Green deal: Theory vs Reality

In theory, the Green recovery fund should provide assistance to companies trying to get back on their feet following the coronavirus pandemic, but in practice they will struggle to access available funds. 

This week’s episode discusses the legal aspects of the EU Green deal, Nord Stream 2 and Brexit. 

Host: 

• Richard Sverrisson, Editor-in-Chief Europe, Montel. 

Guest: 

• Ana Stanic, Principal of E&A Law. 

Transcript

Anna Siwecka, freelance journalist/podcaster: 0:01

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Richard Sverrisson, Editor-in-Chief Europe, Montel: 0:29

Hello listeners and welcome to the Montel Weekly podcast, bringing you Energy matters in informal setting. In today's pod, we talk legal matters. We've previously discussed the market impact and geopolitical ramifications of the Nord Stream two pipeline, but today we'll look at the legal perspectives. Can Germany scrap the project without unleashing a flurry of Ritz? We'll also talk about expected legislation from Brussels starting this month and our old favorite Brexit. I'm Richard Sverrisson and helping me discuss these issues is Anna Stanic of E&A law. A warm welcome to you, Anna.

Ana Stanic, Principal of E&A Law: 1:06

Hello, Richard. How are you?

Richard Sverrisson, Editor-in-Chief Europe, Montel: 1:08

Fine, thanks. Fine, thanks. Let's start off by discussing Nord Stream two Anna. What are your expectations here? Will it be completed?

Ana Stanic, Principal of E&A Law: 1:15

Yes, I think it will be completed, but it's a question of when. We know that it's only about 150 kilometers that are left to be actually laid in terms of pipeline.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 1:25

You've got, Berlin is reluctant to cut off communication with Russia and on the other it wants to maintain a good relationship to the us. Germany's in a very difficult position here. What are the options?

Ana Stanic, Principal of E&A Law: 1:36

I think Merkel has, and the German parliament has been relatively clear on its position that the two matters. The alleged poisoning. And the Nordstrom two completion are to be kept separate. So to the extent that any sanctions are imposed on Russia with respect to, and the poisoning of the Russian opposition leader, that should be done by the European Union as a whole. Whereas the Nordstrom two pipeline should be treated as a commercial project. And that's been the position of Germany for many years. So it's. Unlikely, I would say, and I think that's been confirmed last week, including by the German parliament. The disposition would change. I think the key question is now is where the things are for the pipeline in terms of German regulation. And here there is a hitch in the sense that the application by Nord stream to, to apply for a derogation before the German regulator has been rejected. That's now before the German courts, and it's a question of how long. That challenge will take to be resolved and whether it will be resolved in Nord stream's two, its favor. The argument there is whether a delegation can be granted under German law, implementing the amendment to the third gas directive, whether and key. The key there is whether the pipeline can be, have been completed by May of last year. And here the argument of Nord Stream two has been that. The wording of being completed should be regarded as completed in terms of an investment decision being reached, whereas the German regulator has taken a different approach to the deportation and has said that to have to be completed means completed in terms of the technical laying of the pipeline. As and as we know, 150 kilometers of the pipeline hasn't yet been laid. So there is a aspect of the debate that is before the German national regulatory authorities. And that can be where amongst other things, in addition to the sanctions threats that we saw heightened further. In the last few days could present another basis for delay of the project.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 3:48

How do you expect this to pan out then in the coming months? In, in the courts in Germany?

Ana Stanic, Principal of E&A Law: 3:53

My understanding is that the German courts could take a year to reach the decision on this matter of whether the delegation should be granted to dod stream two or not. In which case, I assume that Nord Stream two will try to apply for an exemption as a, or to proceed with the project, assuming that it can proceed to lay the pipeline and try to complete the pipeline whilst it seeks the clarification of the court. And here it's the sanctions and the other measures, particularly adopted by the US that are the hurdle. That is another one that they need to overcome. And as we know. A few days ago, the insurers have issued a recommendation, which basically suggests that no one should be insuring any vessels trying to lay pipelines in either Turk Stream or for the case of discussion here, Nord Stream two. That is now, that is just a recommendation. Presumably they might be insurers willing to ignore that recommendation but it is another hurdle now in front of Nord Stream two's completion.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 4:58

So the threat of sanctions is a very real threat then. And this could put a stop or prevent some of these, the laying of this 150 kilometers of pipeline that's still left to, to go.

