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Energy: Security

Volume 767: debated on Thursday 10 December 2015

Question for Short Debate

Asked by

To ask Her Majesty’s Government what they consider to be the roles of the Energy Community and the Energy Charter in improving energy security and alternative supplies and sources of energy for the member states of the European Union and its neighbours; and what is the extent of United Kingdom involvement in both organisations.

I thank the Minister and his Whip, and the noble Lord, Lord Grantchester, for attending this debate and allowing me the unusual opportunity of knowing that there at least two people who will listen to what I say.

When I was appointed to the Energy and Environment Sub-Committee of the EU Committee—I make clear that I am speaking personally and not as a member of the committee—in the course of attempting to catch up with EU energy issues, I came across the Energy Charter and the Energy Community. This was at a time when the need for more and new sources and supplies seemed an urgent priority in the face of Russian actions in Ukraine and the ups and downs of the various new pipelines. The more I read, the more I felt there was more that we should know about both these organisations.

Both organisations may be familiar to other Members of the Committee but they were not so to me and indeed the more I looked into them the more questions arose than I have time to pose this afternoon—although I am not sure whether the personal time limit trumps the overall time limit for this debate. Should I sin in one direction, I shall assume that the overall time limit is what controls our proceedings.

I turn first to the Energy Community. This is an international body dealing with European energy policy. It was established by a treaty signed in Athens in October 2005 that came into force in July 2006. The parties are the European Union and eight other countries of south-east Europe, the Black Sea region and beyond. It seeks to extend the European Union internal market rules to interested non-EU countries in Europe and beyond. Its own website says that the role of the community is to:

“Attract investment in power generation … Create an integrated energy market allowing for cross-border energy trade … Enhance the security of supply … Improve the environmental situation in relation with energy supply … Enhance competition”.

Those are all aims to which I presume the United Kingdom Government would subscribe.

Although the European Union is the party to the treaty, not the individual states of the Union, all the European Union states may take part in the various institutions of the Energy Community. I was therefore a little surprised by the Answers that I received to a number of Written Questions which I put down in the previous Parliament. In asking who represented HMG in the gas, oil and social fora of the Energy Community, I was told that the UK does not participate in those fora and that the EU Commission represents the EU member states’ position. I also asked who was our non-voting representative on the Energy Community regulatory board. I was told that we were not represented and that the European Commission represented the EU member states. I asked who was our representative on the Permanent High Level Group of the Energy Community and was told that an official from the Department of Energy and Climate Change attends this group when issues to be discussed require the United Kingdom’s attendance. Lastly, I asked who attended as our representative at the annual Ministerial Council and was told that it was an official from the department.

Although those Answers were in many ways a welcome recognition of the role of the European Union in these matters, I must ask the Minister, if our participation is so limited, what our assessment is of the value of the organisation. Is there not a case for greater United Kingdom involvement given our interest in the security of supply, not just in the United Kingdom but in the European Union and its neighbours as a whole?

For what may have been the first time, the department wrote to the European Union Select Committee in September this year, advising it of the agenda for the Ministerial Council of the Energy Community which took place on 16 October. The letter tells me that the European Union position on items was agreed by the Council of Ministers and that the United Kingdom Government supported the proposals, which included reform of the institutions and their working methods.

Can the Minister advise the Committee of the outcome of the Ministerial Council and in particular about the proposed procedural act to organise a meeting of representatives of Parliaments to formalise the existing network of parliamentary co-operation? Is it the intention that this role will fall to the European Parliament, not Westminster? Where and how does the Energy Community relate to the European Union’s own energy union policies? How does the work of the Energy Community relate to the work of the Energy Charter?

The Energy Charter dates back to an initiative of the early 1990s. In 1991, the Energy Charter political declaration was signed in The Hague, followed by the treaty, which was signed in December 1994 together with an important Protocol on Energy Efficiency and Related Environmental Aspects. The treaty came into force in 1998. It aims to encourage and facilitate international cross-border co-operation on energy and represents an important international effort to build a legal foundation for energy security based on open, competitive and sustainable development.

The Energy Charter’s website lists its basic elements as investment protection—through ensuring a firm legal framework—stable energy flows and increased energy efficiency. Unlike the Energy Community, 52 member states, from Europe and Asia, have signed or acceded to the treaty. The United Kingdom is a signatory, together with the European Union and EURATOM. Observer states include the United States of America, Canada and other non-European Union states. Apparently a modernisation process was launched in 2009, and in 2014 negotiations started on an updated charter. Can the Minister advise us about the updating process and our involvement in it? Can he tell us more about the working of the organisation, including the Energy Charter Conference, which has political responsibilities for the implementation of the charter working groups and ad hoc committees? I wonder who attends that.

