Discussion Note - Energy Charter

INTERNATIONAL ENERGY CHARTER
MINISTERIAL CONFERENCE
20-21 MAY 2015  THE HAGUE, THE NETHERLANDS
“Investing in Energy”
D I S C US S I O N NO TE
Version 22 April 2015
1. The International Energy Charter as a new tool for securing investments to
meet global energy challenges
By: Energy Charter Secretariat
Investing in energy is one of the world’s greatest challenges. Over the period to 2035 the global
investment bill will total over USD 48 trillion, consisting of around USD 40 trillion in energy supply and
the remainder in energy efficiency. Less than half of the USD 40 trillion investment in energy supply
goes to meet demand growth. The larger share is required to offset declining production from existing
oil and gas fields and to replace power plants and other assets that reach the end of their productive
life.
Taking into account prevailing global conditions at economic, geopolitical and demographic levels, it is
now clearer than ever that a new tool is needed that can help secure the required energy
investments. In 1991, the Dutch Prime Minister of the time, Ruud Lubbers, started an initiative at the
East-West, or Eurasian, level which eventually resulted in the European Energy Charter. Later the
Energy Charter Treaty codified the Charter’s core principles on investment protection, trade, transit
and energy efficiency. Now, some 25 years later, the adoption of the International Energy Charter
(IEC) in The Hague, in May 2015, will open the way for the fully-fledged globalisation of the Charter
Process, paving the road for the Energy Charter Treaty (ECT) to offer rule of law services for global –
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rather than merely Eurasian – energy markets.
The basis of the text of the International Energy Charter is the 1991 European Energy Charter. The
document has been cleared of outdated references and new challenges for energy co-operation have
been added, including on energy efficiency and renewable energy sources. What is new in particular,
is the common understanding on energy security, reflecting better the different perspectives of energy
producing, consuming and transit countries. The IEC also offers a better reflection of the specific
needs of emerging and developing countries including access to energy. The basic principles of the
European Energy Charter are upheld, including state sovereignty over energy resources, political and
economic co-operation, the development of efficient energy markets, non-discrimination and the
promotion of a climate favourable to the operation of enterprises and the flow of investments and
technologies, taking due account of environmental concerns.
This should, in principle, be ‘music to the ears’ of energy investors worldwide: nearly two thirds of the
USD 40 trillion investment bill referred to above will be channelled into energy supply projects in
emerging economies. With many new countries signing up to the IEC this year, the Energy Charter
appears ready to become the premier energy governance instrument representing countries of
different political, cultural and legal backgrounds which share the common value that ‘nothing will
happen’ unless countries work together in order to promote, protect and ultimately stimulate
investments in the global energy economy. Only then can markets function to the maximum benefit of
society and a healthy energy trade can evolve at the global level, limiting the impact of geopolitical
tensions.
As it is now clearer than ever that investment needs to become the buzzword to drive global energy
markets, the question on how the International Energy Charter and Energy Charter Treaty accession
will evolve in the years ahead is an important one.
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For details about the Ministerial Conference on the International Energy Charter in The Hague on 20-21 May
2015, the Energy Charter Secretariat, the International Energy Charter or the Energy Charter Treaty, please visit
http://international.energycharter.org or http://www.government.nl/encharter
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Currently the Energy Charter is a full partner of the G20 activities on Energy Access Action Plan for
Sub-Saharan Africa (providing its experience in the market restructuring 2 and strengthening the
investment climate of the energy sector, assisting the RISE project of the World Bank and sharing its
experience on Regional transformative projects3), Energy Efficiency Finance Task Force (together
with IPEEC) and issues regarding risk mitigation and investment for the Accelerated Deployment of
Renewable Energy (together with IRENA).
