International Energy Charter: The Emergence of The New Global Energy Governance Architecture

June 5, 2015 | 00:00
International Energy Charter: The Emergence of The New Global Energy Governance Architecture
International Energy Charter: The Emergence of The New Global Energy Governance Architecture
What does it take to create a platform for global energy governance in the 21st century? It takes a quarter–of–a–century long experience of an international organisation focusing on the field of energy and providing a unique legal framework for securing and protecting energy investments and conducting preparatory consultations. It also takes the process of holding negotiations with more than 80 countries across the globe in the spirit of modernisation and adaptation to the new energy world. However, above all, it requires a clear vision of international energy cooperation and ensuring the necessary investment flows in the energy sector on inclusive and non-discriminatory basis, grounded in a holistic understanding of global energy security (as the combination of security of supply, security of demand, security of energy transportation/transit, and alleviation of energy poverty). As the Secretary General of the Energy Charter Secretariat stated, "the new Charter is an indication of the maturity and self-confidence of the Process after 25 years of existence." [1]

The commitment to the common set of principles for international energy cooperation put forward by the International Energy Charter (IEC) was demonstrated by 75 countries and 3 international organisations (the European Union, the European Atomic Energy Community and the Economic Community of West African States, i.e. ECOWAS) from 5 continents that came together in The Hague to adopt the IEC on 20-21 May (The Hague II). The IEC is the modernised version of the European Energy Charter (EEC), which was endorsed 25 years ago in the same city – the cradle of international justice, back in 1991, after the fall of the Berlin Wall. At that time the EEC was signed by some 52 countries together with the EU and EURATOM (See Article 2).

In 1991, the then Prime Minister of the Netherlands, Mr Ruud Lubbers, was the founding father of the European Energy Charter, which throughout its life has been very much supported by the Netherlands. "The Charter fosters an open market, a level-playing field, legal certainty and security for investors, even in times of economic hardships, times of geopolitical changes and fluctuating oil prices." [emphasis added]– this concise statement of the Minister of Economic Affairs of the Netherlands, Mr Henk Kamp, symbolically made on 20 May 2015 in The Hague, demonstrated the continued support of the Dutch for the IEC – a declaration that addresses the contemporary energy challenges, which both governments and industries are facing today. Mr Kamp maintained that "by signing the Energy Charter Treaty governments equip themselves to create the enabling conditions for private sector investment in energy. Not only in fossil fuels, but also in green energy and energy networks. This will help the economy grow and meet society’s need for energy security. The new Charter reflects the globalisation of the energy market by enlarging its own base."

New and old signatories of the International Energy Charter undoubtedly have diverse economic and political profiles, as well as energy mixes and strategies, as they stretch from Europe to the Americas, from the MENA region to the Mediterranean, from Central Asia to the Asia-Pacific. At the same time, this constituency faces a common global energy investment challenge estimated at 48 trillion US dollars to meet energy demand by 2035, and the pace of markets' globalisation is outstripping the speed of regional interconnection development.

Apart from the necessity to secure investments in the energy sector, the leitmotiv of the Ministerial Conference in The Hague was the need for increased regional cooperation, alleviation of energy poverty, and the call for a bottom-up approach to global energy governance.

In hopes of of reflecting the spirit which prevailed during the IEC signing ceremony and the Conference, the present publication will speak about the International Energy Charter with the voices of the participants.

What does the adoption of the IEC mean for global energy governance architecture?

The Energy Charter and Europe: the IEC meets the Energy Union

At the Ministerial Conference, Maroš Šefčovič, European Commission Vice-President responsible for the Energy Union strategy, signed the IEC on behalf of the European Union. The position of the Energy Union’s leader towards the IEC is reflected in the following statement: the "new IEC really maps out the common principles for international cooperation in the field of energy and it counts for cooperation on a number of very concrete, important issues: development of energy sources, diversification of sources and [transit] routes, liberalisation of trade and energy, promotion and protection of investments, need for research in energy innovation and technology transfer. At the same time, it calls for environmental protection and the use of sustainable and clean energy . So the new framework which we supported today by our signature clearly promotes sound business climate while respecting the environment, recognizing the need to promote energy efficiency and renewable sources and all this is important not only in Europe" [emphasis added].

