THE TRANSFORMATION OF EU ENERGY LAW

FOREWORD

ABBREVIATIONS

INTRODUCTION 1

The transformation of the EU legislative framework on energy –
from the opening of the national markets to climate change
and the energy crises

1. The evolving objectives of EU law and policy 7

2. EU primary law on energy: From indirect measures
to a dedicated legal base 10

3. EU secondary law on energy: from market liberalisation
to Strategic Energy Autonomy 27

4. Conclusions 118

The transformation of the energy institutional architecture

1. The prominent role of the European Commission 124

2. The emergence of other important institutional actors 152

3. Conclusions 186

The rise of judicial protection in EU energy law

1. The case law on free movement 190

2. The case law on competition 203

3. The case law on consumers 235

4. The case law on energy security and solidarity 240

5. The case law on National Regulatory Authorities and ACER 247

6. Conclusions 254

Conclusions 257

BIBLIOGRAPHY 263

Legislation 273

Regulations 273

Directives 276

Decisions 278

Decisions of EU Courts (in chronological order) 281

Court of Justice of the European Union 281

General Court – Court of First Instance 283

Competition cases 285

Antitrust cases 285

Merger cases 285

State aid cases 286

INDEX 287

Introduction

Perhaps no other economic area has witnessed such a spectacular legislative development during the last 15-20 years, as the energy sector. While energy has a long tradition in the EU law and the two out of the three founding Treaties were addressing energy issues, the energy field was in essence escaping from the legal mechanics of the first three decades of European integration. The European Coal and Steel Community (ECSC) and EURATOM focused respectively on carbon, which was fuelling the European integration at the time, and nuclear, the fuel of the future as it was perceived during the 1950s. As rightly noted, ‘these two treaties remain a unique example of a framework for common policy for energy-specific action based on the delegation of powers to a supranational central authority’. All coal and steel production were placed under a common High Authority and this pooling of production capacity, together with the solidarity underpinning the venture, laid the groundwork for collective economic planning and development.

However, this extremely vibrant start did not have an equally dynamic follow up. It is widely acknowledged that European integration is an extremely delicate balancing exercise, between national interests and State sovereignty on the one hand and the impetus for more (economic initially, but also political subsequently) integration on the other. The energy sector could not escape this causality; at odds with the very promising adoption of the two Founding Treaties, the development of both primary and secondary law in the energy field has stalled for a very long period. There was no explicit legal base for energy issues in the Treaty establishing the European Economic Community and thus the application of primary law remained incidental, while sectoral legal instruments were also sporadic. The reasons behind this inertia are first and foremost of political nature, but practical considerations also played an important role: energy is fundamental to national prosperity and central to the relations

between States. Access to energy resources is a key element of national security, with all the accompanying sensitivities. At the same time, the production and distribution of energy is deeply embedded in the fabric of national economies, which have for a long time financed the construction of the necessary nation-wide infrastructure. Energy markets are infrastructure-driven, and the respective networks, pipelines and grids have been designed and constructed at national level. It is thus not surprising that Member States of the European Communities were not so eager to transfer competences to a supra-national authority on such politically charged matters.

The 1990s marked the turn of the tide. Successive legislative packages promoted the opening of the energy sector and in particular the electricity and gas markets to competition. In parallel, the case law of the Court of Justice of the European Union (CJEU) on the application of competition and free movement rules paved the way for and supported the gradual liberalization of the markets. In the 2000s, the 2004/2007 enlargement, the increase in energy imports, with the UK becoming a net importer, the rising prices of fossil fuels, as well as the disruptions of gas supply, created a momentum for more structural changes, with the adoption of a specific legal base for energy and the elaboration of a truly common policy in this area. In 2009, the Treaty of Lisbon introduced for the first time a title on energy and a specific provision (article 194 TFEU) that directly addressed energy issues, thus allowing the EU to regulate more easily the relevant sector.

This is of course not the end of the story. More spectacular, deep-seated changes have been taking place during the last years. These bring the whole energy sector into a transition phase, starting with the new climate objectives and the diversification of energy sources that power our economies and societies. Amidst this transformation and this changing narrative, there is a however a constant which is central to the understanding of the evolving regulatory landscape in this field: the close interaction between the legal and the political drivers. In fact, energy policy and legislation are closely intertwined, and the latter is heavily influenced by political priorities and considerations. Similarly, one cannot approach the relevant case law of the ECJ without taking into account policy orientations and aspirations which fuel a teleological interpretation of the relevant provisions and legislative instruments.