It is worth noting that this is perhaps more important than may appear at first sight, because Russia chose to withdraw from the treaty by presidential decree in 2009. That clearly had serious implications for countries supplied from the Russian Federation, given also the provisions in the charter for resolving disputes. Will the United Kingdom attend the ministerial meeting of the charter in Georgia on 15 December, one day of which is devoted to fostering regional co-operation through cross-border energy trade?

I repeat the questions that I posed with regard to the Energy Community about who represents us, if at all, and when and where. What value do we place on the organisation and how does it relate to the Energy Community and the European Union’s Energy Union? It seems that there is considerable overlap between the two organisations, if not in the work they do, at least in their stated objectives. Do the Government have a view about that?

Lastly, I hope that the Minister will be able to tell us more than I have managed to research or had time to cover this afternoon. Does he agree that these are matters which should be of considerable concern to the United Kingdom and about which Parliament should know rather more than it is currently told?

My Lords, I wonder if I could speak in the gap, since the debate is rattling on quite quickly. I have two points. First, having lived in a world some time ago when we were not worried about terrorism or problems like that—and I now live in an IT world—how on earth one secures the transmission of the gas or whatever it might be through potentially hostile territories, particularly in an internet world where these things are controlled electronically, is extremely difficult. Since one has no power, particularly to enforce certain security levels in other countries that might be travelled through, there are huge vulnerabilities. I feel very sorry for the people who try to do this. I know that we have some very good people working on it, and I just hope that they manage to keep us secure, because we are highly vulnerable with the route from some of the supply fields all the way to the UK. At the end of the day, we are at the end of the line.

Secondly, I want to put in a plug for something. This morning, I was speaking at the Institution of Engineering and Technology on the internet of things, and one of the interesting things that came out of this with machine-to-machine communication was the concept of the virtual power station. I ought to declare an interest as chairman of HyperCat. That is short for Hyper-Catalogue, which it is about machines communicating interoperability on the internet of things. This might sound off the point, but if we can start to look at the energy requirements and start to move it around a little, we can save ourselves the need to fire up a power station at certain moments. I throw that in because we were talking about alternative supplies, whereas this is far more important: the high-level stuff and the negotiation of treaties.

At the practical end, where I live a lot of the time—I am not expecting any answer to this at all because it is left of field for this particular debate—there are technologies out there and new things coming along. The Government should look at some of the funding for what we call the internet of things, which, at the moment—although it sounds techie—is climbing up the degree of importance. It could really help in areas such as this when talking about alternative supplies: not because of the supplies, but because of the savings that can be made. Therefore, I make a quick plug for new technology and perhaps government funding in the next spending round. That area is doing quite well thus far; it could do better.

My Lords, I thank the noble Lord, Lord Bowness, for tabling this important Question today, for his interesting introduction, and for his continuous probing into lesser-known forums for energy discussion. I endorse all of his questions to the Minister and I thank the noble Earl, Lord Erroll, for joining our debate today.

While the Energy Community is essentially an enlarged EU platform to expand the EU’s internal energy market to nine states in south-eastern and eastern Europe, the Energy Charter is an independent, international, intergovernmental organisation of 52 states in Europe and Asia, including the Russian Federation. Those can play a major role in expanding the energy borders of EU energy policy through co-operation and alignment for a more secure and resilient world. Both can focus on the promotion of investment, stable energy flows and increased energy efficiency.

The Energy Community has an interesting approach to its various categories of membership: 19 of the 28 EU member states are participants, including the UK, while four EU neighbours—Armenia, Georgia, Norway and Turkey—are observers. Georgia has applied to join the Energy Community as a full member. Will the Minister comment on the fact that not all of the EU member states participate? Do the Government consider that this non-participation of some member states reduces the influence and work of the Energy Community? How do the Government approach the question of whether Georgia should be granted full membership against the background of turbulence in Ukraine and Crimea?

