Books are often said to be timely; this one truly is. Interest in how international trade law, particularly the rules of the World Trade Organization (WTO), applies to cross-border trade in fuels, electricity, and goods and services related to the provision of energy has rarely been greater.

How to make trade law support the energy transition is nowadays a major concern of WTO members. The production and combustion of fossil fuels accounts for almost three-quarters of the world's anthropogenic greenhouse-gas emissions, which drive global climate change. That has led to efforts by the world's industrialized nations to wean themselves off fossil fuels and switch to cleaner sources of energy. But the link between energy trade and energy security remains ever-present. The invasion of Ukraine by Russian troops, which began on 24 February 2022, sent a salient reminder to policymakers, particularly in Europe, of the consequences of dependency on a constant flow of fossil energy sources from a small number of exporting countries, and the often-divergent interests of exporters and importers.

These issues form the backdrop for Dr Anna-Alexandra Marhold's in-depth study, Energy in International Trade Law: Concepts, Regulation and Changing Markets. The book is an outgrowth and update of Marhold's PhD thesis, which she completed under the supervision of Petros C. Mavroidis. Its product focus is on fossil fuels, and, to a much lesser extent, on renewable energy. Nuclear energy is referred to only a few times, and only in passing. Given the dominance of fossil fuels in the world's energy mix since the end of the Second World War, that is understandable. Also, apart from biofuels and uranium, the bulk of the goods that matter for alternatives to fossil fuels are manufactured, and international regulations governing their trade is not substantially different from those governing trade in band saws or bicycles.

Marhold splits her book into two parts. Part I lays out the concepts, history, and legal framework necessary to understand energy's place in international trade law. Chapter 2 traces how energy was discussed from the founding of the General Agreement on Tariffs and Trade (GATT) in 1947 through the various multilateral trade rounds of which the Doha Round (2002–) is the most recent. Usefully, the author explores and then dismisses the popular notion that energy trade was originally not covered by the GATT. Rather, at the time, international trade in coal and natural gas (apart from intra-European trade) comprised a small share of total production, and exports of crude oil were sourced largely from countries outside the GATT and handled by a few oil majors. That situation has evolved considerably since then.

The institutional focus in this part of the book is mainly on the GATT and the WTO, but the author also devotes a whole chapter to the Energy Charter Treaty (ECT) and preferential trade agreements (PTAs). The ECT and the WTO are roughly the same age, and, although not the case initially, there is nowadays substantial overlap in the two organizations' memberships. The ECT was created to mitigate risks associated with energy-related investment and trade, particularly in the former Eastern Bloc countries after the dissolution of the Soviet Union. Signed in December 1994, it entered into force in April 1998.Footnote ¹ What Marhold sets out to explain is the complex legal and institutional relationship between the ECT and the WTO. Basically, the parallel applicability of each organization's rules, and substantive and procedural overlaps create tensions between the two regimes. The author concludes with a discussion of ECT modernization, a process that was set in motion following the withdrawal of the Russian Federation from the treaty in 2009.

The remainder of the chapter explores specific provisions related to energy in several selected PTAs. The 1994 North American Free Trade Agreement (NAFTA) included for the first time in a PTA a separate chapter on ‘Energy and Basic Petrochemicals’, covering both trade and investment in energy goods and services. Among other WTO-plus provisions, it allowed fewer exceptions to prohibitions against export and import restrictions than under the WTO agreements, and limited the conditions under which export taxes could be applied to energy or basic petrochemicals.Footnote ² NAFTA's successor, the 2018 US–Mexico–Canada Free Trade Agreement (USMCA), contains no energy-specific chapter; one was negotiated but in the end Mexico requested it be dropped.Footnote ³ However, Canada and the United States issued a side letter intended to ensure that neither country would be made worse off by the other party's regulations.Footnote ⁴

The EU's PTAs vary in their regulations on energy according to the nature of the trading relationship the Union had with the other Party at the time. The 1997 EU–Mexico FTAFootnote ⁵ and the 2014 Deep and Comprehensive Free Trade Agreement (DCFTA) between the EU and Ukraine seek, among other aims, to prohibit either Party from adopting or maintaining ‘a higher price for exports of energy goods to the other Party than the price charged for such goods when intended for domestic consumption’Footnote ⁶ – i.e., in trade parlance, engaging in dual pricing. By contrast, the 2014 EU–Singapore FTA contains various provisions aimed at reducing tariff and non-tariff barriers to renewable energy,Footnote ⁷ though it also calls on both parties to progressively reduce subsidies for fossil fuels.Footnote ⁸

Marhold perceives several commonalities across these PTAs. ‘First’, she writes, ‘countries are negotiating with energy security in mind’.Footnote ⁹ They pursue that goal through rules that facilitate access to energy supplies, limit the scope for various export and import restrictions on energy products, and in several PTAs include commitments on energy transit and transport. She sees a trend in PTAs taking a ‘more holistic approach to energy’, notably by bridging the goods-and-services divide in the sector and referencing environmental issues.Footnote ¹⁰ In short, PTAs have become laboratories for innovation in energy trade, as in so many other areas of trade policy.