It is clear that the energy investment challenge for Europe is very acute. Due to the financial crisis "300 billion dollars less than required have been invested in the energy and the transport sectors in the EU annually" – notes the VP, and he continues: "we are trying to restore/recreate the normal investment climate in Europe by this new European strategic investment fund [also known as ‘the the Junker Fund’] which should be approved before the summer break."

Europe is also not immune to the issues of energy access and affordability, and this is something that the EU and the Energy Charter agreed to address together, nationally and globally. As Minister Kamp explained, "energy is the prerequisite for economic development and for prosperity - and to create and to sustain prosperity, governments and businesses need to invest in stable, accessible and affordable energy for every European, and the IEC and the ECT should help us to do so."

The International Energy Charter and Russia

When discussing global energy governance architecture, both Secretary General Rusnák as well as VP Ševčovič have acknowledged the role of Russia as a highly important one. The leader of the Energy Union initiative stated the following: "of course, Russia is a very important energy partner of the European Union and of most of the countries that were represented today. Actually, all of us would like to see Russia present here […]. I think that today’s massive presence of countries from all continents has shown their interest in transparent global governance when it comes to energy cooperation, and I hope that Russia will join us."

SG Rusnák, in turn, pointed to the fact that Russia has been and still is a signatory of the ECT since 1994 and, although it terminated its provisional application in 2009, recently it has been very active in the Energy Charter process. The Energy Charter "is maintaining high political contacts with the Russian counterparts." Dr Rusnák explained the status quo as follows: "I have met several times with the ministerial and governmental officials (from the Russian Energy Ministry and the Ministry of Foreign Affairs) this year. They are still very much interested in the Energy Charter process and are participating in all the activities that are not proper Energy Charter Conference activities [...][as] they are very cautious about the interference in the on-going legal case [the Yukos case]." The Secretary General therefore concluded that "we have to be patient, to see how this legal battle will end up and I think it will be the most appropriate time for Russia to determine what kind of relation it wants with the Energy Charter Process – whether it would like to return or not – it is very much the sovereign decision of the country. The doors are open and all communication channels are open too" [emphasis added].

At the same time, Russia is not the only energy exporting country that has concerns over the ECT. As Dr Rusnák states, "it’s not easy for producing countries to grasp what is the added value for them" in joining the ECT, as "there is still the perception that the Energy Charter is more a consumers-linked organisation, which is not true” as the Energy Charter initiative was put forward in the 90s by the then biggest European energy exporters (the Netherlands and the UK). Therefore, the Charter is trying to find the proper arguments for the producing countries on a case by case basis and reveal the benefits of acceding to the Energy Charter Process and, subsequently, to the Energy Charter Treaty.

Latin America

A number of countries from the Latin American region have been actively participating in the IEC negotiation process, seeing the potential the Charter can have for their national strategies, with Chile and Colombia endorsing the IEC in The Hague. This way, according to Ambassador María Teresa Infante Caffi, "the International Energy Charter […] constitutes an important element of Chile’s energy policy and will contribute to the favorable investment climate in the country. It is conceived as instrumental for implementing the ambitious 2014-2030 energy strategy of Chile and facilitating investments in renewable energy” [emphasis added].

The newcomers clearly give an impulse to the development of the Charter Process and it is acknowledged by them that the IEC as well as the Energy Charter Treaty can boost regional energy cooperation, as it did in the Baltics and in the Caspian after the ECT’s inception in the 90s. Developing further on that, Dr Rusnák highlighted the following: "From our experience, we see that introducing energy solutions on the national level is not enough - we need to create these solutions on the regional level and the Energy Charter is the perfect tool for that.”

From the MENA Region to the Sahel Region

The spectrum of priorities in the energy sector for the countries in the MENA Region to the Sahel Region includes attracting foreign investors to participate in conventional energy megaprojects, as well as ambitious renewable energy strategies and ensuring accessibility and affordability of energy for the population.