The Energy Community is taking the EU-model approach to a wider area. While this should perhaps not be interpreted as a precursor to widening membership of the EU, it nevertheless establishes a wider commonality of approach in this vital area of energy policy, decarbonisation and climate change. It is good timing by the noble Lord, Lord Bowness, that he has initiated this debate while the climate change talks were taking place in Paris. The Energy Community is tabling various EU directives and seeking application to eastern Europe through timed convergence within the region. For example, on electricity, community directives set minimum requirements for the establishment of competitive markets, including the development of coherent, transparent and non-discriminatory security of supply policies.

On the gas sector, the Energy Community is seeking the unbundling of transmission system operations over the next two years. On the environment, directives are identifying and assessing the environmental consequences of projects before any building or operation permit is granted. The Energy Community is presently preparing for the adoption of directives on energy efficiency, setting energy-saving targets into the future. Similarly, contracting parties of the Community are under an obligation to introduce rules to place competition on three pillars: first, the prohibition of anti-competitive agreements; secondly, the prohibition of abuse of a dominant position; and, thirdly, the prohibition of state aid. The Energy Community is also replicating EU policy with binding national targets for renewable energy in the electricity, heating and transport sectors, and with binding sustainability criteria for biofuels. The lessons of these developments of the EU policy have very much been learnt, with sustainability criteria to be verified by a dedicated body according to the rules.

On bringing coherency to a wider region, the Community is reviewing its dispute settlement mechanism. Four dispute settlement cases are currently open, and another 11 cases have been brought forward. To help implementation and enforcement mechanisms, the Energy Community has established a high-level reflection group to overcome shortcomings. Does the Minister agree that this should improve the effectiveness of the Community, and which states are members of the group?

I ask the Minister to expand on the questions posed by the noble Lord, Lord Bowness, in the Written Questions he referred to in his speech which were answered by the noble Baroness, Lady Verma, in March this year. The Answers suggest that the UK uses its influence only indirectly as a member of the EU, and it is the EU collectively, through the Commission, that engages with the Energy Community. This must surely dissipate the UK’s voice. Yet in another Answer the noble Baroness, Lady Verma, suggests that an official from the Department of Energy and Climate Change represents the UK at the annual ministerial Councils. Would the Minister clarify this position, and tell us what grade of official would undertake this assignment? Would ministerial attendance enhance the UK’s role at these meetings?

The Minister of State for Energy and Climate Change in the other place attended the European Energy Council in Brussels at the end of November. Discussion items included energy labelling regulations, electricity market design, the role of smart meters and a possible further EU-level instrument to address any anticipated shortfall against our 2030 renewable energy target. Many or perhaps all of these items could be of significance to participants in the Energy Community. How does dialogue at Energy Council level feed into the operations of the Energy Community? The development of interconnectors between supply grids is increasingly important to the security of supply, bearing in mind the high import dependency of many members of the Community. Interconnectors are regarded as key components of a national infrastructure. Do the Government consider the legal basis underpinned by the Energy Charter sufficient to provide jurisdiction between states?

The Energy Charter treaty plays an important role as part of the international effort to build a legal foundation for energy security. The noble Lord, Lord Bowness, said in his introduction that this treaty is acceded to by 52 states, the European Community and the European Atomic Energy Community—EURATOM—totalling 54 members including the Russian Federation. Observers to the recent conference included many more, such as the United States, China, Saudi Arabia and the UAE, among others. There is now a clear conviction among the contracting parties that the Energy Charter treaty is set to become an important instrument for global energy governance. The Astana Declaration of the Energy Charter Process for Global Energy Architecture is a political document which will guide the conference over the coming years. The conflicts in Crimea and south-east Ukraine have grave political consequences, with a negative impact on energy co-operation and will reshape relations between the EU and the Russian Federation. The resulting sanctions and the development of a mechanism for amicable dispute resolution must enhance the authority of the charter.

Bearing in mind that the 26th charter conference, which took place on 3 and 4 December, coincided with the Paris climate change conference, can the Minister confirm whether the UK, as a member state, attended, and was this at official level? As the EU is also a member, what representation was there in that regard and how do the UK Government make their voice heard through this participation? Will the Minister provide the House with a report on that conference? Did it decide on any new instruments and joint initiatives within the charter framework? What approach are the UK Government taking towards the Energy Charter activities?

Here in the UK the Government are resetting their energy policy and causing considerable anxiety. They have scrapped their flagship Green Deal home improvement fund and the zero-carbon homes policy. They have been warned that premature cuts to renewables subsidies have created a climate of uncertainty for renewable energy. Indeed, the CBI has recently condemned the Government’s policy-making for destroying investor confidence and blocking low-carbon energy infrastructure, while encouraging high-polluting diesel generators to enter the capacity market. At a time when stability and coherence is so needed at the international level and these new cross-national developments need careful support and guidance, the UK Government need to be aware of not diminishing their voice on the international stage.

