INTRODUCTION

This chapter discusses the legal challenges faced by the Swiss TSO (transmission system operators), Swissgrid, located in a non-European Union (EU) country that is geographically embedded in the EU and part of the Europe-wide interconnected electricity transmission system, with a particular focus on interconnectors and on the TSO. TSOs are responsible for the safe and secure operation of the high voltage grid, which is much like a national highway. A TSO is thus responsible for the transmission of energy from electricity generators such as traditional power plants that make use of hydropower, nuclear or fossil fuels and/or generators that make use of large-scale wind or solar energy to regional or local electricity distribution system operators, operating lower voltage levels. In Switzerland, the national TSO, Swissgrid, has faced particular challenges as a consequence of EU electricity law and the absence of an intergovernmental agreement between the EU and Switzerland on electricity cooperation. At the time of writing of this chapter, such an agreement is under negotiation, but its conclusion is – obviously – not guaranteed.

In order to understand the current challenges, the chapter begins with a short overview of the legal framework governing the electricity markets in the EU and in Switzerland, focussing notably on the liberalisation process with respect to the transmission system in the EU and Switzerland and on the EU law governing cross-border electricity infrastructure (below §2).

INTRODUCTION

With many European countries moving away from fossil energy fuels as part of the energy transition, and the tragic war in the Ukraine, 2021 and 2022 in particular, were characterised by increasing and even soaring electricity and gas sourcing prices and subsequent retail prices. The Netherlands did not come out unscathed. Seven out of the then 55 licensed household energy suppliers, or 13% of all licensed suppliers, were declared bankrupt or declared to be unable to supply energy. These failures led the Dutch national regulatory authority, the Authority for Consumers and Markets (ACM), to revoke the supply licenses of these energy suppliers, triggering a process whereby the affected household consumers were transferred to a Supplier of Last Resort (SoLR).

These failing energy suppliers were facing several challenges. First, many of these supplied electricity or gas on a prepaid basis. Another problem was an apparent mismatch between the energy suppliers’ sourcing costs and their retail revenues, as many household consumers were supplied under a fixed-term and fixed-tariff supply agreement. Increasing and rising or even soaring wholesale energy prices also led to wholesale parties enforcing margin calls under the sourcing agreements on the energy suppliers. The financial nature of this mismatch and these margin calls were the main, but not the only, cause of the demise of these seven suppliers in 2021. In the end, both household consumers and small and large businesses faced higher retail prices. This was not just the case for household consumers who were switched to a SoLR, which generally signed those consumers up under less favourable energy supply tariffs. Most household consumers and small and large businesses with permanent-term energy supply agreements also faced (steep) increases, but these generally did not take effect immediately.

INTRODUCTION

Article 194 TFEU, which grants the EU a competence in the field of energy, begins with a reference to the ‘context of the establishment and functioning of the internal market’. In EU internal market terms, energy is a good, and to trade in energy is to trade in goods. This also applies where the EU concludes an external agreement that covers internal market issues including trade in energy. The Agreement on the European Economic Area (EEA) provides a useful illustration in this respect. The EEA Agreement links the EU and its Member States with three of the at present four States of the European Free Trade Association (EFTA), namely Iceland, Liechtenstein and Norway (to the exclusion of Switzerland). The EEA Agreement extends notably the EU's internal market rules (free movement and competition law) to the three EEA EFTA States. Part II of the EEA Agreement deals with the free movement of goods. Next to chapters on agricultural and fishery products, customs-related matters and trade facilitation as well as coal and steel products, Chapter 4 deals with ‘Other rules relating to the free movement of goods’. Here, Article 24 EEA deals with energy. It states that ‘Annex IV contains specific provisions and arrangements concerning energy’. Annex IV lists the numerous measures of EU energy law that are relevant for EEA purposes and that, through this list, are part not only of EU law but also of EEA law.

