To what extent has Gazprom Case influenced EU’s climate change policies?

Table of Contents

1.      Background and context of the paper

2.      What were the facts and decisions of the Gazprom case?

3.      How will the aforesaid decision influence the EU in achieving the 2050 Target?

3.1. Rationale behind distinct energy and climate policies for Central and Eastern European Member States

3.2. Rationale behind transitioning market economies under UNFCCC

3.3. Legal Framework governing such transitioning market economies in the field of energy and climate policies

3.4. Relevant legal principles in the field of energy and climate policy and its implementation

4.      Conclusion

1.      Background and context of the Paper

 The EC imposed binding obligations on Gazprom, in order to enable free flow of gas at competitive prices in the gas market of CEEC. This case, specifically dealt with Gazprom’s strategy in charging higher gas prices in 5 MS, namely, Bulgaria, Estonia, Latvia, Lithuania and Poland. Coincidentally, such 5 MS are also considered as countries that are undergoing the process of transition of market economy, as per Annex I to the UNFCCC. Against this backdrop, the research paper aims to explore the influence of this decision in the energy sector, and the extent to which it can influence climate change policies in EU in achieving the combined goal of EU’s 2030 Target under the Paris Agreement. Such an assessment shall be done against the backdrop of common but differentiated principle and the solidarity principle.

 2.      What were the facts and decision of the Gazprom Case?

At elemental level, the idea of cooperation or teamwork demands that just rules of competition, based on solidarity, be applied, when one views the relationship between man and society. However, there is a difference between rules of the competition (under what conditions people compete with others); motives of competition (what moves people to emulation) and aims of competition (what people compete for). Although all three problems are legitimate subjects of ethical inquiry, aims and rules of competition are not inherent in competition as such, but rather depend on how the market system is organized. Further, keeping the differentiation between competition and market[1] in mind, it is argued that, different models of interaction of a legal person with society, might be subject to different rules but depend on competition in common.[2] The concept of competition refers to consumer welfare process, wherein firms dispute the favor of their customers by proposing better products at the lowest possible price. Even though there is element of Darwinian theory in practice that govern the demand and supply that might be ruthless, however, it is argued that, the concept of fairness and justice make it relevant to ethics and norms in competition law. Even though fairness does not relate to economic effects and cannot be measured or quantified from a scientific lens, it becomes relevant where the competitive process has ceased to play its welfare creating role, i.e., where monopolies prevail over perfect competition.

Existence of monopolies is one of the features of the energy sector generally. Such monopolies exist in distribution and transport facilities and in production and supply businesses.[3]  Market dominance[4] and the concept of abuse of a dominant position[5] is defined in Hoffman-La Roche & Co. AG v. Commission of the European Communities[6]. Even though European law does not punish the dominant position itself, just its abuse, however, in practice, a dominant firm might not be allowed to engage in the same practices as non-dominant firms.[7] This is concerned with the notion of special responsibility of the dominant player.[8]

For the companies that are active in the supply, transmission and storage of natural gas, the following behavior could be in breach of EU antitrust rules that prohibit abuse of dominant position and restrictive business practices[9] namely, (a) at upstream supply level, where unilaterally or through agreements, competition may be hampered or delayed; (b) suspicion of exclusionary behavior, such as market partitioning, obstacles to network access, barriers to supply diversification as well as possible exploitative behavior, such as excessive pricing; (c) suspicion of anti-competitive behavior to the detriment of upstream suppliers themselves.

After conducting un-announced inspection on Gazprom’s premises, EC opened formal proceedings to investigate Gazprom. This is associated with the EC’s power of conducting an inquiry into a particular sector of the economy or into a particular type of agreement, where the trend of trade between Member States, the rigidity of prices or other circumstances suggest that competition may be restricted or distorted within the common market.[10]

The main concern was associated with Gazprom abusing its dominant position in the upstream natural gas supply markets in CEEC, that could be in breach of Article 102, TFEU. However, EC investigated three practices of Gazprom, that it suspected to be anti-competitive practices in CEEC, namely (a) Division of market by hindering free flow of gas across CEEC; (b) Prevention of diversification of supply of gas; (c) Imposition of unfair prices on its customers by linking the price of gas to oil prices.

Gazprom is a Russian based energy group that is active in the exploration, production, transportation, refining and marketing of natural gas and petrochemical products. It is the dominant natural gas supplier in a number of CEEC,[11] since it has a market share well above 50% and in some cases up to 100% in these markets.[12]

Post investigation, EC sent Statement of Objections to Gazprom, wherein it expressed its preliminary view[13]. As per the Statement of Objections, Gazprom was pursuing an overall strategy to partition CEEC, with the aim of maintaining an unfair pricing policy in several of those MS. It implemented this strategy by (a) hindering competition in the gas supply market in 8 MS[14], i.e., hindered cross border sales[15]; (b) charging unfair prices[16]; and (c) making gas supplies conditional on obtaining unrelated commitments from wholesalers concerning gas transport infrastructure[17]. Further, it also implemented this strategy, contractually by imposing territorial restrictions and otherwise, by leveraging its dominant position. Thus, its provisional finding was that, such practice constituted as abuse[18] of Gazprom’s dominant market position.

