Brexit: Implications for Energy Policy and Legislation

The decision by the British electorate to leave the European Union has major and on balance positive implications for the UK’s energy policy. However, it is also possible that Brexit will increase the cost of EU climate and renewables policies for the remaining members, since the UK’s burden share was large and it was a leading customer for renewable energy equipment manufactured in the EU.

Disentangling the EU’s legislation as it bears on UK law will be a necessary activity for the government in the coming years, but this will not be simple. The bulk of law is large, and much is supported by legislation enacted by Westminster. Some may even be worth retaining.However, since the UK will need to sail fast and free if it is to prosper post-Brexit, the economic engine must be fuelled as cheaply and efficiently as possible, a requirement that is incompatible with currently applicable EU regulation, and much of it will consequently have to be rejected.The scale of the undertaking can be judged from the number of Directives, regulations and implementing decisions with effects on energy supply. The following document lists 230 items with a direct impact:https://ec.europa.eu/energy/sites/ener/files/documents/2014-12-19-ener-legislation.pdfHowever, many other areas also bear on the energy sector, for example, the numerous environmental regulations listed here:http://eur-lex.europa.eu/summary/chapter/environment.html?root_default=SUM_1_CODED=20While all of the legislation described above will have to be examined, there are a number of elements that are of pressing concern and may prove controversial:

 1. The Industrial Emissions Directive (IED), the successor to the Large Combustion Plant Directive (LCPD), which constrains UK flexibility in the construction and management of its conventional electricity generation.

2. The Renewables Directive (2009), which requires the United Kingdom to obtain 15% of Final Energy Consumption in 2020 from renewable sources.

3. The EU Emissions Trading Scheme (ETS).

The first and last of these are very largely responsible for the counter-economic minimisation of coal in the UK generation fleet. While the IED may be relatively easy to set aside, the damage already done, due to under-maintenance and early closure of plants, is not easy to rectify. Without the IED, some plant could perhaps be brought back online, and if the UK ceases to operate within the ETS, investment may flow more freely into conventional generation, particularly if the UK abandons the Renewables Directive, which has a powerful market distorting influence weakening investment signals.Cancelling the Renewables Directive would also offer consumers prospective relief, since in the absence of the EU targets there is no need to award new subsidies, to offshore wind for example, offering a very welcome saving of three or four billion a year in 2020. However, the subsidy entitlements already granted, which are currently costing over £4 billion a year, will extend for many years into the future, and have a legal life quite independent of the Directive itself. Government might be unwilling to tamper with these subsidies, though they would in effect be redundant and the public might well wonder why they were continuing to pay when there was no obligation at EU level.Overall, backing out of the various EU energy and climate commitments looks likely to be beneficial, and necessary. But UK withdrawal is probably not positive for those remaining in the EU, and this can only make negotiations difficult. The problem arises because the UK’s burden share in meeting the EU's 2020 Renewable Energy target, is not only large (some 230 to 270 TWh of energy), but unbalanced. Indeed, when the UK’s Dept. of Business looked into this matter in 2007 it concluded that the UK would be facing considerably upwards of 25% of the total EU-wide costs of the Renewables Directive (2009). It is arguable that to some degree the UK has been shielding other member states from costs by shouldering this exceptional burden. For example, the UK has been importing many of the technologies required, such as wind turbines, from Danish, Spanish, and German companies. Without these exports the net economic effect of the targets within Europe may begin look much less attractive.It is obviously too soon to say that Brexit will significantly increase the net cost of the renewables targets for the remaining EU members, but there is clearly some doubt about the matter, and this will inevitably make negotiations controversial, and it can only add to the pressure on other member states to seek significant changes to the EU's climate and green energy policies.