External energy policy and Nord Stream 2: between internal
market and external relations law
The legal framework applicable to external energy policy in the light of the
division of competences between the European Union and the Member States
Thesis European Union Law
Master International & European Law
University of Amsterdam
Student: Bart van Oorschot
Supervisor: prof. dr. S.F. Blockmans
ABSTRACT
Article 194 TFEU provides the basis for EU energy policy. Member States and the EU have a shared competence (article 4(2)i TFEU). Most Member States of the EU are greatly reliant on energy imports from third countries, so an external energy policy is necessary. This is done on both Member State and EU level by concluding international agreements and by activities on the energy market, where the EU is active as a regulator and the Member States as market participants. This leads to various problems; the interests of the Member States and the EU vary. In their external actions, the EU and Member States are bound by fundamental
principles of EU law, like the division of competences, and under an obligation to cooperate closely. In addition, the scope of the internal market rules (competition and energy law) is relevant; these rules apply outside the EU only to a certain extent, but may still be liable to influence external energy policy. As a case study, the findings with regard to the division of competences and the applicability of EU law will be applied to the Nord Stream 2 project, a pipeline meant to transport gas from a third country, Russia, to a Member State, Germany. Because it is situated partly outside the EU, the internal market rules do not fully apply. This can be solved, but Germany will have a decisive vote in any act because its energy rights from article 194 TFEU are possibly affected. However, it remains bound to the obligation of close cooperation, so there will still be a role for the EU.
CONTENTS
INTRODUCTION...4
CHAPTER 1: DIVISION OF COMPETENCES IN ENERGY POLICY...7
1.1 The legal framework in the Treaties...7
1.2 Interpretation of the Treaties...8
1.3 External competence...10
1.4 Energy in the common commercial policy...11
1.5 Implied external competence...13
1.6 Conclusion on competences...14
CHAPTER 2: LEGAL FRAMEWORK ON THE INTERGOVERNMENTAL LEVEL...16
2.1 External action: EU principles...16
2.2 Sincere cooperation...16
2.3 Intergovernmental agreements of the Member States...18
2.4 The IGA Decision...19
2.5 Conclusion on intergovernmental action...20
CHAPTER 3: THE SCOPE OF EU INTERNAL MARKET RULES...22
3.1 Relevance of the internal market rules...22
3.2 Extraterritorial application...23
3.3 Scope of the competition rules...24
3.4 Scope of the internal energy market rules...26
3.5 Conclusion on applicability...29
CHAPTER 4: CASE STUDY ON THE NORD STREAM 2 PIPELINE...31
4.1 Description of the project...31
4.2 Application of EU law?...32
4.3 Member State or EU competence?...32
4.4 The way forward...34
CONCLUSIONS...35
INTRODUCTION
Energy is the lifeblood of modern-day Europe. It is essential for economic activity and general well-being. Since the beginning of European integration, energy played a central role. The European Coal and Steel Community (ECSC)1 was founded in 1951 to place the market
for coal, needed for industrial production, under central authority. EURATOM2 aims to
facilitate cooperation in the field of nuclear energy.
Despite these early developments, the integration of the energy market has generally not been a priority since. Member States preferred to determine their energy policies themselves – a need for coordination was not felt.3 One explanation for this is that interests of the Member
States vary greatly; where some are dependent on imports and focus on energy security, others prioritise climate change.4 In the 1990s, the energy markets, like many other sectors,
were subject to liberalisation. Competition policy was introduced and actively enforced.5
Later, climate change and security of supply came to play a role in EU energy policy as well. In 2009 energy policy was incorporated in the Treaty on the Functioning of the European Union (TFEU) with article 194, which forms a legal basis for EU action and is mainly aimed at the completion of the internal energy market.
However, no matter how well integrated the internal energy market is, with a structurally higher demand than supply, energy imports are necessary. The Member States do not produce enough energy for themselves or each other and in order to meet their national demand, they rely heavily on energy imports from outside the EU.6 Neighbouring countries like Norway,
Russia, states in the Caspian region and in North-Africa all have vast sources of fossil fuels, which they exploit and export to the EU.7 International relations are thus important for the
EU’s energy supply. However, there is no separate Treaty provision for the external energy policy of the EU and Member States. It is necessary to turn to the rules governing the internal energy market and related policy areas for guidance on the applicable legal framework.
1 Treaty establishing the European Coal and Steel Community, entered into force 23 July 1952 and expired in 2002.
2 Euratom Treaty, entered into force on 25 March 1957. 3 Jegen & Mérand 2014, p. 188
4 Szulecki e.a. 2016; Jegen & Mérand 2014, p. 190
5 The first liberalisation directives were adopted in the 1990s, Directive 96/92/EC for electricity and Directive 98/30/EC for the gas market.
6 According to Eurostat, 53.5% of the EU gross inland energy consumption in 2014 came from imported sources.
Without direct rules, the division of competences is more complicated, both politically and legally. Areas of exclusive EU competence, like competition and commercial policy, interfere with Member State competences, like foreign policy and the determination of the national energy mix. Both the EU and Member States are bound by rules and principles of EU law in their external actions, for example the principle of sincere cooperation,8 unity and
consistency,9 and respect for the division of competences.10 However, even within this
framework, the question remains how much freedom they have left in pursuing their energy interests outside the EU, either directly or through state-owned companies.
The Nord Stream 2 project is exemplary. It concerns an envisaged pipeline between Germany and Russia meant for the importation of gas. The majority shareholder is Gazprom, a Russian state-owned company, and several European energy companies are also involved
financially.11 The project raises many questions and different answers with regard to its
(non)compliance with EU law, the (non)application of EU law, and the division of
competences. Germany believes it falls under its own jurisdiction and sees it as a commercial project.12 Other Member States, especially in Eastern Europe, disagree with the entire project
as they think it is against their interests and puts their security of supply at risk.13 It has also
been discussed within the EU in the past, and is on the agenda in the future.14 The
Commission has recently asked the Council for a mandate to start negotiations with Russia about an agreement covering the project,15 which indicates that it sees a leading role for itself.