Big challenges still lie ahead at technical, political and legal level. Firstly, the objective to decarbonise the economy by 2050 strongly militates in favour of the adoption of specific measures and action plans with tight timelines. Furthermore, the policy

option to move away from the traditional dependence on fossil fuels requires in turn an increased reliance on renewable energy sources (RES) and energy efficiency, this shift taking place at a globalised and geopolitically shaky background. The factsheet on energy policy prepared by the services of the European Parliament captures this domino of challenges: ‘increasing import dependency, limited diversification, high and volatile energy prices, growing global energy demand, security risks in producing and transit countries, growing threats of climate change, decarbonisation, slow progress in energy efficiency, challenges posed by the increasing share of renewables, and the need for increased transparency, further integration and interconnection in the markets’. What is even more important, this energy transition, the shift from large scale fossil fuel-based energy technologies to decentralised small scale renewable energy technologies should be smooth, without threatening the security of supply and jeopardising the energy accessibility and affordability for all consumers.

In other words, the political choices at international, supranational and national level are a fundamental driver for change and generator of new challenges. Next to the decision of the EU to foster convergence between energy and climate policy also in compliance with its international commitments, governmental choices at national level also matter. For example, governmental decisions on the national energy mix, with one of the more controversial ones being the use of nuclear energy, can entail significant policy and legal changes.

Strategic policy decisions rarely come in a vacuum. They are usually informed by societal preferences and cultural trends, which are quite visible in the case of the nuclear question, by the availability of financial resources, and -what is particularly relevant for the sector under examination- by technological developments. For instance, the penetration of Renewable Energy Sources (RES) would not have been feasible without the advances in the technology of solar and wind energy. Significant progress in battery technology and storage facilities is also a prerequisite for maximising energy efficiency and effectively promoting sustainable mobility. As to the availability of financial resources, it is heavily dependent on the evolution of demand, on the energy prices, especially for oil and gas, as well as on the investment needs for the maintenance and development of the energy infrastructure (electricity grid, interconnections, pipelines). For instance, while the Eastern enlargement signalled the expansion of the EU energy market, the aging and in many cases polluting infrastructure of the new Member States and the accentuating EU dependence from Russian fossil fuels have quickly become a growing concern.

A delicate balancing exercise is therefore needed to reconcile sometimes conflicting objectives and priorities: to name some of them, the need for energy security with the increasing environmental requirements, or the promotion of competition with the environmental sustainability of the energy system and the affordability of energy prices for final consumers. Some authors even refer to the energy trilemma, defining it as the task of achieving a balance between security, competitiveness and environmental sustainability. Law is and should be present to facilitate these trade-offs and regulate a sector experiencing a deep transformation. Indeed, the fast pace of developments in the energy field, its importance for the economy and the society as a whole and the constant need for balancing different interests are also translated, as already highlighted, into new legal challenges. Energy law has gradually emerged, and at least for some scholars has now grown into an independent legal discipline, to address these challenges. Acknowledging that the academic debate on whether energy law is a distinct legal discipline, is far from being closed, it is interesting to note that there is some consensus around its multidisciplinary character, its close interrelationship with environmental and climate change law as well as its fragmentation, at least from an institutional viewpoint. Some scholars point to the fact that it is becoming more holistic in its approach, encompassing progressively various issues previously associated with other areas of law (e.g. health and safety issues), while others try to spell out its main properties.

As energy law is evolving fast during the last 30 years, there is no standard or widely accepted definition thereof. Nevertheless, a group of distinguished scholars proposed a number of guiding principles that have been developed in practice and legislation: 1) The UN-recognized principle of national resource sovereignty, which is the right of states to use their natural resources in their own national interests; 2) The principle of access to modern energy services, which is also included in the list of Sustainable De-

velopment Goals (SDGs) declared by the UN General Assembly and reflected on the EU law concept of services of general economic interest; 3) The principle of energy justice, which has been defined as ‘[Achieving] a global energy system that fairly disseminates both the benefits and costs of energy services, and one that contributes to more representative and impartial energy decision-making’; 4) the principle of prudent, rational and sustainable use of natural resources, striking a balance between economic development and environmental concerns; 5) the principle of the protection of the environment, human health and combatting climate change, which reflects the intrinsic link between energy and the environment; 6) Energy security and reliability principle, which highlights the importance of energy as a public good, essential for the proper functioning of the economy and society. Security of supply, which can be defined as the availability of energy at all times in various forms, in sufficient quantities, and at reasonable and/or affordable prices, is the most important dimension of this principle; 7) Principle of resilience. According to the US Office of Energy Efficiency and Renewable Energy: ‘Energy resilience is the ability of the grid, buildings, and communities to withstand and rapidly recover from power outages and continue operating with electricity, heating, cooling, ventilation, and other energy-dependent services’. Events related to climate change, natural disasters, cyber-attacks, they all test the ability of the energy systems to remain reliable and in operation, as well as to recover more rapidly. All the above principles are mirrored in EU primary and secondary law.

