EU energy policy [What Think Tanks are thinking]

In the context of Brexit and Energy, you may be interested in a Public lecture that I gave at the University of Nottingham in June this year.

The following is a copy of the blog post I wrote (I will send a copy of the full PowerPoint presentation to your email address):

BREXIT and Energy

On 23 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 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. 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.

Professor Derek M. Taylor
Geo-Energy Research Centre
University of Nottingham
Nottingham
UK