Some argue that EU energy law applies,16 where others say it doesn’t.17
This contribution aims to make clear how these legal questions should be approached and answered. The research question will be: “what is the division of competences between the EU and the Member States in external energy policy and, acting within their respective competence, to what rules are they bound?” In order to answer this, firstly, the internal and
8 Article 4(3) of the Treaty on the Functioning of the European Union (TFEU) 9 Article 21(3) of the Treaty on European Union (TEU); Kuijper et al 2015, p. 24 10 Article 2 TFEU
11 Information available on the official website www.nord-stream2.com
12 Riley 2015, p.8; Russian Government Press Release, ‘Meeting with Vice-Chancellor and Minister of Economic Affairs and Energy of Germany Sigmar Gabriel’, 28 October 2015
13 Poland and the Baltic States fear that it will be easier for Russia to raise prices or cut off gas supplies when they can supply Germany (and Western Europe) directly. See Riley 2016, p.1 and Reuters Staff, ‘EU's Tusk criticises Nord Stream 2 as Brussels readies for Russia talks’, Reuters, 8 June 2017
14 F. Simon, 'Estonia seeks broad EU mandate for Russian gas talks, beyond Nord Stream 2', Euractiv, 28 June 2017
15 European Commission Press Release, ‘Commission seeks a mandate from Member States to negotiate with Russia an agreement on Nord Stream 2’, 9 June 2017
16 Riley 2016, p. 24-25
17 European Commission’s Legal Service on Nord Stream 2 (internal document), available online:
external division of competences in the field of energy will be analysed. Secondly, the applicable legal framework to external energy policy on the intergovernmental and the market level will be established. Thirdly, these findings will be applied to Nord Stream 2 in a case study, followed by a conclusion.
CHAPTER 1: DIVISION OF COMPETENCES IN ENERGY POLICY
1.1 The legal framework in the Treaties
Energy is an area of shared competence,18 which means that the EU shares its competence
with the Member States. Member States can exercise their competence to the extent that the EU has not done so.19 Once the EU has exercised its competence, the Member States are
excluded: this is the EU’s right of pre-emption.20 In exercising any shared competence, the
EU is bound to the principle of subsidiarity,21 meaning that it should only act when it is better
placed to do so compared to the Member States. In this chapter the division of competences in the field of energy will be examined.
Article 194 TFEU is the main Treaty provision on energy, defining the division of competences between the EU and the Member States and providing a legal basis for EU acts.22
1. In the context of the establishment and functioning of the internal market and with regard or the need to preserve and improve the environment, Union policy on energy shall aim, in a spirit of solidarity between Member States, to:
a. ensure the functioning of the energy market; b. ensure security of energy supply in the Union;
c. promote energy efficiency and energy saving and the development of new and renewable forms of energy; and
d. promote the interconnection of energy networks.
2. Without prejudice to the application of other provisions of the Treaties, the European Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall establish the measures necessary to achieve the objectives in paragraph 1. Such measures shall be adopted after consultation of the Economic and Social Committee and the Committee of the Regions.
Such measures shall not affect a Member State’s right to determine the conditions for exploiting its energy resources, its choice between different energy sources and the general structure of its energy supply, without prejudice to Article 192(2)(c).
3. By way of derogation from paragraph 2, the Council, acting in accordance with a special legislative procedure, shall unanimously and after consulting the European Parliament, establish the measures referred to therein when they are primarily of a fiscal nature.
18 Article 4(2)i TFEU 19 Article 2(2) TFEU 20 Article 2(2) TFEU 21 Article 5(3) TEU
In the first paragraph, a general emphasis is laid on the “spirit of solidarity between Member States” in executing the listed aims of EU energy policy. The EU, together with the Member States, has competence to act in the context of the functioning of the energy market, the security of supply in the Union, the promotion of energy efficiency and the development of new, renewable energy sources, and the interconnection of networks (art. 194(1) TFEU). The Member States retain their right to determine their energy mix (the choice between different energy sources and the general structure of its supply) and the conditions for exploiting their natural resources (art. 194(2) TFEU).
The provision was inserted in the Treaty of Lisbon.23 Before that time, the energy market was
regulated on the basis of the general EU competence to adopt harmonisation measures in the internal market. The EU shares competence over the internal market with the Member States,24 but the EU competence to adopt measures to establish or ensure the functioning of
the internal market is very broad.25 The Third Energy Package, which was adopted just before
Lisbon, has as its main legal basis article 95 EC (now article 114 TFEU). Looking at everything that Package introduced, it is clear that the EU was already able to regulate the energy sector extensively – it was already considered as an area of EU competence, being part of the internal market. There has been debate about how article 194 TFEU has changed the ability of the EU to regulate.26 On the one hand, it can be argued that a special legal basis
for energy related matters gives the EU a broader basis to legislate. In addition to the many possibilities provided by the internal market legal basis, an energy provision with specific objectives could legitimise further integration. On the other hand, the provision introduces certain “rights” that the Member States have which were not as clearly formulated before Lisbon. This argument could support the view that the new provision has limited the EU. The analysis of how the old situation has changed may give guidance to how the new situation (and division of competences) should be understood. In any case, the introduction of a specific energy chapter in the Treaties has recognised a role for the EU in energy policy.
1.2 Interpretation of the Treaties
It follows from the case law that article 194 TFEU has replaced the internal market as the most important legal basis for EU energy policy. In case C-490/10 the Court made clear that
23 Entered into force 1 December 2009 (hereafter: Lisbon) 24 Article 4(2)a TFEU
25 Article 114 and 26 TFEU and the case-law since case C-376/98 (Tobacco Advertising I) 26 Haraldsdóttir 2014, p. 208; Hancher & Salerno 2012, p. 374-387
article 194 TFEU is now the express legal basis for measures of EU energy policy,27 meaning
that article 114 TFEU can no longer be used for measures with the aim of harmonising the energy market.28 It is seen as a lex specialis of article 114 TFEU.29
The formulation of article 194(2) TFEU leaves possibilities for the Member States to pursue, to an extent, their national policies and interests in the field of energy. It is unclear, however, to what extent they can, and the EU cannot. It doesn’t follow from article 194(2) TFEU how the caveat should be understood and where the line should be drawn exactly. Because it is relatively new, article 194 TFEU has not been interpreted extensively by the Court in this aspect. Are the Member State’s rights absolute? That seems unlikely. Energy is an area of shared competence and it is inevitable that EU acts will, in some way, directly or indirectly, affect a Member State’s rights or choices. There is no reason to assume that this doesn’t go for energy just as much as any other area of shared competence.
In case T-370/11 Poland contested the legal basis of a Commission Decision on greenhouse gas emission allowance trading. The General Court judged that because the contested decision constituted an EU action within the framework of its environment policy, the right referred to in 194(2) TFEU was not applicable.30 Article 194(2) TFEU refers to article 192(2)
TFEU, which in turn must be read in the light of 192(1) TFEU: the legal basis for acts adopted by the Council in order to achieve the objectives of environment policy. Acts adopted in that context can affect the Member State’s rights in article 194(2), second paragraph, TFEU.31 It became clear in this case that those Member State’s rights are not
absolute. Would that have been the case, the provision would probably be largely ineffective for the EU. An absolute limit to the EU competence would make it very difficult for the EU to act in the area of energy. Poland tried to argue it by saying that measures in areas other than environment cannot affect those rights, and that the Member States never assigned exclusive jurisdiction to the EU regarding the matter in 194(2) TFEU,32 but the General Court
did not follow. It sees no reason to suppose that article 194(2) TFEU establishes a general prohibition for the EU to assign that right.33
27 Case C-490/10 (Parliament v. Council), p. 66-67 28 Johnston & Van der Marel 2013, p 185
29 Müller 2013, p.9
30 Case T-370/11 (Poland v. Commission), p. 17 31 Ibid, p. 18
32 Ibid, p. 16
33 Ibid, p. 17. The French version reads : « Toutefois, rien ne permet de supposer que l’article 194, paragraphe 2, deuxième alinéa, TFUE établit une interdiction générale d’affecter ce droit (…) »
The Member State’s retained competence listed in paragraph two is not absolute, so the EU is able to affect it by adopting acts. It is clear that measures of environmental policy based on 192(2) TFEU may significantly affect a Member State’s choice between different energy sources and the general structure of its supply.34 For measures in other areas, for example in
the internal market, the case-law does not provide this clarity. A closer look at the structure and wording of the second paragraph may hint to what extent.