Ana Stanic, Principal of E&A Law: 5:09

I think the threat to sanctions is real. We know that in both chambers of the US Congress, there are other proposals to further strengthen the sanctions that are currently in place. We saw the updated guidance of the US State Department in July with respect to Kasa, which further strengthened those sanctions by basically extending the sanctions threat. To include any providers involved in, even in the financial aspects of the activities of laying of the pipeline. So the screws are being tightened. That's for sure. My understanding though is that you know that pos, there is possibility of finding insurers, for example, who will be willing to ignore what is currently a recommendation. And there may be other ways in which to complete the pipeline laying, which may not involve parties from countries that would be directly affected, or companies that would be directly affected or directly able to be sanctioned by the us. I think it certainly means that the completion will be costly. It also means that the claims currently brought by Nord Stream two against the European Union in the Energy Charter Treaty that started already last year, 26th of September. Would, the grounds for bringing claims for damages may be even further strengthen. So there's a combination of carrots and sticks on both sides, but obviously far more on the state side. The damages is one that I think is one that concerns both the German government, if it was to try to stop the project at this point in time on something that would be seen as a political interference rather than the law taking its course. And obviously the same applies. With respect to any claims against the European Union under the Energy Charter Treaty,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 6:56

because on both domestically in Germany and within the European Parliament, for example, there is growing opposition to the pipeline and on, on the basis of the alleged poisoning here of the of Alexi Navalny. So is it a realistic option here canceling, or is it just as you say, a separate matter and in any case would be too expensive?

Ana Stanic, Principal of E&A Law: 7:16

I would say that from a legal point of view, not really a realistic option in the sense that other than the current basis on which the national regulator in Germany has not granted a delegation, which obviously is questioned by Nord Stream two. But given the wording of the German law and and also the EU law that it, it implements is a a val valid interpretation of it. It might have implications for claiming damages, but that's a separate point. But other than that, there is nothing that German regulators or the German government, there is no other process in terms of permitting or anything else that could be a basis for stopping the project. So as German law, there's no basis for stopping the project. And so any stopping of the project. Would be seen as a political interference and would be would give rise to a damages claim both in the German courts and at the Energy Charter Treaty. If no, and there might be other recourses and I think Germany has already had an experience of. With canceling projects like the pullout from nuclear that has resulted in large compensations being paid, and again, has been so far that the issue of the poisoning requires a European position to be taken rather than a German position. And finally, I think the terms of costs that you mentioned, the estimated costs to date of the pipeline are, in terms of investment, are about 13 billion, about 7 billion of which is for delaying of the pipeline itself. And the remaining 6 million is to do with the actual costs of building the pipelines within Germany and other connections. And half of those costs have been born. By European energy companies, so the damages claims would not only be by Nord Stream to itself, but would be claims by all the other companies involved. So the impact would be significant because we would, if we are talking only about delay a delay damages claim, then that's a certain estimate of figures of, but if we're talking about a complete halt of a project, then we would be looking at a. Claim for lost profits, future lost profits, and those would be colossal claim.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 9:33

You mentioned these companies involved in the laying of the pipe in Germany. These are big international energy firms. How do you expect them to cope with the threat of US sanctions, which I presume will continue anyway under a potential Biden presidency as well.

Ana Stanic, Principal of E&A Law: 9:46

I can't really comment on how they're going to take those. I, they will have legal advice on ways in which they will deal with it. At the moment this is a big issue, but for them, because at, on the one hand, they've got the sanctions threat, but on the other hand, they have the loss of an investment, which as I say is enormous. And the loss of future profit. I think we should also place the North Stream to within the larger context of the German ambitious and then the European Union targets. And as we know the State of the Union address in September, the European Commission has adopted a much more ambitious plan for increasing the 2030 targets already for achieving carbon neutrality, and it's now talking about increasing the CO2 targets. To at least 50% and actually aiming for a 55, 50 5% reduction. In that context, the role of gas, although still unclear for the purposes of the regulators and the European Parliament and the European Commission, but for the industry, I think fundamentally clear that the natural gas has to play a very important role in the transition to climate neutrality by 2050. Then Nord Stream two, plays a important role in that achievement. And I think the German government, and I think mo majority of the German parties, recognize the importance of gas to that transition. And I think here, one of the things that isn't understood, but I think is quite important and will be increasingly important over time for regulators is understanding the carbon footprint. Of the various gases that, natural gases that come into or LNG that come into the European Union and the carbon footprint of Russian gas is almost four times lower than that of us, LNG. And that with the discussion of introducing a carbon border adjustment mechanism will be quite important since if that proposal is adopted and consultations are now ongoing. October of at the end of this month, then it, we may well be, see the prices of US gas after the carbon adjustment being made, being adopted are becoming much more expensive to Russian gas. And that will in itself become another issue for the European Union as to how, at what cost and how it wants to achieve its carbon targets, and then the role of Russian gas in doing that. So it's a complex matter that has lots of moving targets.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 12:15

That's interesting. The carbon border tax, it's rife with complexity. It's not something that you can put into place overnight, is it? I think, I've heard people say this is gonna take five to 10 years to implement. So what's your view here? Should they go to implement it?

