Tag Archives: energy law

Controversy over EU’s LULUCF accounting rules

Seita Romppanen

Romppanen works at the UEF Law School as a Senior Lecturer in international environmental law.

In July 2016, the European Commission issued a legislative proposal on how to include the land use, land-use change and forestry (LULUCF) sector in the EU’s climate and energy framework for the 2021-2030 period. The EU’s overall goal for the period is to reduce greenhouse gas emissions by 40% from 1990 levels. The proposal is based on a ‘no debit’ approach, meaning that land-use emissions must be entirely compensated by removals, with some flexibilities between the LULUCF sector and the effort-sharing and EU emissions trading sectors.

Notably, the Commission’s proposal would introduce binding mitigation targets in the LULUCF sector for all EU Member States. Moreover, emissions from bioenergy are also to be included in the new framework. However, regulating LULUCF sector’s climate impacts is tricky as forests call for different perspectives in different contexts in the global environmental agenda. Issues such as the forest carbon cycle, biodiversity, conservation and the increasing need for forest biomass for energy call into play strong yet conflicting perspectives on how forests should best be exploited and regulated.

THE DEBATED FINNISH FORESTS

Especially in Finland, the Commission’s LULUCF proposal has been highly contentious. One of the key controversies relates to the proposed forest management reference levels and associated accounting rules for LULUCF. The reference level essentially compares the change in the carbon sink to an earlier point in time. The projected harvest intensity (e.g. forest biomass use) is compared with the past forest harvest intensity. Depending on the reference level, increasing the use of the forest will decrease the sink (i.e. cause emissions) and the debit needs to be compensated for by emissions reductions in other sectors.

If a Member State exceeds the reference level (i.e. removal of emissions), it can take advantage of the excess for flexibilities in other sectors. In Finland, bioenergy plays a strong role in the current government’s programme. The government is committed to increasing the use of renewables by up to 50% in the 2020s. This increase will be, in principal, achieved through ‘growth in the supply of bioenergy’ and in especially, ‘the greatest opportunities’ will be achieved through increasing the production of liquid biofuels. In concrete terms, Finland plans to increase wood harvesting from the current 66 million cubic meters annually to 80 million by 2030. Through these extensive targets, Finland aspires to become the world’s pioneer in bioeconomy.

As the Commission’s LULUCF proposal links the use of forest biomass for bioenergy to the LULUCF sector’s emissions, it has lead to a heated debate in Finland on GHG emission savings that could be achieved through the use of bioenergy. The Commission has proposed to set the years 1990–2009 as the baseline against which the reference level should be calculated. Last July, the European Parliament voted in favor of stronger LULUCF accounting rules and proposed a new baseline of 2000–2012. The Finnish government  considered these proposals as unfair for Finland as the proposed reference level would cover years that were particularly difficult in the forestry sector and thus, create a negative gap between historical and projected forest harvest intensity. Put bluntly, the reference level proposed by the Parliament would not allow for the planned increase of forest biomass use without compensatory (and costly) action elsewhere.

LULUCF IS A PERFECT ILLUSTRATION OF A COMPLEX AND SYSTEMIC ENVIRONMENTAL PROBLEM THAT CHALLENGES POLICYMAKERS AND REGULATORS

The Finnish government argues that through sustainable forest management it is possible to increase forest harvest intensity while also increasing Finland’s carbon sink. Yesterday, the Parliament’s plenary voted to support this view, and the previously ambitious approach was weakened. Among other amendments, an amendment that would give the Commission the possibility to ‘grant a derogation’ from the baseline upon ‘reasoned request by a Member State’ was accepted by the Parliament.

However, the Finland’s official views have been challenged both internationally and domestically by a large group of researchers from leading research institutes, including the Finnish Climate Change Panel. Indeed, strict reference levels are backed up by science: from a climate perspective, a reduction in the forest sink leads to more CO₂ emissions – even if forests are managed sustainably. In addition, increased harvesting is also detrimental to forest biodiversity and ecosystems. However, there is a clear conflict between the EU’s LULUCF proposal and Finland’s plans for bioeconomy – plans that were partly built to respond to EU’s targets pushing for increased use of bioenergy and biofuels. Now, we are already turning back from the biofuels path, and sustainable use of forest biomass does not encourage using wood for energy. Regulating the delicate interface between science and policy is difficult, and the polarised and inflammatory debate between the two camps does not facilitate the regulators’ task in finding a climate-positive and both economically and environmentally sustainable compromise. In EU, the legislative procedure is still open and thus comprehensive conclusions of the new regulatory architecture on LULUCF are yet not possible.