INTRODUCTION

The electricity system is undergoing a double transition: rapid decarbonisation and increasing digitalisation. These two transitions are intimately linked. The supply and demand of electricity must be balanced at all times, but the growing share of renewable energy technologies, with complex and intermittent generation patterns, means that this task can only be performed through digital processes. Digitalisation is thus a precondition for the operation of the future decarbonised electricity grid. However, the digitalisation of the electricity grid also renders it more vulnerable to cyberattacks. A cyberattack on the electricity system could cause significant economic damage. In the worst-case scenario, it could lead to prolonged power outages, causing widespread disruption, and putting human lives at risk. While the EU's electricity system has not yet been hit by a large-scale cyberattack, the risk is far from hypothetical. In 2015 and 2016 cyberattacks on substations in the Ukrainian electricity grid caused blackouts that left over 225,000 people without power. There is evidence of intrusions in the computer systems of energy companies in the European Union and the United States. In addition, during the Covid-19 pandemic several other critical infrastructure systems fell victim to cyberattacks.

Cyberattacks are a relatively new threat to the electricity system. As a result, the policy and regulatory landscape of cybersecurity for the electricity system is new and developing quickly.

INTRODUCTION

The 1992 UN Framework Convention on Climate Change (UNFCCC) recognised the need to reduce greenhouse gas (GHG) emissions. More detailed goals and legal measures to reach these goals were developed by the Conference of the Parties (COP) of the UNFCCC and have been included in additional agreements like the Kyoto Protocol and the Paris Agreement. Also the 28th COP, organised in Dubai in December 2023, stressed the need to reduce GHG emissions and limit the use of fossil fuels. Since World War II, developed countries have relied on the use of fossil fuels in (nearly) all economic sectors, including electricity generation. Globally, electricity generation is responsible for over a quarter of GHG emissions5 and thus attempts are made to decarbonise the power system. A key instrument is to use renewable energy sources as a primary source in power generation instead of fossil fuels. Many countries need to rely on solar and wind energy to replace fossil-based power generation. However, solar and wind are intermittent in nature. This variability poses challenges for the availability of electricity as well as the balance of the electricity network which operates within limited voltage and frequency values.

The EU and its Member States are party to the UNCCFC and have issued a wide range of measures to combat CO2 emissions, ranging from permitting CO2 emissions and trading CO2 emission rights via the EU Emissions Trading System to obliging Member States to consume specific levels of renewable energy sources.

INTRODUCTION

It is no exaggeration to say that the age of corporate climate litigation is upon us. This is not only with respect to the number of cases filed globally against companies, lawsuits that implicate companies, and even pre-emptive lawsuits filed by companies. Such lawsuits affect companies in unprecedented ways: their valuation, their governance, and in turn, their role as key agents of climate mitigation and adaptation. This is new; a decade back, stakeholders in climate policy and governance were far more invested in the role of international institutions and the nation state. Now there are dedicated databases and research centres on the role of corporations. There are several explanatory factors behind this interest, including: dilution of reliance on the outcome of protracted negotiations under the United Nations Framework Convention of Climate Change (UNFCCC), a discursive shift from voluntary action to liability in scholarly commentary and popular outlets as evidence accumulates in impending ecological change, publicised evidence of undisclosed reports by companies, and the emergence of attention on ‘Carbon Majors’ as state-like actors in climate change. From the perspective of material or real-world effects of corporate climate litigation, there also appears to be a realisation that obtaining material remedies such as injunctions or damages is not the only goal of such cases. On the contrary, the indirect effect of driving behavioural change in corporations through monitoring sustainability claims, valuation of shares, and changes in investment portfolio appears to be the driving force behind such cases.

INTRODUCTION

Developments in energy markets are reflected, sometimes only after a while, in the cases that are submitted to the European Union courts in Luxembourg. Provisions of the Treaty on the Functioning of the European Union (TFEU), such as the rules governing State aid or environmental protection, may have to be interpreted in light of new policy objectives. Furthermore, the validity of new EU legislative measures (regulations or directives) may be challenged, e.g. on the ground that a proper legal basis in the TFEU is lacking. This is one of the reasons why many disputes brought before the European Union courts have an institutional dimension, raising questions about the division of competences between the European Union and its Member States, about the balance of power between EU institutions (Parliament, Council, and Commission), or, more specifically, about the dividing line between the powers of the legislator and those of the energy regulator or between the powers of the European regulator and those of the national regulator in each Member State.

