TL: AN APPRAISAL OF THE EUROPEAN ENERGY CHARTER ARRANGEMENTS IN THE CONTEXT OF ENVIRONMENTAL LAW AND POLICY (GP) SO: BY PETER E. RODERICK, LL.B. (WALES) LL.B. (CANTAB) (GP) DT: December 1991 Keywords: atmosphere energy agreements ec europe legal policy gp / PUBLISHED BY GREENPEACE Peter E. Roderick is acting as a Legal Consultant to Greenpeace International. He is a Barrister-at-law who has practised at the Bar of England and Wales. From 1985 until May 1991 he worked in the UK and the Far East a Legal Advisor to one of the world's largest groups of multinational energy companies. Peter Roderick is a graduate of the University College of Wales, Aberystwyth and of Sidney Sussex College, Cambridge, where he graduated with First Class Honours. He is a member of The Honourable Society of Gray's Inn. CONTENTS 1. Summary 2. Origin of the Charter 3. Aims of the Charter 4. Charter framework 5. Purpose of this appraisal 6. The Charter itself 7. The Protocols 8. Conclusion 1. SUMMARY This paper is an appraisal of the environmental legal and policy aspects of recent drafts of the European Energy Charter and the Basic Protocol to the Charter. In summary, the Charter is inconsistent with international treaties and declarations concerning the environment. In particular the legality of the European Community signing the Charter is questionable. The main conclusions are: 1.1. The failure to conduct a pre-Charter environmental impact assessment conflicts with the 1991 UN Espoo Convention on Environmental Impact Assessment in a Transboundary Context, which is expected to come into force in 1992. The Charter arrangements are also inconsistent with the Arctic Environmental Protection Strategy. 1.2. In failing to conduct an environmental impact assessment on the concept of the Charter, environmental concerns have not been properly integrated into energy policy. This in breach of Article 130R of the Treaty of Rome and the European Community's Fourth Action Programme on the Environment (1987- 1992). It a]so contradicts the agreement contained in the Bergen Ministerial Declaration on Sustainable Development in the ECE Region (May 14th, 1990). The legality of the EC signing the Charter is thereby called into question. 1.3. The prospective signatories have failed to adopt the precautionary principle. This is in contravention of what has arguably emerged as a rule of customary international law and contravenes the Bergen Declaration. The Charter arrangements do not reflect Principle 21 of the Stockholm Declaration with respect to sovereignty over natural resources and State responsibility for extra territorial environmental damage, which is a rule of customary international law. 1.4. The Charter arrangements are based in large part on the framework of the General Agreement on Tariffs and Trade (GATT). In a number of respects the Charter arrangements fail to meet existing environmental provisions of the 43-year old GATT, which is itself generally recognised to be environmentally-inadequate. GATT is presently undergoing an environmental review but the fast-track development of the Charter arrangements may pre-empt both this process and a review taking place within the Organisation for Economic Co-operation and Development (OECD). 1.5. Environmental provisions are given unequal treatment in comparison with the trade and investment provisions in both the Charter itself and the draft Basic Protocol, and will be largely relegated to vague additional Protocols. 1.6. The draft Basic Protocol does not allow a State to conserve exhaustible natural resources; an express exception included in GATT. This potentially has serious implications for a signatory which may later decide on environmental, or other, grounds to restrict exploitation of resources. 2. ORIGIN OF THE CHARTER In June 1990, the Dutch Prime Minister Ruud Lubbers launched an initiative at the European Council meeting in Dublin intended to provide a framework for commercial transactions between eastern and western Europe in the energy sector. This framework has become known as the European Energy Charter (the Charter). Negotiations have involved around three dozen countries, including the US, Japan, Australia, New Zealand and the European Community (EC), as well as six observer organisations. Non- governmental organisations have not been granted observer status. 3. AIMS OF THE CHARTER Through the framework of the Charter, it is considered that: a) increased demand for energy in the West will be met, inter alia, through increased energy production in eastern Europe -in particular through increased oil and natural gas production in Russia; b) participation of western companies in connection with the production of such energy sources, on non-discriminatory terms with which they are comfortable, will be established and developed; and c) the desire of energy-producing states to receive convertible currency in order to foster their developing market economies will be, at least in part, satisfied. 