The present contribution aims to outline the gradual transformation of EU energy law, focussing on three main aspects: firstly, its spectacular legislative evolution, from the early rocky days to the successive legislative packages and the proliferation of energy legislation (I); secondly, the governance dimension and the complex institutional landscape that has been forged with a multitude of national and supranational actors (II); finally, the judicial dimension and in particular the judicial protection offered on energy issues at EU level, by the CJEU and the General Court (GC) (III). The central idea underpinning this work is that energy law is one of the most characteristic examples of sectoral law where the EU has become a global leader, through a fascinating transformative process.

The ambition is not to be exhaustive, but to be illustrative. The constant legislative changes and the evolving case-law risk, let alone the economic, technological and policy developments, undermine by definition any attempt to capture the legal reality for a longer time. We can only hope to provide a snapshot of the legal evolution in the field and shed light at its main drivers.

Ι

The transformation
of the EU legislative framework on energy –
from the opening of the national markets
to climate change and the energy crises

1. The evolving objectives of EU law and policy

The objectives of EU energy law have been evolving in response to changing political and economic conditions. One can distinguish several phases, each one marked by distinct strategies and priorities. As already pointed out, the two out of the three founding Treaties concentrated on the control of critical energy resources and the development of nuclear energy for peaceful purposes. The primary objective of this post-war reconstruction phase was to control critical energy resources, ensure energy security and rebuild the economies through market integration. The foundations were laid by the Treaty of Rome (1957) which set as the primary target of the newly founded European Economic Community (EEC) the creation of a common market, i.e. a fully integrated market area with complete freedom of internal trade and free mobility of goods, services, labour and capital, including energy. National energy policies were predominant at the time, while the energy mix in most European countries was heavily dominated by coal and oil.

The first disillusions questioning the soundness of pursuing a purely national energy policy appeared during the two oil crises (1973 and 1979). Energy security became the overarching objective, as Europeans were hastily engaged on the quest for diversification of energy resources, while initiating the first serious reflections on a common energy policy. These initial reactions did not amount to the progressive build-up of collective solutions to the commonly shared problem of energy dependence, due to divergent views of Member States about the appropriate solutions and the way forward. This window of opportunity was not finally exploited, yet oil crises revealed the vulnerability of the European economies to supply disruptions and fueled the discussions about energy efficiency, alternative energy sources and diversification of supply away from oil. Interestingly, the concept of ‘security of supply’ was already enshrined in the ECSC and the Euratom Treaties and thus the –theoretical- base for more active EEC initiatives as a collective reaction to the oil crises was provided. It is not

by chance that in the first guidelines for a Community energy policy, a memorandum presented by the Commission to the Council in 1968, the institution voiced serious concerns on the EEC energy dependency.

The 1986 Single European Act, which introduced an ambitious action plan for the establishment of the internal market by 1992, presented a unique opportunity to resume efforts towards shaping a common energy policy. The Act introduced several provisions related to energy, emphasizing the importance of securing energy supply and promoting energy efficiency. Furthermore, it laid the groundwork for greater integration, free from barriers to trade, of the internal energy market. We will go more into the details of the contributions that each Treaty change brought to the fostering of the EU energy policy in the following chapter. It is worth noting, however, that within the broader context of creating the single market, and in particular from the 1990s onwards, the liberalization of the energy markets was actively promoted and spearheaded the initiatives undertaken by the European Commission in this field. The opening up of the electricity and gas markets to competition, including through the break-down of the respective national monopolies, was the leitmotiv behind the first liberalization directives adopted in 1996 and 1998 and the subsequent legislative packages.

The signing of the Kyoto Protocol in 1997 signaled the surging of the sustainability and climate change agenda. In the following years, the EU has gradually stepped up its efforts to reduce greenhouse gas emissions and fight climate change through its energy policy. The Treaty of Lisbon clearly stipulated that the EU shall have a common energy policy to ensure the functioning of the energy market, promote energy security, energy efficiency, and achieve the EU’s environmental objectives. In general, the Treaty advocated in favor of a more coordinated and integrated approach to safeguarding the continent’s energy security and environmental sustainability. In this respect, the landmark Renewable Energy Directive adopted in 2009 set binding targets for renewable energy production and consumption in order to reduce dependency on fossil fuels. It was followed by the Energy Εfficiency Directive (2012)

which includes specific energy saving obligations and is therefore central to achieving the EU’s climate ambition.