It can been argued that the EU can take measures affecting the Member State’s rights in the second part of the second paragraph, because only “such measures,” meaning measures based on the first part of 194(2) TFEU, shall not affect those rights. The reference to article 192(2)c TFEU points to Council decisions taken unanimously in environmental policy, which can be read as a hint to that other EU measures taken unanimously can affect Member States’ energy rights. It clearly follows from the provision is that it is not possible to adopt EU acts affecting the Member States’ energy rights using the ordinary legislative procedure, but it doesn’t rule out the possibility to do so by way of a unanimous Council decision. When every Member State has a possibility for veto, consensus among all the Member States’ governments represented in the Council must be reached before anything can be done. This makes EU action difficult. However, it fits the idea that the Member States should retain certain rights. This means that, with this reading of article 194 TFEU, these rights can be affected by EU action when the Council acts unanimously.
The internal division of competences in the field of energy has its effect on the external competences. The question who can act internationally under what circumstances will be analysed in the next part.
1.3 External competence
As indicated before, the EU relies a great deal on third countries for its energy, especially when it comes to fossil fuels. Relations with supplying countries are therefore important. The EU has been active in external energy policy on an intergovernmental level; it has assumed an external competence to conclude agreements. Examples are multilateral
agreements to which the EU is party, like the Energy Charter Treaty (mixed agreement with the Member States) and the Energy Community, and bilateral agreements in the form of the strategic partnerships with supplier countries like Algeria and Iraq,35 or broader FTAs and
34 T-370/11 (Poland v. Commission), p. 18; although it is the Council acting unanimously 35 European Commission’s DG Energy on supplier countries, available online:
association agreements like the one with Ukraine. Soft law instruments, like non-binding Memoranda of Understanding and Joint Declarations, are even more widely used and signed by an EU representative.36
The Member States, on the other hand, have also concluded their own agreements; often bilateral agreements with supplier countries like Russia, underlying certain projects with the purpose of investment protection or to secure gas supplies. These bilateral agreements were usually concluded a long time ago, even before accession, for a long-term.
There are no specific Treaty provisions on external energy policy, and neither have there been any judgments by the Courts in this regard. What the EU and Member States can do externally depends on how the competences are divided internally. It has to be established on the basis of the general rules on external action as they follow from the Treaties and case-law. Energy cuts across several policy areas, so the external competence will not come exclusively to the EU or the Member States individually altogether.
1.4 Energy in the common commercial policy
Parts of the external energy policy fall within sphere of the common commercial policy (CCP).37 The trade in energy products and related services and foreign direct investment in
the energy sector are in principle part of the CCP.38
Within the EU, energy products are goods covered by the free movement provisions. This includes electricity.39 Services related to energy are also covered by those provisions.
Internationally, the trade in energy goods and related services falls under the regular WTO framework. Energy products like coal, oil and gas are considered goods and therefore fall within the GATT framework.40 Services related to energy are governed by the GATS.41 The
Energy Charter Treaty has special rules for trade and investment related to energy, but doesn’t have as many parties as the WTO.42
Foreign direct investment was included in the CCP after Lisbon and it was unclear what the scope of it was. The Court in Opinion 2/15 ruled that the EU has an exclusive competence for everything regarding foreign direct investment:
36 Van Vooren & Wessel 2014, p. 455-457 37 Article 207 TFEU
38 Dyson & Konstadinides 2016, p. 550 39 Case C-393/92 (Almelo), p. 28 40 Cottier et al 2010, p.3 41 Ibid
“It follows that the European Union has exclusive competence, pursuant to Article 3(1)(e) TFEU, to approve any commitment vis-à-vis a third State relating to investments made by natural or legal persons of that third State in the European Union and vice versa which enable effective participation in the management or control of a company carrying out an economic activity.”43
Member States have concluded many bilateral investment treaties with third states, the status of which is changing within the EU. 44 Only foreign non-direct investment is still an area of
shared competence.45 These developments are relevant for the energy sector, because
investment protection has a great impact on external energy policy. It is common that foreign (state-owned or commercial) energy companies invest in projects in the EU, and EU
companies invest abroad.46
It is therefore for the EU to establish the conditions for the trade in energy products and services between the EU and third countries, following from the exclusive competence for commercial policy. This includes tariffs, market access and other barriers to trade. It is bound to WTO rules in this regard. The EU also has an exclusive competence to establish the conditions for investment protection of energy companies, since foreign direct investment is a part of the CCP. Existing BITs of the Member States continue play a role in the short term, but that role will eventually fade:47 all new agreements can be concluded by the EU acting
alone.
The EU has an exclusive right to conclude agreements establishing rules to protect foreign direct investments and the trade in services. The Member States have no competence over the CCP. It is, however, imaginable that an international agreement concluded in the area of CCP affects the Member States’ energy rights laid down in article 194(2) TFEU; for example when it is about the trade in energy services of foreign direct investment in the energy sector. Whose rights would prevail? In those cases, as it follows from article 207(4) TFEU and article 194(2) TFEU, the Council shall act unanimously for the negotiation and conclusion of that agreement.48 Unanimity is required for the adoption of internal rules affecting the
Member States’ energy rights, so it is the same for international trade agreements. This way, EU measures cannot affect those energy rights without the consent of all Member States,
43 Opinion 2/15 (EUSFTA), p. 82
44 After the entry into force of Lisbon and the adoption of Regulation (EU) No. 1219/2012 45 Opinion 2/15 (EUSFTA), p. 83 and 305
46 European Parliament, ‘Trade and investments in energy in the context of the EU common commercial policy’, p. 15; this behaviour would fall under the definition of direct investment, see Opinion 2/15 (EUSFTA), p. 80 and the case-law cited there.
47 Recital 5 of Regulation (EU) No. 1219/2012 48 In other cases this is done by QMV
represented in the Council. In addition, article 207(6) TFEU provides that the exercise of competences in the CCP “shall not affect the delimitation of competences between the Union and the Member States.”
