The European Commission’s proposed amendment to the Gas Directive is viewed by many as an attempt to block Nord Stream 2. But according to Danila Bochkarev, Senior Fellow, EastWest Institute, the Commission is thinking further ahead: it is using the proposal to try to increase its power over the EU energy market.

On 8 November, 2017, the European Commission took “steps to extend common EU gas rules to import pipelines”, as it said in a press release. It proposed an amendment of the Gas Directive (2009/73/EC) to ensure “that the core principles of EU energy legislation (third-party access, tariff regulation, ownership unbundling and transparency) will apply to all gas pipelines to and from third countries up to the border of the EU’s jurisdiction.” It called this a “completion” of the existing Gas Directive, which apparently is not “complete” at the moment.

A competence shift

The official explanation for the amendment was that it will improve the “functioning of the EU internal energy market and enhances solidarity between Member States”.

The European Parliament’s ITRE Committee backed this controversial legislative draft with 41 votes to 13 with nine abstentions.

The European Commission is making use of the Nord Stream 2 controversy to realize a competence shift from the Member States to Brussels in the energy policy field

The Commission’s explanation notwithstanding, the initiative was widely perceived by observers as an attempt by the Commission to oppose the Nord Stream 2 pipeline. However, there is good reason to believe it is actually more than that. An analysis of the proposed changes shows that the European Commission is making use of the Nord Stream 2 controversy to realize a competence shift from the Member States to Brussels in the energy policy field.

Currently, many important aspects of energy policy –such as the choice of the energy mix – still fall under the competence of the Member States. Article 194 of the Lisbon treaty (Treaty of the European Union) states that 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.” These include the functioning of the energy market and security of energy supply in the Union through the promotion of interconnectors, energy efficiency and renewable energy.

However, it adds that “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”.

This position potentially violates the sovereignty of Member States to determine their choice of energy sources and the general structure of their energy supply

However, according to the Explanatory Memorandum accompanying the proposal, “the Gas Directive in its entirety (as well as the related legal acts like the Gas Regulation, network codes and guidelines, unless otherwise provided in those acts) will become applicable to pipelines to and from third countries, including existing and future pipelines, up to the border of EU jurisdiction.”

Violating the sovereignty of Member States

This position potentially violates the sovereignty of Member States to determine their choice of energy sources and the general structure of their energy supply under Article 194(2) of the Treaty of the European Union (TFEU).

Currently, as the Legal Service of the European Council has pointed out in a recent Opinion, the Gas Directive 2009/73/EC only covers transmission lines which cross or span ‘a border between Member States for the sole purpose of connecting the national transmission systems of those Member States”.

Therefore, Member States have “jurisdiction to regulate the operation of third county interconnectors to which Directive 2009/73/EC is currently not applicable and retain the competence to conclude international agreements to regulate the operation of such pipelines following Article 2(2) TFEU”, notes the Legal Service. Artice 2(2) TFEU refers to the shared competence between the Union and the Member States.

The amendment would terminate that jurisdiction.

In a comment on the draft Directive, the French Senate noted that the proposal infringes the principle of subsidiarity, limits the competence of the Member States regarding their energy policies, and extends the application of the EU law beyond the borders of the Union without a proper legal basis in the European treaties.

The Senate also stressed that Brussels has no competence to deal with foreign countries on energy infrastructure. It noted that since energy is a shared competence (between EU & Member States) the Union’s intervention should be limited to those objectives which cannot be achieved by the Member States, but instead are better dealt with at the Union level.

If the new directive is adopted, concluding intergovernmental agreements  would fall under the exclusive external competence of the Union

In an opinion delivered on 19 April, the European Economic and Social Committee (EESC), a consultative committee of the European Union,  noted the existence of “political sensitivities … linked to the trade-off between the Member States’ ability to pursue their own national interests in the context of energy supply and security on the one side, and the need for the application of clear and consistent regulatory principles to the Single Market on the other side”, thus indirectly pointing out the potential for a competence shift.

German energy company Uniper, one of the backers of Nord Stream 2, has questioned the legal basis of the proposal on several grounds, indicating that the proposal “potentially violates the sovereignty of a Member State to determine its choice of energy sources and the general structure of its energy supply under Article 194(2) of the Treaty of the European Union (TFEU)”.  Member States would also be “deprived of their right to negotiate bilateral Intergovernmental Agreements (IGAs) with exporting third countries directly and without seeking clearance from the European Commission,” Uniper wrote.