If we wish to ensure that our climate action keeps to a fair and sustainable path, and that it complies with the legal requirements to which we are subject, Finnish bioeconomy plans must be based on, and amended by reference to, the best available science. This includes the fact that our government accepts the fact that the policy has changed, and that the change is justified by science. If we as one of the wealthiest and most educated countries in world cannot cut our emissions, who can? However, and very centrally, this does not mean that we will not be able to exploit our forest resources in the future – this is not what the EU is saying – but it does mean that we should reorient, diversify and adapt our public policy in relation to forests to respond to today’s climate reality. Thus, the need to revise our strategies could be treated as an apt opportunity to innovate alternative and new uses of forest biomass. Finland is already known for its sustainable wood products as well as novel wood construction solutions – should we not build on these innovations instead of emitting them as CO₂ up in the atmosphere?

Volatile relations: EU-Russia energy regulation

 

 

 

Moritz Wüstenberg, Junior Researcher, European Law

THE WORLD Trade Organization (WTO) is often seen as a curiosity generally associated with globalization. The WTO as we know it today has developed in its 70 year’s history from a provisionally applied interim agreement (the General Agreement on Tariffs and Trade or “GATT”) to become an independent organization, with nearly universal participation.

FOLLOWING ACCESSION to the WTO in 2012, Russia has been eager to take its energy related grievances with the EU to be adjudicated at the WTO. Whilst transit has become a lesser problem in recent years, partly due to the direct connection from Russia to Germany via the Nord Stream 1 pipeline (Nord Stream 2 is on its way, see previous blog by K. Talus), the internal market liberalization of the EU has had effects on the European investments of Russia´s export monopoly Gazprom.

THE CASE directly related to energy regulation brought by Russia to the Dispute Settlement Body (case DS476, Certain Measures Relating to the Energy Sector) of the WTO alleges, inter alia, that Russian goods and services are treated less favourably than third countries and less favourably than other EU goods and services (in violation of the Most Favoured Nation obligation and National Treatment obligation of the EU, respectively). The alleged violations are mainly related to limitations in access to infrastructure, including pipelines that connect Nordstream 1 to the wider European gas network, owned by Gazprom.

TWO OTHER cases brought by Russia against the EU (cases DS474 and DS494) are also related to energy, albeit indirectly. In anti-dumping determinations against energy intensive goods (in this case, steel from Russia), EU rules make it possible to replace the actual energy costs producers pay in Russia by a cost that is adjusted to reflect “market” prices. In effect this means that the anti-dumping margin paid on steel imports to the EU become higher.

THE REGULATION of energy trade between the EU and Russia is vital for the EU to secure its energy supply and at the same time crucial for Russia, as some 50% of the federal budget is raised from the extraction and sale of energy goods. The disputes brought by Russia touch upon matters of trade that are sensitive due to their strategic nature, but are not regulated effectively by the rules of the WTO which were negotiated for more traditional areas of trade.

THE ENERGY Charter Treaty, which Russia abandoned in 2009, has detailed rules for energy trade and would be more effective in regulating this area of trade. Russia withdrew from provisional application of the Energy Charter Treaty following the gas crisis of 2006 and 2009. The gas crisis were caused by transit disputes and resulted in many eastern and central European countries being undersupplied during the winter. Central stated reasons for the final withdrawal from the ECT were related to failures in the regulation of transit. Whether Russia will join the ECT seems uncertain, even though efforts to develop the regulation of transit continue at the Energy Charter.

THE SHORTCOMINGS of the regulatory framework of the WTO for energy trade have been discussed at the WTO as well as in academia. It is generally understood that there are a number of areas, export prohibitions through cartels (e.g. OPEC) and transit rules being prominent examples, which the rules of the WTO do not address effectively. Numerous suggestions for amendment or addition of rules have been made, but the debate remains open.

A NEIGHBOURHOOD trading relationship, such as the one between the EU and Russia, can be regulated by a number of WTO rule compliant means. One option would be the conclusion of a Preferential Trade Agreement (PTA) to regulate energy trade between the EU and Russia. This would be a fairly straightforward option which, as long as it complied with WTO requirements (mainly the obligation not to raise tariffs or other barriers to trade in relation to other WTO members), could be negotiated bilaterally and would effectively remain outside the multilateral framework of the WTO.

