The energy sector in the UK had already seen significant changes with the Energy Act 2011 and various proposals for reform of the electricity market. The potential impacts of Brexit on the UK and global economy could be far-reaching. However, the direct impact on the energy industry is likely to be more muted.
How will Brexit impact on the carbon market and the EU ETS?
The Government has published plans for the implementation of a UK carbon tax in the case of a ‘no-deal’ Brexit.
Under a ‘no-deal’ scenario, the UK would be excluded from participating in the EU Emissions Trading Scheme (ETS). This would mean current participants in the EU ETS who are UK operators of installations will no longer take part in the system.
In this instance, the UK Government will initially meet its existing carbon pricing commitments through the tax system. A carbon price would be applied across the UK, with the inclusion of Northern Ireland, starting at £16/tCO2, marginally less than the current EU ETS price, maintaining the level of carbon pricing across the UK economy post-Brexit.
The tax would be applied to the industrial installations and power plants currently participating in the EU ETS from 1 April 2019.
The House of Commons Business, Energy and Industrial Strategy (BEIS) Committee has strongly recommended remaining in the EU ETS at least until the end of Phase III in 2020.
The UK’s 5th carbon budget, adopted in 2016, assumes continued participation in the EU ETS, and will need to be altered if the UK leaves the EU ETS.
Will Brexit affect the UK’s climate change targets?
The UK’s climate change targets are expected to continue unaffected by whatever Brexit deal is reached. The Climate Change Act 2008 established that such goals are undertaken on a national level.
However, there are several international issues in this area which will need to be settled. The UK’s emissions reduction target forms part of the EU target under the Paris Agreement and this will need to be withdrawn. The UK would also need to submit its own Nationally Determined Contribution under the United Nations Framework Convention on Climate Change (UNFCCC) processes.
What about renewable energy?
After Brexit, the UK will no longer be obligated by renewable energy targets as part of the EU Renewable Energy Directive. Additional freedom from State Aid restrictions has the potential to allow the Government to shape renewable energy support schemes.
The development of large-scale projects may be impacted by the availability of funding from EU institutions such as the European Investment Bank (EIB). However, renewable and low-carbon energy will remain a focal point of UK energy policy post-Brexit, with national and international decarbonisation obligations unaffected by their relationship with the EU.
As part of the European Union (Withdrawal) Act 2018, EU legislation will be initially transposed into UK law from 29 March 2019. For some elements of the EU law, the UK will need to reach an agreement with the EU in order to maintain the status quo.
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