Energy security, commonly refers to the unhindered availability and accessibility of energy resources at reasonable prices. The concept lacks an internationally recognised legal definition, despite its significant position in international trade and investment laws. This is especially so in the current times when a significant body of international treaties and agreements pertain to sustainability and climate change mitigation. The primary intention of the article is, therefore, to look through the concepts of ‘energy security’ and ‘sustainability’ in the rules and regulations formulated by the World Trade Organization, which need better synchronization with the developments in international environmental law. The author herein argues that the situation needs to change in order to achieve better results in environmental sustainability. The article also uses relevant cases adjudged by the WTO, to analyze the issues at hand, and makes sensible recommendations to combat the same.
Keywords- ‘energy security’, ‘sustainability’, ‘WTO’ ‘energy market’
Energy security, understood generally, refers to theuninterruptedavailability of energy resources at affordable prices. While the concept does not have an internationally accepted legal definition to this date, it is trite to say that it holds great importance in the field of international law, including international trade and investment law. This is especially so in the current times when a significant body of international treaties and agreements pertain to sustainability and climate change mitigation. The proposition being argued here is that the World Trade Organization (WTO) rules are not moving hand-in-hand with the developments in international environment law and that such a position needs to change for better practical results in the area of environmental sustainability.
For most part, the energy sector and WTO rules operated inisolatedsilos since the rules are of a general character and do not make specific reference to “energy”. The application of the rules to the energy market was gradually driven bytwo factors: first, the major oil producing nations acceded to the WTO and second, the focus on sustainability and reduction of greenhouse gas emissions had a direct bearing on the international trade regime.
Energy Security and WTO: A case-wise analysis
WTO’s jurisprudence on energy security is still in its nascent stage with only limited adjudicated cases. However, the position of the international organization from these limited opinions is easy to gather and it is argued that there needs to be a change of direction. Better clarity can be achieved from the discussion of the following important cases:
Canada: Certain Measures relating to wind and solar photovoltaic electricity generation projects in the feed-in tariff programme (‘FIT Programme’) (2010-2011)
The cases in consideration provide a starting point for establishing a link between energy security and green energy sources despite the terms ‘energy security’ or ‘security of energy supply’ not being explicitly mentioned. Herein, concerns were raised around the availability of energy and its reliability — the two core components of the energy security hypothesis.
The primal contention put forth in both these two cases were related to the – domestic content requirements for certain wind and solar photovoltaic electricity generation projects in the feed-in tariff programme (‘FIT Programme’), established by the Canadian Province of Ontario, and the discriminatory treatment that affected imports of renewable energy generation equipment. The feed-in tariff (FIT) scheme was designed to promote investment in the development of the green energy industry and provided for afixed price for green electricity per kilowatt-hour fed into the grid on a common basis via long-termcontracts. Ontario linked eligibility for its FIT to a local content requirement,as an instrument to promote green industries.
Under Ontario’s FIT Programme, generators of electricity, producing from several forms of renewable energy (wind, solar PV, renewable biomass, biogas, landfill gas, and waterpower), were paid a guaranteed price per kilowatt hour of electricity delivered into the state’s electricity system under 20-year or 40-year contracts. In the case of wind power projects with the capacity to produce electricity greater than 10 kW, and solar projects with a capacity of up to 10 MW, the minimum level of domestic content had to be fulfilled in the development and construction of the qualifying electricity generation facility.
Japan and the EU contested that Ontario’s FIT Programme, by introducing the requirement for a minimum level of domestic content, gave subsidies which were prohibitive for renewable energy equipment imported from other WTO Members and gave less favored treatment to the products of Japanese and EU origin, in contravention to the national treatment principle.
Energy Security concerns that this case clarified-
Canada clarified that FIT programme made two important contributions:
(i) it helped secure the supply of electricity, and
(ii) protected the environment as it reduced Ontario’s reliance on electricity from coal, thus reducing the production of greenhouse gasses.
While arguing, Canada stressed ‘FIT Programmes play an important role in securing clean electricity supply’. Although the words ‘energy security’ or ‘security of energy supply’ was not used as such , the role of the Government of Ontario in ensuring an adequate, reliable and secure supply of electricity, including from green sources, was highlighted throughout. Canada, repeatedly focused on energy security in the essence of availability and reliability of energy supply.
