Energy Policy

European Energy Charter

The Energy Charter Treaty establishes a framework for international cooperation between European countries and other industrialised counties with the aim of developing the energy potential of central and Eastern European countries and of ensuring security of energy supply for the European Union. The Protocol on energy efficiency and related environmental aspects aims to promote energy efficiency policies that are compatible with sustainable development, to encourage more efficient and sound use of energy and to promote cooperation in the field of energy efficiency.

Council and Commission Decision 98/181/EC, ECSC, Euratom of 23 September 1997 on the conclusion, by the European Communities, of the Energy Charter Treaty and the Energy Charter Protocol on energy efficiency and related environmental aspects.

Background

At the Dublin European Council (June 1990), the Prime Minister of the Netherlands suggested establishing cooperation in the energy sector with the eastern European and former Soviet Union countries, with the aim of stimulating economic growth and improving the EU’s security of supply. The Council invited the Commission to look into the best way of establishing cooperation, and in 1991 the Commission proposed the European Energy Charter. Negotiations on this Charter began in Brussels in July 1991 and culminated in the signature of a concluding document at The Hague on 17 December 1991.

The 51 signatories of the European Energy Charter undertook to pursue the objectives laid down in the Charter and to establish cooperation under a legally binding basic agreement, which became the Energy Charter Treaty. The purpose of this Treaty is to promote East-West industrial cooperation through legal guarantees concerning investments, transit and trade. The Energy Charter Treaty and the Energy Charter Protocol on energy efficiency and related environmental aspects were signed in Lisbon on 17 December 1994 by all signatories to the 1991 Charter except for the United States and Canada. The EU and its Member States are signatories to the Treaty and the Protocol.

The Energy Charter Treaty and the Energy Charter Protocol on energy efficiency and related environmental aspects were approved by this Decision on behalf of the European Coal and Steel Community (ECSC), the European Community (EC) and Euratom (European Atomic Energy Community).

The Decision sets out the methods for establishing the position which the EU may be required to take within the Energy Charter Conference. It also indicates the method for establishing the position to take on behalf of the ECSC and Euratom.

Energy Charter Treaty

The aim of the Treaty is to establish a legal framework to promote long-term cooperation in the energy sector based on the principles enshrined in the European Energy Charter.

The key provisions of the Treaty concern the protection of investment, trade in energy materials and products, transit and dispute settlement.

As regards completed investments, Contracting Parties must promote and create stable, favourable and transparent conditions for foreign investors and apply the most-favoured nation principle or offer the same treatment that is given to national investors, whichever arrangement is the most favourable. However, for pre-investments the principle of national treatment will be applied in two stages. In accordance with the Treaty, the first stage is to apply the “best efforts” clause. Then, and subject to the conditions to be defined in a supplementary treaty (currently under negotiation), it will become legally binding to offer national treatment regarding investments.

Trade in energy materials and products between Contracting Parties is governed by the GATT rules. This means that the signatories to the Treaty must apply the GATT rules on trading energy materials and products even if they are not members of the WTO or GATT.

Regarding transit, each party must take the necessary steps to facilitate the transit of energy materials and products in line with the principle of free transit without distinction made on the origin, destination or ownership of such energy materials or products, nor discriminatory pricing on the basis of these distinctions, and without imposing delays, restrictions or unreasonable taxation.

All parties undertake to ensure that the provisions on the transit of energy materials and products and the use of energy transit equipment treat energy materials and products in transit in a manner that is no less favourable than that regarding materials and products originating in their area, save where otherwise provided in an international agreement.

The transit of energy materials and products of energy materials and products may not be interrupted or reduced in the case of a dispute on transit arrangements before the relevant dispute settlement procedures have been followed.

Other provisions prevent countries through which energy materials and products transit from opposing the creation of new capacity.

The Treaty provides for strict procedures for settling disputes either between countries or between private investors and the state in which the investment has been made. In the case of a dispute between an investor and a country, the investor may decide to submit the dispute to international arbitration. In the case of a dispute between countries, and if diplomacy is unsuccessful, an ad hoc arbitration tribunal may be set up. The settlement solutions provided by these mechanisms are binding.

The Treaty sets out the following provisions on competition, transparency, sovereignty, taxation and the environment.

Competition: all parties must take steps to combat market distortions and barriers to competition in economic activities in the energy sector. They must ensure that their legal framework includes provisions to address any unilateral or concerted anti-competitive behaviour in economic activities in the energy sector.

Transparency: Contracting Parties must nominate at least one inquiry point to which requests for information on laws, regulations, legal decisions and general administrative decisions regarding energy materials and products may be addressed.