Source: European Commission, April 22, 2015.

However, on the concern relating to Gazprom obtaining advantages relating to access to or control of gas infrastructure; EC’s investigation showed that, the situation cannot be changed by antitrust procedure due to the impact of an intergovernmental agreement between Poland and Russia. Thus, EC put a legislative proposal to make intergovernmental agreements subject to its prior scrutiny.[19] The highlights of this proposal are (a) to introduce mandatory ex-ante compatibility check by EC of IGA related to gas & oil; (b) MS to notify their draft IGA related to gas and oil to EC before concluding them and MS cannot sign these IGA until EC has issued its opinion; and (c) the assessment type shall be different[20] for IGA related to electricity and IGA related to electricity related IGAs. The text of this proposal will have to be formally approved by EP and Council. Once endorsed by both co-legislators, revised IGA Decision will be published in the Official Journal of the Union. In 2017, EP and the Council of EU adopted this decision, which was a legislative act.[21] This also evidences that, in practice, re-negotiating / terminating IGAs, is very difficult once they have been concluded, and has the potential of acting in detriment to MS.[22]

Post this, Gazprom addressed the concerns raised by EC as regards natural gas market in CEEC that would enable cross-border gas flows at competitive prices. Before taking decision, EC sought the views of customers and other stakeholders, since the aforesaid concerned millions of EU citizens that rely on natural gas to heat their homes and fuel their businesses. This could be considered as an important step of engaging with multiple groups that could have been affected by this decision.[23] Could this be considered as an important legal mechanism that facilitates transparency, fairness and equity rationale of energy sector, but is not binding? To what extent are they in sync with the legal rationale behind climate change law?

Source: European Commission, March 13, 2017.

The most important measures that were proposed by Gazprom to remedy competition concerns are: (a) Creation of opportunities for more gas flow to the Baltic States and Bulgaria[24]; (b) Gas prices will be linked to competitive benchmarks; (c) Facilitate market interconnections with Bulgaria[25].  It is to be noted that, there are two important consequences of proposal for such commitments: (a) They confirm that there are no longer grounds for action by EC. However, it does not conclude whether or not there has been or still is an infringement under Article 102, TFEU and under Article 54 of the EEA Agreement; (b) The implementation of the commitments shall be strictly limited by its scope. This means that, the commitments shall not provide customers with the right to request contractual revisions that are not covered by these commitments.[26]

Post the receipt of proposal of commitments, EC published the market test notice.[27] After that, the commitments were finalized[28] and commitment decision was made, which made such commitments binding on Gazprom from the Commission Decision Effective Date[29] and any legal entity directly or indirectly controlled by it, for 8 years, except for Gazprom’s commitments, in relation to its undertaking that neither Gazprom nor its subsidiaries will claim 70 million US dollars as stipulated in the Protocol between Gazprom and Bulgarian Energy Holding (“BEH”) signed on August 27, 2012 or any other damages on the basis of the cancellation of the Bulgarian part of the South Stream Project[30]. This will be applicable for a period of consecutive 15 years from Commission Decision Effective Date.[31]

3.      How will the aforesaid decision influence the EU in achieving the 2050 Target?

Natural gas is an essential commodity. As already mentioned above, the main reason behind EC pursuing this case was its concern that, Gazprom may have built artificial barriers thereby preventing gas from flowing from certain CEEC to others, thereby hindering cross-border competition. All companies that operate in the European market are obliged to play by EU rules, and it does not matter if such companies are European or not. [32] This decision held precedential value for the General Court, later, when it applied principles of energy solidarity and annulled the EC Decisions on the ground of breach of principle of energy solidarity. This evidenced that, solidarity is critical for ensuring security of natural gas, since it that influences the conditions of supply and use of transmission services on the pipelines.[33]

The Paris Agreement acknowledges that, climate change is a common concern of humankind. It also recognizes that, sustainable lifestyles and sustainable patterns of consumption and production, with developed country parties taking the lead, play an important role.[34] Further, the parties shall promote environmental integrity and ensure the avoidance of double counting. From a climate change perspective, example of National Transmission System is important. It is a network of pipes that supplies gas from the coastal terminals to the gas distribution companies and other major users. This network is made of metal and it would need to be protected from embrittlement in some way before any switch to hydrogen could take place.[35] Thus, this decision will play an important role in furthering EC’s strategic vision for achieving a climate neutral economy by 2050 and in contributing to the environment action program vision to 2050.[36]

3.1. Rationale behind distinct energy and climate policies for Central and Eastern European Member States

CEEC is an OECD term for the group of 12 countries.[37] In the context of international policy debates, CEEC find a special place because of innumerous reasons. Firstly, because they aspire to develop market-based economies and free societies. Thus, the intention is to transition from centrally-planned communist economy,[38] to open market economy.[39] However, during the transition phase, it might be difficult to implement legal instruments that work well with established market economy.

