Published: 14 July 2017
Area of Law: Brexit
Is a pragmatic Brexit solution for energy still within reach?
So, the government has finally published the much-heralded draft Repeal Bill, which we can expect will now kick off a noisy debate on a range of concerns, from Henry VIII powers and democratic deficit, through to the devolution settlements and the ongoing role of the European Court of Justice (ECJ).
I was proud to give a key note speech in Brussels this week, held in honour of Brussels based EU energy lawyer, Dr Dörte Fouquet. The conference brought together leading MEPs and other EU law and policy makers, as well as energy businesses, to debate what the European energy sector might look like post Brexit.
My brief was to try and outline some of the underpinning Brexit “legal” issues, in particular those which are actually shaping the UK negotiating position. Chief amongst these is the thorny “red line” of ongoing ECJ jurisdiction. That particular line in the sand could well be vanishing with the incoming tide of dawning reality, if some of the gossip in Westminster circles in anything to go by.
This topic is actually of fundamental importance to the UK energy sector, as it determines whether the UK can remain in the internal energy market, and that in turn will impact on how new electricity interconnector projects – of which many are planned - can be financed. Not an inconsequential question when you consider the rapid phase out of coal generation in the UK, and the ongoing delays to new nuclear build. The existing 4GW of subsea interconnector import capacity equates to roughly 5% of UK generation capacity – contrast with the 3.2GW capacity of Hinckley Point - and we have an additional 16GW planned or under construction.
When it comes to energy, however, most of the recent headlines have been reserved for nuclear, and the debate around the consequences of a UK exit from the Euratom Treaty – trigged almost as an afterthought, as part of the UK’s article 50 notice back in March. Again, not a trivial topic, when you consider the importance of nuclear to the UK generation mix, and the fact that membership of Euratom has for many years, and seemingly without controversy, provided a stable framework of nuclear safeguards and access to nuclear materials and services (including for the NHS), not to mention freedom of movement of nuclear scientists and a platform for UK fusion research.
There is a direct link here with the ECJ jurisdiction issue, because the ECJ’s oversight of Euratom would appear to be the government’s principal rationale behind the UK’s exit from the Euratom Treaty. That’s not the whole story, however, because there are some complex legal arguments concerning the Article 50 exit mechanism insofar as applying to Euratom, and some interesting issues around what the UK’s status in Europe might look like if it were to leave the EU but stay in Euratom (and indeed whether that is now possible since the exit process has been explicitly invoked).
Nonetheless, one of the key points to note right now is that, unlike the main EU treaties, there is no WTO fall back once the UK exits from Euratom; with much to do to replace the existing arrangements, that is going to have to become a top Brexit priority. And that makes particularly welcome a publication this week, alongside the Repeal Bill, of a government position paper on nuclear materials and safeguards, which at last moves the discussions forward.
It’s notable that energy has not been one of the main political battlegrounds in the UK, but after this week that could now be changing. That will disappoint some, because many energy market participants have been hoping for a “technocratic” Brexit solution for the sector, with a belief that energy is sufficiently “different” to other sectors of the economy that the politicians will come together and find sensible solutions.
Why different? Well, energy supply and costs of energy are fundamental to most other sectors of the economy. The sector is also one in which we have fixed wires and pipes representing physical supply lines between the UK and its neighbours, which are not easily replicated. These interconnections also facilitate twin objectives of both the UK and the rest of the EU – functioning energy markets, and security of supply, and so energy is an area with a high degree of mutual benefit to both sides of negotiations.
And last, but not least, Ireland, which sits at the end of a long pipe and wires network, and post Brexit will be physically isolated from the rest of the EU. To some, there is a feeling that Ireland could be the clincher; the EU has an overriding treaty obligation to ensure security of supply across the EU, including in Ireland, and uniquely Ireland shares a single electricity market with part of the UK, Northern Ireland, which few would wish to see disturbed.
In Brussels this week, the energy experts I spoke to still held hopes that a pragmatic Brexit solution for energy remained within reach, but frankly there is a growing feeling that the prospects are receding of a strong and stable UK negotiating position emerging any time soon. The reactions in Parliament to this week’s government publications do nothing to dispel that.
Read our latest insights report for an in-depth look at how Brexit will impact the energy sector, a prediction of the key discussion points for the negotiators, and the changes we expect to see as the UK adapts its domestic energy policy agenda to align with a post-Brexit world.