UK Parliamentary hearings assess Brexit impact

03 August 2016

Nuclear power and climate change were key topics in a discussion on the potential impacts of the UK's decision to leave the European Union held last month by the Energy and Environment Sub-Committee. The Committee, part of the Parliamentary Select Committee on the European Union, has since published transcripts of the meetings.

At the first meeting, on 13 July, Michael Grubb, professor of international energy and climate change policy at University College London, said an "overarching question" is whether the UK stays within the internal energy market. If not, Grubb said, "There is an even larger group of unanswered questions about exactly what are the trading relationships." There are questions about the European Investment Bank, which has been a major supporter of UK energy investments, he said. If the UK were outside the internal energy market, such investments "presumably would flow more towards other European countries".

The meeting's other witness, Antony Froggatt, a senior research fellow at Chatham House, said the question will be about future demand. "If there is a recession, will that lead to less demand in the UK, but also potentially globally? There is some analysis suggesting that there will be a decrease in global demand in 2016-17, but that would pick up again by the end of the decade," he said. "At the European level, in the near term there are really important parts of EU legislation that are scheduled to be published by the Commission. The energy efficiency package will be published in October. That is both the energy efficiency directive and energy efficiency buildings directive. The key package will be published in December, or possibly January, and will look at the 2030 renewable energy target and the energy governance framework. It will look at the issues around capacity markets and the new electricity design. These are crucial European frameworks for the period post 2020. How the UK leaving and what influence it has we will have to see."

Froggart also noted that the UK was supposed to hold the presidency of the EU in the second half of 2017, which he said "would have been a key political landing point for these directives".

He added: "In the slightly longer term, at the European level the issue will be the extent that the UK out of the negotiations changes the general framework and direction of European energy policy. There are probably two areas that are particularly important. One will be the issue of markets. The UK has been very strong in driving the liberalisation process. The new energy market framework is the fourth phase of a liberalisation process, so taking the UK voice out of that debate potentially changes it."

Asked where there might be advantages to the UK in being free of potential European legislation, Grubb gave two. "There are serious doubts about whether the UK will deliver its 2020 target, and outside the EU we would not be subject to infringement proceedings," he said. The other area is state aid, but this advantage is a "double-edged sword for obvious reasons", he said. “The state aid rules are there for a reason, but it increases one's freedom of manoeuvre to support certain kinds of industries looking for particular state support and potentially frees up some issues around the capacity market design." Both advantages risk "a little less confidence in what the UK is going for, and we may be more subject to straightforward lobbying pressures for state handouts," he said.

Froggatt added: "If the UK wishes to have full access to the European energy markets à la Norway, we will still have to comply with state aid rules. So it is definitely the double-edged sword."

Nuclear capacity

Asked how Brexit might affect the UK's development of nuclear energy capacity, Froggatt said the first question was state aid. "If we look at the specific example of Hinkley, there is a challenge by the Austrian and Luxembourg Governments to the Commission approval of state aid. If the UK stepped back from the European electricity market, they would be freer to give certain types of support." He added: "You would have to balance that against the fact that you may be less free to exchange electricity with European neighbours. In particular this raises the Irish question, where you have an integrated energy market. In theory you could increase support, but does it make it less attractive? If you look at who is proposing to build nuclear power, it is not British companies, it is EDF, Toshiba, Hitachi and [CGN]. Will these companies be less interested in building purely in the UK or are they more interested in building into the European market?"

Grubb said "one of the striking things about the EU" is the degree of powers left with member states on domestic energy policy. "Domestic choice of energy sources remains a national preserve anyway. If you look around Europe you see huge diversity of energy policy per se. The EU has had its influence partly through state aid issues," he said. "Most state aid decisions have allowed the UK to do roughly what it wanted, but after considerable discussion and negotiation."

Trading arrangements

Another area Grubb noted is the single energy market in the trading arrangements. "Environmental policy would be an area where much of what you have indicated might apply. If we were fully out there would be various areas of environmental policy that could be up for either repeal of the Single European Act or the implementation of directives. In part, the dilemma is that an awful lot of those issues have already been dealt with by the energy industry, or it has invested on the expectation that they are being dealt with and are in UK legislation. It is an open question to what extent Brexit was seen as an opportunity to weaken any of those environmental regulations."