Ana Stanic, Principal of E&A Law: 12:29

Yes. The the European Union has adopted an extremely ambitious. Roadmap for achieving carbon neutrality by 2050. And this roadmap is actually on target despite of COVID and it's part of the European Green deal. And as part of this roadmap of the comprehensive amendment, basically, of not only energy law as a whole but also of other aspects of law of the European Union. We're talking about. An industry strategy, which will revamp a lot of the ways in which industry will operate. And that's already the strategy's already being adopted. We have a biodiversity strategy that has been adopted that will have. Quite a significant impact on how we deal with natural resources and the environment going forward. So we have significant changes in legislation that a plan to be adopted. In fact, the European Commission plans to table significant amendments to the energy law by June of next year, so that in time of the slowing. Presidency, then it's envisaged that the six months from July to December will be key in the adoption of this new laws. And these in laws we're talking about the hydrogen strategy and how it's going to beed. And as part of that, we're talking about a complete revamp or a revisiting of the renewable energy renewable energy directive, the energy efficiency, a directive, the alternative fuels infrastructure, the energy taxation, directives, and so on. So we are and state guidelines on how all of this is gonna be done. We're talking about the PCI. Mechanism being rethought in view of the decarbonization change in approach, or more ambitious targets, the 10 E and the 10 e 10 being revised and re and revising even the emissions trading scheme. So it's an extremely ambitious legislative agenda. That the commission wants to adopt in the next less than, in, less than eight, eight months.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 14:32

It's an incredible package. And I think it's not so long ago since we had the clean energy package. Now, this is coming on top of that, but how do you think this relates to the Coronavirus pandemic? Is there an added element added impetus for a green recovery to make the period after the pandemic even more of a green transition? What's your view here?

Ana Stanic, Principal of E&A Law: 14:51

I think that's certainly that's certainly how the European Commission wants. The whole COVID recovery package to be seen. That I think the reality is probably somewhere di somewhat different in the sense that governments and are faced with financial crisis and fallout, that is a significant and the reality of being able to impose on companies that are failing. And have problems with liquidity of further requirements that they need to digitalize or that they will be able to access recovery funding if they become greener is a challenge, particularly because the majority of companies in the European Union are actually small and medium companies. And how they are able to face this double challenge is difficult to see. There is obviously an a promise of a huge amount of money as part of the recovery package. We're talking just in terms of the recovery package of over 750 billion worth of monies. But there are, the reality is when you start looking at them, and I've been trying to work with companies to see how they can access some of these grants and loans. It becomes difficult for them to even get the doc, the projects off the ground in terms of preparing them for presentation and then let alone finding a way to actually implement them and complete all the requirements in terms of administration of the monies once granted. And the reality is that. The Western European companies will probably be in a better position to, to be able to access these, this recovery funding as are their governments. We've seen the difference in, in approach or the ability of governments to respond to COVID by granting state aid measures. And we've seen great unevenness in terms of the ability of states to do so that by, by May of this year. Over 50% of all state aid notifications were by Germany and followed by Italy and France. So that maybe 10% of all the other notifications were by the remaining 25 member states. So that sort of gives us an indication of the readiness of governments and of companies to really be able to respond or take advantage of this free cash or not all of it is free, but. To be able to use that. So I think it's a huge challenge. So I think car in reality places a huge difficulty in achieving the green green objectives, which is why the role of gas in achieving those targets is going to be key. And the role of gas in the hydrogen strategy is something that needs to be revisited both by the German governments and more importantly by the European Commission because I think the reality is that without blue hydrogen, it's going to be difficult to achieve. This targets both in terms of, the amount of volume. Of green hydrogen that can be created through electrolysis, but also in terms of the cost. The sheer cost of clean hydrogen is between two thirds or four times more expensive than hydrogen production from fossil fuels. And so this is part of the challenge that we have before us, let alone the challenge of how you actually adopt regulation that encourages the creation of markets, which is what we need to do in order to create a hydrogen value chain. Which is quite different prescriptive way of drafting legislation where you are actually regulating an existing market, as was the case with, for example, the first or second or third energy package, which was actually trying to regulate and liberalize an existing market going forward. We are talking about legislation that needs to enable the creation of new markets. So we are actually having to figure out a way of. Of drafting law in a completely different way, and I'm not sure. That is understood well by members of Parliament or the European Commission itself.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 18:46

That's very interesting. And I think we could maybe devote a whole podcast to hydrogen and the future of of the gas in Europe's energy mix. But I think if I, if a return to what you were saying about the sort of post COVID recovery, you highlighted the small and medium sized firms that are actually, key to any. It will be key to any energy transition. Do you expect some of these to potentially go under in the months to come as, as only you highlighted the countries that were, using state aid funds and chiefly, large European companies? I'm thinking countries, sorry, not companies. What's your view here? I