1.5 Implied external competence
In areas of shared competence, the EU does not have an automatic external competence. It may, however, acquire an external competence by way of articles 3(2) and 216(1) TFEU. Article 216(1) TFEU provides the EU with a competence to conclude international agreements. Article 3(2) TFEU provides the possibility of acquiring an exclusive external competence, to the exclusion of the Member States.
It follows from these two Treaty provisions, which embody the codification of the ERTA-doctrine developed in the Court’s case-law,49 that the EU can acquire the competence to
conclude international agreements in an area of shared competence when that conclusion (i) is provided for in an EU legislative act, (ii) is necessary to exercise its internal competence, or (iii) in so far it may affect common rules or alter their scope.
In its case-law, the Court describes the competence to conclude any international agreement that is likely to affect common rules or alter their scope, granted by article 216 TFEU, as an exclusive EU competence pursuant to article 3(2) TFEU.50 The EU has exclusive external
competence when the commitments in the envisaged agreement fall within an area which is already largely covered by common EU rules and those rules may be altered in their scope or affected.51 So if the EU has legislated extensively in a certain area, it could have an exclusive
competence to conclude international agreements. The possibility of an implied exclusive external competence is originally there to address the risk that Member States, acting outside the framework of the EU institutions, might assume international obligations affecting common rules or altering their scope. “That would circumvent the rules set out in the Treaties for implementing EU policies and would therefore be liable to call into question the very essence of the EU integration process.” 52
The external competence is not necessarily exclusive when an agreement is not liable to affect common rules. In that case, the Member States could still have competence to conclude international agreements themselves, despite the EU also being able to do so.
49 Case C-22/70 (ERTA), further developed in Opinions 1/76 and 1/03 50 Opinion 2/15 (EUSFTA), p. 171-172
51 Ibid, p. 202
Applied in the field of energy, it is clear that the EU has adopted legislation creating an internal energy market. The Third Energy Package and the Security of Gas Supply
Regulation are important recent examples of EU action. Article 194 TFEU states the aims for EU energy policy, and grants the EU with a competence to act to pursue those aims in a spirit of solidarity between Member States. This competence may also include an external
competence to conclude international agreements,53 which may become exclusive.54 Whether
or not the external competence is exclusive, depends on the envisaged agreement itself. Member States have concluded bilateral agreements with third countries. Given the vast amount of EU legislation in the energy market, it is likely that these agreements have an impact on the internal market. To fall under exclusive EU competence, however, they should be able to affect or alter the scope of common rules. Many intergovernmental agreements in the field of energy are about energy supply or a certain investment; those are liable to violate EU law but not to affect it. In the next chapter the legal framework surrounding agreements in the field of energy will be analysed. The Member States still have the ability to conclude agreements with third countries in the field of energy, when it is about their energy mix or the exploitation of their national energy resources. The right to determine their energy mix potentially covers many international agreements: it can be argued that deals about energy supply and infrastructure are directly related to that right. The Commission seems to
acknowledge this; it announced that it was going to ask the Member States in the Council for a mandate to start negotiations with Russia about the Nord Stream 2 pipeline,55 which will be
dealt with in Chapter 4.
1.6 Conclusion on competences
Article 194 TFEU, being the main provision in the Treaty on energy policy, delineates the competences between the EU and the Member States. It is an express legal basis for measures related to energy policy. Energy is an area of shared competence, but the Member States retain certain rights, the “energy rights” listed in paragraph 2. These can only be affected by the Council acting unanimously, so with Member State consent.
Externally, the EU and Member States share a competence in energy. Depending on the specific context of the external energy policy, the EU alone or the EU and the Member States have competence to act. When it comes to measures related to the CCP, the EU has an
53 Article 216 TFEU
54 Article 3(2) TFEU and the ERTA doctrine
55 European Commission Press Release, ‘Commission seeks a mandate from Member States to negotiate with Russia an agreement on Nord Stream 2’, 9 June 2017
exclusive competence to conclude agreements following the procedure of article 207 TFEU. The EU also has an exclusive competence when an envisaged agreement is likely to affect common rules or alter their scope. When an international agreement includes provisions that affect the Member States’ energy rights from article 194(2) TFEU, the unanimity requirement in the Council applies to the negotiation and conclusion of that agreement, just like it does for internal measures.
In other cases in the field of energy, the EU does not have an exclusive competence; the Member States remain competent to conclude agreements with third states, subject to the principles and rules which will be analysed in Chapter 2 and 3.
CHAPTER 2: LEGAL FRAMEWORK ON THE INTERGOVERNMENTAL LEVEL When acting within their respective competence, the Member States and the EU are bound by certain rules of EU law. On the international plane there are several general principles and rules governing the relations between the Member States and the EU and their individual conduct.
2.1 External action: EU principles
The EU is bound to certain values and general principles in its external action. They can be found in article 3(5) and article 21 TEU and apply to all of the Union’s actions on the international scene. For external energy policy, there are some principles that are especially relevant, because they might constrain the EU compared to other actors.56 The EU must
contribute to sustainable development of the Earth,57 pursue common policies in order to
foster the sustainable (...) development of developing countries58 and help develop
international measures to preserve and improve the sustainable management of global natural resources, in order to ensure sustainable development.59 In addition to these principles, the
EU must comply with and promote human rights standards.60 Following article 21(3) TEU,
the EU has an obligation (“shall”) to respect the principles and pursue the objectives set out in first and second paragraphs of that provision in the development and implementation of its external action61 and the external aspects of its other policies. This could be problematic for
the Union’s effectiveness in external energy policy, given the fact that energy supplier countries are not always willing to conform to these standards. The Member States are not bound by these Treaty provisions; they are directed to the Union. In that sense the Member States have more freedom when they conduct external energy policy outside the EU context.
2.2 Sincere cooperation
The EU and Member States are bound by the principle of sincere cooperation laid down in article 4(3) TEU. According to this principle the Member States shall take appropriate measures to ensure the fulfilment of the obligations arising out of the Treaties or resulting from EU acts. They shall facilitate the achievement of the tasks of the EU and refrain from
56 Leal-Arcas & Filis 2013, p. 1252-1253 57 Article 3(5) TEU
58 Article 21(3)(d) TEU 59 Article 21(3)(f) TEU
60 Article 3(5) and article 21(1) and (3) TEU 61 Part 5 TFEU (articles 205-222)
any measure which could jeopardise the attainment of the Union’s objectives. This is thus both an active obligation (to facilitate, take measures) and a passive obligation (to refrain). As part of the Common Provisions in the TEU, the principle is of general application and has a very wide scope. When it comes to external action, there are two Treaty provisions that could be seen as a lex specialis of sincere cooperation. Article 24(3) TEU speaks of a spirit of loyalty and mutual solidarity in the area of common foreign and security policy (CFSP) and article 351 TFEU actively requires Member States to take all appropriate steps to eliminate incompatibilities of their prior international agreements with the Treaties.