The Minister of Energy and Petroleum of Niger, Mr Foumakoye Gado, confirmed the commitment of the country to work towards accession to the Energy Charter Treaty, stressing the importance of the IEC and the respective legal agreement both for Niger and for the region:

"The main objective of Niger's energy policy is to improve the level of access to energy, which is 0.15 toe/capita at present, compared to the African average of 0.5 toe/capita and the world average of 1.2 toe/capita. We also have the ambition to ensure the security of electricity supply of the West African region which is currently facing recurring power cuts. This is possible given our energy potential, which can be developed if the necessary investments are in place – we believe that our accession to the Energy Charter can help us in […] improving the business climate […] and harmonising our legislation [with the ECT principles] to make [Niger] more attractive and to ensure the promotion and protection of private investments. To this end, Niger’s Energy Law was revised […in pursuit] of liberalisation of the production sector and the establishment of the respective regulation body."

The above-mentioned priorities are indeed crucial for the countries in the region, and the fact that the Economic Community Of West African States (ECOWAS) signed the IEC in The Hague highlights the importance of the IEC attributed by the respective countries.
According to the Ministry of International Affairs and Cooperation of Mauritania, "the first step was taken [by the IEC]. At the ministerial conference some 7 African countries have signed the International Energy Charter. For now […] the Secretariat should direct its efforts towards more communication with its Member States. The actions of the Secretariat should be popularised so that all stakeholders are better aware of them. Mauritania has always been a pivotal country between North Africa and sub-Saharan Africa. She will be delighted to play a role in these efforts […]. The International Energy Charter provides Mauritania with new opportunities and will play a role in the improvement of the business climate, which will enable us to attract the necessary investments to develop our economy and the energy sector in particular. The stability of Mauritania undeniably allowed the country to achieve 5% of economic growth in 2014 and we hope this year it will be the same” [emphasis added].

Among the countries that are willing to play the role of the IEC ‘Ambassadors’ in the region is Morocco with its ambitious renewable energy strategy. The Secretary General of the Ministry of Energy, Mines, Water and Environment of the Kingdom of Morocco, Mr Abderrahim El Hafidi, formulated the Moroccan position as follows:

"Our National energy action plan is one of the world’s biggest renewable energy projects to date, aiming at building 2000 MW of solar capacity, 2000 MW of wind capacity and […] providing access to energy for industrial [use] at an affordable and competitive price. This Plan is crucial for Morocco’s energy security and diversification of supplies. By 2025, Morocco aims to provide 44% (approx. 7000 MW) of the country’s energy mix from solar, wind and hydroelectric sources. It is a very ambitious plan, as you see, which will require substantial investments. The government of Morocco has already adapted its national legislation and created a favorable climate for investors. From this point of view, the International Energy Charter (IEC) is a crucial document for securing more investments in the energy sector, by demonstrating certainty and predictability of the investment climate in the country. The IEC reflects the priorities of the Moroccan energy strategy and signing this political declaration is an important milestone for reaching the country’s energy investment goals" [SIC, emphasis added].

When it comes to reinforcing the IEC globally, Mr Abderrahim El Hafidi reiterated that adopting a regional approach for the dissemination of information regarding the IEC and good practice sharing is crucial:
"Working on the regional level is very important to ensure better interconnection between energy markets and grids, better cohesion of legislations and greater investment flows. The IEC addresses the biggest challenges of investing in the energy sector and creates the platform for cooperation between governments and the private sector, which can facilitate better coordination and cohesion of legislation and better investment climate on the regional and international levels.

It is very important to disseminate information about the IEC on the regional level and share good practices through the platform for cooperation that it provides.
The ambitious energy strategy of Morocco makes it an important regional player, and makes it is committed to work with the Energy Charter to achieve its energy targets and secure investments in the sector. Morocco would like to be at the forefront of the regional initiatives of the Energy Charter that are aimed at ensuring an attractive investment climate and investment protection. All the countries in the MENA region can benefit from the principles of the International Energy Charter and the Energy Charter Treaty. They can drive energy investments in the region" [SIC, emphasis added].