Sovereignty: all Contracting Parties exercise sovereignty over their energy resources in accordance with and subject to international law. They also have the right to choose the geographical areas in their territory to be made available for exploration and exploitation.

Environment: the “polluter pays” principle is enshrined in the Treaty. This favours market-led pricing which fully reflects environmental costs and benefits. Contracting Parties must reduce, in an economically effective manner, any environmentally harmful impact caused by any operations in the energy cycle in their territory, in compliance with security standards.

Taxation: the Treaty does not establish new fiscal rights or obligations. Direct taxation remains a matter for the national legislation of each country or for applicable bilateral agreements.

State enterprises and privileged bodies: all State enterprises or bodies that are granted exclusive or special privileges by the Contracting Party must comply with Treaty obligations.

The Treaty has a protection clause to maintain the preferential treatment resulting from the treaties establishing the European communities. Therefore under the clause on economic integration agreements (EIAs), a signatory that is party to an EIA has no obligation to extend to another Contracting Party that is not party to the EIA the preferential treatment provided for in that EIA.

Not all the provisions of the Treaty apply immediately to all signatories upon ratification and entry into force of the Treaty. Countries with transition economies benefit from some provisional arrangements.

The Treaty sets out the organisation, structure, tasks and financial provisions for the Energy Charter Conference.

The Treaty provides for the withdrawal of any Contracting Party, subject to compliance with a deadline (five years from the entry into force of the Treaty).

Energy Charter Protocol on energy efficiency and related environmental aspects

This Protocol was adopted in accordance with the Treaty, which clearly provided for the negotiation of protocols and declarations aimed at achieving the objectives and principles laid down in the Charter.

The objectives are:

to promote energy efficiency policies compatible with sustainable development;
to create the conditions for encouraging producers and consumers to use energy in a more economic, efficient and environmentally sound manner;
to encourage cooperation in the field of energy efficiency.
The Contracting Parties undertake to frame energy efficiency policies and legal and regulatory frameworks that promote effective market mechanisms, including market-led pricing.

The Energy Charter Treaty and the Energy Charter Protocol on energy efficiency and related environmental aspects both entered into force on 16 April 1998.

References

Decision 98/181/EC, CECA, Euratom

Council Decision 2001/595/EC of 13 July 2001 on the conclusion by the European Community of the Amendment to the trade-related provisions of the Energy Charter Treaty [Official Journal L 209 of 2.8.2001]. By this Decision the European Community adopted the amendment to the trade-related provisions of the Energy Charter Treaty, which had been provisionally adopted in July 1998. The amendment introduces references to provisions applicable to the WTO instead of the 1947 GATT and inserts a list of energy equipment into the trade provisions.

Energy Charter Conference – rules concerning the conduct of the conciliation of transit disputes [Official Journal L 11 of 16.1.1999].

European energy programme for recovery

Regulation (EC) No 663/2009 — programme to aid economic recovery by granting EU financial assistance to projects in the field of energy.

It sets up the European energy programme for recovery (EEPR) to fund projects in key areas of the energy sector:

gas and electricity infrastructures*;
offshore wind energy*; and
carbon capture and storage*.
It was established to support the EU’s:

economic recovery from the 2008 economic and financial crisis; and
energy policy objectives.

KEY POINTS

The programme finances gas and electricity infrastructure projects which aim to:

secure and diversify sources of energy and supplies;
make the interoperability (i.e. the interconnection) of networks safe and reliable;
develop and optimise the capacity of the network; and
connect renewables to the energy grid or network.

Offshore wind projects are given funding when they meet certain criteria which take into account the construction of the infrastructure, the innovative features of the project and the project’s contribution to the existing wind energy grid.

Carbon capture and storage projects are given funding when the project demonstrates that it can capture at least 80 % of carbon dioxide (CO2) in industrial installations.

The programme’s budget totals €3.98 billion, broken down as follows:

€2.3 billion going to gas (€1.4bn) and electricity (€910 million) infrastructure projects;
€565 million to offshore wind projects;
€15 million to two small island projects;
€1.05 billion to 13 carbon capture and storage projects;
€146 million to the programme’s financial instrument, later set up under Regulation (EU) No 1233/2010 which amended Regulation (EC) No 663/2009 to support projects relating to energy efficiency.