This chapter is organised as follows. It begins with the topic of energy solidarity (§2), followed by a discussion of several rulings relating to the internal market (§3). Subsequently, in §4, I will focus on appeals against decisions by the Agency for the Cooperation of Energy Regulators (ACER). Next, it addresses a few cases concerning EU competition law (§5) and the EU rules concerning State aid (§6). In §7, the focus will be on investment arbitration under the Energy Charter Treaty (ECT).

INTRODUCTION

Adopted in May 2023, the European Union (EU) Carbon Border Adjustment Mechanism (CBAM) is representative of a paradigmatic shift in European climate policy, entailing use of unilateral measures to address the intersection of international trade and climate change. Following decades of theoretical discussion of border carbon adjustments (BCAs) as a policy to level the economic playing field in a world of uneven climate action, the CBAM imposes carbon costs on certain categories of imported goods equivalent to those faced by domestic producers under the EU Emissions Trading System (EU ETS). It is thus primarily aimed at preventing carbon leakage – where economic activity and the associated emissions shift to countries with less stringent climate policies – while trying to maintain the competitiveness of European industry.

Despite its conceptual appeal and compelling rationale, the evolution of the CBAM from design to implementation has been characterised by political, legal, and economic challenges. Its trajectory to date underscores the EU commitment to ambitious climate action amidst geopolitical tensions and a fragmented, highly competitive global economy, influenced by factors such as the persistent asymmetry of domestic climate efforts under the Paris Agreement, the unsteady participation of the United States in international climate cooperation, and the recent escalation on global trade conflicts. This chapter traces the legislative history of the CBAM (§2), offers a legal assessment of its adopted design (§3), and identifies a number of implementation challenges (§4), concluding with brief takeaways on an instrument of EU climate policy that has spurred international debate like few others (§5).

INTRODUCTION

On 16 March 2023, the European Commission (the Commission) adopted the Critical Raw Materials Act (CRMA), which following the ordinary legislative procedure entered into force on 23 May 2024 with the European Parliament and Council reaching a provisional agreement after only a few months of negotiations. While the EU recognises that access to critical raw materials (CRMs) is essential to both the clean energy transition, as well as Europe's open strategic autonomy, and it has set ambitious goals in this respect, many legal and policy questions remain. For example, what prompted the EU to adopt this Regulation and what is the main objective of the CRMA? What are the opportunities, as well as the challenges of the CRMA? What problems can the CRMA contribute to solving, and which issues will remain? The aim of this chapter is threefold: to provide the geopolitical dynamics, context and existing obstacles that led to the adoption of the CRMA in the first place; to present the Act's core features; and, finally, to address some challenges of the CRMA both within the EU legal orders, as well as in its interaction with international trade law, including broader EU trade policy in the critical raw materials sector. Section 2 will first cover the context of reassessing the strategic dependencies that Europe has developed over the past decades. Section 3 will present the core features of the Act. Section 4 will then critically reflect on the opportunities, as well as the challenges of the Act, also considering potential tension with core World Trade Organization (WTO) rules. The conclusion will recap our main points.

INTRODUCTION

The third Energy Package entered into force in 2009 and aims at further liberalising the EU electricity and gas markets. In addition, it obliges ENTSO-E, ENTSOG, and ACER to develop network codes and guidelines, meant to harmonize the more technical aspects of the European internal energy market. To ensure fairness to various Member States, for instance with regard to different maturity of energy markets, regional specificities may be taken into account.

At the same time, the key objective of the Energy Community (EnC) Treaty is to extend the EU internal energy market rules and principles6 to countries in Southeast Europe, the Black Sea region and beyond, on the basis of a univocal, legally binding framework. The harmonised legal framework on both sides of the border – in Member States of the European Union (EU) and in Contracting Parties to the EnC – is the pre-requisite for energy market integration, and for ensuring a level playing field for market participants.

