Publications

In the short term, the impact would be limited because EU rules (the acquis communautaire) would remain in place. Post-2020 effects would depend on the extent to which Brexit slowed down the construction of new electricity interconnectors (cables carrying electricity to and from Britain), and on the arrangements the UK negotiated with the rest of the EU. This paper considers the three main scenarios for the case of a Brexit: joining the European Economic Area (EEA, like Norway), entering into a Customs Union (like Turkey), or negotiating a Free Trade Agreement (FTA, like Canada).

The impact of Brexit on UK climate and energy policy would also depend on the referendum’s domestic consequences. The Leave campaign appears significantly aligned with desire to weaken environmental policy. A substantial weakening could restrict the terms of energy trade, and would be inconsistent with UK legislation unless the government amended or repealed the 2008 Climate Change Act and repealed UK laws enacting EU legislation such as the Industrial Emissions Directive.

Several factors underlie our concern: the imminent closure of large numbers of coal plants across the EU due to environmental rules; an investment crisis; the importance of affordable energy at a time of economic hardship; the need for sustained and deepening cuts in greenhouse gas emissions; the continued reliance on imports for the supply of over 50% of the EU’s energy; price volatility; weak interconnection between many EU Member States; and the failure of governments to boost public acceptance of new energy infrastructure.

It is far from clear, however, where the required investment—of around €1 trillion over the period 2010-2020—will come from. The share values of EU utilities companies have slumped. Public money for energy infrastructure investment and for low carbon energy innovation is insufficient. Institutional investors hold €13.8 trillion of assets but, in order to invest in energy projects, even at a time of historically low interest rates, they need confidence in policy. That is why agreement on a 2030 policy framework, by 2015, must be a priority for the EU. Without that clarity and investment, the EU will be uncompetitive and over-dependent on elsewhere to meet its energy needs, and it will fail to seize an opportunity to make a material and enduring contribution to European economic recovery.

The required EU energy transformation could stabilise consumer and retail bills. But such stabilisation will require investment, a clear policy framework and support for innovation into both lower carbon technologies, including carbon capture and storage (CCS), and ways in which energy can be saved.

No country is an energy island. There are therefore clear benefits to be derived from working within the EU on the energy challenge. There is, however, a dilemma. It is for each Member State to decide what mix of energy is the most appropriate for them. But the choices of one country affect others, including the collective need for energy security, an efficient market and environmental improvement, and so the European Commission should have a role in monitoring choices and their impacts.

There are specific aspects of energy policy where a more coordinated EU strategy would be helpful. These include:

– Agreement on an energy policy framework through to 2030
– A revised EU Emissions Trading System (ETS) with a floor price, accompanied by a tighter cap on the number of allowances, a 2030 renewable energy target and, possibly, an energy efficiency or consumption target
– Coordinated research and development (R&D)
– Increased physical interconnection between Member States, which will require authorities to be clear with the public that certain choices, including ‘not in my back yard’, come at a cost
– Reduction of regulatory obstacles towards the completion of the EU internal energy market.