Energy and Climate Change Challenges in the Brexit Talks

Antony Froggatt | 19 June 2017

Industrial Landscape – Mehrum, Germany, x1klima, CC-BY-ND-2.0

Access to clean and affordable energy are vital components of any modern society. Despite this, little attention was given to the implications of Brexit for energy during the referendum campaign. With negotiations now under way, the UK, Scotland and EU-27 countries face important choices that could determine the extent of short to medium term energy disruption from Brexit and the degree to which future co-operation in this field might be possible.

Article 50 of the Treaty of the European Union specifies that negotiations must be completed by April 2019, two years after the UK’s formal notification to leave. In addition, the European Commission has made clear that three issues (the financial or ‘divorce’ settlement; the fate of EU nationals in the UK and visa versa; and the border between the Republic of Ireland and Northern Ireland) must be settled before formal discussions on a future relationship can begin. Given this, and the complexities and range of issues that need to be addressed, it is highly unlikely that a future agreement will be reached within the next two years. Many in Brussels are already exploring the feasibility of a transitional arrangement.

What the future UK-EU27 agreement, including on energy, will look like is yet unclear. On the one hand, the UK Government has made it clear that the UK will be leaving the European single market, while on the other, the February 2017 white paper stated that the UK was ‘considering all options for the UK’s future relationship with the EU on energy.’ While there are a number of non-energy specific issues that will affect the energy industry, such as customs, access to labour, and financial rules, a report by Chatham House, the University of Exeter and the UK Energy Research Centre published last month argues that energy, and in particular electricity, offer an opportunity for strong mutually beneficial co-operation. This is vital as maintaining reliable and affordable supplies is essential for society and the economy.

Furthermore, plans for decarbonisation in the UK will also need changes to the energy system in the EU which will require significant and harmonised policy intervention across the whole of Europe.

Unplugging the UK from the EU?

Currently, the UK is linked to both the Irish and continental electricity markets through 3 GW of electricity interconnection. The UK Department for Business, Energy & Industrial Strategy anticipate that the UK’s net electricity imports will rise from around 20 TWh in 2016 to 80 TWh in the mid-2020s. This includes a proposal for an electricity cable between Scotland and Norway – the ‘Northconnect’ project. In addition, Great Britain had planned to further harmonise its operating regimes with those of other member states to enable electricity cables or interconnectors between countries to operate with more flexibility. Increased interconnection will also be necessary to accommodate the increasing deployment of variable renewables such as solar and wind in an efficient and cost-effective manner, otherwise known as market coupling. It is unclear what will happen post-Brexit . Remaining part of the market coupling system may require adherence to common European rules and operational codes, which the UK will no longer have as much of a say in.

Energy access and trade is of course vital for Scotland’s fossil fuel industry as it receives gas from Norway – both directly and indirectly – via three pipelines. Three of the UK’s four major oil pipeline terminals are also in Scotland where they receive oil both from North Sea fields and Norway. The main point of concern for companies focused on production is the oil price and the impact of Brexit on currency exchanges, particularly since production costs in UK waters are already relatively high.

The midstream and downstream sectors – i.e. processing, distribution and marketing – could also be affected by the UK’s Brexit settlement depending on future tariff and non-tariff barriers and the accessibility of skilled workers,. Disruption to one of Scotland’s main industries could create a greater wedge between Holyrood and Westminster, particularly given a majority of voters in Scotland voted to remain part of the EU.

Challenges for policy, infrastructure and regulatory integration

As in other sectors the integration of infrastructure, policies and regulatory oversight between Northern Ireland and the Republic underline the importance of a pragmatic energy Brexit agreement. At the heart of this lies the need to maintain the Single Electricity Market (SEM) which operates across the whole of Ireland, is jointly operated by the two jurisdictions and regulated by the Single Electricity Market Committee (SEMC). The decision by the new minority Conservative government to aim at a voting agreement with Northern Ireland’s Democratic Unionist Party may help ensure that the importance of the Single Electricity Market is not overlooked during the negotiations. As in their manifesto, the DUP gave their support for ‘continued progress on the Integrated Single Electricity Market and the North South Interconnector’.

Nuclear energy – plenty of Brexit challenges

It may come as a surprise to some that the UK will be leaving not one, but two EU Treaty organisations in April 2019. The less well known is the Euratom Atomic Energy Community which was founded in 1957 to promote and regulate nuclear power in Europe. Although the Euratom Treaty is legally separate to the EU treaties, its legal oversight (the European Court of Justice), institutions and legislative powers are too intertwined with those of the European Union for the UK to remain in Euratom. This will mean that the UK government will need to develop or enhance its own nuclear institutions as well as sign new international agreements to keep its nuclear industry going.

Top of this list is guaranteeing the non-proliferation of nuclear materials. The UK has the largest quantity of separated civilian plutonium in the world, around 130 tonnes. The EU is currently responsible for ensuring non-proliferation and oversight over other nuclear materials and checks are conducted by Euratom safeguards inspectors on behalf of the international community. Outside of the EU and Euratom, inspections would need to be carried out either by the UK’s Office for Nuclear Regulation (ONR), a new agency, and/or via an agreement with the International Atomic Energy Community.

Euratom is responsible for, amongst other things, the setting of standards for operating reactors; designing nuclear waste-management strategies; regulating radiation, health protection (for workers and the public) and environment protection. While the ‘Great Repeal Bill’ will be designed to ensure that all EU legislation is transferred into domestic law at the time of the UK’s departure, it will not cover the UK’s compliance to future – and possibly more rigorous – EU legislation; nor will it help to ensure compliance with proposed legislation. The loss of EU oversight over the nuclear sector as for other areas of environmental protection will be significant and require a rapid response from the UK government to remedy these gaps.

Maintaining a close relationship in the future

There are also a number of common energy issues to the UK and EU27. These include the import of liquified natural gas to the UK but destined for the continental market. In policy terms the UK has also been an important driver of climate change policy across the EU and its departure from key EU fora will require other countries to step up their support for action if European leadership in this area is to be maintained. The Scottish government has noted that the EU’s climate and energy objectives are increasingly important to meeting domestic goals – as these objectives facilitate the provision of financial support for innovative clean technologies – and that ‘maintaining access to the internal energy market is also a priority for energy stakeholders in Scotland.’

Given this, it is important that the governments in Westminster and Holyrood make clear their energy and climate policy objectives and put forward credible strategies to enable them to be met. All parties will need to convey to consumers and policymakers across Europe the mutual benefits and opportunities from a strong energy relationship – they will need to do this as early as possible in the Brexit negotiations, as well as think of new ways to cooperate in a post-Brexit world.

Antony FroggattAntony Froggatt

Chatham House

Antony Froggatt is Senior Research Fellow in Energy, Environment and Resources at Chatham House. He specialises in global energy security and European electricity policy, and has worked as an independent consultant with environmental groups, academics and public bodies.