6: Brexit and Net Zero

This edition of the Net Zero Blog looks at the impact of Brexit on the UK achieving net zero.

The framework

Since the end of the Brexit implementation period on 31 December 2020, energy matters have been covered by the UK-EU Trade and Cooperation Agreement (TCA), the UK-Euratom Nuclear Cooperation Agreement, and the revised Withdrawal Agreement.

By virtue of article 331, the energy part of the TCA (Title VIII – articles 299-331) ceases to apply on 30 June 2026, although it can be extended by agreement, year by year. The Withdrawal Agreement preserved the Integrated Single Electricity Market for Northern Ireland and the Republic of Ireland at article 9 and Annex 4, but does not include electricity retail markets or consumer protection provisions.

Some details relating to the regulation of electricity and gas interconnectors were left to later, some were preserved and some, such as funding via the Connecting Europe Facility, will be lost other than commitments existing at the time of the agreements being reached at the end of 2020. In common with other areas, state aid has been replaced with ‘subsidy control’. Allocation of subsidies must be subject to competition except in certain circumstances such as demonstration projects, potentially wider than for state aid. This may give the government more flexibility with its measures to decarbonise domestic heat and cooking. The Competition and Markets Authority will take on the role of the European Commission; it is all contained in the Subsidy Control Bill currently going through Parliament. State aid will continue to apply in Northern Ireland in respect of NI/EU trade, however. The steep rise in gas prices does not appear to be because of Brexit.

On the nuclear front the Office for Nuclear Regulation has taken over the nuclear safeguarding role of Euratom. The nuclear agreement lasts for 30 years and unlike the TCA will automatically renew every 10 years unless a party has terminated it.

In relation to offshore renewable energy, article 321 of the TCA requires the creation of a forum for technical discussions between the EU and the UK on various aspects of renewable energy in the ‘North Seas region’. Until that happens, though, the North Seas Energy Cooperation forum has been meeting without the UK, most recently in October in Ostend. Those working in the North Sea will need to comply with the relevant immigration obligations.

For fossil fuel projects, the Industrial Emissions and Medium Combustion Plants Directives continue to apply in the UK as they have been transposed into domestic legislation; UK policy on closing coal plants by October 2024 will overtake this anyway if it is implemented.

Net zero targets

The UK’s 2050 net zero target, and the 80% target set in 2008 before that, were set while the UK was still a member of the EU. To get to that target smoothly, the UK sets five-yearly carbon budgets 12 years in advance.

Meanwhile the EU also has a net zero aim for 2050 (albeit not enshrined in legislation) and a ‘Fit for 55’ aim for 2030, ie a reduction from 1990 carbon emissions by 55% by 2030. That is slightly easier to achieve than the UK’s fifth carbon budget, which consists of an average annual reduction of 57% between 2028 and 2032.

Products

Targets are an example of how the UK is ahead of its European counterparts (with a higher and also legal target), but on product standards, the UK has started to fall behind. This pair of energy labels on light bulbs shared by a Twitter user shows that the EU has ratched up its standards while the UK has not, so that the same light bulb has an F rating in the EU and an A+ rating in the UK. The EU rating was previously A+ but was tightened from 1 September 2021.

That is permitted because although the UK and the EU cannot reduce levels of protection from those in place on 1 January 2021 by virtue of article 391 of the EU/UK Trade and Cooperation Agreement (TCA) , they don’t have to keep up with each other thereafter.

Emissions trading systems

Somewhere in the middle is the emissions trading system (ETS) situation. The EU has had an ETS since 2005. It is a ‘cap and trade’ system where there is an overall limit to the total emissions that will reduce over time, with allowances able to be traded below that limit. When the UK left the EU it set up its own UK ETS that came into operation on 1 January 2021. Its allowance limit is about 5% lower than the EU’s one, and it is intending to include more technologies such as direct air capture of CO2.

The TCA contains a commitment to consider linking the UK and EU ETSs (article 392(6)) but under the present political climate that seems unlikely for the moment. If one is significantly stricter than the other, though, there will be so-called ‘carbon leakage’ where companies transfer operations to the other regime to save money.

Summary

In the light of the above the effect of Brexit on the achievement of net zero in the UK is fairly limited and at a much more strategic level than an individual project needs to worry about. For the moment, then, it is business as usual for project development – projects that contribute to net zero will be looked on favourably and projects that threaten the achievement of net zero will not. Over time the carbon effects of a project are likely to become a more and more significant factor in decision-making.