Labour would argue that the UK needs to develop and implement a long-term energy plan. The UK faces a huge challenge to its energy supplies as sources of power come to the end of their useful life. We need a diverse energy mix, balancing the dilemmas of affordability, decarbonisation and security to power the economy and ensure the transition that meets climate change targets. The noble Lord, Lord Bowness, has highlighted the important frontiers of EU energy competencies in which, we believe, the UK should play its full part.

My Lords, first I thank my noble friend Lord Bowness for raising this important topic in the House, and the noble Lords who participated in the debate. I thank particularly the noble Earl, Lord Erroll, for ensuring that participation has gone up 25% just by being here. We are most grateful for that.

Because of the reference by the noble Lord, Lord Grantchester, to what is happening in Paris and the importance we all attach to that, before coming to the substance of this importance debate I will first say a little about that. I was there until yesterday evening, so I know that very good progress is being made. Issues of domestic policy do not often come up, but in so far as they came up in any meeting that I attended, the thing that seemed to have caught the attention of other participating states—every state in the world bar North Korea—and that had landed well and pleased other states, was our decision to withdraw coal-fired power stations by 2025, in so far as that is achievable while ensuring energy security. That brings us back to the substance of this debate, which is clearly about secure energy, so let me say something about that and then try to deal with some of the points made. Where I cannot deal with them—that will certainly include the answers given by my noble friend Lady Verma earlier this year—I will ensure that a full response is sent to all those participating in the debate.

Secure energy supplies at affordable prices are a critical issue for any country or region, and I welcome the opportunity to discuss the role which the Energy Community treaty and the Energy Charter treaty play in our energy security, which is the essence of both treaties, though they come at it with different types of provision.

In 2013, to put this in context, the EU energy market imported 53% of its energy requirements, a figure which may well grow in the future. As such, access to secure supply sources is key, a point which all noble Lords who participated in the debate have made. This is particularly the case for gas, of course. As a commodity which can be supplied only by pipelines that are laid and from import terminals that exist, it is, and should be, a focus for EU energy security improvements. A total of 29% of the gas consumed by the EU comes from just one country; namely, Russia. It is also the key supplier to many countries close to the EU where customers have no choice of supplier. They also have less power to determine the price, timing and amount of gas they receive. In short, they have insufficient energy security.

The better connected the internal EU gas market is, and the stronger the links across the area, the easier it will be for gas to flow where it is needed at affordable prices. The Energy Community treaty and the Energy Charter treaty are two important tools to address this issue. Perhaps I may turn first to the Energy Community treaty of 2005 which was set up to extend EU energy market liberalisation to non-EU countries such as Montenegro, Albania, Serbia, Moldova and Ukraine. Assisting these countries to liberalise their energy markets in line with the EU approach has multiple benefits. These include making trading across borders easier, and helping to attract investment into much needed energy infrastructure. Assisting the liberalisation of these markets is particularly advantageous to the United Kingdom and EU energy security as the non-EU countries that are party to the agreement are situated on significant routes between gas and oil producers such as Azerbaijan, Kazakhstan, Russia and the Middle East, and customers in the EU. It is for this reason that the United Kingdom is a strong supporter of the Energy Community treaty.

We engage fully with the objectives, but of course it is the EU that is a member rather than member states as such, so we attend EU meetings to make policy on Community objectives. At the moment, the Energy Community is focusing on additional EU energy legislation such as the energy efficiency directive to ensure that it is properly enshrined in the Community. It will have particular value in reducing emissions in countries such as Ukraine, which is the least energy-efficient country in the whole of Europe. Other reforms include strengthening the dispute settlement procedure and strengthening our engagement with Parliaments and civil society organisations. We consider the reform programme that is being put in place within the Energy Community to be sensible because it will improve the functioning, usefulness and transparency of the Energy Community treaty. These are basically the outcomes of the October Ministerial Council, and the EU position is very much in line with the UK position, so the UK is wholly on board for that.