PLURILATERAL AGREEMENTS (PA´s), binding to those members that accede to them, have previously been adopted within the framework of the WTO (Annex 4 agreements). The main difference in relation to PTA´s is that PA´s function within the framework of the WTO. There are a number of advantages to regulating through a PA as opposed to a PTA, one being direct access to the dispute settlement system of the WTO. The main difficulty in adopting a PA on energy would be the need to achieve consensus among the WTO membership to add such an agreement to Annex 4. In effect this means that consensus has to be obtained also from members who do not intend to join a PA and consequently do not have rights or obligations arising from it.

RE-REGULATING ENERGY trade between the EU and Russia may become necessary rather sooner or later. Even if a transition to renewable energies is on its way, natural gas will remain an important transition fuel until 2040 and later, even under the most ambitious climate targets. Russia has the world´s largest natural gas reserves and is connected by pipeline to the EU. Maintaining a well-regulated commercial relationship would therefore not only ensure energy security, but would also be advantageous to achieve climate policy targets.

 

Full articles on the above issues have been published recently as:

Moritz Wüstenberg, ´An Overview of the Dichotomy between EU Energy Market Liberalisation and the Multilateral Trading System: Case Review of WTO Case DS476 – Certain Measures Relating to the Energy Sector, International Trade Law & Regulation 22 (1) 2016

Moritz Wüstenberg, ´Reformation or Standstill? Re-Regulating Energy Trade between the EU and Russia, International Energy Law Review 34 (7) 2016

The ‘Clean Energy for All Europeans’ package – Analysing the Commission’s proposed approach to capacity mechanisms

 

 

 

Kaisa Huhta

Doctoral Researcher (kaisa.huhta@uef.fi)

IN NOVEMBER 2016, the European Commission published an extensive legislative proposal on energy. Known as ‘Clean Energy for All Europeanspackage, the proposal aims to address many of the challenges relating to structural changes the European energy markets have been experiencing during the past decades. These structural changes refer to a transition in which the centralized, fossil fuel-based and state-run energy markets are gradually merging into a competitive, single market where consumers play leading roles and electricity is increasingly produced from renewable sources.

IN THE context of the ongoing energy transition, EU Member States have become concerned about the long-term ability of the electricity markets to supply electricity to consumers. To address these resource adequacy concerns, Member States have introduced capacity mechanisms, which guarantee producers compensation simply for providing generation capacity (kW).

HOWEVER, IT is well-established that the ongoing, uncoordinated introduction of such mechanisms has distortive effects on EU decarbonisation efforts, cross-border trade, competition and EU-wide investment signals.

AMONG OTHER issues, the Commission’s recent proposal seeks to address the uncoordinated development of capacity mechanisms. The provisions concerning resource adequacy are mostly included in the proposal for a regulation on the internal market in electricity. The proposal would introduce three key changes in relation to capacity mechanisms:

FIRST, THE proposal seeks to strengthen the approach on which the EU internal market in electricity is founded: a free, competitive market, where prices are determined by demand and supply, will generate the appropriate investments in generation capacity and ensure security of supply. This market-based approach would be enforced through an obligation for Member States to eliminate any identified regulatory distortions that have caused or contributed to the resource adequacy concerns. In other words, the Commission’s proposal emphasizes that capacity mechanisms should be treated as an exception and never the rule.

SECOND, THE proposed legislation would establish common design principles for capacity mechanisms. These could be used in the event that the Member State is able to demonstrate that the market-based approach will not be able to ensure resource adequacy. The proposed principles emphasize the importance of proportionality and cooperation with neighbouring Member States.  They also include a maximum emissions threshold for capacity committing to a capacity mechanism. This threshold would effectively prevent the participation of coal-based capacity in a capacity mechanism.

THIRD, THE proposed legislation would establish an obligation for Member States to design capacity mechanisms in a way that allows the participation of foreign capacity providers. Further, Member States would not be allowed to restrict capacity located in their territory from participating in capacity mechanisms of other Member States. These requirements aim to ensure that the introduction of capacity mechanisms would not undermine the efficiencies achieved through the integration of electricity markets.

FROM THE point of view of capacity mechanisms, the substance and scope of the Commission’s proposal is largely in line with expectations. The proposed rules on capacity mechanisms reflect the Commission’s cautiousness and even reluctance to deviate from the market-based approach and risk further regulatory distortions. It is clear that the proposed rules would narrow the scope of situations in which it is acceptable for Member States to adopt capacity mechanisms. However, the proposed rules would not fully harmonize the introduction and design of capacity mechanisms. The intention is rather to establish a common threshold for the introduction of capacity mechanisms and to ensure that, if such interventions are introduced, their adverse effects on the internal market in electricity remain minimal.