Part II of Energy in International Trade Law turns to exploring three forces currently driving the levels and patterns of energy markets: decentralization, decarbonization, and the quest for security of energy supply.

One of the most interesting parts of the book examines the question of global energy cartels – specifically OPEC's practice of establishing quotas on the production of crude petroleum – in the context of WTO law. Marhold provides both the argument for the defence (which requires a narrow interpretation of GATT Article XI:1) and for the prosecution (a broad interpretation of the same article) and concludes that ‘the status quo is in OPEC's favour, making it difficult to deal comprehensively with a global energy cartel under WTO law’.Footnote ¹¹ The author cites several GATT and WTO cases related to other products that would seem to support the economic argument that under certain conditions production quotas could be considered de-facto export restrictions, which are prohibited under Article XI:1 GATT, but concedes that ‘the law does not provide a definitive answer on this issue’.Footnote ¹² A line of argument not explored in the book could be that, if domestic prices are fixed – i.e., do not pass on a rise in international prices to domestic consumers – a production quota behaves much more like an export quota, because all the impacts of the quotas are transmitted to the international market.

Marhold also asks whether OPEC Members could successfully invoke the Article XX(g) exception in the GATT to defend their production quotas and concludes that ‘it is highly doubtful’ that restricting the supply of petroleum with the express aim of influencing its world price satisfies the conditions of paragraph (g), which must relate to the conservation of exhaustible natural resources.Footnote ¹³

Achieving the ‘energy transition’ has major implications for international trade. Ending subsidies to fossil fuels has been embraced by numerous inter-governmental forumsFootnote ¹⁴ as an important element of that transition. Many governments have subsidized the production or deployment of equipment used to generate heat or electricity from renewable sources of energy. Some have tried via the WTO or plurilateral agreements to reduce barriers to trade in so-called environmental goods and services, including those related to renewable energy and improving energy efficiency, and a few have proposed imposing carbon taxes or other carbon border adjustment mechanisms (CBAMs) on energy-intensive goods imported from other countries. These topics are now being discussed within the Trade and Environmental Sustainability Structured Discussions (TESSD), a forum established in November 2020 that ‘seeks to promote transparency and information sharing, [identify] areas for future work within the WTO, support technical assistance and capacity building needs, particularly for least-developed countries, and work on deliverables for environmental sustainability in the various areas of the WTO’.Footnote ¹⁵

Marhold devotes a considerable number of pages in her book to dual pricing. The monetary benefits to domestic consumers of charging them below the supply cost or prices at which the same types of energy – mainly gasoline, diesel, natural gas, and fossil-fuel-generated electricity – are exported, are what the IEA publishes in its annual estimates of ‘fossil fuel consumption subsidies’. They also form the bulk of the International Monetary Fund's (IMF's) estimates of ‘explicit’ subsidies to fossil fuels. Their annual value since 2011 has ranged from just under USD200 billion to almost USD600 billion (in USD of 2020), varying according to international market prices for crude oil.Footnote ¹⁶

For those interested in the challenges the WTO and other forums face in trying to limit this practice, Marhold provides a valuable historical perspective. She traces the first debates over dual pricing among the GATT parties to the period following the sharp rise in international oil prices in the 1970s. The European Communities wanted to be able to buy natural gas from the then Soviet Union at a price similar to what the latter charged customers within its own borders; the United States worried that energy-intensive industries in petroleum-exporting countries were benefitting from cheap inputs. Having failed to enshrine rules governing dual pricing during the Tokyo Round of multilateral trade negotiations (1974–1979), the United States and other OECD countries continued to push for provisions on dual pricing in the GATT Uruguay Round (1986–1994), creating a Negotiating Group on Natural Resource-Based Products in 1989. However, owing to strong resistance from energy-exporting states to binding rules specific to trade in natural resources, little came of these efforts.Footnote ¹⁷

In the post-2005 period, after the establishment of the WTO, attempts to address dual pricing focused mainly on the accession protocols for energy-producing and exporting countries seeking to join the organization. Dual pricing was a major issue in the WTO Accession Protocols of Saudi Arabia (2005) and of Russia (2012) in particular. Saudi Arabia committed to not sell its petroleum domestically at below the world price, but the author points out that the Kingdom could still implement dual pricing in ways other than directly regulating domestic prices. Since its natural gas was not being exported at the time, that fuel was not covered by any dual-pricing commitment. Russia, during its accession, stated it would increase its prices for natural gas sold to industrial users by 2030; nonetheless, it would continue dual-pricing policies for sales of domestic energy sold to households and other non-commercial users.