It is interesting to note that the Panel and the Appellate Body, both considered the relationship between energy security and green energy, albeit very differently. The Panel was of the opinion that green energy measures do not sufficiently support energy security considerations because of the intermittency of wind and solar energy sources. On the other hand, the Appellate Body advanced a much more optimistic opinion stating that green energy does play a role in ensuring energy security in the long-term by reducing dependence on fossil energy resources. Such divergence of opinions from two different tiers of the DSB is not unfathomable, however, it does show that the position of the international trade law regime on the issue of energy security remains unconsolidated thereby, impacting the applicability and interpretation of WTO provisions.
India: Certain Measures relating to Solar Cells and Solar Modules (2016)
In theSolar Cells case, the USA had instituted proceedings against India for imposing domestic content requirements under the Jawaharlal Nehru National Solar Mission for solar cells and solar modules. The USA found such a measure to be inconsistent with Article III:4 of theGeneral Agreement on Tariffs and Trade (GATT), that is the national treatment principle. While India took recourse to other provisions of the GATT, the one in consideration here is the exception to the national treatment principle under Article XX(j) – ‘essential to the acquisition or distribution of products in general or local short supply’. India, by invoking the exception contained in this Article, linked its domestic content requirement to the issue of energy security of the country.
The other innovative argument taken by India was derived from Article XX(d) – ‘necessary to secure compliance with laws and regulations which are not inconsistent with the provisions of this agreement’. Recourse to this provision brought wider climate change mitigation, sustainable development and environmental sensibilities into play which till this point had little recognition in WTO proceedings.
Energy security played a dominant role in India’s contentions. It was argued that domestic content requirements were vital for ensuring that the country does not face an energy deficit which was very much a reality owing to its high dependence on fossil fuels. It was stated by India that‘one of the main goals of the country is to secure the assured supply of environmentally sustainable energy and technologies at all times.’
However, India’s arguments were unsuccessful since the panel adopted a narrow interpretation of the expression ‘general or in local short supply’ as being goods already in short supply and not that they might be at risk of becoming in short supply. This shows that the Panel considered the domestic content requirements to be primarily a trade-related investment measure as opposed to a sustainability-oriented approach which needs to be examined better.
European Union and its Member States – Certain Measures relating to the Energy Sector (2018)
The Russian Federation requestedconsultations with the European Union regarding the “Third Energy Package” Directives and Regulations which mandated ‘third-country certification measure.’ This essentially meant that gas pipeline operators from non-EU countries would have to get mandatory certification for operating in the EU.
To defend ‘third-country certification measure’, the EU took recourse to the general exception under Article XIV(a) ofGeneral Agreement on Trade in Services (GATS) – ‘necessary to protect public morals or to maintain public order’ (since this was a dispute pertaining to offering of services, GATS was the regulating instrument). The EU argued that energy supply being‘one of the most basic necessities of modern society’, supply disruptions can have severe social, economic and political consequences. The ‘third-country certification measure’ was merely a legal measure to safeguard the members of the EU from such an eventuality.
However, like in the Solar Cells case, the EU’s arguments regarding long-term energy security were unsuccessful. Interestingly enough, the Panel did recognize that foreign ownership of gas pipelines could pose a genuine and sufficient threat to energy supply and hence security, yet it did not find the EU’s arguments convincing enough in showing that the measure was both designed and necessary to protect public morals or maintain public order. Therefore, the EU’s attempted link between Article XIV(a) exception of GATS and energy security failed.
A Comparative analysis of the Solar cells case & the EU- Energy sector case
A perusal of the cases discussed shows that even though the WTO has discussed the interrelation between energy security and green energy, such deliberations did not come into play in subsequent decisions, irrespective of the use of renewable or non-renewable sources of energy. Focusing specifically on the Solar cells case and the EU Energy Sector case, it can be seen that while the outcomes therein were more or less the same, there exists at least one stark difference which deserves examination – ‘Renewable Energy in Solar Cells case as opposed to Fossil Fuel based Energy in EU – Certain Measures relating to the Energy sector case’.
The WTO Panel’s treatment of both the subject matters on the same footing with respect to energy security, is a position that needs to be changed. Trade has traditionally been seen as astumbling block to sustainableenergy but it need not be. There are several options for reconciling international trade law and sustainable energy production spanning across time frames as appropriate for each measure’s implementation.
