Hinkley Point and South Stream are alike

Berlaymont buildingWhat is the job of the European Commission?

Often it is said to be the “guardian of the treaties“. While true, this is only a summary of the full job description (link) that includes upholding the rule of law as one of Europe’s fundamental values. The rule of law beats the rule of war.

In this context, law means also all the legislation and court judgements arrived at under the Treaties as well as Treaty provisions themselves. EU rules also have precedent over member state law.

So what happens when such a basic constitutional principle breaks down? Perhaps we are about to see.

South Stream

On 28 May, the Commission formally called for construction of the Russia’s South Stream gas pipeline project to be suspended (Conclusions, point 2) while key legal issues are addressed, in particular infringements of single market rules contained in the third energy package. The EC also opened new member state legal cases.

According to common market rules, use of gas transmission infrastructure across EU territory must generally always be open to competition. The EC can however allow certain exemptions for new pipelines on a case by case basis, after a project developer makes such an application.

The principle of non-discrimination means that, on EU territory, third-country firms and projects are treated by the same rules as those as those arising in member states.

So on South Stream, even if not supported by all member states, the Commission is essentially trying to do properly the job it has been assigned by member states (in the Treaties) and by the legislator (Parliament &/or Council).

Hinkley Point

Like South Stream, the proposed two new nuclear power plants at Hinkley Point in UK, will also infringe single market rules on the internal energy market, if the £16 billion mega-project proceeds on its present basis.

By its own admission, the UK gov’t has not respected chapter 3 of the electricity market common rules (Directive 2009/72) in particular by failing to conduct a tender in accordance with Article 8(1) of that law. This omission was already noted by the Commission last year when it asked the UK to explain its failure.

Unlike the rules for gas transmission described above, the tendering requirement in electricity generation is an absolute requirement with no possibility to use a derogation.

Almunia

During a decade in office Joaquín Almunia has been a effective Commissioner who typically strives to do his job well. When he leaves on 31 October, he will not want his political legacy to be as the man who launched the beginning of the end for the internal market for electricity, gas and carbon in Europe.

Such a legacy would arise not just by allowing chapter 3 of the electricity common rules to be set aside but also, more fundamentally, by accepting the implied principle that member states, third-countries and big companies can ignore EU common rules whenever it suits them to make large anti-market energy investments.

So a lot rest of Almunia’s game over the next weeks.

Oettinger

Compared to Almunia, Gunther Oettinger on the other hand has been less than impressive in five years as energy commissioner. Recent energy successes have been in spite of him rather than because of him. As Oettinger has the main responsibility for upholding the internal energy market rules, so in the case of Hinkley Point and its lack of tender, he could have chosen to inform the UK authorities as early as 2011 that the planned approach on Hinkley was incompatible with the common rules. He failed to do so and his omission puts the Commission in a more difficult position today.

Game over for single energy market?

The EC cannot credibly hold Russia to our single market rules if it allows EU member states to disregard the same rules. Gazprom will not hesitate to point out a Hinkley precedent in order to defend its monopolistic South Stream ambitions.

In the longer run, the precedent set by allowing Hinkley Point to proceed unlawfully will be catastrophically damaging for the rule of law across the whole European energy sector. It would unleash a free-for-all spending-spree among member state governments and effectively be game-over for the single energy market (electricity and gas) and render the ETS carbon market redundant.

Final EC decisions on state aid cases have no time limit, and so October (end of mandate) is an arbitrary deadline. Any decision effectively to keep or to abandon the single energy market is so big it must not be taken in a hurry. As a minimum, Barroso must hand the big questions of our energy strategy — including any ‘Hinkley precedent’ — to the new Juncker College for it to considered as part of the “energy union” project.

If however this college gets the Hinkley decision wrong, there seems little point in our retaining “guardians of the treaties” or in having a common market for energy. In that case, would the last person leaving the Berlaymont please turn out the lights?

–oo0oo–

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