The Court has applied the principle of sincere cooperation to the negotiation and conclusion of international agreements. The institutions among themselves and together with the Member States, if they are involved, have an obligation to cooperate closely.62 In areas of
shared competence, close cooperation does not mean that Member States must abstain from negotiating or concluding agreements when the EU is also planning to act or taking action. It could be enough to consult the Commission or to include or not include specific provisions in their bilateral agreement.63 In any case of shared competences, the Court deems close
cooperation essential both in the process of negotiation and conclusion and in the fulfilment of the commitments entered into. The obligation flows from the requirement of unity in the international representation of the Community.64
The scope of the duty of sincere cooperation does not necessarily coincide with the scope of EU competences.65 Even when it concerns their own rights and not EU competence, the
Member States have a duty of genuine cooperation.66 In the PFOS-case, Sweden acted within
an international organisation, exercising its own competence. The Court ruled that instead of making a proposal on its own, Sweden should have abstained from action, because the EU was also competent and had already made a strategy in the Council.67 When there is a
common position, no matter the form it takes, unilateral action could compromise the principle of unity in the international representation of the EU and Member States and is therefore a breach of article 4(3) TEU.68
62 See, for example, case C-28/12 (Commission v. Council), p. 54 and the case-law cited there 63 Hillion 2010, p. 101
64 Case C-25/94 (FAO), p. 48 and the case-law cited there 65 Kuijper et al 2015, p. 197
66 Case C-246/07 (PFOS), p. 70-71 67 Ibid, p. 76
The EU is active in several international organisations that relate to energy policy. In the context of international organisations, the obligation of close cooperation is applicable. The EU has its role in the WTO acting on behalf of the Member States. It is also Member of the Energy Community, which is aimed “to extend the EU internal energy market to South East Europe and beyond on the basis of a legally binding framework.”69 The EU is a party to the
Energy Charter Treaty together with the Member States. Furthermore, it promotes EU interests in organisations of which it is not a member. The OPEC is of great strategic interest for the EU; they cooperate by having regular dialogue.70 This is also the case with the Gulf
Cooperation Council.71 The results of these dialogues are usually laid down in press releases,
joint statements or conclusions which are not legally binding under EU law.
2.3 Intergovernmental agreements of the Member States
Member States conclude their own agreements in the field of energy.72 They can do so
because they retain their competence insofar the Union has not acted. These agreements can be specifically about energy cooperation, or be more comprehensive agreements with an energy chapter. Also common are bilateral agreements with supplier countries to secure, for example, gas supply or energy infrastructure. In addition to legally binding agreements, non-binding instruments are used to facilitate or support certain commercial projects. These come in the form of, for example, memoranda of understanding (MoU) or joint declarations.73
In the past, these agreements were often deemed to violate EU internal market law.74 This
causes trouble for the Commission, because the status of these agreements in the EU legal order makes it difficult to do something about them once they are entered into force. Member States are under an obligation to take all steps necessary to eliminate
incompatibilities with EU law of their international agreements that stem from before their accession to the EU.75 When they do not do this, the Commission could start an infringement
procedure for violation of the Treaty. Doing this to make the Member State terminate or renegotiate the agreement that is incompatible with EU law would, however, not necessarily
69 Energy Community Fact Sheet, available online: https://www.energy-community.org/aboutus/whoweare.html
70 European Commission’s DG Energy on international organisations, available online:
https://ec.europa.eu/energy/en/topics/international-cooperation/international-organisations
71 Ibid
72 Dyson & Konstadinides 2016, p. 551-552 73 Decision 2017/684/EU, recital 16
74 European Commission Staff Working Document, ‘Impact assessment accompanying the Proposal for a Decision of the European Parliament and of the Council’, 16 February 2016, SWD(2016) 27, p. 8
resolve the issue. Under international law, obligations stemming from internal rules (also EU law) are not a justification to violate international obligations.76 The bilateral agreement,
once concluded and in force, would still be legitimate and enforceable under international law, regardless of whether it violates EU law or not.
On the other side are the undertakings, bound to the rules of the internal market. In addition to the internal market rules, they are possibly bound to rules that stem (directly or indirectly) from an intergovernmental agreement. When a Member State “measure” requires
undertakings to engage in anticompetitive behaviour, those undertakings are not liable for violations of EU competition law. Although provisions of competition law are concerned with the conduct of undertakings, the Court has ruled that they nonetheless require Member States not to introduce or maintain in force measures, even of a legislative or regulatory nature, which may render ineffective the competition rules applicable to undertakings. This follows from the competition rules read in conjunction with the obligation of cooperation laid down in (now) article 4(3) TFEU.77
The Court speaks of “measures, even of a legislative nature.” An agreement concluded by a Member State may also be caught by this broad definition. Member State measures resulting in energy companies behaving anticompetitive are illegal, but the undertaking cannot be addressed directly. Any damages suffered cannot be recovered from the undertaking in question. Private individuals who suffered damages are in a difficult position.
So in short, the international agreements may lead to difficulties on two sides. It is, on the one side, difficult to make Member States renegotiate or terminate an international agreement when it is incompatible with EU law. On the other side, undertakings following the rules stemming from an international agreement that requires anticompetitive behaviour cannot be held liable for a violation of EU competition law, which makes enforcement of EU law difficult.
2.4 The IGA Decision
To address these problems, the EU has put into place a special mechanism to facilitate cooperation between the EU and Member States acting internationally in the field of energy. Since 2012, the IGA Decision78 has been a way for the Commission to get insight in the
76 Article 27 of the Vienna Convention on the Law of Treaties: “A party may not invoke the provisions of its internal law as justification for its failure to perform a treaty. (…)”
77 Case C-267/86 (Van Eycke), p. 16; case C-198/01 (CIF), p. 45; article 106 TFEU 78 Decision No. 994/2012/EU, now Decision 2017/684/EU
Member States’ intergovernmental agreements. Its goal is more transparency, through the exchange of information between the Member States and the Commission, with regard to these agreements.79 In April 2017 the decision was updated after review.80
The IGA Decision obliges Member States to notify binding intergovernmental agreements in the field of energy to the Commission. A Member State must notify the Commission of its intention of opening negotiations.81 As soon as an agreement has been reached, the
Commission must be notified so it can do an ex-ante assessment of the draft agreement, before final conclusion.82 The assessment is about the compatibility of the agreement with EU
law, in particular internal energy market rules and competition law. 83 There is no such
obligation for non-binding instruments, but those may be notified to the Commission for the same purpose.84 The Decision could be seen as a specific way of fulfilling the duty of
cooperation between the Commission and the Member States.85
The procedure has been used to check Member States’ agreements with third countries. In an evaluation of the 2012 Decision made by the Commission, it is stated that 124 IGAs were notified and subsequently checked by the Commission. With one exception, they all stemmed from before the entry into force of the Decision. Of all the IGAs, a majority of 60% covered general bilateral cooperation and did not raise any concerns. Of the agreements covering the supply, import or transit of energy products or energy infrastructure, 17 were possibly not compliant with EU law. Although most IGAs stemmed from before the IGA Decision, the Commission still believes IGAs and therefore the information exchange mechanism will remain relevant in the future.86
2.5 Conclusion on intergovernmental action
In external energy policy, the EU and Member States are active on the intergovernmental level. The EU is bound by its general principles of external action. The obligation of sincere cooperation applies to both the EU and the Member States.
