With all the uncertainties around what a Brexit would actually involve, one thing seems certain: a post-Brexit UK would have fewer rules and regulations to follow. But what does this mean for the UK's energy – and in particular its renewables – sector?
The UK is currently party to a wide array of treaties, conventions, agreements and directives dealing with or affecting climate change policy. Although some of these would no longer be binding following a complete Brexit, many of them would remain in force.
So although the Renewable Energy Directive would cease to set binding targets for renewable energy generation, the Climate Change Act would still be in force. The EU State Aid rules might cease to apply but the WTO subsidy regime would not. The UK might leave the Emissions Trading Scheme, but would still be a signatory to the Paris Climate Agreement.
And even if the UK leaves the EU, some form of connection may remain, possibly in the form of the UK joining the European Economic Area and the European Free Trade Association (along with Norway and Iceland) and/or remaining part of the Emissions Trading Scheme.
But perhaps more significant than what the UK could do is what the UK is likely to want to do. Energy security and climate change would remain key challenges, Brexit or not.
The potential effects of loss of EU regulation include:-
- Absence of State Aid challenges, which may leave the UK free to fund alternative technologies;
- The ability to pursue climate change goals through other means, such as energy efficiency and sustainable generation;
- The loss of the Industrial Emissions Directive, which puts pressure on the lifespan of fossil fuel generators such as the now closed Longannet; and
- The loss of the Habitats Directive, which sets limitations on development in certain areas which may otherwise be suitable be renewables.
However, the effects of UK legislation and international decarbonisation commitments in these areas would continue to be felt.
At the same time, the potential risks of loss of EU status include:-
- Short-term upheaval and market uncertainty, which could reproduce on a larger scale what the renewables industry in the UK experienced in 2015;
- Potential loss of EU funding for European interconnector projects – would all of the proposed connections still proceed?;
- A likely ongoing participation in energy market harmonisation across Europe, but without any ability to influence the underlying policies and rules;
- Risk of investment loss by energy multinationals, although the UK is likely to want to continue promoting a level-playing field, separate ownership and transparency in the UK energy market; and
- Potential loss of EIB funding for renewables and energy efficiency, of which the UK currently receives the lion's share.
There are very few certainties given the wide range of possible Brexit scenarios for the UK, but with the loss of some key targets and incentives, the renewables sector in the UK could become more vulnerable to changing political winds.
Disclaimer
The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.