4. CHARTER FRAMEWORK The Charter framework consists of three layers: * the Charter itself, which is intended to be a non-legally binding declaration of general principles; * the Charter's Protocols, which are intended to be legally-binding international agreements effecting the general principles; * the projects themselves. The intention is that projects will be undertaken by or via organisations such as oil and gas companies and financial institutions, under the auspices and legal protection of the Protocols. The negotiating states intend to conclude the Charter itself on 16 & 17 December 1991 at a special Ministerial Conference in Den Haag, Netherlands. The first of the Protocols - the Basic Protocol - is intended to be signed in the first quarter of 1992, with mandatory Core Protocols and/or optional Supplementary Protocols being executed at later, so far unspecified dates. 5. PURPOSE OF THIS APPRAISAL This appraisal provides some environmental legal and policy observations on the content of the draft Charter (dated 21 November 1991) and on the draft Basic Protocol to the Charter (dated 11 September 1991). It is not intended to be a comprehensive legal analysis of the arrangements. The Charter itself, and then the Basic Protocol with the Core and Supplementary Protocols, will be considered separately. 6. THE CHARTER ITSELF The decision to sign the Charter itself and the terms thereof indicate four major failures of an environmental legal and policy nature on the part of some, or all, of the prospective signatories. 6.1. The Charter will be signed without an environmental impact assessment having been carried out in respect of the consequential increase in fossil fuel production and consumption. The signatories to the Charter will "[a]ffirm...that [their] energy policies are linked by interests common to all their countries and that they should be implemented in accordance with the principles set out [in the Charter]" (Charter Preamble, last paragraph but two). However, in the absence of an environmental impact assessment in respect of the very concept of the Charter arrangements, as opposed to individual projects, three conflicts arise: a) There is a conflict with the obligations undertaken by the signatories of the UN Convention on Environmental Impact Assessment in a Transboundary Context, done at Espoo, Finland, on 25 February 1991 (the Espoo Convention). The Convention is expected to enter into force in the second half of 1992. Article 2.7 of the Espoo Convention states: "Environmental impact assessments as required by this Convention shall, as a minimum requirement, be undertaken at the project level of the proposed activity. To the extent appropriate, the Parties shall endeavour to apply the principles of environmental impact assessment to policies, plans and programmes." The Convention is one of the first international legal instruments relating to environmental impact assessments at the policy development stage. The Espoo signatories (except for Iceland) form the majority of the prospective parties to the Charter. It is difficult to conceive of a more "appropriate" situation for conducting an environmental impact assessment than in respect of the Charter which is expected to lead to a significant increase in fossil fuel production, with serious implications for increasing global warming. b) Any policy decision which increases the likely use of fossil fuels without first having carried out an environmental impact assessment will be incompatible with the internationally- recognised imperative of integrating environmental-concerns into other areas of policy. It is reasonably arguable, with respect to the European Community, that signing this Charter will constitute a breach of Article 130R, paragraph 2, of the Treaty of Rome. This provides that "...[e]nvironmental protection requirements shall be a component of the Community's other policies". This raises the question of whether the European Community is legally entitled to sign the Charter. Moreover, the European Community's Fourth Policy and Action Programme on the Environment (1987-1992) requires "Community action to concentrate on the.. priority area..[of] integration of the environmental dimension in other Community policies" (paragraph (q)). In addition, many of the countries due to sign the Charter are signatories to the Bergen Ministerial Declaration on Sustainable Development in the ECE Region (14 May 1990). Under the Bergen Declaration they agreed to: "integrate environmental considerations with economic and sectoral planning and policies and to encourage all relevant institutions to be accountable for evaluating environmental effects of their programmes and policies", (paragraph 13(a)). c) The failure to conduct an environmental impact assessment on the concept of the Charter at best seriously undermines, and at worst contravenes, the requirement contained in the recently-concluded Arctic Environmental Protection Strategy. The signatories to this Strategy agreed to base "management, planning and development activities which may significantly affect the Arctic ecosystems...on informed assessments of their possible impacts on the Arctic environment..." (paragraph 2.2 (iii)(a), June 14th,1991). Seven of the eight signatories to that Strategy document will sign the Charter. 