Security of Energy Supply: When Could National Policy Take Precedence over European Law?

By Padrós, Carlos; Cocciolo, Endrius E. | Energy Law Journal, January 1, 2010 | Go to article overview

Security of Energy Supply: When Could National Policy Take Precedence over European Law?


Padrós, Carlos, Cocciolo, Endrius E., Energy Law Journal


Synopsis:

The European Energy Market is currently under construction. In this complex process Member States have traditionally retained the power to secure each State's energy supply as a matter of national security. However, the European Court of Justice (ECJ) has recently issued several judgments in which national policies are declared to be in breach of core European Union (EU) principles: free movement of capital and freedom of establishment. The article explores the risks of adopting this approach (negative integration) without a clear European regulatory framework (positive integration). Dismantling national regulatory controls without providing a true European alternative can result in a critical precedence of free market over national administrative law.

I. ENERGY POLICY, FREE MARKETS, AND SECURITY OF SUPPLY: A COMPLEX INTERRELATIONSHIP

This article focuses on the transformation of public intervention mechanisms (i.e., the administrative/regulatory framework) in companies operating in energy sectors, particularly in regards to legal tools designed to meet "security of energy supply" requirements.

The energy sector is strategically important because energy products and services are absolutely essential for society to function. In general terms, strategic sectors involve "public infrastructure and services of great individual or collective importance. . . . All of these sectors provide for vital individual needs, formally recognised as such, or vital collective needs which must be met through the establishment of business enterprises."1

In more concrete terms, the energy sector's strategic importance derives from its role as a

provider of inputs that are essential to the overall productive system and to final demand. It is all the more strategic in an economy such as that of Spain, which largely lacks energy resources, particularly in the area of foreign trade, which is conducted in very sensitive and unstable markets. It is also strategic because sector companies are part of the essential framework of the economic system.2

The energy sector is subject to pervasive and extensive administrative regulation for the following reasons:

a) Energy is a service of general economic interest. Public intervention is designed on the one hand to ensure the existence of a real market and, on the other, to ensure that public service obligations are met.3

b) Energy is a network-based service requiring extensive regulation.4 Energy products are impossible or very expensive to store, making them very vulnerable to market abuse. Therefore, monitoring by national regulatory authorities is crucial.

c) Certain functions of the energy industry (e.g., distribution, transportation and network management) are "natural monopolies" and are thus viewed as regulated activities, while others (e.g., generation and supply) are open to competition.

d) Electricity supply is viewed as a universal service.5

e) The electricity sector is investment-intensive, thus hampering the entry of new competitors.

There are a number of additional considerations that underscore even more clearly the strategic nature of energy and the energy industry:

a) The issue of energy dependence. Foreign energy sources currently account for fifty percent of Europe's total consumption; that figure is forecast to reach seventy percent over the next twenty years. Spain's prospects are even worse since oil and natural gas - almost all of which must be imported - account for seventy percent of the primary energy consumed in the country.6

b) The powerful geopolitical interests of certain countries, which are reflected in technical issues, are closely interwoven with the issue of energy dependence. Europe largely depends on Russia, Saudi Arabia, Algeria, Norway, Niger, Libya, Qatar, Egypt, Iran, and Iraq, which have the largest energy stocks. Many of those countries pose considerable risks (e.

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Security of Energy Supply: When Could National Policy Take Precedence over European Law?
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