In the longer run, countries signing up to the IEC and those deepening their engagement by going the
way of ECT accession will want to see some of the benefits which ‘club membership’ promises. Will
FDI4 flows come to countries in Africa, Asia and Latin America if they accede to the ECT? Will club
membership deliver on other energy security related solutions and services to the benefit of new
members? It is only if this combination of questions will result in the emergence of acceptable
stakeholder answers in the year to come, that the Energy Charter will acquire its rightful place as a
leading international organization in the field of global energy governance and investment protection.
2. Increasing Access to Modern Energy Services
By: World Bank Group – Energy & Extractives
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Introduction
The availability of energy is highly varied across and within countries. Energy is an important engine
of economic growth, on which both poverty reduction and shared prosperity depend. The difference
between the rich and the poor is particularly pronounced with regard to light, cooking and heating
energy. To meet the objective of universal access to modern energy services, it is estimated that USD
45 billion is needed annually. In 2010, USD 9 billion was actually invested. Economic losses
associated with blackouts and brownouts are estimated in excess of five percentages of GDP in some
cases. Countries need to signal to investors that they are ready for capital inflows in affordable,
reliable and sustainable energy. Several tools are now available to countries to analyse and improve
their investment environment.
Access deficit
The access deficit in electrification is overwhelmingly concentrated in Sub-Saharan Africa and South
Asia, the only two regions in the world where access improvements have not stayed ahead of
population increases. A group of 20 countries account for 83 percent of the global access deficit of 1.3
billion people. India, with an un-electrified population of 263 million, is followed by Nigeria and
Ethiopia with 75 million and 67 million respectively un-electrified. While the access deficit in 2012 is
overwhelmingly rural, the anticipated population increment between 2012 and 2030 is almost entirely
urban.
The access deficit in non solid fuels used for modern cooking and heating remains overwhelmingly
concentrated in South Asia, Sub-Saharan Africa and East Asia and in rural areas. The absolute
population living without access to non-solid fuels stands at an actual 2.9 billion in 2012 and an
expected 4.4 billion in 2030. While the access deficit in 2012 is a mix of rural and urban, the new
2
http://www.encharter.org/fileadmin/user_upload/Publications/Best_Practice_Guidelines_-_2003_-_ENG.pdf
E.g.: Gobitec and Asian Supergrid,
http://www.encharter.org/fileadmin/user_upload/Publications/Gobitec_and_the_Asian_Supergrid_2014_ENG.pdf
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FDI = Foreign Direct Investment
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For details about the World Bank Group – Energy & Extractives, the Energy Sector Management Assistance
Program (ESMAP) or the Readiness for Investment in Sustainable Energy (RISE) index, please visit
http://rise.worldbank.org
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population increment between 2012 and 2030 is almost entirely urban. A group of 20 countries
account for 84 percent of the global access deficit. India and China with access deficits of 778 and
607 million are followed by Bangladesh and Nigeria with 138 million and 127 million respectively.
Sub-Saharan Africa is the only region of the world where access improvements lag behind population
increase. Among the top 20 non-solid fuels access deficit countries, only 7 have managed an access
increase higher than population increase in the period 2010-2012. The Sustainable Energy 4 All
initiative has set the goal at 100% access to electricity and modern fuels for cooking in 2030.
Investment needs
To meet the objective of universal access to electricity it is estimated that USD 45 billion additional
investment is needed annually beyond the USD 9 billion that was actually invested in 2010. Much of
the investment opportunity lies in rural areas. Financing needs are largely concentrated on grid
investments - almost 85% of access investment is needed in grid and 15% in off-grid and micro-grids.
In the case of modern cooking solutions, USD 4,4 billion is annually required until 2030 to meet the
universal access objective, beyond current actual investment of 0,1 billion.
Countries will need to build a track record of using foreign investment to the benefit of a well
functioning, diversified energy industry which can include conventional and renewable energy
sources. By doing so, governments solidify their investment framework and send a signal to private
and public investors that they are ready for capital inflows in their energy industries, to advance
affordable, reliable and sustainable energy.