The European Energy Efficiency Fund, established in 2011, took over the role of allocating money to projects that support energy efficiency. It supports projects concerning:

public and private buildings incorporating energy efficiency and/or renewable energy solutions, including those using information and communication technologies (ICTs);
investments in high energy-efficient combined heat and power, including micro-cogeneration, and district heating/cooling networks, in particular from renewable energy sources;
decentralised renewable energy sources embedded in local settings and their integration in electricity grids;
micro-generation from renewable energy sources;
clean urban transport supporting increased energy efficiency and integrating renewable energy sources (public transport, electric and hydrogen vehicles);
local infrastructure, including efficient public outdoor lighting such as street lighting, electricity storage solutions, smart metering, and smart grids, that make full use of ICTs;
energy efficiency and renewable energy technologies with innovation and economic potential using the best available procedures.

Reports

The European Commission publishes reports every year on the EEPR’s implementation. A report on the EEPR published in 2018 after 7 years of implementation shows that:

35 out of 44 gas and electricity infrastructure projects have been completed;
4 out of 9 offshore wind projects are operational; but
only 1 of the 6 carbon capture and storage projects has been completed and 3 have been terminated prematurely.
BACKGROUND

It has applied since 1 August 2009. The EEPR forms part of the economic recovery plan, established to remedy the effects of the financial and energy crisis that affected the European economy in 2008.

DOCUMENTS

Regulation (EC) No 663/2009 of the European Parliament and of the Council of 13 July 2009 establishing a programme to aid economic recovery by granting Community financial assistance to projects in the field of energy (OJ L 200, 31.7.2009, pp. 31-45)

Successive amendments to Regulation (EC) No 663/2009 have been incorporated in the original text. This consolidated version is of documentary value only.

Report from the Commission to the European Parliament and the Council — On the implementation of the European Energy Programme for Recovery (COM(2018) 86 final, 5.3.2018)

Report from the Commission to the European Parliament and the Council — On the implementation of the European Energy Programme for Recovery and the European Energy Efficiency Fund (COM(2016) 743 final, 28.11.2016)

Report from the Commission to the European Parliament and the Council — On the implementation of the European Energy Programme for Recovery (COM(2014) 669 final, 28.10.2014)

Report from the Commission to the European Parliament and the Council — On the implementation of the European energy programme for recovery (COM(2013) 791 final, 18.11.2013)

Commission staff working document — Mid-term evaluation of the European Energy Efficiency Fund accompanying the document — Report from the Commission to the European Parliament and the Council — On the implementation of the European energy programme for recovery (SWD(2013) 457 final, 18.11.2013)

Communication from the Commission to the European Council — A European Economic Recovery Plan (COM(2008) 800 final, 26.11.2008)

EU rules for the taxation of energy products and electricity

Directive 2003/96/EC — restructuring the EU’s system for the taxation of energy products and electricity

It lays down European Union (EU) rules on taxes in regard to electricity, all motor fuels and most heating fuels.
The purpose is to ensure that the EU’s single market for energy operates smoothly and to avoid any distortions of trade and competition which could result from big differences in national tax systems.
The rules contribute to wider goals such as moving to a competitive, low-carbon, energy-efficient economy.

KEY POINTS

Energy products are taxed only when used as motor fuel or for heating.
The legislation introduces minimum levels of tax on motor fuels, heating fuels and electricity applicable from 1 January 2004.

Energy products used for heating, in agriculture, stationary motors and machinery for construction and public works can be taxed at lower levels than fuel for cars.

Governments may apply a lower rate of duty on commercial diesel (when used by road hauliers or for passenger transport) than on diesel for non-commercial use.

The directive allows tax exemptions and reductions in particular for environmental and health policy reasons. Governments may exempt from taxation renewable energy sources such as biofuels or fuels and electricity used to transport goods and passengers by train, metro, tram or trolleybus.

The legislation allows for reduced taxes for energy-intensive firms — those that have made the greatest effort to reduce consumption. EU countries which had difficulty implementing the new measures were given transitional arrangements before applying the legislation (Belgium, Germany, Ireland, Greece, Spain, France, Italy, Luxembourg, the Netherlands, Austria and Portugal).
Similar temporary exemptions and transitional periods were granted to the countries that joined the EU in 2004 and 2007.
The legislation does not apply to some energy-intensive sectors (e.g. in metallurgy) or to energy products which have a dual use, i.e. they are used both for heating and for another purpose (e.g. for the production of certain chemicals).

It has applied since 31 October 2003. EU countries had to incorporate it into national law by 31 December 2003.

DOCUMENTS

Council Directive 2003/96/EC of 27 October 2003 restructuring the Community framework for the taxation of energy products and electricity (OJ L 283, 31.10.2003, pp. 51–70)

Successive amendments to Directive 2003/96/EC have been incorporated into the original text. This consolidated version is for reference only.