This need for more secure, sustainable and affordable energy for all citizens and businesses has been exacerbated by the enlargements of 2004 and 2007, as well as the gas supply disruption incidents due to the Russia-Ukraine conflict (2006). The Energy Union (2015), which mirrors the priorities set in the Lisbon Treaty, is intended to address these challenges by emphasizing five related and mutually reinforcing dimensions: 1. Security, solidarity and trust; 2. A fully integrated internal energy market; 3. Energy efficiency; 4. Climate action, decarbonising the economy (renewables and grids); 5. Research, innovation and competitiveness. The more recent years saw a push towards safeguarding security of supply and diversifying energy sources and supply routes as a result of the geopolitical tensions, while further pursuing the objective of climate neutrality. The European Green Deal (2019) represents the most important step in this direction, inasmuch as it encompasses a series of measures aimed at reducing emissions, investing in clean energy, and promoting energy efficiency. The purpose is to combat climate change but also strengthen the EU energy autonomy through the shift to cleaner energy resources. Based on the European Green Deal, the Fit for 55 package (2021) has the ambition to cut greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels and, together with REPowerEU (2022), accelerate the transition to a low carbon economy.

Next to the energy transition and the energy security imbroglio, more challenges are queuing up which the EU law and policy should aim to address: for instance, boosting innovation and keeping up with technological developments, while not losing sight of the social and territorial cohesion aspects. Technological advancements, such as smart grids, digitization and energy storage are affecting the energy systems at operational-technical level, but also in relation to their regulatory design. At the same time, the just transition concept made its way in the legislative and regulatory framework, since the energy systems should not only be sustainable, but also fair and inclusive, especially for regions and workers affected by the phasing out of fossil fuels.

In the light of the above, fluctuations can be observed in the objectives pursued by the EU energy law and policy. Changing conditions, geopolitical tensions, different priorities and lately the crises that hit the EU justify these adjustments. Furthermore, it is undisputed that even though the Treaty of Lisbon endowed the EU energy policy with a clear legal base and a set of objectives, the latter are not ranked in terms of their priority and can be potentially conflicting. They are thus more adaptable to the changing circumstances, to the detriment however of predictability and legal certainty. That being said, it could be advocated that since the publication

of the Green Paper on a European Strategy for Sustainable, Competitive and Secure Energy in 2006, sustainability, security of supply and competitiveness remain the main pillars of the EU energy strategy. We have already alluded to the energy trilemma, the need to find an equilibrium between competitiveness, security and environmental interests. The evolution of EU energy law and policy reflects precisely this continuous balancing act between ensuring energy security, promoting market integration - competitiveness, and addressing environmental sustainability. As global challenges and technological innovations continue to emerge, EU energy policy is likely to keep evolving, emphasizing a holistic approach that considers economic, social, and environmental dimensions.

2. EU primary law on energy: From indirect measures to a dedicated legal base

a) Α brief history – the initial application of primary law to the energy sector

Despite the first two energy-oriented founding Treaties, ECSC and Euratom, the Treaty of Rome and its revisions did not provide an ad hoc and appropriate legal basis to address the energy issues, frame the objectives and processes that would be required in order to take action in this domain. Measures in the field of energy were however not missing; they hinged mainly on the general legal bases related to the internal market and the environment. More analytically, in the absence of a concrete energy legal base, the European institutions have resorted to the use of soft law instruments or atypical acts. The Commission has issued several communications, strategies and guidelines, especially after the adoption of the Single European Act (SEA). Likewise, the Council has proceeded in the same way, though through different legal instruments, namely resolutions on the EC energy policy. In more recent times, the European Council seems to have taken over from the Council of

the EU, as more and more references to energy matters have found their way in its official conclusions. Obviously, the soft law instruments are not legally binding, but their intense use in the area of energy exhibits the political importance of the file.