Bilateral and multilateral development banks have an important role to crowd in the private sector by:
(a) building the creditworthiness of utilities; (b) improving sector governance and performance; (c) derisking investments (e.g. through guarantees and public-private partnerships); and (d) providing
subsidies needed for access of the world’s poorest populations and last-mile connections (e.g.
results-based funding).
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The Readiness for Investment in Sustainable Energy (RISE) index , designed in coordination with the
Sustainable Energy for All (SE4All) initiative, offers a suite of indicators that countries can use to
analyse and improve their investment framework. The RISE index assesses the legal and regulatory
environment for investment in sustainable energy. The RISE indicators cover four aspects of a
country’s enabling environment: planning, policies and regulations, pricing and subsidies, and
procedural efficiency.
RISE will provide a global reference point to help policymakers assess individual countries’
frameworks for investment in renewables, energy efficiency, and energy access, and a powerful tool
to help design and implement policies that further many of the Energy Charter’s goals. In addition, the
combination of the carefully-designed indicators and a wealth of country-specific data – validated and
made publicly available by the World Bank – can serve as the basis for sharing experiences across
countries and highlight best practice rules, regulations and standards.
Questions
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What lessons would Energy Charter members wish to share from their own successes and
challenges in expanding energy access?
How could regional power pools, interconnections and electricity trade be promoted through the
Energy Charter in practice ,as a means to increase access to reliable and affordable electricity?
What role can the financial sector play in relation to putting into practice the International Energy
Charter?
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The RISE index has been developed by the World Bank, with support from the Scaling Up Renewable Energy
Program (SREP) of the Climate Investment Funds, ESMAP, IRENA and USAID
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3. Investing in Clean Energy Infrastructure in a Carbon-Constrained World
By: IRENA
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Introduction
Renewable energy plays an indispensable role in mitigating climate change. Investing in renewable
energy capacity and operating it with high shares in the system in particular for electricity generation
and in particular in vulnerable countries, can also have broader benefits. Renewable energy can
reduce the demand for fossil fuels which could reduce the import bill of countries, and with more
renewables domestic energy production can be increased. Both would contribute to a better trade
balance as well as job creation. The shift to renewable energy is effectively underway with investment
in new renewable capacity outpacing investment in new fossil based power-generation for three years
running.
Renewables and global emissions reductions
Renewable energy plays an important and increasing role in achieving ambitious climate mitigation
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goals. Renewable energy provides a path to lower energy-related carbon dioxide (CO2) emissions
and will help prevent a build-up of atmospheric CO2 concentration beyond 450 parts per million (ppm),
the widely accepted threshold to keep global temperature rise to 2 degrees Celsius above preindustrial levels by 2100. At the global level, scenarios reaching 450 ppm CO 2-equivalent are
characterized by more rapid improvements of energy efficiency, and a tripling to nearly a quadrupling
of the share of zero‐ and low‐carbon energy supply. In addition bioenergy with carbon capture and
storage (CCS) could also play a role. The average concentration of CO 2 in the atmosphere was 398
parts per million (ppm) at the beginning of 2014. If renewable energy deployment is limited mitigation
costs would increase and therefore greenhouse gas stabilization concentrations may not be
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achieved.
Of the total anthropogenic emissions today, the electricity sector accounts for 40% of emissions.
Decarbonising electricity generation, together with energy efficiency improvements, can significantly
reduce present trends in global CO2 emissions. Utilities have a key role to play here.
Research shows that under current policies and national plans, average carbon dioxide emissions will
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only fall to 498 grams per kilowatt-hour (kWh) by 2030. That is a 12% decrease compared to the
2010 levels. A doubling in the share of renewables could help mitigate climate change by reducing the
global average emissions in power generation by an equivalent of 40% compared to 1990 levels.
