What will the EU referendum mean for climate change management?

On 23rd June the country will go to the polls for what could prove to be one of the most momentous and historical days in recent British history.

Posted on 17 March 2016.

Since the UK first joined what was then the Common Market in 1973 the EU has evolved and its powers and influence has steadily grown. The EU impacts on almost every aspect of our lives from the shape of the bananas on our supermarket shelves to protecting workers rights.

So would leaving the EU have a significant impact on the UK Energy Industry?

To tackle the impacts of climate change the EU has committed to three targets for 2020. The first is to reduce emissions by 20% on 1990 levels. The second is to provide 20% of its total energy from renewables. The third is to increase energy efficiency by 20% from 2007 levels. Being part of the EU the UK is also currently committed to these targets but what happens if the UK exits the EU in June?

One of the main mechanisms to reduce emissions within the EU to achieve the first target is the EU emissions trading scheme (EUETS) which has been in operation since 2003.  The UK government also operates climate change agreements (CCA) and the Carbon Reduction Commitment (CRC) Energy Efficiency scheme which have been active since 2001 and 2010 respectively.

The second target is addressed by the EU with the Renewable Energy Directive.  Within this directive the UK has been allocated a reduction of 15%.

More recently the UK government introduced the Energy Savings Opportunity Scheme (ESOS) to address the EU Energy Efficiency Directive (2012) which provides the framework to promote improved energy efficiency across the EU to address the third EU target on climate change.

If the UK leaves the EU in June what does that mean for all the current climate change legislation? The UK government announced in the July 2015 Budget that they would be reviewing business energy efficiency taxes (CCA and CRC) with the possibility of abolishing them and introducing a new single tax based on the Climate Change Levy (CCL).   The outcome from the budget was to do so but only in respect of CRC which ceases in 2019.

The UK Government also intimated that they would like to have a single reporting framework based on ESOS but taking elements from CRC and CCA.   Whilst CRC will be scrapped , there is no news of a single tax yet.  The budget was expected to bring some clarity on these proposals but with the uncertain EU future is now the right time to make changes or announcements?  If the UK does exit the EU is it better to wait and simplify the reporting framework further? Without the mandatory EUETS and ESOS reporting, the UK Government has the opportunity to establish something new which could encompass all the ambitions of the actions to tackle climate change in a simple system reducing reporting burden on companies!

What impact might leaving the EU have on UK energy prices?

As we are all acutely aware, energy prices have been very volatile and are still very much linked to the cost of oil despite various measures to decrease our dependency upon fossil fuels. Whilst the political games of OPEC, Russia and the USA continue to strongly influence world energy prices as do wars, political instability and the growing terrorist threat the UK also has to contend with another pressing issue.

The enforced closure of dirty and ageing fossil fuel power stations has reduced the UK’s generating capacity to such an extent that we now face the very real prospect of black outs particularly if we experience a prolonged cold spell of weather.

Putting aside the long overdue need for a coherent and long term Energy Strategy, the UK Energy Industry is in desperate need of serious investment in new power generation. So is the UK a more attractive proposition to investors as a member of the EU or if we were to sit outside of it?

EdF recently stated that they are still committed to Hinckley Point and it is just the commercials that need to be resolved.

Meanwhile, Norway's Sovereign Wealth Fund, estimated to be £590Bn and the richest on the planet, have said Brexit would not be a significant risk to the U.K. and that Britain could do better outside the E.U. The Norwegians, who are outside the E.U. and the Eurozone, are hoping to increase their investment in the U.K. and to continue to support the flow of Natural Gas from their huge fields to the U.K.

For better for worse, richer or poorer, in sickness and health do we say ‘I do’ to the EU or do we leave them at the altar like a jilted bride?

Jes Rutter, Managing Director, JRP Solutions.