BREXIT and Energy
By Professor Derek M. Taylor; Former Energy Advisor at the European Commission
On 23rd June 2016, when the UK electorate voted
on the subject of staying in or leaving the European Union (EU), it is
extremely unlikely that many – if any – took into account the possible impact
of a so-called BREXIT on the UK’s energy supply. This was hardly surprising as
it was only one of many issues that would eventually need to be reviewed,
discussed and negotiated during the months and years ahead. Like most of these
issues, it is something of a specialist area (usually the domain of “experts”)
that was not raised or debated by the proponents or opponents. However, it is
an issue that can – and almost certainly will – have some impact on the lives
of the people in the UK and elsewhere.
When I gave a lecture on the subject at the University of
Nottingham on 20 June 2017, it was only one day after the start of the EU-UK
negotiations on a BREXIT agreement, so it was too early then to get any sort of
impression as to where the negotiations would lead – or if energy issues would
be raised during their earlier stages. Unfortunately, the future is still no
clearer and energy, like many other issues, has still not made it to the table.
Having been involved in various aspects of energy
forecasting at different stages throughout my career, I am always very
reluctant to get out the crystal ball and to try to predict any sort of future.
I am certainly not going to do so now. However, earlier this year, the Economic
Affairs Committee of the UK’s House of Lords concluded that “Security of supply should be the first and
most important consideration in energy policy”. In my view, the closer the UK remains to the EU’s Internal
Energy Market, then the greater the security of its energy supply and the less
the likelihood of any future supply disruptions or unexpected price
fluctuations. This is not to say that there would not be supply disruptions and
unexpected price fluctuations within the EU, just that the Member States would
be better protected against them than a country outside the EU.
Though most people – in fact, a large majority of people –
would agree with the House of Lords that security of supply is the most
important consideration for energy policy, there are two other major elements –
the environment, in particular decarbonisation, and affordability. BREXIT could
have a significant impact on both these elements.
I am pleased to say that the UK has been very much in the
vanguard concerning decarbonisation of the energy sector in Europe. The EU’s
Energy and Climate Policy was a direct response to a UK proposal made to the
European Council meeting held at Hampton Court in 2005. Since that date the UK
has continually pushed for accelerating the shift to a low carbon economy and
was one of the first countries in the World to legislate against new, unabated
coal-fired power plants. As a result, people could expect that BREXIT would not
slow down the UK’s decarbonisation efforts. However, there are growing concerns in some
quarters that the delays in the growth or introduction of new sources of
electricity generation could mean some “relaxing” of the country’s
decarbonisation objectives, especially if it ceases to be a member of the EU’s
Emission Trading System (ETS). Another possibility is that it might reduce
requirements for future environmental impact assessments (EIAs) or strategic
environmental assessments (SEAs). Such
changes, in addition to reducing environmental protection, could have a
negative impact on the ability to trade with the EU.
The UK is now an important importer of energy in spite of
the continuing production of oils and gas from its areas of the North Sea. The
majority of such trade with the European Economic Area (EEA) is in fossil fuels
– in particular oil and gas. The largest single supplier of crude oil is Norway.
At the same time, the UK actually exports crude oil to both Belgium and
Germany. Norway also supplies over 60% of our natural gas imports with most of
the remaining imports coming in the form of liquefied natural gas (LNG) from
Qatar. The UK also exports some natural gas (equivalent to around one-third of
imports), mainly to Belgium and Ireland. There is also a well developed trade
with some EU States on oil products – such as transport fuels
While the UK is still
the second largest coal producer in the EU, it still imports around
three-quarters of its requirements. Most of this originates outside the EU –
Russia, Colombia and the USA. There is also some limited trade in
electricity, with imports from France and the Netherlands and exports to
Ireland, and in certain renewable energy sources (biomass and biofuels) drawn
mainly from outside the EU. If the UK withdrew from the EEA as well as from the
EU, it would be distancing itself from its main supplier of oil and gas. This
is not to say that the price to be paid for the fuels would change or that
tariffs would necessarily be imposed on the UK’s exports to the EU or its
imports from the EEA. However, that option would be there if governments wished
to raise extra revenue or protect other producers/suppliers. This would likely
have an impact on prices to the energy consumer. Concerning trade on energy and energy
products from outside the present EEA, it is clear that because of its economic
muscle, the EU is better placed to negotiate than any stand alone country.
In recent months there has been considerable debate about
the Euratom Treaty and BREXIT. Of
course, withdrawing from the Euratom Treaty would mean that the UK no longer
has to meet that Treaty’s requirements or that of legislation developed and
adopted under that Treaty. However, the UK does have a lot of its own
legislation that reflects many aspects of the Euratom Treaty. For example while
it would not be covered by Euratom Safeguards or monitored by EU inspectors, it
would still be covered and monitored by those of the International Atomic
Energy Agency (IAEA). In addition, while it would not have to meet the
requirements of the EU’s Safety and Radioactive Waste Directives, it would
still be a member of the IAEA’s equivalent Nuclear Safety and Radioactive Waste
Conventions. How much the withdrawal from the Euratom Treaty would impact on
nuclear trade, for example in medical sources used for radiation therapy, or on
the future construction and operation of new nuclear facilities would very much
depend on future negotiations and the development of UK’s legislation.
There is one other very important issue that has not yet
been touched on in this blog, but is very much at the forefront of the EU-UK
negotiations, the situation of Ireland. The resolution of this issue is amongst the
three tests for whom adequate progress must be achieved before moving on to
other post Brexit discussions. While energy has seldom, if ever, been
mentioned in this context so far, it is very important. Ireland is dependent on
imports for between 80% and 90% of its energy.
Furthermore, close to half of its electricity is generated from natural
gas – 96% of which is imported from the UK.
Since 2007, there has been a Single Electricity Market (SEM) for the
whole of Ireland and the grid is connected to the UK’s national grid. The
impact of BREXIT on these arrangements and on the energy situation in Ireland
have yet to be fully evaluated.
This blog has done little more than scratch the surface of
the impact of BREXIT on energy and, in particular, energy policy in the UK.
Concerning the future – even the short term -there are very many unknowns and
imponderables. Politics and energy policy are not easy bedfellows! However, I
would return to the view I expressed earlier that the closer the UK remains to
the EU’s Internal Energy Market then the greater its security of supply and the
less the likelihood of future supply disruptions or unexpected price
fluctuations . Unfortunately, achieving this after BREXIT would not be easy.
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