Secondly, because the transition in their economies has the potential to occur in a democratic and peaceful manner, thereby upholding rule of law and committing to adhere to legal instruments as suggested by OECD. For example, the transformation of Poland is considered remarkable, since it successfully emerged as an economy in transition even at the backdrop of the Cold War.[40] However, as per the latest economic forecast, predictable and long-term climate change policies and adequate tax incentives are required to improve environmental and health outcomes. This is one of the suggested structural reform that should be considered to be implemented for Poland’s long-term growth. On the other hand, it has also been forecasted that, its economic growth in 2021, i.e., 3 percent will be less as opposed to its economic growth in 2020, i.e., 3.8%. Further, the growth of exports and private investment may be at risk due to escalations in trade tensions and uncertainties associated with the consequences of Brexit.[41]

Thirdly, the main rationale for treating CEE countries distinctly could also relate to tendency to concentrate on producing a legislative draft, with insufficient prior consideration of the policy which it should reflect, that has been identified. Such an approach could lack an appraisal of the true problem and the consideration of the available policy choices, taking local needs and circumstances into account.[42] This has a direct impact on the formulation of energy and climate change policies of CEE. From a climate change perspective, the changes in the physical environment or biota resulting from climate change which have significant deleterious effects on the operation of socio-economic systems or on human welfare is defined as adverse effects of climate change.[43] However, the legal instruments adopted towards ensuring stabilization of GHG concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system, should also allow and enable economic development to proceed in a sustainable manner within a time frame that is sufficient.[44] This is in consonance with the right of Parties to UNFCCC to promote sustainable development, vide integrating its respective national development program with policies and measures to protect climate system against human-induced change that is appropriate for its specific condition, taking into account that its own economic development is essential for adopting measures to address climate change.[45] Thus, the consideration of different socio-economic contexts and factoring in all economic sectors is pertinent in the formulation of precautionary measures, vide legal instruments or vide policies and measures to deal with climate change, that can anticipate, prevent or minimize the causes of climate change and mitigate its adverse effects.[46]

3.2. Rationale behind transitioning market economies under UNFCCC

 Coincidentally, the countries mentioned above are undergoing the process of transition to a market economy as per UNFCCC[47]. However, it is acknowledged that, the economic structure, resource base and the need to maintain continuous and sustainable low-emission economic growth for transition economies are different. Thus, they are allowed a degree of flexibility so that their ability to address climate change is enhanced.[48] Such transitioning market economies are considered at par with developed countries[49], when it comes to assessing their legally binding commitments as per UNFCCC. It is to be noted that, such transitioning economies are exempted from providing new and additional financial resources to other parties in contributing to the objective of UNFCCC, 2020, since such Parties lack adequate and predictable financial resources and instruments to be provided for non-Annex I parties for meeting their costs of mitigation, adaptation and technology transfer. If transition economies are in a position to do so, then they could provide new and additional financial resources to other parties on a voluntary basis.[50]

The legal obligations that bind such transitioning market economies are significantly different from the countries, especially developing countries. This is because the UNFCCC acknowledges that, such countries, including developing countries, might face special difficulties if action is taken on limiting their GHG emissions. This is because the economies of these countries might be highly dependent on the income generated from the production, processing and export and/or on consumption/use[51] of fossil fuel and associated energy-intensive products[52]. The individual situation of such country, particularly for a developing country Party, plays a pivotal role in determining if such country is vulnerable to the adverse effects of the measures that are implemented to respond to climate change. One example of such an adverse effect is if such Party faces serious difficulties in switching to alternatives as opposed to continuing to use fossil fuels[53]. Further, since economic and social development & poverty eradication are the first and overriding priorities of the developing country Parties, the developed country Parties will effectively implement their commitments related to provision of financial resources and transfer of technology to such developing country Parties.[54]

3.3. Legal Framework governing such transitioning market economies in the field of energy and climate policies

 § Scope of applicability of relevant International Legal Framework

It is pertinent to note that, the major distinction between UNFCCC and KP is that, while UNFCCC encouraged industrialized countries to stabilize GHG emissions, KP commits them to do so. Further, KP allows the transition economies to make use of its three innovative market-based mechanisms, namely, (a) Emissions Trading; (b) Clean Development Mechanism and (c) Joint Implementation.[55]

UNFCCC specifies the commitments for developed country and other Parties included in Annex I to take measures on the mitigation of climate change, by limiting, protecting and enhancing approach via national policies. The intent is to demonstrate that developed countries are taking the lead in modifying longer-term trends in achieving the stabilization objective.

