As Article 50 is triggered, how can the government protect the energy sector?

28 Mar 2017

Antony Froggatt, Matthew Lockwood and Georgina Wright

KEY POINTS

  • The government needs to protect the energy sector to ensure that there is no cliff edge if we fail to reach a deal
  • We need protections for electricity trade and interconnection, emissions trading and nuclear security, and budgets for research, development and innovation.
  • We need to compensate for the loss of Horizon 2020 and other EU funding and develop UK-based budget mechanisms  that enable UK firms and universities to continue to collaborate with others in Europe.

The triggering of Article 50 by the British Government on 29 March is the next most important step along what is expected to be a long and complicated road to the UK leaving the European Union.

Up until now there has been little official engagement between the UK and the European Commission, Council and Parliament and the remaining Member States on Brexit.   Since June, the ‘phoney Brexit war’ has raised tensions, with unsubstantiated assertions abounding, such as that ‘the UK must be punished’ for leaving, or that the UK can thrive without a deal with the EU.   However, a sector-by-sector analysis of existing and future possible relationships makes it clear that both the UK and the EU27 would benefit from finding a way of maintaining a close and cooperative relationship, in which core principles of existing frameworks can be kept, but in a way that is acceptable to all sides. This is most clear in the networked sectors, like telecommunications, transport and energy, which is perhaps why the UK government is said to have identified them as priorities for negotiations.

The last two decades have seen the development of an internal energy market and most recently plans for a European Energy Union, where legislation, often influenced by the UK’s own domestic energy policy, has created a common framework to achieve mutually beneficial economic, security and environmental objectives. These rely on continental-wide infrastructure, common rules and standards.  Departing this system will impose costs on UK domestic consumers and on the economy, but also on the EU-27. Our mutual interdependence is symbolised by interconnectors that not only enable power exchange between UK, Irish and continental markets, but are also a key to the UK’s decarbonisation strategy as they increase system flexibility for wind and solar power.

Energy is closely bound up with climate change policy, and equally important here will be clarity on the UK’s future involvement in the EU’s Emission Trading System (ETS).  Leaving the ETS would be highly complicated for both the UK and EU-27 and creating a new system could take years. The absence of a clear alternative could threaten the UK’s domestic climate policy objectives.

To the surprise of many the UK Government Brexit White Paper clear stated that the UK also intends to leave the European Atomic Energy Community (Euratom).  This move raises a long list of complex (and consequentially expensive) issues, including oversight of non-proliferation, movement of radioactive materials and access to fresh fuel.  

Under the terms of the EU treaty the Brexit process must be concluded by 29 March 2019, unless both sides agree to extend talks.  However, few believe that an agreement can be reached within two years and a transitional arrangement is widely expected. An early view on what both a final framework and a transitional phase might look like would bring some stability to the energy sector.  With this in mind, the UK Government could bring forward domestic legislation introducing new agencies and relevant regulation, to ensure there is no cliff edge for the sector in case of no deal – although the costs of this would not be small.  Key areas for consideration would need to include electricity trade and interconnection, emissions trading and nuclear security. We also need to compensate for the loss of Horizon 2020 and other EU funding and develop UK-based budget mechanisms that enable UK firms and universities to continue to collaborate with others in Europe.

The authors are working on a project looking at Brexit and Energy, with a report scheduled to be published once the European Council have agreed the framework