The European Commission – and DG Energy in particular – are not only trying to create additional EU competences (such as the choice of energy sources and structure of energy supplies) but are also attempting to create the preconditions for an exclusive external Union competence (the right to negotiate agreements with 3^rd countries) in line with Article 3(2) TFEU for this area. Article 3(2) TFEU says the Union “shall also have exclusive competence for the conclusion of an international agreement when its conclusion is provided for in a legislative act of the Union or is necessary to enable the Union to exercise its internal competence, or insofar as its conclusion may affect common rules or alter their scope.”

If the new directive is adopted, concluding intergovernmental agreements (IGAs) would fall under the exclusive external competence of the Union which is not the case at present. Thus, as the Legal Service of the European Council says, only the Union “would be able to conclude international agreements in the area covered by Directive 2009/73/EC, and Member States would no longer have the right to undertake obligations with third countries which affect these common rules even when there is no possible contradiction between those commitments and the Union common rules.”

The Commission itself has acknowledged a strong improvement in security of supply and has recognized that the EU gas market is functioning well

Moreover, after the adoption of the Directive, “Member States would be under the obligation to take all appropriate steps to eliminate the incompatibilities of the existing intergovernmental agreements with the Gas Directive”, notes the Legal Service of the European Council. “Member States would be under the obligation to terminate them whenever possible, and the competence to renegotiate them would lie with the Union pursuant to Article 3(2) TFEU.”

This is not the first attempt made by the Commission to create a competence shift. On 9 June 2017, the Commission asked the Council of the European Union for a mandate to negotiate with Russia the key principles for the operation of the Nord Stream 2 pipeline, claiming the project “should not operate in a legal void or according to a third country’s energy laws only”. If the Commission had received the mandate, it certainly would have set a precedent for future projects. However, the Commission failed to achieve the necessary backing from the Member States.

The Legal Service of the Council of the European Union issued an opinion on 27 September 2017 saying it saw no “legal void” in relation to Nord Stream 2 and confirmed that Gas Directive 2009/73 does not apply to the pipeline.   

Security of supply

When the mandate process was stalled, the European Commission decided to try to amend the Gas Directive.

For a competence shift to be justified and not being simply a part of political struggle for power, the European Commission would have to show that application of the Gas Directive to import pipelines is necessary to secure solidarity and security of supply.

But, as several industry players noted, security of supply is already covered by Security of Supply Regulation 2017/1938.[1]

It very much looks like the Commission is using Nord Stream 2 as a pretext to create a significant shift of competence in energy policy

Furthermore, insufficient security of supply is often a result of insufficient or incomplete adoption of existing regulations not the lack or inefficiency of existing regulations. For example, in a response to a Commission consultation on an EU Strategy for liquefied natural gas (LNG) and gas storage in 2015, Shell noted that “security of supply issues in some European countries are created or exacerbated by the very slow adoption of the European Regulatory framework”.

Indeed, the Commission itself has acknowledged a strong improvement in security of supply and has recognized that the EU gas market is functioning well. The European Commission’s Communication on strengthening Europe’s energy networks released on 23 November 2017 stressed the fact that the gas grid has become “more resilient and nearly all member states… already have access to two sources of gas.”

“Market rules are more or less working, we have a functioning gas market,” confirmed Klaus-Dieter Borchardt, a director for internal energy market at the European Commission, in an interview released on 22 January 2018 by the Florence School of Regulation.

It very much looks like the Commission is using Nord Stream 2 as a pretext to create a significant shift of competence in energy policy. It is questionable whether this is justified on the basis of the present Treaty and in present market conditions.

Editor’s Note

Danila Bochkarev is a Senior Fellow of the EastWest Institute.

Disclaimer: The opinions expressed in this article solely reflect the views of the author, not of his organisation.

[1]For more details see submissions by Gas.be (https://ec.europa.eu/info/law/better-regulation/initiatives/com-2017-660/feedback/F9162_en ) and FNBGas  (https://ec.europa.eu/info/law/better-regulation/initiatives/com-2017-660/feedback/F9071_en )

[adrotate banner=”78″]