There is a difference in approach, between adopting national policies and in contributing to the global effort to achieve the aforesaid objective. Since every MS’s starting points, approach, economic structure and resource base will be different, the national policy will be unique for each MS. But, the goal for each MS will be same, i.e., to maintain a strong and sustainable economic growth by making use of its available technology and tapping into its other individual circumstances. On the contrary, the basis of global effort is based on equitable and appropriate contributions by each Party to UNFCCC for the achievement of the aforesaid objective. This is facilitated in two ways: (a) joint implementation of policies and measures by Parties and (b) assistance of Parties to other Parties, wherein such assistance contributes to achieving the aforesaid objective by the other Parties. [56]

Energy sector is one of the sectors enlisted under greenhouse gas emitting sectors[57] under Annex A to the KP. For the purpose of assessing the extent to which KP would be applicable to energy sector of the EU, the discussion of common but differentiated responsibilities is pertinent. As per KP[58], each MS[59] can formulate, implement, publish and regularly update its national and regional programs containing measures to mitigate climate change & facilitate adequate adaptation to climate change concerning energy sector[60]. However, each MS has to take into account its common but differentiated responsibility in formulating its spatial planning methods and adaptation technologies that would improve its adaptation to climate change[61]. This means that, MS shall continue to advance the implementation of its commitments by reaffirming the existing commitments under the UNFCCC[62], and without introducing any new commitments, keeping the goal of sustainable development in mind. While formulating such programs, MS shall ensure that such programs have the potential of being implemented in that MS, by keeping the following elements in mind: (a) they should be cost-effective; (b) they should improve the quality of local emission factors, activity data and / or models which reflect its socio-economic conditions; (c) combine and integrate the learnings of (b) in preparing and periodically update its national inventories of anthropogenic emissions by sources and removals by sinks of all GHGs that are not controlled by Montreal Protocol and comparing its methodologies. However, such comparable methodologies have to be agreed upon by Conference of Parties and have to be consistent with the guidelines for the preparation of national communication that is adopted by Conference of the Parties.

For Annex I parties, KP establishes an information requirement. This means that such MSs shall submit information on their actions in climate change adaptation and mitigation in accordance with the relevant decisions of the Conference of the Parties[63] for the purpose of ensuring compliance with the objective of KP. This means that, MSs shall ensure that they meet their reduction commitment, i.e.,  they are committed to reducing the overall emission of GHGs as stipulated in the commitment period, either individually or jointly[64], and comply with their quantified emission limitation, i.e., its anthropogenic carbon dioxide equivalent emissions of the greenhouse gases do not exceed its assigned amounts as mentioned in Annex B to the KP.  

§ Scope of applicability of TFEU

 Environmental Policy is shared between EU and MS[65], although Article 191 TFEU is drafted in such a way that, probably nothing escapes from EU’s competence. When Article 191 TFEU is used as a legal basis, Article 193 TFEU in principle allows MS to introduce more stringent measures, provided that they are compatible with provisions of TFEU. However, the leeway for MS is much more limited when Article 114 TFEU is used as a legal basis. Another important legal basis for climate change policies is Article 194, TFEU on energy. It is pertinent to note that, the language used in Article 194, TFEU is softer and more ambiguous than what principle of integration in Article 11, TFEU requires, and raises questions about how the balance between environmental protection and security of energy supply in EU or between environmental protection and the push for more interconnections across domestic energy networks, that is crucial for the promotion of renewable energy, will be achieved.[66]

In order to promote the spirit of solidarity between MS, EU policy on energy shall aim to ensure security of energy supply in the Union[67] and also promote the interconnection of energy networks[68], amongst other things. The context of the aforesaid measures shall be with respect to the establishment and functioning of the internal market and with regard for the need to preserve and improve the environment.

Even though the Economic and Social Committee and Committee of the Regions play a pivotal role in the consultation process of the formulation of such policy, however, this shall in no way affect a MS’s right to determine the conditions for exploiting its energy resources, its choice between different energy sources and the general structure of its energy supply.[69]

§ Interaction of Point (2), i.e., relevant EU law with Point (1), i.e., International Legal Framework

EU policy on the environment shall contribute to promoting measures at international level to deal with regional or worldwide environmental problems, and in particular combating climate change, amongst other things[70]. Such policy shall aim at a maintaining high level of environment taking diversity of situations in various regions of the EU into account.[71] This in a way acknowledges the need for behavioral change for combating climate change, since such act can generate opportunities for growth, innovation, jobs and savings.[72]

However, MS also have the potential to take provisional measures for non-economic environmental reasons, and thus a safeguard clause for such MS to this effect can considered at the policy level at the stage of formulating harmonization measures that answer such environmental protection requirements. However, such safeguard clause be subject to inspection by the Union.[73] However, the main risk associated with this provision is that, it might elevate climate change over other environmental policies which significantly alter the planetary boundaries at the implementation stage.