The "business of unravelling them" would be very complicated, he said, and would "inject more uncertainty". He said: "We deal with the fundamental challenge that energy is a very long-term business and what the industry wants more than anything else is certainty against which to invest […] If we were fully out of the single market there would be a fantastically complicated legislative operation with a lot of uncertainty."

Froggatt noted that Switzerland has been negotiating a bilateral energy agreement with the EU for a number of years and it still has not been concluded. It has been suspended because of the issues around the movement of workers, he added.

That illustrates two things, he said. "First, the complexity of it, but secondly, the extent to which those discussions and negotiations are subject to other political issues - so creating more uncertainty for the sector as a whole."

Asked for the "best option" for Britain to seek in the energy market, Froggatt said, "We should seek as close integration as possible." He added: "In particular, electricity is a different commodity from others because of the difficulty of storage, the need for large infrastructure and the need for some sort of certainty […] We are talking about transforming the sector by decarbonising it. If, as all the scenarios are suggesting, you are going to increase the use of renewable energy, then having greater interconnection is good for the efficiency of the system. What we have seen in the EU over the last decade is an increase in cross-border flows of electricity. The UK was, and I hope still is, proposing to treble its interconnection - to move from three to ten gigawatts - which in part is to enable us to make more efficient use of renewables and make the whole system more efficient. In some ways stepping back from that, and saying that what we want to do is have less connection with Europe and less involvement in the single market, would seem to me to go against the interests of decarbonisation."

In the meeting on environmental policy, on 20 July, Dr Charlotte Burns, a senior lecturer at the University of York, said that, "broadly speaking", there are two Brexit options. These are 'soft' - the Norwegian option of joining the European Economic Area - or 'hard' - where the UK has "some kind of trading relationship" with the EU. "The environmental repercussions from those two are very different," Burns said.

Andrew Jordan, professor at the School of Environmental Sciences of the University of East Anglia, noted that the "environment did not feature at all in the new settlement negotiations that David Cameron undertook [with the European Commission] earlier this year and it did not feature very much in the referendum process".

Environment policy

He added: "During the referendum the discussion was, understandably, on how Brexit will affect the UK, but people on the continent are interested in how Brexit will impact EU environment policy, particularly in areas where the UK has generally led. I am thinking here about areas such as climate change, for example, the greening of the CAP, the reform of the common fisheries policy and better regulation, for good or bad. These are areas which, without the UK in the EU fighting hard over the next few years, are going to look rather different after Brexit." In the area of climate change, the effort-sharing decision essentially allocates emissions reductions outside the Emissions Trading Scheme, he noted as being very important. "Some have argued the Commission delayed negotiating the new package around the effort-sharing decision until Brexit was out the way. We will see now what happens with that," he said.

Martin Nesbit, a senior fellow and the head of the Environment and Climate Governance Program at the Institute for European Environmental Policy, said the UK "has been one of the member states which has pushed for more ambition, in overall terms, on climate targets". Nesbit said: "I guess the UK not being part of the negotiating mix means there is likely to be less pressure for ambitious targets and ensuring that the EU delivers on its Paris Agreement commitments. There is also a question over the UK's share of those EU commitments we take with us, which will be a tricky process of negotiation."

He added: "There is a risk that member states such as the Visegrad group of member states from eastern Europe, which tends to be less enthusiastic about climate policy, will now have more weight as part of the remaining EU 27 than they do with the UK there. Those are all quite difficult to judge, but overall it looks negative."

Burns asked "what on earth is going to happen" to the EU Emissions Trading Scheme, which is under review. "There have been debates about whether the UK can set up its own emissions trading scheme and then trade with the EU Emissions Trading Scheme, which is all up in the air for the future and to be decided," she said.

Asked if it is still possible for a non-EU member to participate in the ETS, Nesbit said the system "has provisions built in to allow it to link to other trading systems".

He added: "Norway, technically, is linked through that mechanism rather than as part of its EEA membership. The difficulty is doing this from a position where the UK and UK installations are currently in the EU emissions trading system. We have a number of allowances on the market which do not have a specific member state label to them or a specific label about which year they need to be used in. The process of disentangling that is going to be genuinely very challenging for the UK and the Commission in thinking through the implications."

Researched and written
by World Nuclear News