The extension of the ‘acquis communautaire’ on energy (hereafter energy acquis) to the EnC Contracting Parties presumes the transposition of the European network codes and guidelines (NC & GLs) for gas and electricity in the national legal framework of these countries. Electricity NC & GLs pertaining to markets, adapted for use in the jurisdictions of the Contracting Parties, were adopted by the Ministerial Council of the Energy Community on 15 December 2022,7 and transposition in the Contracting Parties is currently ongoing. While this decision was adopted by EnC, this Chapter will solely focus on the implementation of the electricity NC & GLs.

INTRODUCTION

The European Union has established very ambitious climate goals. The ultimate aim is to be carbon neutral and energy independent in 2050. In order to achieve this goal, all Member States have been required to submit to the European Commission their national energy and climate plans (NECP) and once approved, Member States need to meet the goals they have set themselves. When drafting these NECPs, Member States will make use of the resources and instruments that are available to them. Whereas hydropower will be an obvious choice in mountainous areas, this is obviously not the case in most countries bordering the North Sea. These countries will make use of other renewable sources like solar and wind. As wind speeds are higher in the North Sea and public opposition offshore is mostly absent, North Sea states are focussing on developing offshore wind and other renewable energy sources. However, production and transport of renewable energy sources at sea is a relevant new development. Whereas a legal framework governing oil and gas exploration and production onshore as well as offshore has been in place since the 1970s, such framework is relatively new with regard to production of renewable electricity offshore. Moreover, each coastal state has been drafting such framework individually in the absence of a harmonising EU law. Consequently, each coastal state has drafted its own permitting regime for the development of offshore wind energy and park-to-shore cables, which means that electricity has been transported to shore via ‘national’ electricity cables with either an offshore or onshore connection to the electricity transmission system.

The editors are very pleased to present the European Energy Law Report XV. The European Energy Law Report is an initiative taken by the organisers of the European Energy Law Seminar (EELS) which has taken place on a regular basis in the Netherlands since 1989. The aim of this seminar is to present an overview of the most important legal developments in the field of international, EU and national energy and climate law. Whereas the first seminars concentrated on the developments at (then) European Community level, which were the results of the establishment of an Internal Energy Market, the focus has gradually expanded to developments affecting the energy sector such as climate change and security of supply. Likewise the focus extended to developments at the national level following the implementation of the EU directives on the internal energy market, the promotion of renewable energy sources, the mitigation of climate change and the reinforcement of security of supply. This approach can also be found in the present volume.

Similar to the previous European Energy Law Reports, this book includes chapters based on papers presented at the preceding EELS, which normally takes place on an annual basis. Due to the Covid-19 pandemic and the necessary adjustments to the annual organisation of EELS, this book gathers – in four thematic parts – the main central topics discussed at the EELS of 2022 and 2023. First, it presents in Part I some legislative and judicial developments regarding the Internal Energy Market and climate change mitigation.

SECTION I. INTRODUCTION

614. BELGIUM – Contrary to the more general remarks in the previous Chapter, the recommendations made in this Chapter focus on Belgian law (see also no. 540). Some points might be relevant for the UK or third countries, but that will not be the case for all of the recommendations. Many of them depend upon the specificities of the Belgian legal system and are therefore difficult to generalise for other jurisdictions. The recommendations also build upon the Belgian legal system as it is at this moment in time. For the reasons mentioned above (see no. 109), abstraction will be made of possible future reforms of the Belgian system, including the new Criminal Code.

615. CRIMINAL LAW – As noted above (see no. 543), we do not recommend introducing administrative measures such as TPIMs in Belgium. Therefore, the recommendations will only cover criminal law. There is no need to introduce administrative measures in the Belgian system as Belgian criminal law is sufficiently equipped to deal with the issue and administrative measures tend to be difficult to reconcile with Article 5 ECHR.

616. THE NEED FOR REFORM – It is clear that the current Belgian criminal law framework to counter terrorism lacks coherence. It has been added to without first analysing whether the expansion of the offences was needed, and how new offences would fit into the framework.