79 Decision 2017/684/EU, recital 24 80 Decision 2017/684/EU of 5 April 2017
81 Article 3(1) Decision 2017/684/EU, obligation following from the use of “shall”, which used to be “may” in Decision No. 994/2012/EU
82 Article 3(2) Decision 2017/684/EU 83 Article 5 Decision 2017/684/EU
84 Article 7 and recital 16 of Decision 2017/684/EU 85 Van Vooren & Wessel 2014, p. 462
86 European Commission Staff Working Document, ‘Impact assessment accompanying the Proposal for a Decision of the European Parliament and of the Council’, 16 February 2016, SWD(2016) 27, pp. 42-47
The Member States are under an obligation to cooperate closely with the EU, even when they are acting within their external competence. External action by the EU does not necessarily preclude Member States from acting, but it obliges them to take it into account, to consult and update each other. The PFOS-case shows that the EU does not have to take a formal decision in order to “activate” the obligation of close cooperation of the Member States.
To facilitate the cooperation with regard to international agreements in the field of energy, the EU has adopted the IGA Decision to create an information exchange mechanism. The IGA Decision aims for transparency in external action of the individual Member States on the intergovernmental level, by introducing an obligation to notify these intergovernmental agreements to the Commission. It also aims to prevent conflicts between intergovernmental agreements of the Member States and EU law, because once concluded, inconsistencies are difficult to solve.
It can be argued that the liberalisation of the energy market explains the low number of new IGAs notified at the Commission after 2012. National governments are usually not directly involved anymore; they act as market participants through energy companies that are under effective state control.87 These commercial entities took over the role of governments in
making deals and work with commercial contracts. Commercial contracts do not have to be notified, the IGA Decision does not apply to them.88 The rules of the internal energy market
are therefore much more important, because within that framework there is the freedom of contract. This explains the wish of several parties in the consultations that commercial agreements between undertakings should not be included in the new decision’s regime.89
The Commission and national regulatory authorities, that must be independent from political interference,90 are responsible for market oversight. They review the conduct of undertakings
from a competition law perspective (concentrations, dominance, concerted practices, etc.) and energy law perspective. In the next part the scope of these rules in the context of external energy policy will be analysed.
87 For example Gasunie, TenneT (the Netherlands); EDF (France); PGNIG (Poland), Vattenfall (Sweden) 88 Article 6(1) Decision 2017/684/EU
89 European Commission Staff Working Document, ‘Impact assessment accompanying the Proposal for a Decision of the European Parliament and of the Council’, 16 February 2016, SWD(2016) 27, p. 50
90 Chapter VII of Directive 2009/73/EC (Gas Directive) and Chapter IX of Directive 2009/72/EC (Electricity Directive)
CHAPTER 3: THE SCOPE OF EU INTERNAL MARKET RULES
3.1 Relevance of the internal market rules
The rules governing the internal market often have an external dimension. The effects of competition, state-aid and public procurement law and sector specific regulation do not always stop at the borders of the EU. They can therefore be relevant in external policies of the EU and Member States.91 The Commission is assigned with the task to monitor
compliance with EU law and enforce it.92 For this, it has a lot of regulatory power in the
internal market and logically tries to use those powers to the greatest extent. The Commission is able to directly regulate market participants by way of competition policy and it can start infringement procedures against Member States who fail to comply with EU law.93 In the
case of external energy policy, EU competition and EU energy law is relevant.
In the energy sector, undertakings historically have close ties with their national governments and are often still under state control. Consequently, the market rules have implications for Member State policies. If the activities of these undertakings fully take place within the EU, the internal market rules apply. This is the case for any investments and business activities on the European market. If the activities take place completely or partly outside the EU, this is not as straightforward. For international agreements and commercial projects involving third countries, it sometimes is the question if and to what extent the internal market rules actually apply – or if they apply at all. Situations may instead be (partly) governed by international law or foreign rules, depending on geographical and legal factors.
When the EU or a Member State concludes an international agreement with a third state, for example to facilitate energy supply or an infrastructure project, does it have to comply with EU energy law? The Commission wants intergovernmental agreements to comply with EU internal market rules; that is the main reason for the adoption of the IGA Decision.94
Energy infrastructure, like pipelines or electricity cables, may cross borders within the EU, borders with third states and areas where there is no clear EU jurisdiction. The entire physical object can be situated partly within EU and partly within a third state’s jurisdiction. This is the case with the Nord Stream 2 pipeline under the Baltic Sea between Germany and Russia,
91 As discussed above, agreements of the Member States may not affect common rules or alter their scope. 92 Article 17 TEU
93 Article 258 TFEU 94 See Chapter 2
the interconnector under the Black Sea connecting the Turkish and Romanian electricity grids,95 the Nabucco pipeline96 that has been cancelled, or possibly with future projects
involving Northern African countries and the United Kingdom, depending on the final outcome of Brexit. Energy products could be produced in a third country and directly exported to the EU. In that case production and transportation could fall under a foreign jurisdiction, even though everything is meant for the EU market.
The question of applicability is especially relevant since the EU internal market rules require energy companies to unbundle; meaning that one entity cannot control the energy
infrastructure and be a supplier at the same time.97 This extent of liberalisation of the energy
sector is not found in many countries outside the EU, where state control is often still normal. Not all neighbouring countries have market economies like the EU. Compliance could possibly require major structural changes. Politically and legally this may be a problem.98 As
a general rule, however, EU law in principle applies to all undertakings. But on what basis can the EU assume jurisdiction outside the internal market?
In the third countries that are member of the Energy Community, the internal energy market rules apply. They agreed to the implementation of the EU energy acquis, which makes for extensive external effects of EU energy law. This form of norm-exportation by the EU falls outside the scope of this contribution, which will instead focus on the internal market rules themselves. Is there a basis to be found for external effects and extraterritorial application?