6.2. Secondly, signing the Charter in its present form evidences a disregard by the prospective signatories for the so called "precautionary principle", which has now arguably emerged as a rule of customary international law. The precautionary principle is succinctly encapsulated in paragraph 7 of the Bergen Declaration: "In order to achieve sustainable development, policies must be based on the precautionary principle. Environmental measures must anticipate, prevent and attack the causes of environmental degradation." This was repeated and elaborated on in paragraph 7 of the Ministerial Declaration of the Second World Climate Conference. The Espoo Convention parties also expressed themselves to be: "[m]indful of the need and importance to develop anticipatory policies of preventing....significant adverse environmental impact in general and more specifically in a transboundary context", (Preamble, paragraph 4). The failure to adopt this principle in respect of the Charter in turn gives rise to conflicts with: a) the Final Document of the Bonn Conference of the Conference on Economic Cooperation in Europe, where thinking around East/West energy cooperation was developed. Concluded in April 1991, this agreement identified "transboundary pollution caused by energy production, conversion and consumption" as one of "the areas for cooperation". The current Charter, however, may be considered to be nearer the antithesis of such co-operation, notwithstanding that the third paragraph of the Charter Preamble purports to be "[h]aving regard" to the Bonn document; b) one of the mandatory functions of the European Bank for Reconstruction and Development (EBRD) - one of the carefully chosen and limited observers in the Charter negotiations. Article 2.1(viii) of the Agreement establishing the EBRD commits it to "promote in the full range of its activities environmentally sound and sustainable development"; c) the commitment of the World Bank (another observer) to environmentally sustainable development, by its signature of the Declaration of Environmental Policies and Procedures Relating to Economic Development. 6.3. Thirdly, the Charter does not properly reflect international law in relation to its references to "the framework of State sovereignty and sovereign rights over energy resources" (Title I, second unnumbered paragraph; Title II, first unnumbered paragraph). Principle 21 of the Stockholm Declaration of the UN Conference on the Human Environment, 16 June 1972 established that states do not have an unfettered right to exploit their natural resources. Principle 21 provides that: "States have, in accordance with the Charter of the United Nations and the principles of international law, the sovereign right to exploit their own resources pursuant to their own environmental policies, and the responsibility to ensure that activities within their jurisdiction or control do not cause damage to the environment of other States or of areas beyond the limits of national jurisdiction." Principle 21 has often been repeated - for example, almost verbatim (and added to) in the UN General Assembly Resolution 44/228 of 18 December 1989 on the UN Conference on Environment and Development, and verbatim in paragraph 25 of the Ministerial Declaration of the Second World Climate Conference. It is now generally regarded as a rule of customary international law. Accordingly, making reference to sovereignty over natural resources other than in conjunction with State responsibility for extra territorial environmental damage is legally incomplete. 6.4. Leaving aside the absence of an overall environmental impact assessment, there have clearly been last-minute attempts to take environmental concerns into account within the Charter, judging by the increase in the number of references to the environment in the later drafts. Indeed, some of these references are encouraging. One example is the agreement to co- operate in respect of energy efficiency and energy-related environmental protection by, inter alia, "ensuring,in a cost- effective manner, consistency between relevant energy policies and environmental agreements and conventions" (excluding, it seems, the Espoo Convention). Nonetheless, it is still questionable whether a proper integration of environmental concerns into energy policy adoption has occurred. For example: a)There are a number of references to the arrangements being consistent with the GATT (General Agreement on Tariffs and Trade) and its related instruments (Title I, paragraph l; Title II, paragraph 3). GATT is 43 years old, generally considered to be environmentally inadequate and currently undergoing an environmental reappraisal (see Protocols