3.4. Relevant legal principle in the field of energy and climate policy and its implementation

Climate change is viewed as a resource exhaustion problem[74] that is sliding against planetary boundaries, and thus demands radical and urgent action[75]. However, EU climate change policy has the potential to generate substantial trade-offs beyond its boundaries, since EU appears to be leading the world in the energy intensity of its imports.

General principles of law as recognized by civilized nations is one of the standards that is applied by the court to decide a dispute on international law[76]. In the field of energy, since functioning of societies in EU is based on the usage of the energy that comes from abroad, and mostly from countries which are difficult, volatile, risky, have problems with human rights, the environment and good governance, i.e., identifying the notion of practices that is expected from a civilized nation[77] is critical to assess.

4.      Conclusion

Environmental action is often based on uncertain science, a fact which is clearly in evidence where it presently matters most, i.e., climate change[78]. However, EU energy legislation serves to remove public barriers to an open energy market, and the rules of competition ensure that, the private players do not replace these barriers[79]. It could be argued that, the notion of public trustee doctrine or international trustee doctrine could be extended to non-state actors as well, who could add social legitimacy to maintaining and preserving “high level of environment”.

Gazprom case shows that, multinational companies could be considered as an important non-state actor in the energy game, who get influenced by the dynamics of capital markets, which is a market-based mechanism, and thus are affected at a greater degree than the state[80]. At the same time, they are required to present themselves not only as profit machines, but also as “forces for good”. From a climate change perspective, the broader notion of “common concern of humankind” is relevant here, since it transcends the notion of states pursuing their self-interests, and rather encapsulates the protection and safeguarding of the interests of humanity and planet as a whole.[81] This case could be an environmentally relevant demonstration of EC’s power, since it accepted commitments against imposing fines.

Further, the establishment of Directorate General within EC, that focuses exclusively on climate change and the increasing integration of climate change into the work of other departments within EC, as evidenced above, might aid in greater regulatory impact, and thus achieve the goal of reducing GHG emissions by 80-95% by 2050 compared to 1990.

Footnotes

[1] A market is an institution for carrying out economic transactions or, basically resource allocation, and one is allowed to demand from a market. Yuichi Shinoya, “The Ethics of Competition”, European Journal of Law and Economics, January 1995. Accessible at < https://link.springer.com/content/pdf/10.1007/BF01540821.pdf >

[2] Yuichi Shinoya, “The Ethics of Competition”, European Journal of Law and Economics, January 1995. Accessible at < https://link.springer.com/content/pdf/10.1007/BF01540821.pdf >

[3] Marc Van Der Woude, Unfair and Excessive Prices in the Energy Sector”, European Review of Energy Markets, Volume 2, Issue 3, May 2008. Accessible at < https://www.eeinstitute.org/european-review-of-energy-market/EREM%206%20-%20Article%20Marc%20van%20der%20Woude.pdf >

[4] Summary of Hoffman-La Roche & Co. AG v. Commission of the European Communities, Judgment of the Court of 13 February 1979, Case 85/76, Point 4, “A position of economic strength enjoyed by an undertaking, which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors, its customers and ultimately of the consumers. Such a position does not preclude some competition, which it does where there is a monopoly or a quasi-monopoly, but enables the undertaking, which profits by it, if not to determine, at least to have an appreciable influence on the conditions under which that competition will develop, and in any case to act largely in disregard of it so long as such conduct does not operate to its detriment.” Accessible at < https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A61976CJ0085 >

[5] Summary of Hoffman-La Roche & Co. AG v. Commission of the European Communities, Judgment of the Court of 13 February 1979, Case 85/76, Point 6, “A behavior which, through recourse to methods different from those which condition normal competition in products or services on the basis of the transactions of commercial operators, has the effect of hindering the maintenance of the degree of competition still existing in the market or the growth of that competition”. Accessible at < https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A61976CJ0085 >

[6] Judgment of the Court of 13 February 1979, Case 85/76. Accessible at < https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A61976CJ0085 >

[7] Massimiliano Vatiero, “Power in the market: On the dominant position”. Accessible at < https://ec.europa.eu/competition/antitrust/art82/005.pdf >

[8] Summary of NV Nederlandsche Banden Industrie Michelin v. Commission of the European Communities, Judgment of the Court, November 9, 1983, Case 322/81, Point 10, “ A finding that an undertaking has a dominant position is not in itself a recrimination, but simply means that, irrespective of the reasons for which it has such a position, the undertaking concerned has a special responsibility not to allow its conduct to impair genuine undistorted competition on the common market “. Accessible at < https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A61981CJ0322 >

[9] Article 101 and 102 of the TFEU.