3.2 Extraterritorial application
In international law, there are several bases for jurisdiction. The ones relevant for the energy sector are the territoriality, nationality, effect and protective principles. According to the territoriality principle, every state has jurisdiction over its territory; it can regulate conduct on its territory. Aside from on its own territory, there can be other occasions where a state may want to exercise jurisdiction. The nationality principle is a basis for jurisdiction over state nationals, wherever they are.99 When conduct elsewhere has an effect on a state, it could
assume jurisdiction over that conduct on the basis of the effect principle. The EU has done this often.100 According to A-G Wahl, “the application of EU law presupposes an adequate
95 Pending case C-22/16 (Fondul)
96 Was underpinned by an IGA, see European Commission Press Release, ‘President Barroso and
Commissioner Piebalgs welcome the signature of the Nabucco Intergovernmental Agreement’, 10 July 2009 97 Article 9 of Directive 2009/73/EC and Directive 2009/72/EC
98 Russia filed a complaint at the WTO; case WT/DS476 (EU – Energy Package) 99 Scott 2014, p. 94
link to the EU territory.”101 It seems however, that the EU itself is against the extraterritorial
application of the laws of third states.102 Lastly, the protective principle lets a state assume
jurisdiction over acts outside its territory, if those acts form a threat to that state’s security.103
There is not always a clear delineation between states’ jurisdictions. It is possible that multiple states assume jurisdiction based on these principles. An international agreement, laying down specific rules, may solve this problem. In absence of an agreement between States, a judge will have to interpret the rule itself to decide whether or not it is meant to have extraterritorial application. The wording, the aim and objectives and the context of the rule may indicate this. Then, one of the foregoing principles may justify the extraterritorial application of the rule.
3.3 Scope of the competition rules
For competition law, it has been established that even if undertakings are situated abroad, they have to comply with EU competition law under certain circumstances. In the Wood Pulp case104 the Court ruled on the territorial scope of competition law. Several undertakings
situated in third countries were fined by the Commission because they formed a cartel. Before the Court they argued that the Community did not have jurisdiction. The Court noted that the market for wood pulp has global dimensions; producers are mainly situated outside the Community. It is however sold directly to purchasers established within the Community, and the producers engage in price competition in order to win orders from those customers. This constitutes competition within the common market, and consequently a cartel between them restricts that competition.105 It did not matter that the cartel was formed outside the
Community, the decisive factor was that it was implemented there.106 The Court considered
this to be in line with the territoriality principle.107
In the pending Intel-case, the question of EU jurisdiction is before the Court once more, this time over agreements that allegedly violate article 102 TFEU.108 The Commission and the
A-G favour a reading of the Wood Pulp case that implies an effects-based approach to the extraterritorial application of competition law. However, the Court has to date not expressly
101 Opinion of A-G Wahl in case C-413/14 P (Intel), p. 284 102 Ibid, p. 283
103 Slot & Grabandt 1986, p. 548-550
104 Joined cases C-89/85 and others (Wood Pulp) 105 Ibid, p. 12
106 Ibid, p. 16 107 Ibid, p. 18
endorsed or rejected such an approach.109 It will have to determine whether the link with the
EU territory is strong enough. In the energy sector, the ongoing case against Gazprom for alleged anticompetitive practices on the Central and Eastern European gas market110 is an
example of the application of competition law to foreign companies.
The same logic applies to concentrations. Mergers and joint ventures between foreign
undertakings with a “Community dimension” must be notified to the Commission.111 For this,
there are turnover thresholds that must be met in the EU. If the undertakings are active on the EU market, their activities are governed by EU law.
In case of state-aid, no matter to whom it is given, in order to be illegal under EU law it has to fulfil all the relevant criteria in article 107 TFEU and those established in the case-law.112
Direct aid by foreign governments to EU companies is not governed by EU law: it must be an intervention directly by a Member State or by State resources.113
Public procurement rules apply in general to all Member States and may be relevant when foreign energy companies want to invest in EU energy projects set up by the state. When the Member State wants to award a project, competition principles dictate that undertakings should be able to compete for it in a fair manner. This is done by way of a public tender. Procurement in the energy sector is subject to special procurement rules,114 because of the
influence of national authorities on the entities concerned and the traditionally closed character of the energy markets.115
An example of the application of EU competition law to a situation involving a third country is the nuclear power plant “Pak II” in Hungary. Its construction is financed with a Russian loan and governed by an IGA between Hungary and Russia.116 The Commission opened a
case on alleged infringement of the public procurement rules by Hungary,117 because
Hungary awarded the construction directly to a state-owned Russian company without a public tender. Later, this case was dropped.118 A state-aid procedure was launched on the
109 Opinion of A-G Wahl in case C-413/14 P (Intel), p. 290, 295 110 European Commission Case AT.39816 (Gazprom)
111 Recital 9 of Regulation 139/2004 (Merger Regulation) 112 Case C-280/00 (Altmark)
113 Article 107(1) TFEU
114 Article 3 of Directive 2004/17/EG 115 Ibid, recitals 2 and 3
116 European Commission, Decision C(2015) 8227 in case SA.38454, p. 6 and 10
117 European Commission Press Release, ‘November infringements package: key decisions’, 19 November 2009, under 4
118 C. Oliver & N. Hirst, 'EU approves Hungary nuclear deal amid Oettinger controversy', Politico, 17 November 2016
same project,119 but the aid was later approved. The Commission emphasised that the Member
States have freedom to choose in what energy resources they invest, and that the Commission’s role is to ensure these investments are done in line with EU rules. 120
The competition rules affect the energy rights of the Member States, in the sense that they limit Member States’ freedom to pursue their energy policies. The scope of application is wide; the rules undoubtedly have external effects. States and state-controlled energy companies must comply with the competition rules, the same goes for foreign energy companies or foreign investors active in the EU. The Commission has discretion in its enforcement: it may choose to enforce the rules strictly, or choose to drop an investigation. Even though official reasons for action are usually stated, the underlying reasons are not always clear and might be politically motivated. For example, when the Commission dropped the public procurement case, it was not announced in a press release and considered
surprising by third parties.121 In general, Member States always remain legally bound to
competition rules in their energy policies and are subject to Commission enforcement. Using its regulatory powers, the Commission can (selectively) interfere in external energy policy of the Member States. The external effects of the internal competition rules are an influential tool.
3.4 Scope of the internal energy market rules
Equally important are the internal energy market rules. In external energy policy, when third countries are involved, it is relevant to know what the scope of application of these internal rules exactly is. They do not just require certain behaviour of undertakings, like the
competition rules, but also a certain structure. As indicated above, the EU requires energy companies to unbundle (legal and functional separation of energy producing and supplying companies), and to grant third parties access to infrastructure.