At legal level, as already hinted, the EC relied heavily on the general provisions of the EC Treaty for the internal market, circumventing to a certain extent the absence of an explicit energy legal base. Article 114 TFEU, ex-article 95 of the Treaty of European Community (TEC) on the harmonisation of national laws for the purpose of the internal market was the spearhead of the EC’s efforts to introduce secondary energy legislation, especially before the SEA. Article 114 TFEU empowers the EU legislator to adopt ‘measures for the approximation of the provisions laid down by law, regulation or administrative action in Member States which have as their object the establishment and functioning of the internal market’. The approximation can vary from the establishment of common standards, granting more flexibility and allowing more stringent regulation at national level (minimum harmonisation), to the exhaustive harmonisation which does not leave room for divergent national measures beyond safeguards and derogations foreseen in the Treaty. The introduction of article 194 TFEU with the Treaty of Lisbon marked the end of this practice. It is clearly stipulated in the Treaty that measures can be adopted at EU level under the procedure of article 114 TFEU, ‘save where otherwise provided in the Treaties’, pointing to the subsidiary nature of the article. Article 194 TFEU with the explicit legal base for energy issues can be considered as lex specialis and as a result, article 114 TFEU is no longer expected to be invoked for the adoption of EU measures related to the establishment or development of the EU energy internal market. This premise has also been confirmed by the Court.

The SEA has brought environmental policy within the realm of the EC competences, allowing the adoption of energy-related measures through an indirect legal base. Pursuant to ex-article 175 TEC, (now article 192 paragraph 1 TFEU) the European Parliament and the Council, acting in accordance with the ordinary legislative procedure shall decide what action is to be taken by the Union in order to achieve the environmental objectives of article 174 TEC (now article 191 TFEU). For instance, article 192 has been used as a legal basis for the adoption of the energy efficiency and the RES directives during the 2000s. The Treaty of Maastricht was also an opportunity for some Member States, like France or Belgium to plead in favour of an EC

energy policy. The conditions were not yet ripe for such a decisive step, but instead energy was included surprisingly in the list of the Community activities. According to the text of the Treaty (article 3t), ‘the activities of the Community shall include [...] measures in the spheres of energy, civil protection and tourism’. No explicit competence in this field was attributed to the EC with this Treaty and we were thus far from the emergence of a common energy policy. The adoption of sporadic ‘measures’ was instead allowed, through the mobilization of the general legal base of article 308 TEC (now 352 TFEU). This article contains a rule allowing the EC/EU to adopt appropriate measures when, according to the treaties, it lacks competence. It may only be used as a legal basis when: a) the action envisaged is necessary to attain an EU objective, in the context of the policies defined by the Treaties (except for the common foreign and security policy); b) the action by the EU has been proved to be necessary; c) no provision in the Treaty provides for action to attain the objective; d) the envisaged action does not extend the EU’s powers beyond those provided for by the Treaties. The substantive conditions cannot be very easily met, but the procedural constraints are even more arduous: The Council adopts acts based on the said article unanimously, following the consent of the European Parliament. This explains the parsimony in resorting to this legal base for energy matters.

The Treaty of Maastricht innovated also with the introduction of the concept of Trans-European Networks (TENs). Articles 129b-129d TEC provided a legal basis for TENs for the first time. According to the Treaty’s wording: ‘To help achieve the objectives referred to in Articles 7a and 130a and to enable citizens of the Union, economic operators and regional and local communities to derive full benefit from the setting up of an area without internal frontiers, the Community shall contribute to the establishment and development of trans’ European networks in the areas of transport, telecommunications and energy infrastructures’. Electricity and gas networks of cardinal economic, operation and geostrategic importance, interconnecting Member States, have benefitted from funding thanks to the TENs.

The Treaties of Amsterdam and Nice have not altered in a substantial way the EC/EU competences in the energy sphere. Throughout the 1990s, European energy policy struggled to emerge in the absence of a concrete legal basis and remained oriented in setting the foundations for an internal energy market. There was no reference in the text of the Treaties to the external dimension or the actions that the Union/Community could undertake with third countries in this field. The Commission however strived to actively engage with third countries by exporting the existing EU legislation through multilateral initiatives, such as the Energy Charter Treaty.

Looking back, the volume of energy legislation that has been produced even before the enactment of the Lisbon energy legal base is far from being negligible. To the point that certain authors don’t see a fundamental difference in the legislative ac-

tivism of the EU as regards energy before and after Lisbon. In our opinion, the introduction of a specific legal base can be considered as a cutting point, since it allows for more ‘positive’ integration and harmonisation of national rules. Negative integration is tantamount to the prohibition to set barriers so that the internal market and the freedom of movement are not hindered by unjustified obstacles, whereas positive integration is complementary and tasks the Union with the elaboration of positive legislation to harmonise national regulatory frameworks and lift unnecessary barriers to trade. In the field of energy, competition law and free movement rules have been systematically applied to target anti-competitive practices and regulatory barriers to the free flow of energy within the EU. In the following chapters, we will have a more thorough look at the infringements and competition cases that paved the way for the liberalisation of the energy markets. It must be held moreover that the Community has based energy legislative instruments on the free movement rules, in combination with other legal bases: Directive 94/22/EC on the conditions for granting and using authorizations for the prospection, exploration and production of hydrocarbons has been partially based on the freedom of establishment.