section 7.1.a) and 7.3 below). b) There is inequality of treatment between the "trade and investment provisions" and the "environmental provisions". The former will be included in the Basic Protocol, with its carefully defined legal obligations and minimal environmental provision. The latter, however, will be largely relegated to subsequent Protocols, the current drafts of which read more like general statements of intent rather than binding legal documents (see Protocols 7.2 below). As an illustration, the signatories to the Charter will "affirm that it is important...to negotiate and ratify legally binding agreements on promotion and protection of investments which ensure a high level of legal security" (Title II, paragraph 4), but there is no comparable or similar provision with respect to protection of the environment. c) The quantitative increase in environmental references has been accompanied by some qualitatively backward steps. For example: i) an earlier agreement (in the draft of 7 October) to use "transparent and equitable market-based instruments designed to achieve energy objectives and minimise environmental problems" has become an agreement merely to use such instruments to achieve such objectives "...and reduce environmental problems" (Title II, paragraph 7); ii) in the same draft of 7 October, there was (subject to a US reservation) an agreement to "apply technical specifications, rules and conformity test systems designed to maintain high standards on safety, in particular nuclear safety, and the protection of health, the environment, and consumers' and workers' interests". This was diluted firstly in the 7 November draft and the draft of 21 November incorporated simply an agreement to "implement safety principles and guidelines, designed to achieve and/or maintain high levels of safety, in particular nuclear safety and the protection of health and the environment", (Title II, paragraph 5); iii) the provision that "[e]nergy efficiency and environmental protection...will imply...efficient and co-ordinated measures for minimising environmental problems related to energy in accordance with internationally accepted standards", which appeared in the draft of 7 October, has disappeared and been replaced by a more general provision linked to cost- effectiveness. 7. THE PROTOCOLS The draft Basic Protocol is still some way from being ready for signature, but it is clearly partly GATT-based and partly investment promotion- and protection-based. Environmental legal observations fall into three categories, (with the caveat that the latest Basic Protocol that has been obtained for this review is some three months old). 7.1. Firstly, serious deficiencies revolve around Article 18, the provision which would, inter alia, disapply the principles of free market, non-discriminatory trade in certain listed circumstances. The main deficiencies are as follows: a) The exception in respect of "human or animal life or health" is narrower than the GATT equivalent (in Article XX(b)), in that plants are not included. The exception is similarly narrower than the Treaty of Rome, Article 36, which also refers to plants. Simply, however, to extend this exception to include plants is far from environmentally adequate. In the context of GATT, for example, this exception has never been successfully invoked and negotiating history suggests that it was intended to protect "quarantine and other sanitary regulations". Nevertheless, in the GATT Agreement on Technical Barriers to Trade, in force since 1 January 1980, relating to regulations on product standards and specifications, "protection...of the environment" has been expressly added to the human/animal/plant exception as a ground on which certain measures affecting trade may be justified. Accordingly, not only is the Basic Protocol less ecologically- friendly than the 43 year old GATT agreement but it also ignores developments within the GATT framework itself. b) The very significant GATT exception in Article XX(g) is conspicuous by its absence in any form in Article 18. This provides that "...nothing in this Agreement shall...prevent the adoption...of measures...(g) relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption". Even though this GATT sub-Article is a limited exception which has been restrictively interpreted (1), the freedom to adopt conservation policies is of the utmost importance in the context of finite hydrocarbon reserves, and especially where such reserves are in areas of ecological, cultural and social sensitivity or in areas where environmental degradation has already occurred. It may be expected, and certainly hoped, that this failure will not survive the late amendments made to the Charter itself. Otherwise, in certain circumstances, this might severely compromise a State's sovereignty over its natural resources. c) The Basic Protocol contains no provision expressly recognising that measures necessary for ensuring compliance with international environmental agreements