy Convergence” (2005)
12 Journal of European Public Policy 775, at 783. See also R Rose, “What is Lesson-Drawing?” (1991) 11
Journal of Public Policy 3, at 4.
193
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regulation on energy efficiency. They should constitute the basis of European attempts to
harmonise the EU and Russian rules for energy savings.
4. CONCLUSIONS
4.1. The concept of energy efficiency in the external energy policy
Energy efficiency has been acknowledged by the EU institutions as a new pillar of the
external energy policy. European energy security, climate change mitigation and
competition objectives should not only be attained by internal EU energy savings
measures. These objectives also depend on the re-orientation of the economy of the
partner countries of the EU towards more energy efficient patterns.
The integration of energy efficiency in the EU external energy relations offers crucial
conceptual answers to the intertwined energy security and climate change challenges. It
appears to be an essential tool to guarantee security of supply in a carbon-constrained
world. Moreover, it is a creative answer to the historically limited EU external
competences in the fields of energy and foreign investment policy.
Nevertheless, the concept of energy efficiency that the EU institutions developed in the
context of the external energy policy fails to grasp the complexities that characterise the
relations between the EU as net energy importing entity and its energy exporting and
transit partners. It does not account for the diverging opportunities (benefits) and
challenges (sensitivities) that characterise the promotion of energy efficiency in non-EU
countries depending on the qualification of these countries as major consuming,
producing or transit countries.
It is essential to decline the concept of energy efficiency in function of the specific
characteristics of the recipient non-EU country. Moreover, it is fundamental to take into
account the interests of third-countries that could be affected by this external energy
efficiency policy, even when they are not the target of a given energy efficiency policy.
The usefulness of the concept of energy efficiency for approaching external energy
relations is dependent on the understanding that, although strategically less sensitive than
the traditional upstream energy sector, energy efficiency touches upon the entire energy
chain. It can therefore affect vested interests of third states or parties in an unexpected
way.
The promotion of energy efficiency in non-EU countries is presented by the EU
institutions as being in the geopolitical interests of the EU and its member states. It is also
justified on the basis of moral grounds such as the EU commitment to climate change
mitigation. Even in this respect, though, commercial interests – rather than moral
considerations – appear to be the preponderant reason underlying this approach. Given
the potential strategic benefits associated with external energy efficiency efforts, member
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states are also willing to pursue this approach on a bilateral way. These bilateral energy
efficiency policies could compete with the “common” EU approach and thus be criticised
on the basis of the classic concern that the EU is not “speaking with one voice” in its
external energy relations.
4.2. The specific instruments of the external energy efficiency policy
The EU institutions have proposed and developed specific policy and regulatory
instruments to assist the partner countries in the creation of a framework that would be
conductive to energy efficiency improvements. One of the most important regulatory
barriers to the development of energy efficiency projects is the absence of a legal
framework that enables the financial viability of these investments. At the international
level, the Kyoto Protocol (in particular its flexible mechanisms) is an essential tool to
enable the financing of GHG emission reduction, and thus energy efficiency, projects.
The EU institutions have played a crucial role in Russia’s ratification of this document.
They now advocate the use of the project based Kyoto mechanisms in Russia to facilitate
the modernisation of the Russian economy. However, being an Annex I country, Russia
can develop its own Joint Implementation approval procedure. Given its current surplus
of Assigned Amount Units, Russia could approve projects that are not truly “additional”.
This runs the risk that Russia would export this “hot air” to the EU Emissions Trading
Scheme. In this respect, the flexible mechanisms of the Kyoto Protocol would not be used
to generate energy savings abroad, but to facilitate the fulfilment by EU companies of
their GHG emission reduction obligations.
The same criticism applies to the Joint renewable energy Projects under Directive
2009/28/EC on the Promotion of the Use of Energy from Renewable Sources. This
mechanism primarily aims to help member states to attain their national renewable
energy target by importing renewable energy from non-EU countries. Recital 38 of
Directive 2009/28/EC provides that Member States should encourage the third countries
to develop a renewable energy policy and adopt ambitious targets for the share of
renewable energy in domestic consumption. This is however not a binding provision.
Joint Projects under Directive 2009/28/EC thus do not tackle the financing barrier that
currently prevents energy efficiency and renewable energy investments in non-EU
countries. It only purports to provide EU member states with more flexibility in their
national renewable energy policies.
Risks of changes of the “rules of the game” are a second major barrier to the development
of energy efficiency projects. More generally, the instability and unpredictability of the
investment climate of many non-EU countries prevent the optimal deployment of capital
in the modernisation of these economies. The EU institutions proposed the Energy
Charter Treaty as a mechanism to improve the stability of investment conditions in
energy producing countries in order to improve the EU energy security. Although the
ECT contains provisions and a protocol on energy efficiency, commentators consider the
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WORK IN PROGRESS
1 September 2010
ECT as “almost explicitly not an environmental treaty.”197 It can be seen as a legacy of
the traditional external energy policy that focused on the development of upstream energy
projects. Nevertheless, energy efficiency projects fall within the scope of application of
the ECT. The question is whether the substantive investment protection standards of the
ECT are adapted to the specific characteristics of energy efficiency projects. Do they
offer adequate protection against the specific risks that investments in energy savings
face? In the context of the current negotiations of a new EU-Russian or international
energy regime, it is essential to make sure that the investment protection regime is
adapted to these specific risks. A new energy regime must integrate the “paradigm shift”
of the external energy policy by not only providing protection against the classical risks
of outright state intervention with traditional upstream investments, but also protecting
energy efficiency investments against more subtle regulatory changes.
A third regulatory barrier to energy efficiency improvements is the declarative nature of
the regulation on energy efficiency. The ECT and its Protocol on Energy Efficiency are
characterised by the same deficiency. The acquis communautaire on energy efficiency is
also, at least to a certain extent, affected by this flaw. The EU institutions advocate the
integration of this acquis by its partner countries as one of the main instruments to create
a framework that will enable the realisation of energy savings in these countries. Given
that the EU regulation on energy efficiency suffers from comparable deficiencies to the
regulation of its partner countries, this approach is unlikely to generate the expected
benefits.
Instead of focusing on the acquis communautaire as a regulatory “model” (best-practice),
the EU institutions should look at the failures of its regulatory approach. The EU
experience in the field of energy efficiency enables to identify important lessons. The EU
external energy efficiency policy should focus on the lessons that can be learned by the
past and current EU failures in the field of energy efficiency regulation instead of
preaching its approach as “the single cosmopolitan standard, to the exclusion of all other
norms”.198
P Cameron, International Energy Investment Law, at 203. See also I V Gudkov, “The Russian
Conceptual Approach and the Energy Charter Treaty”, at 54; A Bradbrook, “The Significance of the
Energy Charter Treaty”, at 251.
198
J Mertus and E Breier-Sharlow, “Power, Legal Transplants and Harmonisation” (2004) 81
University of Detroit Mercy Law Review 477 at 479.
197
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