As already stressed, the environmental legal base (article 192 TFEU) has enabled the EC/EU to adopt extensive legislation in the field of green energy, promoting RES, co-generation, biofuels, energy performance of buildings, energy efficiency, as well as the EU Emission-Trading System (ETS). It follows from the foregoing that a big corpus of the EU energy acquis, especially during the period before Lisbon, has been introduced with the help of the environmental legal base. In turn, the general internal market legal base (article 114 TFEU) has also supported EU efforts to safeguard security of energy supply in the gas and electricity sectors. Similarly, Council directives imposing obligations on Member States to maintain minimum stocks of

crude oil and/or petroleum products have also been issued with the help of the internal market legal base. What is more important, the emblematic liberalisation directives for the opening of the electricity and gas markets to competition were anchored on the internal market legal base.

It can be safely inferred from the above that the lack of an explicit legal base has not deterred the EU from introducing legislation, regulating various aspects of energy. The foundations for a common EU policy in the field were laid in the absence of a specific legal hook in the Treaties. The Treaty of Lisbon made nevertheless the difference in terms of the legitimacy, quantity and effectiveness of the EU demarche.

b) The turning point: The Treaty of Lisbon

The Treaty of Lisbon, which entered into force on 1st of December 2009, introduced several provisions related to energy and overall strengthened the EU’s competence in the field, setting the foundation for more ambitious climate and energy targets in the years to come. In particular, a specific legal base for energy was included in the text of the Treaty (i), while article 122 TFEU which mandates the Council to decide measures to address severe economic difficulties also explicitly refers to the area of energy (ii). The Treaty provisions on Inter-European Networks (iii) as well as the free movement/competition ones (iv) continue to offer additional legal bases for the adoption of energy-related measures in the respective areas.

i. The introduction of a specific legal base for energy (194 TFEU)

The Treaty of Lisbon is definitely a high point in the transformation process of EU energy law and policy. The geopolitical and market conditions prevailing during the negotiation process of the Lisbon Treaty weighted heavily in favour of an explicit legal base for the regulation of the EU energy market. As already argued, a combination of factors helped to highlight the importance of the issue and push it further up in the agenda of the Member States and Treaty drafters. The gas supply disruptions in 2006/2009 following the Russia-Ukraine conflict, ending over 30 years of stability in Russia/USSR supplies to the EU, served as ‘a wake up’ call to Member States and the industry. These events took place alongside an increase on the price of fossil fuels, as well as an upsurge of EU energy imports. In 2004 and 2005, the UK, who was traditionally voicing more scepticism as regards the expansion of EU competences, became a net importer of gas and oil respectively, after being a net exporter of both for a long period. It is reported by some authors that this was an important development, as allegedly the UK and Germany opposed a 2003 Commission proposal for an article on energy. Turn-

ing to the big enlargement of the EU in 2004/2007, the EU dependency on energy imports was further aggravated by the accession of new Member States, who were also very much driven by security of supply considerations.

Hence, the conditions were conducive to the setting of the legal foundations for the development of an EU internal energy market. Article 194 TFEU establishes the general framework for the EU energy policy, providing a legal basis for the EU to adopt measures aimed at achieving its policy objectives. It aims to address several key aspects thereof, including the functioning of the internal market, security of energy supply, energy efficiency, renewable energy development, and energy network interconnection. The objectives outlined in Article 194 are broad in scope and reflect the EU’s commitment to a sustainable, secure, and efficient energy system. Five interconnected objectives figure in the text of the Treaty, aiming to ensure the sustainable development of the energy sector: The first one is about the functioning of the energy market; By establishing a well-functioning internal energy market, the EU seeks to promote competition, enhance energy security, and ensure affordability for consumers. This market is meant to drive down prices and increase efficiency by allowing energy to flow freely between Member States without restrictions. It is also essential for achieving the objectives of security of supply, as it promotes diversification of energy sources and routes and encourages investment in infrastructure.

The second one is unsurprisingly the security of energy supply, inasmuch as a secure energy supply is of paramount importance for the stability and growth of the EU. This objective aims to prevent disruptions to supply and mitigate the risks associated with dependence on external energy sources. It focuses on maintaining a stable and reliable energy supply, including diversification of energy sources and infrastructure, to avoid potential shortages and disruptions that may impact the economy, the environment, and the well-being of citizens. The objective is thus essential for the resilience and stability of economies, societies, and national security.

