Staying Connected Key Elements for UKEU27 Energy Cooperation After Brexit

• Negotiations over the terms of ‘Brexit’ are likely to be lengthy, complex and difficult. Energy is one policy area in which it may be easier for the UK and future EU27 to find common ground

• Energy cooperation over the past decades has helped European countries to enhance their geopolitical security, respond to growing climate threats, and create a competitive pan-European energy market. Maintaining close cooperation in this field, and the UK’s integration in the European internal energy market (IEM), will be important for the UK and the EU27 post-Brexit.

• Strong UK–EU27 energy cooperation could help ensure that existing and future interconnectors – physical pipes and cables that transfer energy across borders – between the UK, Ireland and the continent are used as efficiently as possible. As European economies, including the UK, look to decarbonize further, interconnectors will help minimize the costs of operating low-carbon electricity systems, and help lower electricity prices for UK consumers.

• The UK and the EU27 have identified the special relations between the UK and the Republic of Ireland as a priority for negotiations. Any future agreement needs to maintain the Single Electricity Market (SEM) across the island of Ireland, as failure to do so could result in an expensive duplication of infrastructure and governance.

• EU funds and European Investment Bank (EIB) loans account for around £2.5 billion of the UK’s energy-related infrastructure, climate change mitigation, and research and development (R&D) funding per year. Replacing these sources of finance will be necessary to ensure that the UK’s energy sector remains competitive and innovative.

• The UK intends to leave Euratom, the treaty which established the European Atomic Energy Community and which governs the EU’s nuclear industry. This process – dubbed ‘Brexatom’ – will have a significant impact on the functioning of the UK’s nuclear industry, particularly in respect to nuclear material safeguards, safety, supply, movement across borders and R&D. Achieving this within the two-year Brexit time frame will be extremely difficult. The UK will need to establish a framework that it can fall back on to ensure nuclear safety and security.

• Remaining fully integrated with the IEM would require the UK’s compliance with current and future EU energy market rules, as well with some EU environmental legislation. The UK government, British companies and other relevant stakeholders will need to maintain an active presence in Brussels and European energy forums, so that constructive and informed engagement can be sustained.

• Without a willingness to abide by the jurisdiction of the European Court of Justice (ECJ), and in the absence of a new joint UK–EU compliance mechanism, the UK may be required to leave the EU Emissions Trading System (ETS) – an instrument in the UK’s and EU’s fight against climate change. Leaving the ETS would be complicated, even more so if the UK leaves before the end of the ETS’s current phase (2013–20). To maintain carbon pricing in some form outside of the ETS, the UK would need to either establish its own emissions trading scheme, which would be complicated and time-consuming; or build on the carbon floor price and introduce a carbon tax. Either of these potential solutions would need political longevity to be effective.

• It is in both the UK’s and the EU27’s interests for the UK to continue to collaborate on energy policy with EU and non-EU member states. The best way to achieve this would be to establish a robust new pan-European energy partnership: an enlarged European Energy Union. In particular, such a partnership could offer a useful platform for aligning EU policies with those of third countries, including the UK, Norway and Switzerland, while allowing them to fully access the IEM and push forward common initiatives. Experience suggests that the EU27 would be more receptive to working within an existing framework or multilateral approach (as with the European Energy Community) than to adopting a bilateral approach (as the EU currently does in its energy relations with Switzerland).