are permitted. This could include future compliance with the agreement currently being developed on global warming which may be expected to limit the burning of fossil fuels. The Charter also fails to address the risk that environmentally-directed, but trade-restrictive, measures would be declared incompatible (for example the GATT Panel's report in the Mexico/US case (2)) with the Basic Protocol on the ground that they had extraterritorial effect. However, the inclusion of such additional provisions as already outlined would still be far from sufficient to create an environmentally-sound Basic Protocol. Basic Protocol exceptions would be permitted "for the purposes of" specified aims, and may be more easily applicable than the comparable GATT ones where it must be shown that such measures were "necessary" for achieving such aims. However, the Panel in the Mexico/US case (2) recommended that Article XX of GATT should not be interpreted to allow environmental trade measures but rather that an amendment or supplement to, or a waiver of, GATT was necessary. It therefore follows that without full environmental provisions in the Basic Protocol, expressly allowing environmental trade measures (including, for example, subsidies and import levies where environmental and resource costs have not been internalised), it may be expected that protection of the environment will be further undermined. 7.2.Secondly, the Charter structure and process are such that the Basic Protocol will be executed before any mandatory Core and/or optional Supplementary Protocol is drawn up. The intention is that areas of environmental concern will be contained in these subsequent Protocols (for example on "energy efficiency, including environmental protection", on "all aspects of the nuclear fuel sector..." and on "development of renewable energy resources") rather than in the Basic Protocol. Incorporating provisions dealing with matters of primary environmental concern other than in the Basic Protocol itself, which sets out the basic rules, will significantly weaken the effectiveness of such provisions. This will be especially true if environmental provisions are only incorporated in a Supplementary Protocol. The danger is that the provisions will be construed so as not to limit the trade-friendly terms of the Basic Protocol or the operation of other envisaged Protocols, for example on oil and natural gas production. Perhaps even more significant is the striking difference between the "hard" content and traditional legal language of the draft Basic Protocol and the "soft" content and language of the draft "Skeleton [unspecified] Protocol of Working Group III [on] Energy Efficiency Including Environmental Aspects". This serves simultaneously to indicate the lower priority accorded to the environment in these arrangements and to reinforce the legal importance of proper environmental provisions being included in the Basic Protocol. The conflict between the Charter's reference to "energy efficiency, including environmental protection" and the title of this draft Protocol is also telling. Moreover, there still seems to be the legal possibility of the Basic Protocol being fully operational without any Core Protocol or Supplementary Protocol ever being executed. 7.3. Thirdly, the rapid pace at which negotiations on the Charter process have been proceeding may pre-empt current attempts at analysing the adequacy of GATT provisions on the environment. This is underway within GATT itself and within the OECD Joint Work Programme of the Trade and Environment Committees which is considering the "Applicability of GATT and OECD Guiding Principles to Trade and Environment Concerns". 8. CONCLUSION "[The over-exploitation of the planet's resources continue[s], in the name of mismanaged protection and misunderstood competition, over straining the limits of the eco-systems." These are not the words of an environmental activist, but are recorded in the minutes of the GATT Council of 12 March 1991 as attributable to the representative of the European Community; a prospective Charter signatory. The environmental inadequacies of the Charter arrangements are striking. Two inescapable impressions emerge from studying the arrangements and observing their fast-track and largely secret development. Firstly, it appears that the economic wing of governments has largely outmanoeuvred or ignored the environmental wing. Secondly, the process of integrating environmental and economic considerations, to which States have said they are committed, and to which the European Community is legally bound, appears not to be taking place, either properly or at all. REFERENCES: (1) see, for example, the GATT Council's adoption of the Panel's report in the case of US/Canada: Measures on exports of unprocessed salmon and herring (summarised at page 63, "GATT Activities, 1988") (2) as recently underlined by the Panel's report in the Mexico/US: US Restrictions on imports of tuna case (not yet widely published)