Currently, the UK has a close relationship with the EU on energy and climate policy. Britain is increasingly reliant on imports from the continent, and its energy market is deeply intertwined with that of its neighbours.

At least eight cables are being laid under the sea or through the channel tunnel to trade power between the UK, Ireland, France, Belgium, Denmark and Norway. But uncertainty over the UK’s membership of the EU internal energy market has cast a doubt over future interconnection.

Electricity imports could be subject to trade tariffs if the UK reverted to World Trade Organisation (WTO) rules, which according to some estimates, would cut imports by a third and increase the cost of electricity by a further £140m.

Speaking at a Green Alliance event in London yesterday (13 November), EU energy policy veteran Sir Philip Lowe suggested that the UK should consider negotiating continued participation in the technical bodies that coordinate the internal energy market.

The former EU Commission Director-General of Energy said that involvement in these frameworks is crucial if the UK is to ensure it retains some influence over the market in the future.

“The problem is if you want to interconnect and integrate markets with other countries, you definitely need a common set of rules, and the institutions to enforce them,” Lowe said.

“If you want to continue close EU27 cooperation, including in network industries, you have to decide what level of sovereignty you want to retain. If you don’t want to have any jurisdiction from any supranational body, you will just have to manage your energy demand and supplies at a national level. 

He added: “I think one could very strongly argue that in this area of energy and market integration, if you want to hedge your bets amid all of the uncertainties, move towards a low-carbon economy, develop new sources of energy, deal with intermittency, you should try and stay in this market.”

The UK’s starting point for energy and climate negotiations is much more advantageous than non-EU players such as Canada and Switzerland, Lowe insisted, highlighting that UK-EU policy and regulations have been broadly aligned for several years.

The UK has in the past, for instance, welcomed EU energy efficiency targets as an important driver for reducing consumer bills and reliance on energy exports.

Losing influence

Another key area of convergence is the EU’s flagship tool for reducing greenhouse gases (GHG), the Emissions Trading System (ETS), which regulates emissions from around 11,000 industrial power stations, with around 1,000 of these in the UK.

In recent times, the ETS has suffered from an excess of permits that has caused the price of carbon to tumble below €4. In comparison, the UK has introduced a capped floor price of £18/tonne of carbon dioxide, a move which will help the country in its aim to phase out coal by 2025.  

EU negotiators struck a deal on ETS reform last week. A compromise for the Directive’s next phase, from 2021-30, will reduce the overall cap on the total volume of emissions by 2.2% each year. But green groups have insisted that the deal will allow member states to use funds to continue burning fossil fuels.

It remains to be seen whether the UK will continue its membership after its EU departure. Some have said ETS targets could be weaker with Britain – which has long championed market-based solutions – no longer at the table.

If Britain were to opt out of ETS phase four in the 2020s, it would lose a degree of influence over EU energy policy, while remaining member states would likely turn towards Government regulation to achieve climate goals, Lowe said.

“Wherever there has been a market-orientated solution to a problem, inside the EU, the UK has argued for it,” he said. “Whether it’s in energy or any other area. The pressure on other countries to adopt a market-based instrument will be less strong in the EU27.

“One has the inevitable divergence between countries which believe they should have a longer transition to meeting objectives, such as Poland, compared with the Scandinavian countries and UK, which are always on the other side of the argument. 

“With France in favour of a low-carbon economy, with a lower level of nuclear, but not very enthusiastic about market-based instruments, probably Government regulation is a better way out. So the answer is we will lose a certain amount of influence on the final results and it could be less market-based.”

Global leadership

Some commentators have described Brexit as an opportunity for the UK to enhance its own status as a global climate leader. Britain is already seen as a frontrunner when it comes to emission reduction targets: as part of the Fifth Carbon Budget, the UK has set a target to reduce emissions by 57% by 2032, compared to the 40% target in 2030 for the EU as a whole.

The EU recognises that it is not on track to meet its 2030 target with currently implemented policies, and is discussing a large package of measures aimed at achieving the target.

Lowe predicts that, given the UK’s “more ambitious” targets and policy measures, it is likely that the UK will separate from the EU when outlining a strategy to meet the Paris Agreement objectives to limit global warming to well below 2C.

“Even if the UK remains in the ETS, there is probably a likelihood of more diversion in the tools used to reach our carbon policy objectives between the UK and the EU27, in terms of lack of ambition from the EU27 side,” he said. 

“I think it is logical that the UK will separate out its COP21 commitments from the EU27, given that its climate policy has tended to be more ambitious, in terms of taxation as well as ETS, and that would leave us with some degree of flexibility in the future.”

George Ogleby

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