The third objective is also predictably linked to energy efficiency and energy saving. Promoting energy efficiency and saving is crucial for reducing energy consumption, lowering greenhouse gas emissions, and improving energy security, as it reduces dependence on imports. Furthermore, implementing energy-efficient measures can lead to cost savings for both consumers and businesses. As it is often said, the cheapest energy is the one that you don’t use.

Another strategic objective, intrinsically linked to the security of energy supply and the energy efficiency ones, is the development of new and renewable forms of energy. The EU aims to accelerate the transition towards cleaner and more sustainable energy sources, such as wind, solar, and hydroelectric power. The promotion of RES and their larger share in the energy mix would also reduce energy dependency and increase security of supply for the European economies and societies.

The last objective, pertaining to the interconnection of energy networks also echoes the provisions on the Transeuropean Energy Networks (TEN). The interconnection of energy networks enhances the integration and efficient utilization of energy

resources across Member States. This is achieved by connecting energy systems and infrastructure, such as power grids, gas pipelines, and oil networks, to facilitate the exchange of energy resources, improve energy security, and promote market competition. Key benefits include increased reliability, reduced costs, and enhanced environmental sustainability through the integration of renewable energy sources.

The presentation of the EU energy policy objectives is not the only purpose that article 194 TFEU serves: it also establishes the procedures that the EU should follow in order to adopt secondary legislation in the pursuit of the above objectives. Furthermore, article 194 TFEU delineates the competences of the EU in the field, setting specific boundaries, which go beyond the principle of subsidiarity. First and foremost, the EU has shared competences with Member States in the energy sector. This means that in the sphere of energy competences (article 4 TFEU), the EU and its Member States are both able to legislate and adopt legally binding acts. It should be noted however that Member States exercise their own competence where the EU does not exercise, or has decided not to exercise, its own competence. As regards the legislative procedures to be followed, according to article 194 TFEU, the European Parliament and the Council share the responsibility for establishing the measures necessary to achieve the objectives of Article 194. In most cases, this involves the ordinary legislative procedure, where both institutions have equal decision-making powers. However, in cases where measures prove insufficient to achieve the objectives, the Council may adopt a directive through a special legislative procedure, acting unanimously after consulting the European Parliament.

This possibility is introduced ‘by way of derogation to paragraph 2’ of the article. Paragraph 2 echoes the principle of energy sovereignty, a fundamental principle of international law, which was also recognized by the UN General Assembly in 1962 and confers to all States the right to dispose freely their natural wealth and resources. While article 194 TFEU states that energy is a shared responsibility between EU and Member States, its second paragraph clarifies that each Member State has the right to decide the conditions for exploiting its own energy resources, choose between different energy sources and decide the general structure of its energy supply.

This ‘caveat’ or ‘sovereignty exception’ as described by some scholars goes beyond the principle of subsidiarity, which governs the exercise of the EU’s competences together with the principle of proportionality. The principle of subsidiarity aims to ensure that decisions are taken at the closest possible level to the citizen and that constant checks are made to verify that action at the European Union (EU) level is justified in light of the possibilities available at the national, regional or local level. In areas in which the EU does not have exclusive competence, as in the case of energy, the principle of subsidiarity seeks to safeguard the ability of the Member States to take decisions and action and allows the Union to intervene when the objectives of an action cannot be sufficiently achieved by the Member States (i.e. necessity), but can be better achieved at Union level, ‘by reason of the scale and effects of the proposed action’ (i.e. added value).

Notwithstanding the fact that the Lisbon Treaty has strengthened the role of national parliaments through an ex ante ‘early warning system’ as well as of the Court of Justice in monitoring compliance with the principle of subsidiarity, its control remains in practice quite limited. The two preconditions for intervention of the EU institutions in accordance with the principle, i.e. the necessity and the added-value are easily fulfilled in the energy field, also in the light of the EU energy policy broad objectives and the perma-crisis environment. Albeit the Court avails itself of the right to consider whether these two conditions are met, in practice its control is often confined to a repetition of the recitals of the acts in question and the justifications provided therein by the EU legislator. This could potentially justify -at least partially- this limitation of the EU competences under article 194 paragraph 2 TFEU, which reflects the delicate balance between Member States’ resource sovereignty and economic integration in the energy sector.