A COORDINATED, European approach to capacity mechanisms is sorely needed. However, the proposal should be treated as the starting point for negotiations only and not as a final outcome of future legislation. This is because of two issues. Firstly, the proposal will not necessarily gain the support of all Member States. The proposed provisions would apply to both new and existing capacity mechanisms and would, therefore, require the adaptation or even removal of some capacity mechanisms. Secondly, the proposal has clearly been published in a hurry and is still in need of a thorough final revision. Both of these issues are likely to change the content of the proposed provisions before they can enter into force.

Nord Stream 2 and EU Energy Law

Kim Talus
Professor of European Economic and Energy Law

 

 

THE NORD Stream 2 project and its predecessor Nord Stream 1 are well-known international pipeline projects. Nord Stream 2 will, when completed, bring gas from Russia to Germany and the offshore section of the pipeline will extend over around 1200 kilometers across the seabed of the Baltic Sea. The route will largely follow that of Nord Stream 1 that become operational in 2011 (first stream) and 2012 (second stream). The 8 billion euro’s pipeline is expected to be operational at 2020.

WITHIN THE EU, the pipeline will cross the exclusive economic zones (EEZ) of Finland and Sweden as well as the EEZ and territorial waters of Denmark and Germany. For Finland, this means that the project requires certain permits and consents from the Finnish authorities. These include the following: (1) a consent pursuant to the Act on the Exclusive Economic Zone of Finland (1058/2004), and (2) a water permit pursuant to the Water Act (578/2011). Furthermore, an environmental impact assessment pursuant to the Environmental Impact Assessment Act (468/1994) must also be carried out.

IN 2015, the Finnish Ministry for Foreign Affaires made a note that Energy Union and Commission interpretation of energy security aspects of the pipeline would somehow be relevant for Finnish permitting process. This is an interesting but incorrect claim.

FIRST, AS a forthcoming study examining the applicability of the EU Third Energy Package, adopted in 2009, to Nord Stream 2 will conclude, the rules laid down in the Third Energy Package, cannot be applied to Nord Stream 2. There are a number of different arguments that support this finding. These include (1) the intent of the EU legislator, (2) the actual content and wording of the law, and (3) current Member State and EU level practice in relation to past and future pipelines.

SECOND, THE jurisdiction of a coastal State is limited by UNCLOS (United Nations Convention on the Law of the Sea). The Finnish EEZ is governed domestically by the Act on the Exclusive Economic Zone of Finland (1058/2004) (hereinafter the ‘Finnish EEZ Act’). Chapter 2 of the Finnish EEZ Act contains a list of Finnish laws that apply to the EEZ. This list does not include the Finnish Natural Gas Market Act (508/2000), which is therefore not applicable in the Finnish EEZ. Since this Act transposes the Gas Market Directive into Finnish law, it follows that the Gas Market Directive does not apply to pipeline projects within the Finnish EEZ. The situation seems to be similar under the Swedish EEZ Act (Lag (1992:1140) om Sveriges ekonomiska zon): the Swedish Natural Gas Act (Naturgaslag (2005:403) is not applicable in the Swedish EEZ. For Denmark, due to the existence of an upstream natural gas sector, the situation is not identical. However, the Danish Natural Gas Supply Act (Lov om naturgasforsyning, which implements relevant parts of TEP into the Danish legal system) provides that transmission networks in the territorial sea or the EEZ that are not connected to the Danish natural gas system are explicitly excluded from the scope of the Act.

(The full article will be published as Kim Talus, ‘Application of EU energy and certain national laws of Baltic Sea countries to Nord Stream 2 pipeline project’, Journal of World Energy Law & Business 10 (2017) 1), in February 2017.)

This post has also been published at CCEEL Blog at CCEEL website.

The first graduate from Master’s Programme in Economic and Resources Law: “Energy is the very glue that holds life together”

Oskari Korhonen

The first graduate from UEF Law School’s Master’s Programme in Economic and Resources Law, Dayann Obeng-Darko, decided to pursue a second master’s degree after working with international business and marketing. After completing the degree he felt the urge to continue working as a researcher and ended up pursuing a doctoral degree in law.