Countries are already taking actions
The shift to renewable energy is effectively underway. Renewables last year accounted for more than
half of new global power capacity, led by growth in wind, hydro and solar power. Investment in new
renewable capacity has outpaced investment in new fossil based power-generation for three years
running. And the more invested, the cheaper it gets. Total investment in renewable energy rose form
USD 55 billion in 2004 to USD 214 billion in 2013 and is bound to increase as markets expand,
learning accumulates and economies of scale are achieved.
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More information about IRENA, IRENA’s flagship publication REthinking or IRENA’s global energy transition
roadmap REmap 2030 can be found on www.irena.org
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The 2011 Intergovernmental Panel on Climate Change (IPCC) Special Report on Renewable Energy Sources
and Climate Change Mitigation
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The 2011 Intergovernmental Panel on Climate Change (IPCC) Special Report on Renewable Energy Sources
and Climate Change Mitigation
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Source: REthinking
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Many renewable energy technologies have demonstrated substantial performance improvements and
cost reductions, and a growing number of technologies have achieved a level of maturity to enable
deployment at significant scale.
Broader benefits of renewables
Enhancing the deployment of renewables can have a positive impact on economic growth, by
generating new jobs, enabling diversification of economies and contributing to poverty alleviation. In
the long term, renewable energy deployment can reduce the fossil fuel bill, and thus contribute to a
balance of trade. This is particularly important for countries that are highly dependent on fossil fuel
imports, and also those that expect a high increase of costs arising from their vulnerability to the
adverse effects of climate change. It allows those countries to allocate resources to contingency
strategies to respond to these impacts as well as to long term adaptation measures.
Questions
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How can the International Energy Charter advance investments in renewable energy when it
comes to new electricity generation capacity?
What role can utilities play in investments? And governments? And the financial sector?
How can the existing financial mechanisms from the UNFCCC mobilise the level of investment (in
the order of USD trillions) required for an energy transition?
Which other financing sources and channels may be needed, and what are the structures to
mobilise these additional sources and channels?
4. Investment protection and promotion
By: Global Investment Protection AG
Introduction
The energy sector is at a key juncture because climate change requires the switch from fossil to
renewable energy sources and political and economic instability in many parts of the world require
better security of energy supply and demand. As result, massive investments in the energy sector are
indispensable. In order to attract massive investments, effective investment and investor protection,
including full access to international arbitration, is needed. The ECT guarantees all this and therefore
should be further strengthened.
Energy sector at a key juncture
Since entering into force, the ECT has been a very successful tool in promoting and protecting
investments. However, for the following reasons the energy sector is at a key juncture.
First, climate change requires the switch from fossil to renewable energy sources. Hence, massive
long-term investments in the renewable energy sector are needed. Subsidies, tax breaks and other
measures can stimulate such investments, but can also slow down innovation and reduce
competitiveness.
Secondly, political and economic instability in many parts of the world require better security of energy
supply and demand. All States have an increasing responsibility to create a stable political, legal and
economic framework in order to ensure a high level of security supply and demand. Thus, States must
develop a predictable legal framework and refrain from retroactive measures. Moreover, States must
ensure effective investment protection and access to international arbitration because they are key
tools for promoting the Rule of Law, enhancing transparency and protect fundamental rights. In this
context, the transparency of international arbitration through the application of the UNCITRAL
Transparency Rules of 2014 could be increased. Also, the costs of the proceedings could be capped.
The possibility of an appeal mechanism could be explored.
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Thirdly, investments in the energy sector should be increasingly sustainable and contribute to the
local economy. Therefore, States should develop together with investors programs for local capacity
building and create international benchmarks on services which attract investments and benefit the
local community.
Questions
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How to create an attractive investment climate and promote innovation and competiveness for the
stimulation of investments in the energy sector?
How to enhance access to international arbitration, in particular for SMEs?
How to use the International Energy Charter for promoting sustainable investments in the energy
sector and the Rule of Law?
