Michael Grubb, Professor of Energy and Climate Change at UCL, discusses how a deal in the energy sector will be of mutual benefit to the UK and the EU during the negotiations, providing an opportunity to overcome the Brexit impasse.
The Brexit options are narrowing fast, and talk of any deal is starting to emphasise simplicity – not least to enable quick ratification. Any such agreement must acknowledge the underlying principles at stake. The big question is whether the principles need to be fully elaborated in trade deals across all sectors at once.
There is already talk of an ‘implementation’ period, but any agreement has to contain concrete outcomes in at least some sectors, where facilitated by key conditions and exceptional mutual interest. The energy sector is one obvious candidate.
On principles, the EU cannot allow the single market to be undermined by inferior standards in key areas, but the UK has already indicated it would not reduce labour or environmental standards from current levels, with discussions about possible tariff provisions in the event of major future divergence.
Similarly, the UK, as historically the most free-market of all the member states, should agree that state subsidies to declining industries should not undermine markets – which need not imply the full panoply of State Aid provisions, as is obvious from the wide range of existing trade agreements.
However, principles will not be enough, for either side. Some concrete deals are needed to show it is possible, to build on, and to preserve momentum and trust in an evolving relationship.
The EU has consistently refused to countenance a sector-by-sector approach, pointing to the sheer complexity of the Swiss model, and seeks a package. Yet a set of clear principles, with an agreed agenda of sectoral implementation following a successful lead, could offer the only feasible compromise.
One sector stands out as an obvious candidate for a prompt deal because it combines clear mutual interests with higher political and legal principles and institutions to which both sides adhere. There are reasons why the basics of an energy sector deal are already in place.
The mutual benefits are huge, not least because energy trade is physically based and meets essential needs. The UK and EU energy systems are linked by real-time trade in electricity and gas, common technology and pan-European companies, and by universal environmental concerns.
There is no ‘Canada+’ option: electricity interconnectors and gas pipelines outside Europe are physical and economic nonsense, so the gains of trade can only come from European connections under agreed rules.
Close energy links also enhance conjoined energy security. The government committee of technical experts that I chaired was unanimous that our physical energy interconnections by pipes and wires to the continent do not only facilitate markets and pull down UK energy costs, they support energy security in both directions.
Imports through those connections kept UK lights on during the 2018 “Beast from the East” freeze, while our exports to France and Belgium helped them weather the precautionary closure of French nuclear stations two years earlier.
The EU also benefits from UK gas and electricity trade – and for Ireland, going through the UK is the only route to trade with the rest of the EU. The connections are still expanding. The North Sea is proving to be a vast resource not only of oil and gas, but also of renewable energy. Close regional cooperation can develop that far more cost-effectively, for all.
The EU and UK both have ambitious environmental goals, but the UK successes offer additional carrots for the EU to compromise. The UK’s rapid cuts in CO2 would make a useful contribution to the EU’s collective goal for 2030, and cooperation on offshore wind energy would help all the north sea countries meet their commitments.
The UK already takes the European carbon price as a base price – the UK legal basis is now for greater ambition, not less.
The institutional context further helps. EU rules on State Aid were already relaxed in energy to facilitate the subsidies that have driven the renewable energy revolution; it would be incredible for the UK to insist on the right to subsidise polluting energy for export, particularly since the UK has already closed down most of its polluting coal plants.
Moreover, EU energy policy already preserves substantial elements of national sovereignty whilst nesting with wider pan-European frameworks, including the Energy Community (integrating the Balkans) and the Energy Charter Treaty (regional investment regimes). Mutually acceptable UK arrangements could be largely seen as variants on these existing models.
Perhaps most of all, though, the political foundation for an energy-environment deal is obvious and at hand. Climate change demands international cooperation and all parties concerned are signed up to the Paris Agreement.
The UK is hosting the next UN conference, COP26 in Glasgow, and desperately needs to show that post-Brexit Britain can deliver on the world stage. The EU is the strongest driving force in the negotiations and a closely coordinated UK-EU approach is essential for success.
Red lines need to be shaded with some green, for the interests of all. In the remaining weeks, negotiations must move rapidly from grandstand rhetoric to agreed principles, illustrated with a real sectoral deal. Energy, along with its intimate relationship to shared global challenges, is the ideal place to start.
Note: The views expressed in this post are those of the author, and not of the UCL European Institute, nor of UCL.