With the ever-looming Brexit on the horizon, we have provided a brief updated view of the main potential implications to Britain leaving the European Union. In this blog post, we will reference sections of the ‘Brexit: Energy and Climate Change’ briefing paper from the House of Commons Library and discuss; market implications, energy security, investment, climate change and supplier views on deal/no-deal Brexit impacts.
Market implications and the IEM
One of the main potential impacts of leaving the EU with or without a deal is that the UK would no longer be a part of the Internal Energy Market (IEM). The IEM allows the trading of gas and electricity across Europe, tariff-free, which as a result, leads to lower prices and greater supply security. Removing ourselves from this could increase the cost of energy imports. Although a number of countries outside of the EU still currently trade through interconnectors, it’s important to note that other costs may still apply, as well as less efficient trading.
Energy security and investment
As it stands, the UK appears to have sufficient storage capacity to meet demand for both gas and electricity. However, in the event of a no-deal Brexit, the UK may be excluded from gas solidarity measures introduced through the Gas Supply Regulation – a directive stating that neighbouring member states must supply gas to households and emergency services in the event of a gas crisis. In regards to trade and investment, the import/export of resources linked to renewable energy has been a slight cause for concern along with investor confidence depending on trade agreements (if any) following Brexit negotiations.
The UK and the EU are both part of the United Nations Framework Convention on Climate Change (UNFCCC) which includes sign up to both the Kyoto Protocol and the Paris Agreement. The UK’s position on both Kyoto and Paris climate change agreements is to remain committed, and in regards to the Paris Agreement, the UK will continue to be bound as an individual party under international law following Brexit. The Kyoto Protocol however, is slightly different. In the event that a withdrawal agreement is confirmed, the commitment period may end on 31st December 2020. It is currently unknown whether the UK and EU will jointly meet protocol targets, following no mention of the Kyoto Protocol in the UK governments July 2018 White Paper.
In order to reach UK carbon pricing commitments, if the UK were to leave the EU with no deal, a new domestic carbon tax will be applied, confirmed at £16/tC02 from 4th November 2019. This is applied to large Carbon emitters such as power plants generating electricity from fossil fuels, and would result in a fixed UK price for Carbon, compared to the market led price the UK are currently paying through the EU Emissions Trading System. This would provide price security, however, may leave the UK susceptible to paying an above average premium if the EU wide market price falls. As such, this is a complex implication of Brexit and will continue to be monitored going forward.
npower has written an article on what the current uncertainty means for the UK energy market, including their views on Brexit. Click here to read the full article.
“Corona purchase energy from the UK Gas Market and so we currently do not expect any issues as the market will continue to run as-is based on the information published from Ofgem and BEIS.”
Luis Gisbert, Head of Business Development
“Irrespective of the final flavour of Brexit, I do not anticipate any significant immediate impact to the current non-domestic retail gas and electricity arrangements that apply to the GB market.”
Andrew Green, Head of Regulation
Total Gas & Power