5. Energy, innovation and patents
By: European Patent Office
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Introduction
As the world’s population grows, and climate change concerns continue, new energy technologies are
required. Public, private and academic organisations pursue a myriad of ways to stimulate innovation,
both ‘open’ or ‘closed’, and offer a wide range of incentives. The international patent system provides
one way to advance innovation in energy, by protecting R&D results. Patents also support
international technology transfer through foreign patent filings and licensing. While over 2 million
relevant inventions are published via the internet, few patent rights exist in developing countries. How
can the patent system be better utilised to fulfil objectives of the International Energy Charter to
support innovation and technology transfer?
Innovation in energy
The world is in transition towards a new energy mix, including the increased use of renewable, lowcarbon energy sources, and their integration via smart grids into the energy network. New
technologies will have a vital role to play in fulfilling the objectives defined in the International Energy
Charter (IEC). Both ‘open’ innovation – innovation that is the result of internal and external ideas
between partners who share both risks and rewards – and ‘closed’ innovation play a role in creating
tomorrow’s energy mix.
Energy patents
The patent system is designed to encourage invention and innovation, favouring investment in R&D
by rewarding inventors with temporary exclusive rights, while requiring disclosure of the invention to
the public. These disclosures support further invention.
In addition, the patent system supports technology transfer through licensing agreements; and patent
protection obtained abroad enables enterprises to export technology while protecting their specialist
know-how.
Joint EPO-UNEP studies indicate that less than 1% of clean energy patent applications are filed in
Africa, and less than 3% in Latin America, suggesting that few relevant patent rights exist in
developing countries.
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For details about the EPO Patent Information “Espacenet”, about the clean energy and climate change
mitigating technologies indexing scheme and “PatentTranslate”, please see www.epo.org/espacenet,
http://www.epo.org/searching/free/patent-translate.html, and www.epo.org/clean-energy
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However, nearly 2 million patent documents relating to clean energy and climate change mitigating
technologies are readily available, free-of-charge worldwide from any internet connection. The
publication and availability of these patent documents which range from photovoltaic cells to carbon
capture technologies and from more efficient combustion engines to smart grid technologies, are a
vital element of the “social contract” inherent in the patent system, in which temporary exclusive rights
may be granted in reward for disclosure of inventions.
It is also possible to see in which States patent protection has been sought, and what the status of
relevant patents and applications is in each country. In addition, the tool “PatentTranslate” supports
translation to and from 28 European languages, as well as Chinese, Japanese, Korean and Russian,
which further enhances the “dissemination and exchange of know-how and information on
technologies” (IEC; II 6.).
Patents and technology transfer
The global patent system may have an important but underutilised role in providing “stable and
transparent legal frameworks” for technology transfer to these regions (IEC; I 2.).
Patent information services disclose not only technological solutions, but also information concerning
the inventors and patent proprietors. It therefore also represents a “market place” which connects
solution seekers to solution providers.
Countries that have adopted the IEC may be unaware of the possibilities of the global patent system
for their enterprises or entrepreneurs to innovate in clean energy and climate change mitigation
technologies.
Questions
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How could the patent system be better utilised in the framework the International Energy Charter
to support innovation and technology transfer?
Which mechanisms for innovation could be stimulated or exchanged under the International
Energy Charter?
Disclaimer
The views and opinions expressed in this discussion paper are those of the authors and do not
necessarily reflect the official policy or position of the Dutch Ministry of Economic Affairs or any Dutch
government agency. The Ministry of Economic Affairs wishes to express its appreciation for the work
of the Energy Charter Secretariat (Dr Marat Terterov et al.: The International Energy Charter Alliance
as a new tool for securing investments to meet global energy challenges); World Bank (Rohit Khanna
et al.: Increasing Access to Modern Energy Services), IRENA (Roland Roesch et al.: Investing in
Clean Energy Infrastructure in a Carbon-Constrained World), Global Investment Protection AG (Nikos
Lavranos: Investment protection and promotion) and European Patent Office (Gerard Owens et al.:
Energy, innovation and patents).
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