Today, while eliminating the competitive advantage domestic industries in oil- or gas-exporting countries enjoy from cheap energy costs remains a motive of OECD countries to constrain dual pricing, they also now regard such artificially low prices as encouraging wasteful consumption (to use the G20's phrasingFootnote ¹⁸), which in turn increases emissions of climate-warming greenhouse gases. Marhold addresses dual pricing as an environmentally harmful fossil fuel subsidy in Section 6.2 of her book, asserting that ‘curbing dual pricing is of the essence in the bigger challenge of reducing and reforming’ fossil fuel subsidies.Footnote ¹⁹

This is where her arguments become muddled, however. The author begins by explaining the various types of fossil fuel producer and consumer subsidies that would seem to be covered by the subsidy definition set out in Article 1 of the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement).Footnote ²⁰ But she then introduces the rather iconoclastic categorization of fossil fuel subsidies used by the IMF, which combines conventional (mainly dual-pricing) subsidies with much, much larger combustion- and transport-related externalities and calls the resulting total number ‘implicit subsidies’ (formerly ‘post-tax subsidies’).Footnote ²¹ Yet the bulk of these so-called ‘subsidies’ – globally, USD 5.9 trillion in 2020Footnote ²² – bear little relation to anything for which the WTO would likely ever conceive of developing disciplines.

Marhold laments the absence of an international standardized system allowing fossil fuel subsidies to be comprehensively monitored. Actually, there is one that is emerging, in the form of a multi-organizational response to the United Nations' Sustainable Development Goal 12.c.1 indicator.Footnote ²³ While the system still has gaps, over the past decade considerable progress has been made on monitoring fossil fuel subsidies by the Organisation for Economic Co-operation and Development (OECD), yet neither that work nor the IEA's even longer-running annual estimates (the sister organizations now report combined estimates that cover most of the worldFootnote ²⁴) receive any mention in the book. Instead, the author cites an IMF estimate for the United States ‘post-tax subsidies’ of around USD 600 billion in 2011Footnote ²⁵ – an amount on par with the country's annual military defence budget, and 30 times the most oft-cited estimate of the United States’ annual fossil fuel subsidies.Footnote ²⁶

In Chapter 7, the author turns to the emerging concept of energy security in international trade law. Promoting energy security has been the driving force behind treaties establishing other IGOs, but it is a relatively new topic in the WTO. In the 2010s, several parties brought cases to the WTO's Dispute Settlement Body (DSB) that linked aspects of energy security to particular trade measures.Footnote ²⁷ One of those disputes, EU–Energy Package, in a way was a harbinger of the much larger confrontation currently playing out between the EU and Russia over the latter's access to the EU's natural-gas network. Russia – a major supplier of natural gas to EU Member States – objected to several features of the EU's so-called Third Energy Package, which set out new rules for regulating the EU's natural gas sector, including ones that sought to separate natural gas production and supply activities from natural gas transmission activities. Russia also challenged certain features of the Trans-European Networks for Energy measure, which identified priority projects and projects of common interest intended to strengthen trans-European electricity and gas networks. So complex was this case that the WTO panel took a year longer than originally envisaged to issue its report (and its appeal is still pending, due to the Appellate Body institutional impasse).Footnote ²⁸ The author concludes that, ‘while energy security may be a valid concern, it will not serve as an effective defence if the measure is applied in a discriminatory manner’.Footnote ²⁹ However, discrimination – against a dominant natural gas supplier – was of course the point of many actions taken to implement the EU's policy.

Marhold ends her book by answering the question, ‘Is the WTO the right forum for enhanced global energy governance?’ Completely excluding energy from the WTO's remit is unlikely, and would be unwise, in her view: ‘it is nigh impossible to isolate energy from other trade-related issues’. Maintaining the status quo, under which vital questions concerning how trade in energy goods and services are treated under WTO law would continue to be investigated on a case-by-case basis, would not be much better. Marhold appears therefore to favour more active energy regulation in the WTO, ideally in cooperation with other inter-governmental organizations (such as the Energy Charter Treaty), at least in an informal way. ‘If such efforts are absent or fail’, she concludes, ‘current trends suggest that enhanced energy regulation will proceed through bilateral, regional and sectoral institutions.’Footnote ³⁰