[10] Article 17(1), Chapter V, Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty (Text with EEA relevance). Accessible at < https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:32003R0001 >.

[11] European Commission, Press Release, “Antitrust: Commission imposes binding obligations on Gazprom to enable free flow of gas at competitive prices in Central and Eastern European gas markets”, May 24, 2018. Accessible at < https://ec.europa.eu/commission/presscorner/detail/en/IP_18_3921>.

[12] European Commission, Press Release, “Antitrust: Commission sends Statement of Objections to Gazprom”, April 22, 2015. Accessible at < https://ec.europa.eu/commission/presscorner/detail/en/MEMO_15_4829>.

[13] Article 9(1), Regulation (EC) NO 1/2003.

[14] Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland and Slovakia.

[15] Gazprom imposed territorial restrictions in its supply agreements with wholesalers and with some industrial customers in above countries. These restrictions include export bans and clauses requiring the purchased gas to be used in a specific territory (destination clauses). Gazprom has also used other measures that prevented the cross-border flow of gas, such as obliging wholesalers to obtain Gazprom’s agreement to export gas and refusing under certain circumstances to change the location to which the gas should be delivered. EC considers that these measures prevent the free trade of gas within the European Economic Area (“EEA”). European Commission, Press Release, “Antitrust: Commission sends Statement of Objections to Gazprom”, April 22, 2015. Accessible at < https://ec.europa.eu/commission/presscorner/detail/en/MEMO_15_4829>.

[16] As per the EC, the territorial restrictions may result in higher gas prices, thereby allowing Gazprom to pursue an unfair pricing policy in 5 Member States, namely Bulgaria, Estonia, Latvia, Lithuania and Poland. This means that they could charge prices to wholesalers that are significantly higher compared to Gazprom’s costs or to benchmark prices. These unfair prices result partly from Gazprom’s price formulae that index gas prices in supply contracts to a basket of oil product prices and have unduly favored Gazprom over its customers.

[17] As per EC’s preliminary views, Gazprom was leveraging its dominant position by making gas supplies to Bulgaria and Poland conditional on obtaining unrelated commitments from wholesalers. For eg., Gas supplies were made dependent on investments in a pipeline project promoted by Gazprom or accepting Gazprom reinforcing its control over pipeline. Thus, such commitments also had an impact on the gas transport infrastructure. European Commission, Press Release, “Antitrust: Commission sends Statement of Objections to Gazprom”, April 22, 2015. Accessible at < https://ec.europa.eu/commission/presscorner/detail/en/MEMO_15_4829>.

[18] This was a provisional finding, because the effects of the Gazprom’s behavior needed to be confirmed, as per EC. Such behavior, if confirmed, shall impede cross-border sale of gas within the Single Market, thus, lowering the liquidity and efficiency of gas markets. Further it raises artificial barriers to trade between Member States and results in higher gas prices. European Commission, Press Release, “Antitrust: Commission sends Statement of Objections to Gazprom”, April 22, 2015. Accessible at < https://ec.europa.eu/commission/presscorner/detail/en/MEMO_15_4829>.

[19] European Commission, Press Release, “Antitrust: Commission invites comments on Gazprom commitments concerning Central and Eastern European Gas Markets”, Brussels, March 13, 2017. Accessible at < https://ec.europa.eu/commission/presscorner/detail/en/IP_17_555 >

[20] Intergovernmental Agreements related to electricity will be covered by a mandatory ex-post assessment, but a review clause has been inserted to possibly include electricity-related IGAs in the mandatory ex-ante assessment in the future. European Commission, Press Release, “Commission welcomes agreement to ensure compliance of Intergovernmental Agreements in the field of energy with EU law”, Brussels (December 7, 2016). Accessible at < https://ec.europa.eu/commission/presscorner/detail/en/IP_16_4311 >

[21] Decision (EU) 2017/684 of the European Parliament and of the Council of 5 April, 2017 on establishing an information exchange mechanism with regard to intergovernmental agreements and non-binding instruments between Member States and third countries in the field of energy, and repealing Decision No 994/2012/EU. Accessible at < https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32017D0684&rid=4 >

[22] European Commission, Press Release, “Commission welcomes agreement to ensure compliance of Intergovernmental Agreements in the field of energy with EU law”, Brussels (December 7, 2016). Accessible at < https://ec.europa.eu/commission/presscorner/detail/en/IP_16_4311 >

[23] European Commission, Press release “Anti-trust: Commission invites comments on Gazprom commitments concerning CEEC gas markets”, Brussels (March 13, 2017). Accessible at < https://ec.europa.eu/commission/presscorner/detail/en/IP_17_555 >