In essence, the Energy Community treaty aims to improve competition, encourage liberalisation and support energy consumers. It is a key way of reducing the market power and associated political influence of any single energy supplier. With greater market integration and investment in new infrastructure, gas should flow to where it is needed following price signals rather than political signals. This is very central to our aims. The secretariat, which is essentially funded by the EU, holds significant expertise on both Energy Community members and on EU energy regulation. It is a trusted leader on reform in the region. We believe that this expertise is already benefiting south-eastern European states, and therefore the whole of the EU, so it is making a significant contribution to energy security.

For example, Serbia, Ukraine and Albania have transposed the EU’s third energy package, which includes market reforms and is challenging the dominance of the incumbent energy suppliers. Ukraine has also adopted gas liberalisation laws in compliance with EU laws. The Government are committed to playing our part in this process, and to that end we have funded a project with the Energy Community secretariat that assists Ukraine in improving its electricity market legislation. That is a key stepping stone in Ukraine’s wider reform process. Ukraine’s energy sector is a major source of revenue but it is also, as I have indicated, extremely inefficient and poorly regulated, wasting valuable resources and putting off external investment. This is one way of demonstrating the United Kingdom’s commitment to the Energy Community and its treaty.

Let me move now to the Energy Charter treaty, which has many similar aims but is a quite separate organisation. It was agreed in 1994, essentially in the wake of the break up of the Soviet Union, to promote international investment in the energy sector in eastern Europe and central Asia. It established legal rights and obligations with respect to energy investment and the trade and transit of energy goods. As has been said, there are 54 treaty members, including European and Asian countries, as well as EURATOM. Groups have signed or acceded to the Energy Charter treaty. Russia provisionally applied the treaty until 2009, but Members will be aware that there is a dispute at the moment in relation to Yukos, and Russia is no longer a treaty signatory having come out of the treaty process.

The treaty enshrines in law a mutual commitment not to discriminate against foreign investors. If an investor has a claim against a member of the treaty in relation to the provision of energy—by pipeline or whatever—this provides the mechanism for settling that, and there are rights and obligations set out in the treaty to help with that.

Another key area of the treaty’s provisions is energy transit. Building on World Trade Organization rules, the transit provisions oblige participating states to take the necessary measures to facilitate the transit of energy. Essentially, those measures are between states—for example, between the states of central Asia and the states of Europe. Therefore, the treaty deals with investment-type disputes between individual investors and a state, and also provides mechanisms between states in relation to energy transit. There were some specific questions about how we engage fully with this, and we do that both through the EU and as a separate member.

There were also questions about the conference—I think it has just happened rather than is just about to happen. This year, it was in Georgia, and last year it was in Astana in Kazakhstan. Although it is open to Ministers to go, for a number of years, the general process has been for a Minister not to go but to send a messenger. That happened this year and last year, and we were represented at higher executive officer level. I think many other nations do that too.

Although the conference is important, I am sure noble Lords will appreciate that, this year, we had the run up to what has been a very important process in Paris. That has engaged politicians across the board and, in particular, the Government. In the case of the Government, my right honourable friend the Secretary of State has been in Paris practically throughout the process, and I have been there for a considerable time. Therefore, the Minister of State has necessarily been doing a great deal of business in the United Kingdom, not least with regard to the flooding situation, to which they were central to helping deal with that and the necessary action that has followed. However, we have been well represented at the conference.

I will ensure that noble Lords get a detailed response as to exactly what happened in Georgia. An annual report is published, and those noble Lords who picked up the pack—I see that the noble Lord, Lord Grantchester, has his—will have seen a copy of the report on last year’s conference. We will make sure that we get a detailed breakdown of what happened this year for noble Lords.

My noble friend Lord Bowness asked what was happening in the process of making changes to the Energy Charter and updating it. The process has been largely about updating the language; I do not think that there is any fundamental change. For example, it has not been updated since the USSR was no longer the USSR, so there has been a tidying-up exercise. I do not think it is much more fundamental than that but, if I am wrong, I will certainly let noble Lords know when I write to them. That is the basic position.

I hope that that has dealt with most of the points. If I have missed anything, I will ensure that we pick it up in the write round. I once again thank my noble friend Lord Bowness for bringing forward this very important issue. I will ensure that he gets a full reply in relation to the points raised in the questions to my noble friend Lady Verma, and any other points that I have missed. I thank noble Lords for contributing to the debate on this key issue.

In closing, noble Lords will know that we are, as a country, focused on three essential aims: affordable energy, secure energy and green energy. The top priority, as set out by my right honourable friend the Secretary of State in her recent speech, is energy security. This debate, therefore, has been particularly timely and helpful.