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

Energy is often at the heart of geopolitical struggle. But even when measured against the standards of the industry, it is hard to find a project as politically charged and controversial as the Nord Stream 2 (NS2) gas pipeline running from Russia to Germany via the Baltic Sea. In this chapter, we unpack several aspects concerning the project and shed light on its crucial legal and political dimensions. We start by providing a brief description of the historical background of the NS2 project. We then turn to its relevant EU and international legal aspects, after which we discuss the recent instances of political and legal contestation surrounding this project, including the US sanctions legislation on NS2, as well as Investor-State Arbitration under the Energy Charter Treaty (ECT) and World Trade Organization (WTO) dispute settlement proceedings. The final section will provide a conclusion based on the insights of our study.

HISTORICAL AND POLITICAL BACKGROUND TO NORD STREAM 2

The Nord Stream system of offshore natural gas pipelines was a contentious project from the moment of its conception in the mid-2000s. Nord Stream 1 (NS1) – the currently existing pipeline – was viewed by many as a way of circumventing ‘difficult’ gas transit countries, such as Ukraine, in delivering gas supplies to the EU. Russian gas transit via Ukraine was cut offfor some periods of time at least twice, in 2006 and 2009, due to disagreements between the countries on the price for natural gas. One of the criticisms of NS1 was that the EU would become dependent on Russian gas, thereby jeopardizing its energy security. It also exposed the tensions amongst EU Member States and their diverging interests and stances towards Russia as a major gas supplier to Europe. While Germany was generally a proponent of importing Russian gas, its Eastern neighbours Poland and the Baltic States, for instance, were opposed to Russian dominance on the EU internal energy market. Nevertheless, NS1 became operational in 2011 and in the same year, Nord Stream AG started to explore the opportunities to lay a second set of pipelines, NS2, to increase the capacity of gas imports.

The goal of this chapter is to shed light on energy trade regulation beyond the WTO, in the Energy Charter Treaty and in preferential trade agreements. The chapter also probes the complex legal relationship between the WTO and the ECT, including overlap and conflict with respect to subject matter, procedure and membership. The last part of the chapter examines recent trends and developments in preferential trade agreements, looking in particular at the energy chapters of the EU-Ukraine, EU-Singapore and EU-Mexico free trade agreements.

The findings of this book reveal that at the multilateral level there is a pressing need for rules that address the realities of cross-border trade in energy and tackle energy trade regulation in a proper and proactive manner. The concluding chapter therefore offers suggestions for enhanced energy governance from an institutional angle. It explores this question at three levels. First, it discusses the pros and cons of the WTO as a forum for tackling energy issues more proactively. It then contemplates possible scenarios for interaction between the WTO and the ECT for that purpose. Lastly, it briefly considers the possibility of innovating energy regulation through PTAs.

This chapter methodically discusses the rules of the WTO framework and disciplines relevant to energy, including several outstanding issues treated in case law. It follows the current structure of WTO agreements on goods, services, intellectual property and plurilateral agreements. On this basis, it reveals the where the WTO agreements do not optimally correspond to the realities of the energy sector (eg the goods/services divide). The chapter also highlights outstanding issues in case law and provides a summary table of energy-related disputes to date.

This chapter repositions the debate on dual pricing as part of the bigger challenge of combating climate change. It addresses dual pricing from the perspective of the broader task of reforming environmentally harmful fossil fuel subsidies. The chapter moves beyond the potentially discriminatory nature of dual pricing to lay out options for disciplining dual-pricing practices in the WTO system in the grounds of their negative environmental impact. After providing some background, the chapter explores two main avenues for dealing with dual pricing: it first discusses what possibilities exist under current WTO rules, and then it explores what action the WTO can take beyond its current legal toolkit in the wider context of fossil fuel subsidy reform. The key argument is that the WTO can be a crucial actor in eliminating dual-pricing policies and can facilitate and significantly contribute to fossil fuel subsidy reform.

Decentralization of the energy sector means the breaking-up of the sector and its vertically integrated enterprises and/or global cartels by separating its distinct functions (extraction, transmission and sale), thereby allowing for increased competition in the market. This chapter uses two case studies to illustrate the challenges the decentralization of largely vertically integrated energy markets poses for international trade law, including international trade law’s inability to deal comprehensively with the production quota practices of global energy cartels such as the Organization of Petroleum Exporting Countries (OPEC). The chapter then studies regional energy market decentralization policies (in this case the European internal market), focusing on the panel report in EU – Energy Package, and considers which WTO rules facilitate such policies and which constrain them.

The settlement of high-level disputes concerning energy trade is a relatively novel phenomenon in the multilateral trading system, although their number is steadily growing. The emergence of such disputes has brought to the fore energy-related concepts not previously faced by WTO panels and the Appellate Body (AB). One crucial concept in this regard is energy security’. The goal of this chapter is to shed light on the emerging notion of energy security in international trade and WTO law. Taking a two-pronged approach, it starts by studying the meaning of the concept of energy security and its evolving role in international (trade) law, and then critically assesses how panels and the AB have dealt with energy security and the implications of this case law for its treatment in future disputes.

The introduction to this book sets out its objectives: it offers an in-depth study of energy regulation in international trade law against the backdrop of energy markets that have radically changed over recent decades. In Part I, through a thorough discussion of the concepts, history and law of various legal frameworks applicable to international energy trade, it seeks to clarify what we mean by ‘energy’ in the context of international trade rules. Part II addresses the relationship between the existing rules and the huge challenges faced by energy markets today – notably, their decentralization and decarbonization – in the light of the ongoing quest for energy security. Through several case studies, it demonstrates that current international rules are often unable to meet the challenges faced by today’s changing energy.