• developing an understanding with the
Middle East and other crude oil
exporters on how they would allocate
remaining supplies in the event of disruption to their own refineries in the
region or pro rata to all their customers.
Given the current engagement of the
ASEAN Council on Petroleum with the
ASEAN Plus Three Oil Stockpiling
Roadmap forum and Energy Security
Forum, the above improvements to APSA
could be achieved by enhanced engagement with these forums.
6.3 Rationale for Action
Expanding the membership of the IEA to include
emerging economies is crucial if the IEA’s
emergency response mechanism—the only
international coordination mechanism for oil
stock release and sharing—is to remain relevant.
The alternative is a patchwork of national resilience measures and bilateral producer-consumer
arrangements which risk a damaging scramble in
the event of a major market dislocation. A more
inclusive emergency response mechanism is
therefore in the interests of all oil-consuming
countries. However, as the world’s largest oil
importer, China has a particular interest in
ensuring international market resilience. China
will also benefit indirectly as a result of reduced
risk to vulnerable neighbouring oil-importing
countries.
Harmonising climate and energy governance
regimes with globally agreed decarbonisation
objectives could help rationalise global governance, achieving closer alignment between
international organisations. In particular, mechanisms and political processes to increase ambition on decarbonisation of the energy sector
provide a significant market opportunity for
China as a major exporter of low-carbon goods,
such as solar photovoltaic panels and batteries. It
is also consistent with President Xi’s stated wish
to protect the Paris Agreement in response to the
US withdrawal.
Box 12: Energy Charter Treaty
The Energy Charter Treaty (ECT) is legally
binding and establishes a multilateral framework for cooperation between countries in
the energy industry, covering trade, transit,
investments and energy efficiency. The treaty
contains dispute resolution procedures.
The ECT originated in Russia-EU relations. However, in 2009 Russia announced it
did not intend to become a contracting party.
In 2015, 72 countries (to date 83 countries),
including China, signed the International
Energy Charter (IEC); expanding and modernising the ECT. While the IEC is a political
declaration and is non-binding, it is a first step
towards the international equivalent of the
legally binding ECT.
China’s accession to the ECT was
inhibited by concerns over international
arbitration cases. However, as the role and
remit of the Belt and Road Initiative
(BRI) expands, a common set of rules and
mechanisms under the ECT/IEC could be
beneficial to China, allowing a common
basis for negotiation and agreements, and
binding non-WTO BRI countries. Further,
a legally binding IEC could provide a
low-transaction-cost means to mitigate
overseas energy infrastructure investment
risks. The benefits to China outweigh the
risks of joining, given the balance between
China’s outward and inward investments,
which will accelerate under BRI. The
short-term benefits apply primarily to
investments in central and eastern European countries (which are already signatures to the ECT), especially for non-WTO
members. Given the ECT’s origins in the
EU and the lack of signatories from
ASEAN countries, China could work with
the EU and ASEAN Plus Three to develop
the IEC towards a legally binding
framework.
Special Report 5: International Energy Cooperation and Governance
635
Middle East and other crude oil
exporters on how they would allocate
remaining supplies in the event of disruption to their own refineries in the
region or pro rata to all their customers.
Given the current engagement of the
ASEAN Council on Petroleum with the
ASEAN Plus Three Oil Stockpiling
Roadmap forum and Energy Security
Forum, the above improvements to APSA
could be achieved by enhanced engagement with these forums.
6.3 Rationale for Action
Expanding the membership of the IEA to include
emerging economies is crucial if the IEA’s
emergency response mechanism—the only
international coordination mechanism for oil
stock release and sharing—is to remain relevant.
The alternative is a patchwork of national resilience measures and bilateral producer-consumer
arrangements which risk a damaging scramble in
the event of a major market dislocation. A more
inclusive emergency response mechanism is
therefore in the interests of all oil-consuming
countries. However, as the world’s largest oil
importer, China has a particular interest in
ensuring international market resilience. China
will also benefit indirectly as a result of reduced
risk to vulnerable neighbouring oil-importing
countries.
Harmonising climate and energy governance
regimes with globally agreed decarbonisation
objectives could help rationalise global governance, achieving closer alignment between
international organisations. In particular, mechanisms and political processes to increase ambition on decarbonisation of the energy sector
provide a significant market opportunity for
China as a major exporter of low-carbon goods,
such as solar photovoltaic panels and batteries. It
is also consistent with President Xi’s stated wish
to protect the Paris Agreement in response to the
US withdrawal.
Box 12: Energy Charter Treaty
The Energy Charter Treaty (ECT) is legally
binding and establishes a multilateral framework for cooperation between countries in
the energy industry, covering trade, transit,
investments and energy efficiency. The treaty
contains dispute resolution procedures.
The ECT originated in Russia-EU relations. However, in 2009 Russia announced it
did not intend to become a contracting party.
In 2015, 72 countries (to date 83 countries),
including China, signed the International
Energy Charter (IEC); expanding and modernising the ECT. While the IEC is a political
declaration and is non-binding, it is a first step
towards the international equivalent of the
legally binding ECT.
China’s accession to the ECT was
inhibited by concerns over international
arbitration cases. However, as the role and
remit of the Belt and Road Initiative
(BRI) expands, a common set of rules and
mechanisms under the ECT/IEC could be
beneficial to China, allowing a common
basis for negotiation and agreements, and
binding non-WTO BRI countries. Further,
a legally binding IEC could provide a
low-transaction-cost means to mitigate
overseas energy infrastructure investment
risks. The benefits to China outweigh the
risks of joining, given the balance between
China’s outward and inward investments,
which will accelerate under BRI. The
short-term benefits apply primarily to
investments in central and eastern European countries (which are already signatures to the ECT), especially for non-WTO
members. Given the ECT’s origins in the
EU and the lack of signatories from
ASEAN countries, China could work with
the EU and ASEAN Plus Three to develop
the IEC towards a legally binding
framework.
Special Report 5: International Energy Cooperation and Governance
635