[24] Gazprom committed to give relevant customers in Hungary, Poland and Slovakia the possibility to ask for delivery of all or part of their contracted gas to entry points into the Baltic States and Bulgaria. As per Gazprom, this will lead to creation of opportunities because Bulgaria and the Baltic States, then, lacked access to interconnections with their EU neighbors. As a concept, access to interconnection is linked to access to gas infrastructure. Interconnection aids the customers who want to re-sell gas across borders. And the infrastructure aids in shipping the gas. European Commission, Press Release, “Anti-trust: Commission invites comments on Gazprom commitments concerning CEEC gas markets”, Brussels, (March 13, 2017). Accessible at < https://ec.europa.eu/commission/presscorner/detail/en/IP_17_555 >

[25]European Commission, Press Release, “Anti-trust: Commission invites comments on Gazprom commitments concerning CEEC gas markets”, Brussels, (March 13, 2017). Accessible at < https://ec.europa.eu/commission/presscorner/detail/en/IP_17_555 >

[26] Annex A, Proposals for Commitments, Comp/39.816 – Gazprom, Commitments under Article 9 of Council Regulation N’1/2003, Signed on February 14, 2017 (Non-confidential version). Accessible at < https://ec.europa.eu/competition/antitrust/cases/g2/gazprom_commitments.pdf >

[27] Communication from the Commission published pursuant to Article 27(4) of Council Regulation (EC) No. 1/2003 in Case AT. 39816 – Upstream gas supplies in CEEC, March 16, 2017 (2017/C 81/09). Accessible at < https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.C_.2017.081.01.0009.01.ENG&toc=OJ:C:2017:081:TOC >

[28] Annex A, Case AT 39816, Commitment Proposal, (Non-confidential version) (March 15, 2018). Accessible at < https://ec.europa.eu/competition/antitrust/cases/dec_docs/39816/39816_9994_3.pdf >

[29] July 17, 2018. European Commission, Anti-trust / Cartel cases, 39816, Upstream Gas Supplies in CEEC. Accessible at < https://ec.europa.eu/competition/elojade/isef/case_details.cfm?proc_code=1_39816 >

[30] Para 21, Annex A, Proposals for Commitments, Comp/39.816 – Gazprom, Commitments under Article 9 of Council Regulation N’1/2003, Signed on February 14, 2017 (Non-confidential version). Accessible at < https://ec.europa.eu/competition/antitrust/cases/g2/gazprom_commitments.pdf >

[31] Case AT. 39816 – Upstream Gas Supplies in CEEC, Antitrust Procedure, Council Regulation (EC) 1/2003, (May 24, 2018). Accessible at < https://ec.europa.eu/competition/antitrust/cases/dec_docs/39816/39816_10148_3.pdf >

[32] Margrethe Vestager’s speech, the EU Commissioner in charge of competition policy, European Commission, Press Release, “Antitrust: Commission sends Statement of Objections to Gazprom”, April 22, 2015. Accessible at < https://ec.europa.eu/commission/presscorner/detail/en/MEMO_15_4829>.

[33] General Court of European Union, Press Release, N’ 107/19, Luxembourg, September 10, 2019. Judgment in Case T-883/16, Poland v. Commission. “The General Court annuls the Commission decision approving the modification of the exemption regime for the operation of the OPAL Gas Pipeline”. Accessible at < https://curia.europa.eu/jcms/upload/docs/application/pdf/2019-09/cp190107en.pdf >

[34] Preamble, Paris Agreement. Accessible at < https://unfccc.int/files/meetings/paris_nov_2015/application/pdf/paris_agreement_english_.pdf >

[35] Stuart Clark, “Is hydrogen the solution to net-zero home heating?”, The Observer, The Guardian, March 21, 2020. Accessible at < https://www.theguardian.com/science/2020/mar/21/is-hydrogen-the-solution-to-net-zero-home-heating >

[36] European Commission, “2050 Targets: EU Policy, Strategy and Legislation for 2050 environmental, energy and climate targets”. Accessible at < https://ec.europa.eu/info/energy-climate-change-environment/overall-targets/2050-targets_en >

[37] Such countries comprise of Albania, Bulgaria, Croatia, the Czech Republic, Hungary, Poland, Romania, the Slovak Republic, Slovenia, and the three Baltic States, namely, Estonia, Latvia and Lithuania. OECD, “Glossary of Statistical Terms : Central and Eastern European Countries”. Accessible at < https://stats.oecd.org/glossary/detail.asp?ID=303 >

[38] The main features would be : wherein (a) resources were inefficiently used because the prices were administratively set and the state owned everything; and (b) centrally made decisions on production and pricing disregarded preferences and scarcity, World Bank, Country Note E, “Eastern Europe’s Transition: Building Institutions”, Page. 200. Accessible at < https://www1.worldbank.org/prem/lessons1990s/chaps/Cnote5_EasternEuropesTransition.pdf >