The Energy Charter helping unlock the natural gas potential of the South-East Mediterranean

One may observe that the principles of energy cooperation promoted by the IEC are viewed not only as a crucial factor for the economic development of the region but also for its security.

Having signed the International Energy Charter on behalf of the Republic of Cyprus, Ambassador Kyriacos Kouros expressed the full support of the Republic of Cyprus to the International Energy Charter, its principles and goals and stated the following: “Recent discoveries of sizable quantities of natural gas in the Eastern Mediterranean require cooperation by all countries in the region in order to demonstrate the role of the latter as a new natural gas supply corridor for Europe and elsewhere. The International Energy Charter […] is an appropriate framework for this cooperation by enhancing confidence for investment and trade” [emphasis added]. [2]

Ms Dunningan, Acting Deputy Assistant Secretary for Energy Diplomacy, Bureau of Energy Resources, USA, has also pointed out the role of the International Energy Charter in the South-East Mediterranean region and highlighted that "it is clear that there are energy resources there and each country is aware of the need of predictable investment climate", adding that from the US perspective, "we want to see that the investments in the natural resources enhance regional cooperation."

The IEC is actively supported by another country in the region, Jordan. Mr Mahmoud Al Ees, Deputy Secretary General for Energy Issues of Jordan, shared the following vision of the IEC and ECT’s role for the country and the region:

"Clearly, the International Energy Charter and the Energy Charter Treaty are key international agreements that encourage and secure investments in the energy sector in its member-countries. In the case of Jordan, ensuring investments in infrastructure projects is one of the top priorities. Therefore, now that Jordan is finalising its accession to the Energy Charter Treaty, we believe that our country gives the right signal to foreign investors by committing to the international laws on investment protection set by the ECT. We are convinced that signing the International Energy Charter and acceding to the ECT will facilitate a favourable and reliable investment climate in the country.

One of the biggest infrastructure projects to be put in operation by 2022 is the $18 billion pipeline project that will bring Iraqi crude oil from Basra to the Jordanian port of Aqaba. It has to be borne in mind that it is neither up to Jordan nor to Iraq alone to secure investments in this project, as it will be implemented by international developers. To this end, the Energy Charter Treaty serves as an invaluable tool for securing the necessary investments and providing the right legal framework for the implementation of such project. Apart from that, the Model Intergovernmental and Host Government Agreement offered by the Energy Charter can play an important role as the basis for the negotiation process between investors and respective states."

Mr Mahmoud Al Ees also pointed to the need for a bottom-up approach in disseminating the principles of the IEC, that is, calling on the Member-Countries of the Energy Charter being more active in promoting the Energy Charter principles regionally:

"I made it clear in my address at the Conference that there is not enough effort made by the states within the Energy Charter constituency to promote the IEC principles and demonstrate more actively the benefits of acceding to the Energy Charter Treaty and endorsing the principles of the International Energy Charter. The efforts of the Secretariat in Brussels are indeed very prominent, but they are not enough. I believe that Jordan could play an important role with regards to this question.

At the last International Energy Forum, I have discussed this issue with the respective officials from Saudi Arabia, and there was a substantive conversation regarding the adoption of the Energy Charter principles. In my addresses I encourage other countries to be active in promoting the Energy Charter Treaty.

As you know, infrastructure projects are inherently regional, therefore Jordan is very much interested in disseminating the information about the Energy Charter in the region and calling its neighbours to adopt the ECT.

Jordan is definitely willing to act as the regional ‘Ambassador’ of the ECT, particularly due to the country’s relations with Iraq, Lebanon, Tunisia and Morocco.

Looking back to 1991, the European Energy Charter was signed by 52 countries and two international organisations, while in 2015 this number increased by 20 countries [that signed the International Energy Charter] and 1 international organisation respectively. We have to work hard to expand the scope of the International Energy Charter and the ECT and to make it as wide as possible" [emphasis added].