At this point of time, we can still not say that renewable energy production is highly evolved throughout the globe. There is not only a need for sufficient transfer of technology between countries, but also a dire need to understand each countries’ individual mechanisms for how they can piece themselves best in the puzzle that sustainable development has become. To do this, it is important to respect each nation’s energy security demands with respect to renewable sources of energy. It is worth noting that in recent times, theIndian coal crisis presented a significant challenge with several energy-intensive PSUs working at lower capacities to prolong the available coal stock. The need for accelerated production of energy from renewable sources was much intalk and rightly so. Therefore, allowing exceptions to the national treatment principle on this ground does not seem implausible if climate change is to be tackled on a priority basis.
For this reason, the Solar cells case and EU – Certain Measures relating to the Energy sector case have been distinguished. The arguments taken in both the cases are broadly of the same character despite one being for protection of its renewable energy mission and the other for the regulation of its fossil fuel energy production area. It is argued that even though both the cases fall within the umbrella of energy security, the Solar Cells case should have been decided differently than the EU – Certain Measures relating to Energy sector case for the simple reason that the former promoted renewable energy production, while the latter did not. Adopting such an approach would make environmentally sound methods of energy production more lucrative from the point of view of international trade law rules.
Conclusion and Recommendations
There is no doubt that international trade can be a vehicle of energy independence once there is a significant level of cooperation between nations in terms of enhancing scientific and intellectual capacity to produce renewable energy. However, such a level of cooperation has yet not been achieved. The former Director-general of the WTO, Pascal Lamy had stated that a‘clear element of energy security lies in the predictability of energy supply. While he made the statement with an intention to promote cooperation between resources and technology exporting and importing countries, at this point of time, it cannot be denied that developed countries are not sufficiently interacting with the developing countries regarding the transfer of technology and capacity-building, leaving the latter to develop their own renewable energy programs as per their current capacities. It is imperative to realize that predictability of energy supply can be ensured first by domestic sufficiency and then with sophisticated international cooperation, striking a balance between the two.
That the developed countries are moving on a different tangent altogether while developing countries are trying to keep up is also substantiated by the recent proposal by theEU for the imposition of a carbon tariff. While the intention behind the policy is much appreciated, it is not difficult to empathize with the problems that various developing countries would face because of such a measure, given that their industries are not yet tuned to working in the sustainable manner that EU demands.
The idea of giving prerogative to domestic development of energy resources is not new. It dates back to the formation of WTO andpractical experience from the work done by the Energy Charter Treaty (the multilateral rule-book for trade in energy) shows thatinternational regulation is unlikely to be successful if it tries to infringe on national prerogatives. The same applies to the production of renewable energy as well.
Keeping this in mind, if the efforts of such developing countries in promoting their domestic renewable energy missions is stifled by international trade law rules, then no results can be expected from our sustainable development efforts on an international level.
A second step ahead would be to address the incoherence and fragmentation of international trade rules. With the goals set out by the international environmental law regime, it would be to seek comprehensive negotiations in the arena of trade of energy-related goods and services, both renewable and non-renewable, and thus, trying to move towards aspecialized framework operating within the ambit of the existing trade law rules, much like how the Uruguay Round resulted in a specialized agreement on agriculture. Even with this proposition, if and when the international community moves in the said direction, it is recommended that renewable sources of energy are put on a different footing so as to promote green energy resources.
The current position of the WTO panels on the issue of renewable energy security defeats the purpose of cross-field cooperation and instead fuels the controversial debate of economic development versus environmental conservation. Therefore, it must be recognized, that for the time being, liberal interpretations of the exceptions in WTO rules is much required so as to allow each country to move towards its individual renewable energy production targets which in my opinion, would make for a much more effective international environmental and trade law regime in the coming future.
About the Authors
Ms. Shambhavi Srivastava is an associate at AplusA Associates, New Delhi.
Ms. Abhinandita Biswas is a 4th Year Law Student from Adamas University, Barasat, and an Associate Editor at IJPIEL.
Managing Editor: Naman Anand
Editors-in-Chief: Jhalak Srivastav and Aakaansha Arya
Senior Editor: Jhalak Srivastav
Associate Editor: Abhinandita Biswas
Junior Editor: Tisa Padhy
Preferred Method of Citation
Shambhavi Srivastava and Abhinandita Biswas, “‘Energy Security & Sustainability’ in The WTO Rules: Case Analysis & Recommendations” (IJPIEL, 21 February 2022)