The Third Energy Package finds it legal basis in the internal market harmonisation provision; it was adopted before the entry into force of article 194 TFEU. Its main aim is therefore establishing or ensuring the functioning of the single energy market.122 It consists of two
119 European Commission, Decision C(2015) 8227 in case SA.38454, 23 November 2015
120 European Commission Press Release, ‘State Aid: Commission clears investment in construction of Paks II nuclear power plant in Hungary’, 6 March 2017
121 D.M. Herszenhorn, S. Stefanini, N. Hirst, ‘Shrugging off concerns, Europe waves through Hungary’s controversial nuke deal’, Politico, 14 December 2016
122 Article 26 and 114 TFEU; see also, for example, Recital 5 of Directive 2009/73/EC; European Commission Press Release, ‘Questions and Answers on the third legislative package for an internal EU gas and electricity market’, 2 March 2011
directives and three regulations.123 The Gas and Electricity Directives124 lay down rules
relating to the natural gas and electricity sectors, most importantly the unbundling125 and third
party access126 obligations that are relevant for third countries. The directives contain
differences that are specific for the electricity and gas markets, but are very similar in their wording and aims. Here, their external effects shall be analysed together.
With regard to third countries and foreign undertakings, it is clear that they were taken into account in the legislative process. The recitals of these directives make several references. In recital 21 of the Gas Directive (and 24 of the Electricity Directive) it is mentioned that the rules of unbundling “should apply throughout the Community to both Community and non-Community undertakings.” In recital 22 Gas Directive (and 25 Electricity Directive), special mention is made of the wish of the legislator that the rules apply equally to persons from third countries: they should only be allowed control if they comply with the rules. The general, overarching aim remains the functioning of the internal energy market. These references to third countries and foreign entities have to be read in that context: it is recognised that foreign entities are active on the EU energy market.
When the Third Energy Package is read together with article 194 TFEU, the focus on the establishment and the functioning of the internal energy market becomes clearer. As explained in Chapter 1, the EU has a shared competence, the Member States retain
competence to determine their energy mix. This means that Member States could engage with non-EU countries for their energy supply individually, they can claim that right under article 194 TFEU. The scope of the EU legislation is limited by the energy rights; it cannot affect them unless adopted unanimously by the Council. So, insofar it concerns the functioning of the internal market, the EU rules apply. When it is does not, they do not automatically apply, because they are not adopted by the Council acting unanimously, but by the ordinary
legislative procedure. Article 194(2) TFEU prevents the Third Energy Package from affecting the Member States’ energy rights.
It remains difficult to speak of the general application of EU energy law outside the EU. 127
General principles can be applied, but some provisions in a directive may have a specific and
123 Regulations No. 713/2009, No. 714/2009 and No. 715/2009 and Directives 2009/72/EC and 2009/73/EC 124 Directives 2009/73/EC and 2009/ 72/EC
125 Articles 9 and 26 of the Directives 126 Article 32 of the Directives
127 European Commission’s Legal Service on Nord Stream 2 (internal document), available online:
clear scope resulting in extraterritorial application, where other provisions do not. A closer look at the provisions is necessary.
The provisions aimed at energy companies apply equally to all companies active on the market. Like the competition rules, they have external effects on energy companies based in third countries. Article 11 in the Directives, the so-called “Gazprom clause,”128 is specifically
addressed at third country companies active on the EU market. It puts an extra control mechanism in place when a third country person wants to acquire ownership over EU energy transmission systems. In its decision to certify such transaction, the national authority must notify the Commission for an opinion. The entity concerned should comply with the
unbundling requirements, and the security of supply of the Member State in question and the EU cannot be put at risk. The final decision is made by the national authority, which must “take utmost account of the Commission’s opinion.” There is thus no hard obligation to follow the Commission’s opinion. This shows that the Member States remain competent to determine who can access their energy markets under what conditions. They can allow or refuse a foreign entity to own or operate transmission systems.
The provisions on energy infrastructure are not specifically aimed at infrastructure between the EU and third countries. Most likely, energy infrastructure between two countries will be an interconnector: a system connecting two national (gas or electricity) transmission systems. For new infrastructure projects, the Third Energy Package foresees in the possibility of an exemption for the unbundling rules.129 The reason is that investments are more attractive to
make when they do not have to comply with strict rules.130
Article 36(1) of the Gas Directive is about “major new gas infrastructure”, without any specification where it should be situated. The definition of interconnectors in Article 2(17) emphasises that it is about systems spanning a border between Member States and connecting energy transmission systems of those Member States. Article 36(4) mentions infrastructure “located in the territory of more than one Member State”, which could indicate that the article is generally aimed at infrastructure within one Member State. Recital 35, that accompanies Article 36, states that the derogations should apply in particular “to pipelines within the Community transporting gas from third countries into the Community.” Riley (2016) sees these provisions together as a drafting mistake, and concludes that this means that this
128 Van Vooren & Wessel 2014, p. 451
129 Article 36 of the Gas Directive and article 17 of the Electricity Regulation 130 Recital 35 of the Gas Directive and recital 23 of the Electricity Regulation
provision has external effect and should apply to Nord Stream 2.131 I do not share this view.
Recital 35 speaks of pipelines within the Community transporting gas from outside the EU, and the actual provisions of the Directive specifically mention Member States’ borders and national transmission systems. Even if there would have been a contradiction or drafting mistake, the Court has judged that “the preamble to a Community act has no binding legal force and cannot be relied on as a ground for derogating from the actual provisions of the act in question.” 132
Articles 17 and 2(1) of the Electricity Regulation have a wording similar to the Gas Directive. Interconnectors are defined as transmission lines that cross or span a border between Member
States, connecting the national systems of the Member States.
In general, no specific mention of third countries is made in the provisions. Definitions are either “on themselves,” so more or less material, or specifically aimed at borders between Member States. There is no reason for extraterritorial application of the provisions for energy infrastructure.
3.5 Conclusion on applicability
The rules of the internal market have influence on external energy policy and conduct outside the EU. Competition, state aid and public procurement rules apply to every entity active on the EU market. They have external effects, because they equally apply to EU-based and foreign undertakings. Member States are constrained by these rules because they cannot conduct their external energy policy freely without complying with them, even if they act within their own competence. The Commission can enforce the rules and has shown to do so also when third countries are involved.
EU energy law is aimed to regulate the EU internal energy market. The legal bases, the recitals of the Third Energy Package, as well as separate provisions, envisage the internal market. When third countries are involved, or third country entities are mentioned, it is because they play a role on the EU market and are regarded as important for the security of supply in the EU. If they are active within the EU, they must comply with EU energy law. Infrastructure between Member States is governed by EU energy law, but infrastructure between the EU and third countries is not. There are many specific mentions of the internal market, or infrastructure “located on the territory of more than one Member State” or just “new infrastructure,” but third countries are not mentioned in this regard. This could be an
131 Riley 2016, p. 14
indication of the will of the legislator to not include that type of projects in EU energy law, but to leave it to, for example, international agreements or national jurisdictions.
In relation to the external effects of competition and internal market law, it should be borne in mind that the EU, as a legislator and enforcer, is limited by fundamental rules of EU law discussed in Chapter 1 and 2. It is bound by the principle of sincere cooperation and by the division of competences laid down in the Treaties. It should therefore seriously consider Member State competences in the field of energy when enforcing competition law.
