Brexit and the UK’s energy and climate policy

July 15, 2016

It is early to start making detailed predictions about how UK climate and energy policy will evolve following Brexit. The latest developments suggest that the new British government, headed by Theresa May, is likely to balance the need for climate ambition against the goals of affordable and reliable energy supply for the citizen. The result is likely to be a reformulation of the country’s priorities and programmes.

At the time of writing, the UK had not yet officially invoked Article 50 of the EU Treaty, which triggers the two-year process of UK withdrawal from EU Treaty obligations. The timing of any future developments is therefore still uncertain. Minister for Brexit David Davis has indicated that the government does not envisage triggering the Art. 50 procedure by early 2017.

Once out of the EU, the UK will in theory have scope for radical changes in its climate / energy policies:

  • It will be able to modify or abolish the strict emission requirements set by the EU’s Industrial Emissions Directive (IED)
  • It will be able to pull out of the EU ETS and reformulate its carbon pricing policy
  • It will be able to reformulate its energy market incentives without the concern of having to comply with strict EU state aids rules
  • It will be able to adopt new controls on consumer energy prices

All this, however, remains largely theoretical. The real space for UK action will be determined by what direction the Brexit negotiations take. For instance, if the UK seeks continued access to the EU internal market, it might have to pledge ongoing compliance with EU state aids rules, and might not be able to intervene as deeply in energy and carbon markets.

Nonetheless, a few things appear already likely:

  • The UK will have to change its status under the Paris Agreement on climate change. At the moment, the UK has stated its participation in the EU’s intended nationally determined contribution (INDC). That will no longer be possible since the UK will no longer be participating in the EU climate strategy. It will thus have to prepare its own INDC. This a process that could prove complex, depending on the level of UK ambition.
  • Whatever the post-Brexit EU-UK relationship, the UK will no longer be part of the EU greenhouse gas emissions trading scheme (EU ETS). It will be able to set up its own system, possibly closely coordinated with the EU ETS, or instead adopt an entirely new approach to carbon markets. Given the scant success so far of the EU ETS in establishing a high price of carbon on the European market, the UK might be tempted by the second option.
  • The UK will no longer be bound by the EU’s 2030 goal of reducing greenhouse gas emissions by 40% compared to 1990. Although its current target for 2030 is even more ambitious, it has to be seen whether post-Brexit Britain will be able to keep that goal.
  • Whether or not the UK decides to abide by EU competition law in the wake of Brexit, it will have considerably more leeway to rewrite its energy market legislation to better suit its needs for security of supply, low prices and low carbon emissions.

For the EU, too, Brexit will entail a number of changes to existing legislation. In climate policy, there will have to be a revision of national climate targets to ensure that the overall 40% reduction is met on time. The EU ETS will also undergo some changes, with a revision of yearly caps, and possibly a revision of the annual emissions reduction factor under the EU ETS. The EU is unlikely to seize the opportunity to make bigger changes to the scheme, despite the fact that CO2 prices remain much too low to constitute an incentive to invest in low-carbon technologies.

In principle, the next UK election is due in 2020. By then, the Conservative government is likely to have completed the bulk of the Brexit negotiations, setting the basic principles governing it and the broad direction of further developments. It is to be hoped that by that time, there will be more clarity about the future of UK climate and energy policy.

The UK, the EU and the environment

Since UK membership of the EU in 1973, the UK’s approach to environmental policy has been heavily influenced by EU policy making but has in turn helped mould EU policy.

Until the late 1980s the UK was dubbed “the dirty man of Europe” for its poor air quality and the acid rain that its emissions were causing in Norway and Sweden. It was under Margaret Thatcher that the UK started adopting strict environmental legislation. By the 1990s, the UK had caught up with the rest of Europe, and even became an EU pioneer by introducing the “Integrated Pollution Control” law, which the EU later used as a basis for its own “Integrated Pollution Prevention and Control” (IPCC) Directive, now reincarnated in the IED.

The UK even pioneered emissions trading in Europe, with its 2001 system. This was replaced in 2005 by the EU ETS, which however, after over ten years of operation, has failed to establish an effective price for carbon emissions in Europe.

It is not likely that after Brexit, the UK and the EU will completely part ways. A more likely scenario will be one of continued coordination of policies.

 

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