Transatlantic Energy Security

From the US perspective, "the IEC would be the platform for cooperation globally," and as Ms Dunningan, Acting Deputy Assistant Secretary for Energy Diplomacy, Bureau of Energy Resources, USA, develops, "looking at the Transatlantic Energy relationship specifically, the US has made its commitment to the EU energy security very clear. There is the EU-US Energy Council, and the principles that this Council has been committed to are reflected in the Energy Union, and many of those principles are reflected in the International Energy Charter. The IEC is committed to transparent open energy markets, diversification which we believe is absolutely critical (diversification of sources, suppliers and routes). It is also committed to protecting and promoting investments. Therefore, the Energy Union, the US-EU Energy Council and the IEC have a lot of common principles and the IEC will be another platform for transatlantic cooperation."

Furthermore, Ms Dunningan stated that "the IEC really does promote the stimulation and protection of investments." As "energy investments will go to markets that are open, transparent, have a stable, legal and clear regulatory regime," the IEC is set to become the "platform to stimulate and bring in investments to the right markets."

From Central Asia to China

It has to be mentioned that the Republic of Kazakhstan played an important role in the EEC’s modernisation process, as most of the negotiation efforts have been done during the Kazakhstan Chairmanship of the Energy Charter in 2014.

At the Ministerial Conference in The Hague, Mr Uzakabai Karabalin, First Vice Minister of Energy of Kazakhstan particularly emphasized the importance of China entering the International Energy Charter: "the fact that China has signed the International Energy Charter pleases us, as it is impossible to transfer large volumes of gas and oil between the two countries and at the same time, not to have some steering, so to say. Of course, there are bilateral and multilateral agreements, but this document [the IEC] allows us to create the basis for safe transportation and mutually beneficial energy trade." [3]

Bilateral activities between China and the Energy Charter facilitated a better understanding of strategic vision on both sides, and led to the identification of a number of shared priorities. Although it seems that there is a way to go before China would accede to the legally binding document – the Energy Charter Treaty – experts hope for greater involvement of China in the Charter Process. Certainly, it is a crucial step forward that China signed the International Energy Charter and therefore acquired the observer status.

What does it take to move the work of the Energy Charter further?

The adoption of the International Energy Charter marked the conclusion of the first stage of the Energy Charter’s modernisation process aimed at ensuring a greater geographic reach of the new Charter while strengthening the Process.
The second phase of modernisation, according to the SG Rusnák , "will be more demanding, more challenging, more complicated, more complex" as it should include the following:

i)  Improving the procedures of the Energy Charter Process so that they become more effective;
ii)  Developing transparency in all aspects of the Energy Charter but in particular in the area of dispute resolution;
iii)  Focusing on the alleviation of energy poverty through transfer of knowledge and technology.

The endorsement of the International Energy Charter was undoubtedly a historic event and a success. At the same time, paraphrasing one of the most quoted world leaders, "success is never final […]. It is the courage to continue that counts." Therefore, the road towards building a global energy governance platform now should be taken by the International Energy Charter’s signatories, while the Secretariat demonstrates its commitment to support them in this journey.

This way, the Energy Charter’s Secretary General Dr Rusnák calls the Energy Charter’s constituency to "consider carefully what the Energy Charter can do for you; and of course what you can do to enhance the [Energy Charter] Process. Consider how your national energy policies can be brought in line with, and enhanced by, the laudable principles of the Charter. All of this will lead to a better quality of life for your citizens […]. I very much count on the support of the current constituency members of the Energy Charter Treaty and the newcomers alike to help us define the new rules of the game for energy cooperation in the decades to come."

Special Comments on the occasion of the Energy Charter Chairmanship of Georgia in 2015 from the Georgian Minister of Energy – Mr. Kakha Kaladze.

Georgia is the Chairing country of the Energy Charter Conference in 2015 – what have your key priorities of work been and what outputs do you envisage by the end of the chairmanship?

Under its Chairmanship in 2015, Georgia proposed to foster Regional Cooperation through cross-border energy trade. The country [acting] as the connecting bridge between the North-South and the East-West energy corridors of South Caucasus […] [identifies] the regional energy cooperation as a high priority.