That being said, article 194 paragraph 2 TFEU should be rather considered as the exception to a rule and is not very likely to limit in practice the EU competences in the field of energy, despite the wording of the provision (‘shall not affect’). This approach is first and foremost confirmed by the adoption of several far-reaching legal acts by the EU in the energy sector, which remained unchallenged by Member States. The Winter Package and the Fit-for-55 package can be deemed to have a pro-

found impact on the national energy systems. They anticipate a substantial reduction of CO2 emissions and the increase of RES in final consumption by Member States through structural and strategic interventions, including specific monitoring and review mechanisms. The above interventions are also meant to address the international obligations undertaken by the EU under the Paris Agreement. Although they do not dictate the embracing of a given energy mix by Member States, they nevertheless have significant implications on the choice between several energy sources and the overall structure of their energy supply. Legal scholarship comments that unless EU legal measures impose directly and primarily ‘a choice in terms of primary energy sources’, they would not violate article 194 paragraph 2 TFEU. Case law around 194 (2) TFEU seems to confirm that its current interpretation is not indeed oriented towards limiting the scope of energy-related measures adopted by the EU. Furthermore, the aforementioned provision is an exception to the rule and as such it should be interpreted narrowly.

Overall, the legal assessment of Article 194 TFEU highlights its importance as a cornerstone of the EU’s energy policy. The provision provides a clear framework for the development of legislation and policies aimed at achieving a sustainable, secure, and efficient energy system, in line with the EU’s broader environmental and economic objectives. We shall now turn to another article in the Treaty and an emerging principle with untapped potential which could further push in favour of more integration in the sphere of energy policy.

ii. The emergence of the principle of solidarity

The principle of solidarity has been present in the Treaties since the beginning of times. In fact, one of the famous quotes in Schuman’s declaration in May 1950 is that ‘Europe will not be made all at once, or according to a single plan. It will be built through concrete achievements which first create a de facto solidarity’. This is also mirrored on the preamble to the European Coal and Steel Community, where it is mentioned that ‘Europe can be built only through real practical achievements which will firstly create real solidarity and through the establishment of common

bases for economic development’. Solidarity is at the heart of the European project, what also became apparent during the financial crisis, which prompted inter alia the creation of permanent financial solidarity mechanisms. Expressions of the principle are also traced in the economic and social cohesion policy, with the structural funds occupying one of the top ranks of the European budget, as well as in the Common Agricultural policy. The Treaty of Lisbon acknowledged the importance of the principle with the inclusion of specific references thereto at both general and sectoral level. There are no less than 19 references to solidarity in the text of the Treaties, including in its cornerstone article 2 which enounces the values and principles of the European Union. The EU energy policy is privileged with references in articles 194 TFEU and 122 TFEU which can both be used as legal bases for the enactment of legislation and the regulation of the sector.

Article 122 TFEU is not a new entry in the Treaties. Its predecessor dates from the original EEC Treaty and was then placed under the conjectural policies chapter. It was used in the context of the oil crises in the 1970s to adopt emergency measures in order to cope with the sudden decrease in oil supplies. An explicit reference to sol-

idarity was added with the Treaty of Lisbon, thanks to Poland’s persistence: ‘Without prejudice to any other procedures provided for in the Treaties, the Council, on a proposal from the Commission, may decide, in a spirit of solidarity between Member States, upon the measures appropriate to the economic situation, in particular if severe difficulties arise in the supply of certain products, notably in the area of energy’. Article 122 paragraph 1 has been repeatedly used by the Council as a legal basis for several emergency measures, since, unlike the ordinary legislative procedure, the Parliament is merely informed in this case: Two directives on minimum stocks of crude oil dating from 2006 and 2009, one Directive on security of gas supply in 2004 and more recently, in 2022, two regulations on the coordinated demand-reduction measures for gas (Gas Demand-Reduction Regulation) and on an emergency intervention to address high energy prices (Emergency Intervention Regulation) respectively. The aim of the two regulations is to tackle the energy crisis spurred by the Russian invasion to Ukraine and address the need to mitigate gas price increase.

The wording of article 122 paragraph 1 and the relevant case law indicate that the Council has a relatively wide margin of discretion when deciding upon the appropriate measures to address ‘the severe difficulties’. It needs to be signalled nevertheless that article 194 TFEU remains the standard legal base for the adoption of measures in the energy sector, the lex generalis, whereas 122 paragraph 1 serves as lex specialis, in case temporary measures need to be crafted to resolve an emergency situation. While solidarity is present in the text of both articles, the initial reading of the legal scholarship as regards the legal outreach of the principle in the energy policy, following its introduction in the Treaty was controversial: a substantial part of the literature entertained doubts as to the potential legal impact of solidarity especially under article 194, which was rather viewed as ‘programmatic statement’ or a ‘political guiding principle’. There were single voices asserting that the principle could, for instance, ‘partially counterbalance the very mercantilist character of the [EU] energy policy’.