Brexit and Energy and Climate policy: same market, less power?

January 11, 2016

For Brits with an interest in public policy and the UK’s place in the world, 2016 will inevitably be overshadowed by the forthcoming referendum on the UK’s membership of the EU. Whilst the political debate in the UK is currently dominated by issues of migration and benefits, it’s worth taking a step back and considering the potential impact of a ‘Brexit’ in specific industry and policy areas, beyond the wider issue of the UK’s access to the single European market.

EU and UK energy and climate policy are currently locked together

Energy and climate policy in particular poses some interesting questions in the case of a Brexit. Not least because of the domestic climate legislation that binds the UK to a similar emissions reductions trajectory to the EU, and the gas and electricity interconnectors that physically connect the UK to the EU single energy market. Considering the broad swathe of energy and climate policy that binds the UK to the EU, it is far from clear in the case of a Brexit which of these policies, or parts thereof, the UK would not continue to be heavily involved in.

Climate policy – domestic policy first and foremost?

Looking at climate policy, the real changes that leaving the EU would mean for the UK seem fairly limited. As noted above, the UK’s own Climate Change Act means that British governments are bound domestically to cut emissions in at least a similar trajectory to the EU’s 2020 and 2030 GHG targets. Even in the case of a Brexit, it’s difficult to see how the UK would not wish to utilise an emissions trading system (ETS) – whether it’s the EU ETS, or a separate UK system that would likely be linked to the EU one. Putting aside the impact on hard policy, there is of course the question of influence. A UK outside of the EU would conceivably have lower levels of influence on wider international climate negotiations.

Energy policy – an area that seems obvious for cross-border co-operation

Concerning energy policy, it is difficult to find areas where post-Brexit, the UK would not want to co-operate with its neighbours. Take the example of Gas security of supply. Following the 2009 gas crisis, the EU constructed a set of rules to govern emergency situations, by ensuring that countries work with their neighbours to develop emergency and preventative action plans. Presumably, this is an area that a British government outside of the EU would still wish to engage in with its neighbours in Ireland, Belgium, France and the Netherlands. Of course they could try to do so outside of the EU framework, but the plans they would seek to agree with their neighbours would still be constructed under the EU mechanisms, so in all likelihood – for ease of implementation – so would the UK’s.

The internal energy market

Perhaps the major issue of course is the internal energy market where the UK has been instrumental in pushing for an increasingly liberalised energy market, greater competition and cross-border trading. An increasing proportion of the UK’s electricity capacity will be reliant on the electricity interconnectors going under the Channel and North Sea. These interconnectors will at least partially be controlled by the EU’s Third Internal market package where they are located in an EU member state, and are likely to have an increasingly important contribution to the UK’s overall capacity and security of supply. Even if the UK left the EU completely (the WTO-only option), something like 10% of our overall electricity capacity by 2020 would effectively be under the control of EU market rules. In the short-term there might be a limited impact – the interconnectors and the market would continue to function – but over a longer-period, there would be nothing to prevent a divergence of policy between the UK and the EU, potentially impacting on the functioning and the commercial viability of the interconnectors. In this scenario, a UK outside of the EU would have no control over the outcome of such policy developments.

Bearing in mind the influence of the UK in developing the single energy market so far (plus the influence of actors such as Ofgem and National Grid at an EU-level), a future EU energy market without the UK could look very different to the one developing now. As Amber Rudd, the UK’s Secretary of State for energy and climate change noted in early January on the issue of Brexit and the possibility of the UK leaving the EU, “We are probably the largest influencer in terms of setting out the plan and delivering on the energy market. So we can’t help shape it – shape it in the best way for the UK consumer and UK businesses. That would be a loss because you would be going into an area of uncertainty.”

It would also remove the UK’s voice from discussions where historically it has been very strong – a good example of this being the 2012 Offshore Drilling Safety directive, proposed following the Macondo accident. The Commission originally proposed a directly applicable regulation which could have had significant impacts on the post-Piper Alpha North Sea safety standards – which were widely viewed as the global gold standard. The UK, working with allies in the Netherlands and Denmark, ensured that instead, a directive was agreed that would enable those Member States with an effective system already to continue on that basis, avoiding unnecessary costs and disruption in the North Sea.

Renewable energy targets

Of course, there is the question of renewable energy targets. It would be difficult to argue that technology specific targets are particularly popular with any British policymakers – but given the UK’s success in 2014 in working to move the 2030 target system away from any binding national targets for renewables and energy efficiency, the UK has already achieved its aim in changing the system to a much more flexible one, so would have little to gain from being outside the 2030 system.

Policymaker to policy taker?

Either way, when thinking about Brexit and energy and climate policy there are real questions to be answered – both in terms of what the UK would seek to leave, and where the benefits would be. In both a WTO-only situation or a Swiss/Norway style solution, the UK could move from being (one of the most important) policymakers to the policy taker. Other alternative models that would allow the UK to access and influence the internal energy market whilst not being in the EU, are yet to be elaborated upon and raise serious questions of viability.

 

Published by Matt Hinde

Filed under: blogging,economics,Fleishman-Hillard,Fleishman-Hillard Blogs,politics

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