The South Caucasus, which has been historically at the crossroads of the Eurasian trade, is moving towards an accelerated regional integration. The region plays an important role in contributing to the [pan-European] energy security through a number of large infrastructure projects such as the South Caucasus gas pipeline, the Baku-Tbilisi-Ceyhan and the Baku-Supsa oil pipelines. Georgia is also particularly keen to promote cooperation in sustainable energy through the development of transit corridors both from North to South and from East to West, contributing to the energy security on the regional and the interregional levels.

Energy cooperation among selected countries of the South Caucasus has already helped to develop physical interconnections and commercial relations. Nonetheless, there is still scope for further expansion [of regional cooperation]. Bilateral energy trade, including electricity, is an important element of it. However, multilateral arrangements are required to make use of the full regional potential and to benefit from economies of scale. In addition to that, considerable investments are necessary to develop interconnections and expand generating capacities, paying special attention to clean and sustainable energy sources. The Energy Charter as a unique multilateral instrument for international cooperation is in a position to provide the required framework for energy investments, cross-border trade and transit.

As a result, the major objective of the 26th Meeting of the Energy Charter Conference in Tbilisi is to be a global forum for discussion of the issues related to the contribution of regional energy cooperation to the energy security on the regional and interregional levels as an important element for international energy cooperation.

How do you see the role of the International Energy Charter for Georgia’s energy policy and investment climate?

The potential benefits of Energy Charter Treaty (ECT), as a unique intergovernmental agreement on investment protection in the energy sector is especially important for the countries in transition [transitional economies].
The Energy Charter Treaty had an essential role in assisting the process of regional cooperation in the South Caucasus by providing a framework of rules for major cross-border energy infrastructure projects, such as the Baku-Tbilisi-Ceyhan (BTC) and the South Caucasus Gas pipeline (SCP) passing [through] the territory of Georgia.

Regarding the International Energy Charter’s potential to become the key element of the global energy architecture, Mr Kaladze stated the following:

At the present time, financing energy infrastructure for sustainable and affordable energy access remains one of the biggest challenges for governments and private companies, especially in developing countries. In this sense, the role of the Energy Charter Treaty, which provides the legal and the normative security for investments within its constituency is becoming increasingly important not only for the Eurasian energy markets, but across the globe.

Especially, in the light of […] [increasing] global interdependence in energy trade today, it is extremely important to raise the Energy Charter Treaty's profile at the global level and to broaden the geographical scope of its constituency.

1. All quotes in this publication are taken from the interviews and press conference addresses of the corresponding officials during the Ministerial Conference in The Hague and after the event (unless specified otherwise).

2. ‘Cyprus signs the Energy Charter’, Famagusta Gazette, 22 May 2015 -

3.‘Kazakhstan signs International Energy Charter’, Kazakh TV, 22 May 2015

Daria Nochevnik is a EU Energy Regulatory and Strategic Political Analysis Specialist and Deputy Head of the Greek Energy Forum in Brussels. The opinions expressed in the article are personal and do not reflect the views of the entire Forum or the companies that employ the author.

The Energy Charter Secretariat monitors the implementation of the 1994 Energy Charter Treaty and provides support to the Treaty-based international organisation, the Energy Charter Conference (52 states and the EU and EURATOM). The Treaty strengthens the rule of law on energy issues, by creating a level playing field of rules to be observed by all participating governments, thereby mitigating risks associated with energy-related investment and trade. The Treaty focuses on: the protection of foreign investments; non-discriminatory conditions for energy trade; reliable energy transit; the resolution of state-to-state and, in the case of investments, investor-state disputes; and energy efficiency policies.
The International Energy Charter is a political declaration to be adopted in The Hague on 20 May 2015. It is designed to spread fundamental principles of international energy cooperation to new partner countries.
This series of materials is part of a wider awareness-raising campaign aimed at promoting the renewed role and creating further momentum behind the Energy Charter in today’s global energy markets.

Image: The Hague. By: Rainer Ebert - CC-license
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