We interviewed him about his studies and thoughts about the program and Joensuu.

dayann2So, tell me a little bit of yourself: where are you from and what is your educational background?
– I am from Ghana and had obtained my Senior High School Certificate in Business Management before I moved to Finland to pursue higher education. Prior to coming to Finland, I had taken a year off schooling to undertake volunteerism in UK, working for a charity organisation. I was supporting adults with learning disabilities. I remained in the UK for few more years then it was time to continue my education and that was what brought me to Finland.

Why did you choose to study in our Master’s Programme in Economic and Resources Law?
– Before deciding to study in the law master’s degree programme, I had obtained degrees in business management and finance for my bachelor’s and first master’s respectively; making this law degree my second master’s degree. Having worked for about a couple of years after first master’s degree (in the areas of international business and marketing), employment wasn’t forthcoming after that period, so I decided to pursue further education. I didn’t want to continue in the same background (Business Administration and Economics) so I had to diversify the study options and also to broaden my outlook. It was at that moment that I came across this law programme form the UEF law school and didn’t think twice about applying to it.

What expectations did you have about the programme and were they met? How did you enjoy your studies?
– At the beginning of the studies, I had chosen to specialize in ‘international economic law’, which majorly dealt with legal rules and regulations concerning international trade. I excepted to have developed a strong understanding of legal aspects of global trade activities and most especially, in the trade of energy products (including renewables). Not much of an economic activity could be undertaken without energy; perhaps, one could say, it is the very glue that holds life together. And its legal knowledge, from exploration to utilisation cannot be overstated in this globalised world.
I enjoyed my law studies through and through because firstly my expectation from the programme couldn’t have been more. Secondly, the teaching staff makes learning quite attractive and exciting.

dayann1_pienennettyWhat was your thesis about and why did you pick the topic? How was the writing process?
– My thesis was a comparative legal study about renewable energy in Ghana and the EU. The topic was ‘Renewable Energy in Ghana and the Lessons from the EU: A Comparative Examination of Regulatory Support Schemes’. The aim of the thesis was to analyse and compare the legal and regulatory regimes of the Ghanaian Renewable Energy Act and the EU’s Renewable Energy Directive by focusing on the support schemes for the achievement for renewable energy policy goals in Ghana. I had decided on this topic mainly because of the prominent role renewable energy plays in the sustainable economic and environmental development in global society such as the mitigation of climate change and secured supply of sustainable energy.

I had some difficulties in the initial stages of the writing process. This was because I had moved out of Joensuu and hence, away from the university environment. Although, students can normally access online study materials remotely such as journals, the move away from the university area hampered to some extent, my accessibility to certain materials needed for conducting the research work. For instance, with accessibility to certain peered-reviewed materials, one would have to physically be in the universities local area network. There was also the difficulty (logistical cost) of obtaining certain books. Those initial difficulties disappeared immediately after I decided to moved back to Joensuu to continues the writing of the thesis.

How did you like Joensuu as a place to live? Was this your first experience in Finland and if so, how did you like the country?
– Joensuu, as a place for to live for the purpose of studying, I would say is great. My view is that, everyone who comes to Joensuu to live will have their own experiences of this city and how they may come to appreciate all that the city has to offer them. I am in my 7th year living in Finland, but had only been in Joensuu for about a year.

dayann3Any advice for those wondering if they should apply for the master’s programme? What should they take into account?
– If anyone has the passion and the desire to study law and how it influences every aspect of life, then this law master’s degree programme at the UEF Law School is the right choice for the person. The beauty of it all is that, the educational background of an individual is not an impediment to their chances of being admitted to the programme nor does it hamper his/her studying efforts. Some few prospective students think that they will need to possess a Bachelor of Laws degree before they could apply to the master’s programme. The key element one needs keep in mind is that students are being trained to become legal experts in various areas of specialisations, so it is important to take future goals into accounts when considering application to the law master’s degree programme. Having a knack for making logical argument certainly makes it more exciting.

You are the first one to graduate from the programme. Did you have any spare time for hobbies?
– Yes, I had time for other activities besides studies. Two hobbies that I was able to enjoy whiles studying were travelling and going to the cinema. I also partook in some extra curriculum activities organised by ISYY/ESN, and not forgetting the occasional partying.

What next? Are you looking for job opportunities or do you already have something specific in mind?
– I intend to pursue a career as a legal researcher and as a result, the Doctoral Board of the UEF Law School has decided to support my application for doctoral studies in law leading to Doctor of Laws degree. I am expecting to start this spring.