Energy security: Germany updates its laws to face challenges emerging from Ukraine war

In late May, the German parliament made amendments to a 1975 law that enables the state to temporarily assume control of an energy company to ensure supply in the face of a market failure. The legislative move follows rising concern, given the events in Ukraine, about Germany’s dependence on Russian-supplied fuel and amid pressure from within the EU to proceed with an embargo on Russian oil.

The changes to the German Energy Protection Statute, which derives from the 1970s oil crisis, are ‘extraordinary measures for extraordinary times’, says Ludger Schult, Vice-Chair of the IBA European Regional Forum and Founding Partner of GLNS law firm, based in Munich.

Under the changes, if Germany’s energy supply were suddenly faced with an ‘imminent threat’ – for example, an energy company making it very difficult or prohibitively expensive to supply fuel – that would result in a crisis in the market or, at worst, a total market failure, the German government could step in and temporarily take over the company under a ‘stewardship’ arrangement to ensure that market supply continued.

Ukraine has criticised Germany for propping up Russian interests, whilst the European Commission has exerted its own pressure. In early May, the German government finally agreed to commit to the EU taking Russia out of its oil supply completely by the end of 2022. ‘This has been a sudden wake-up call that Germany has become far too reliant on a foreign aggressor, someone who has now invaded another country,’ says Schult.

Germany is now exploring alternative sources of energy. Simultaneously, it has amended the Energy Protection Statute.

The power to intervene in the market in the aforementioned way was established when the Statute was enacted in the 1970s, explains Dr Tim Stuchtey, Executive Director of the independent Brandenburg Institute for Society and Security. ‘The updated version of the law has just made exercising this power easier and the government can move more quickly.’

There’s no doubt that the powers derived from the legislation are drastic, amounting to expropriation. No wonder then that the German government had to accept pressure from within its cross-party coalition that any nationalisation would be a temporary measure only, and that the state commits to returning any company to private ownership once any threat has been removed.

The pressing issue of energy supply security comes at a pivotal moment for Germany’s overall energy policy. The three-party coalition governing Germany has promised to continue the policy of Energiewende,or ‘Energy Turnaround’ – a commitment to shift the economy away from fossil fuels.

Renewable energy was, as a result, the only card on the table – until the war in Ukraine. Suddenly, the state is giving its attention to its oil and gas supplies. ‘Now [the German Government] is having to look to other states that are not aligned on core values,’ says Schult.

Energy supply security is also contributing to a wider conversation over other concerns, both in Germany and beyond, which result from the globalised nature of supply chains. For instance, there was heightened awareness over the implications of 5G networks being built by Huawei or other Chinese entities for countries’ national security and technology dependency. During the worst of the Covid-19 pandemic in 2020-2021, concerns were raised by Western countries who felt reliant on imported healthcare products and equipment.

‘Energy security fits into this renewed emphasis on the fact that we have relied on international supply chains for too long and there is a desire to localise them and “Europeanise” them,’ says Stuchtey. ‘We don’t have the capacity here to make these things which makes us dependent on imports from some untrusted trade partners. A diverse set of suppliers and proper stock keeping can mitigate the risk.’

‘In the longer term, critical infrastructure will be monitored and treated in a different way to the globalisation model we have seen in the past generation,’ adds Stuchtey.

Image credit: Rosneft Deutschland, Berlin, 22 October 2021. Achim Wagner/AdobeStock

As the latest UN climate change report issues another stark warning to all industries to limit global emissions, some in the legal profession are attempting to lead the way.

In 2020, Clifford Chance Senior Partner Jeroen Ouwehand caused a stir when he told delegates at the Green Horizon Summit that law firms did ‘not have to be neutral professional service providers.’ Two years on, he tells Global Insight why the escalating climate crisis has made those words truer than ever. ‘The IPCC reports have stated that we need to all come together to battle climate change,’ he says. ‘We've got our own net zero targets, but that is not the huge impact. Where we can have a big impact is in the work that we do with our clients.’

Ouwehand says law firm advice should consider the impact of their work, not only on their immediate clients, but also their wider stakeholders. ‘That can be part of our service and acting responsibly, by its very nature, sometimes means you can't be neutral,’ he says.

The research also confirmed strong discrepancies in law firms’ commitment to sustainability. While 26 per cent of those surveyed had made ‘a significant investment in pro bono efforts to tackle the climate crisis’, only seven per cent had publicly committed themselves to a deadline to reach net zero carbon emissions. What’s more, only six per cent included a ‘stakeholder engagement process’ in their overall environmental, social and governance (ESG) strategy.

Vanessa Havard-Williams is global head of environment and climate change at Linklaters. She says that, while the firm doesn’t have a specific policy on client selection, the partnership is increasingly mindful of the ‘alignment and values’ it shares with clients as well as its own role in ‘acting as a responsible business for clients.’

The International Bar Association, the Law Society of England and Wales and the American Bar Association are just some of the organisations calling on lawyers to adopt a more ‘climate conscious’ approach to legal practice.

Havard-Williams believes all lawyers should be equipped with a sound understanding of how ESG issues intersect with their practice areas. ‘It means you're not just a small team of subject matter experts, you're much more than that and it's embedded into how you're engaging and advising,’ she says. ‘We're in the early phase of an industrial revolution, which is going to be pretty enormous and challenging. I don't think you can sidestep that as a professional adviser. You have to integrate the context in which you are advising into your advice because it affects the advice.’

Matthew Sparkes, Linklaters’ global head of sustainability, says firms and clients must work together to enable the energy transition. ‘Whether it's us or our clients, we're all faced with the same expectations and challenges,’ he says. ‘We have a responsibility on our own account and on behalf of our clients to help with the transition, which is something that we're all faced with.’

Maria Vizeu-Pinheiro, Environmental and Sustainability Policy Officer on the IBA Environment, Health and Safety Law Committee, agrees that law firms must invest in sustainability initiatives. ‘Law firms, like any other private enterprise, are required to shift the actual paradigm in order to achieve global sustainability and reach carbon neutrality,’ she says. ‘Due to their position, I believe law firms are a good ally in pushing this cause. Surely, much more should be done in the field, both internally by strengthening ESG policies and externally by providing high-quality legal advice and case selection.’

Both Havard-Williams and Ouwehand acknowledge that large, well-resourced law firms are in a strong position to make wholesale changes like this. But Sparkes says smaller firms can gain traction in this area while practices introduced during the pandemic – such as remote working and reduced travel – persist. ‘There’s a window of opportunity to make the most of [these behaviours] before things go back to the way they were,’ he says. ‘Firms can bed in some of that learning and habits and actually make quite a lot further forward than perhaps many of us were when we began.’

Image credit: narawit/AdobeStock.com