[39] This is characterized wherein company owners play the part of an indirect instrument for controlling and overseeing the management of the market, subject to (a) providing for product market competition that will in turn exert a disciplinary influence on corporate governance; (b) enhancement of global efficiency by forcing unprofitable firms to exit and (c) re-allocation of resources so that resources are put into more productive uses. Jean-Marc Burniaux, “Establishing financial discipline: Experience with Bankruptcy Legislation in Central and Eastern European Countries”, OECD Economic Studies, No. 25., 1995. Accessible at < https://www.oecd.org/competition/reform/15174000.pdf >

[40] Angel Gurría, OECD Secretary General, “The role of OECD in the economic transition of central and eastern European countries”, delivered at the Centre for Eastern Studies, Warsaw, Poland, November 24, 2006. Accessible at < https://www.oecd.org/general/theroleofoecdintheeconomictransitionofcentralandeasterneuropeancountries.htm >

[41] Poland Economic Snapshot, “Economic Forecast Summary”, (November, 2019). Accessible at < https://www.oecd.org/economy/poland-economic-snapshot/>

[42] OECD, “Law drafting and regulatory management in Central and Eastern Europe”, SIGMA Papers No. 18, OCDE/GD (97) 176. Accessible at < https://www.oecd-ilibrary.org/docserver/5kml618wrlg7-en.pdf?expires=1584694530&id=id&accname=guest&checksum=FFB86BF67EB9CD1FBE5D6E0F300C1259 >

[43] Article 1(1), UNFCCC.

[44] Article 2, UNFCCC.

[45] Article 3(4), UNFCCC.

[46] Article 3(3), UNFCCC.

[47] Annex I, UNFCCC.

[48] Article 4(6), UNFCCC.

[49] Preamble, UNFCCC.

[50] Decision - / CP. 18, “Matters related to parties included in Annex I to the Convention undergoing the process of transition to a market economy”. Accessible at < https://unfccc.int/files/bodies/awg-lca/application/pdf/decision_eits_cp.18_v5.pdf >

[51] Preamble, UNFCCC.

[52] Article 4(8)(h), UNFCCC.

[53] Article 4(10), UNFCCC.

[54] Article 4(7), UNFCCC.

[55] Factsheet: The Kyoto Protocol, UNFCCC. Accessible at < https://unfccc.int/files/press/backgrounders/application/pdf/fact_sheet_the_kyoto_protocol.pdf >

[56] Article 4(2), paragraph (a), UNFCCC.

[57] Article 2(1)(v), KP to the UNFCCC.

[58] Article 10, KP to the UNFCCC.

[59] Member State as Parties.

[60] Article 10 paragraph (b), KP to the UNFCCC.

[61] Article 10, paragraph (b)(i), KP to the UNFCCC.

[62] Article 4, paragraph 1, KP to the UNFCCC.

[63] Article 7(1), KP to the UNFCCC.

[64] Article 3(1), KP to the UNFCCC.

[65] Article 4(2)(e), TFEU.

[66] European Commission, “Energy 2020: A strategy for competitive, sustainable and secure energy”, COM (2010) 639 Final, 9.

[67] Article 194(1)(b), TFEU.

[68] Article 194(1)(d), TFEU.

[69] Article 194 (2), TFEU.

[70] Article 191 (1), TFEU.

[71] Article 191 (2), TFEU.

[72] European Commission, “Energy Efficiency Plan 2011”, COM (2011) 109 Final 3.

[73] Article 191 (2), TFEU.

[74] European Commission, “Mainstreaming Sustainable Development into EU policies: 2009 Review of the European Union Strategy for Sustainable Development”, COM (2009) 400 Final, 7.

[75] European Commission, “20 20 by 2020 – Europe’s Climate Change Opportunity”, COM (2008) 30 Final.

[76] Article 38(1)(c), Statute of the International Court of Justice.

[77] Kim Talus, “The International Dimension of EU Energy Law and Policy”, EU Energy Law and Policy: A Critical Account.

[78] Kim Talus, “Environment and Energy: On a bumpy road towards a clean energy future”, EU Energy Law and Policy: A Critical Account. (January 2014).

[79] European Commission, “Anti-trust: Commission confirms unannounced inspections in the natural gas sector”, Memo/11/641, Brussels. (September 27, 2011). Accessible at < https://ec.europa.eu/commission/presscorner/detail/en/MEMO_11_641 >

[80] Kim Talus, “The International Dimension of EU Energy Law and Policy”, EU Energy Law and Policy: A Critical Account.

[81] Jutta Brunnée, “Common Areas, Common Heritage, and Common Concern”, in Daniel Bodansky, Jutta Brunnée, and Ellen Hey (eds), The Oxford Handbook of International Environmental Law (2008), 554.