Ana Stanic, Principal of E&A Law: 19:19

think you're right when you said countries and companies, because a lot of the comp countries that had sought state aid to date have sorted actually for large companies. So we've seen. Huge amount of money given to obviously air airline companies companies like Adidas in Germany, but also large travel companies and so on. Of course there have been, there has been assistance to smaller companies and tourist industry and so on. But I think the reality is that the assistance are the most vulnerable in, in the forthcoming financial crisis. I think there's little doubt that is coming. The small and medium-sized companies are going to be largely affected. To the extent that the Green Recovery Fund is meant to assist them the difficulties are that it's a highly complicated process. Just understanding which fund you should apply to and how, and to the extent that those funds are actually being managed by member states themselves, that have to in turn set up new instruments that currently don't exist in order to. To dish out the money is hugely challenging. We just had a round table yesterday in Slovenia with the leading export bank and and a number of their funds that are meant to assist small and medium sized companies and so on, and they are. They basically are saying that they don't have the instruments in place in order to be actually able to move forward or to distribute the funds that will be available as part of the recovery fund.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 20:55

That's fascinating. I think the, as you said, the reality often will be quite different to what we'll be hearing in terms of the recovery and the green deal. If I can just touch finally on a matter that we have just discussed before on the pod, and that's Brexit. We're coming close to the the self-imposed deadline by the UK government. How do you view this? Do you expect there to be a no deal Brexit or do you the coming weeks see a flurry of deals?

Ana Stanic, Principal of E&A Law: 21:21

Are you referring to the October deadline as the UK self-imposed deadline?

Richard Sverrisson, Editor-in-Chief Europe, Montel: 21:25

Yeah. The 15th of October, I think isn't,

Ana Stanic, Principal of E&A Law: 21:27

The self-imposed deadline of June Boris Johnson deadline was obviously missed and many other deadlines were missed. I think the October deadline is a more real deadline in terms that it's actually a deadline set by the requirements of the European Union to ensure that whatever, if there was to be a deal, that deal could be adopted and passed in time for the 31st of December when the transition period ends. So I think the challenge is the deadline is actually a real one in that respect. And so what about. Two weeks are now left to try to hammer out a deal or a bit more than that. The two me in terms of negotiations, I think some moves seem to be made yesterday by the UK to try to overcome one of the key sticking points, and that's fisheries. The offer seems to be that over three, an additional three year transition period, which would be an transition period. Between today when European Union has complete access to UK fishery wa fishing waters to a period at the end of the transition period where a new deal would need to be set as to what the rights would be. And that would be, so whether that is acceptable to the European Union, I think we'll see probably in the next few days. And obviously the other remaining sticking points are state aid and then of course. The highly contentious internal market bill, which was fund by the Parliament, by the House of Commons of the UK on Wednesday, the 30th of September. And as we know, the European Union has been very clear that the bill, if it is adopted into an act it's now currently going to before the House of Lords, but ultimately it will be adopted.'cause the House of Lords, it's like a ping pong session and it's the House of Commons that, that ultimately decides. The European Union has been very clear to say that the adoption of that act would be considered the breach of the withdrawal agreement and has threatened with legal proceedings over it. So this certainly. Huge amount of obstacles in trying to reach an agreement. I still think that an agreement will be reached at the very last minute. But key to the key is that agreement is going to provide very little comfort to businesses on and to people operating on both sides of the border and particularly in the nor in Northern Ireland. It'll be a very limited trade agreement. There may be a few more things that might be able to be agreed between now and the deadline, but the reality is that the border complications, the clearances and everything else that will need to be put in place will simply not be there on time. We will probably see huge lines of trucks and at the very least, are on the borders on the 1st of January. Of next year.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 24:18

Sure. This is something that we can return to, Anna. You can also dedicate a whole podcast to this topic. But I think that's about all from the Monte Weekly podcast this week. Thank you very much, Anna, for joining us and I'm sure we'll look to invite you back and discuss how this all panned out at a future date. Thank

Ana Stanic, Principal of E&A Law: 24:34

you very much Richard, and have a good day.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 24:36

Thank you. You too. You can now follow the podcast on our own Twitter accounts, aptly named the Monte Weekly podcast. Please direct message any suggestions, questions, or let us know if you'd like to be a guest. You can also send us an email to podcast@montenews.com. Lastly, remember to keep up to date with all that's happening at Energy Markets on Montel News. You can subscribe to the podcast on Apple Podcast and Spotify or wherever you get. Your podcast from and please leave us a review if you can. Thank you and goodbye.