UK Government to seek broad energy cooperation with the EU

The UK Government published its long-awaited white paper, “The future relationship between the United Kingdom and the European Union” on 12 July 2018, outlining its vision for a principled and practical Brexit. The paper provides the Government’s proposals with respect to a number of issues and sectors, ranging from goods and digital to energy and transport.

Energy, as an area where the UK and EU are already closely linked, is selected as a sector in which the Government will seek to achieve socio-economic cooperation. Whilst the Government recognises that the existing integration is dependent on membership of the Single Market, it notes that there are precedents outside the Single Market that are successfully based on close cooperation, upon which it intends to draw.

Whilst it is only a proposal from the UK, and may not receive traction with the EU, the paper is clear that the Government are aiming for broad energy cooperation in the electricity and gas sectors and close association with Euratom for the nuclear sector.

Electricity and Gas

Underpinning the Government’s proposals is a commitment to deliver cost-effective, clean and secure energy supplies and maintain a liberal and open energy market.

The Government reaffirms its commitment to preserve the continuation of the Single Energy Market (“SEM”) between Northern Ireland and Ireland in all and every circumstance. The paper provides that a legal provision is being included in the Withdrawal Agreement to achieve this.

With respect to the wider UK-EU energy relationship, the Government proposes two options:

1. The UK to leave the Internal Energy Market (“IEM”). In this instance, the Government recognises that it would need to explore options for ensuring that trade of electricity could continue via interconnections, without automatic capacity allocation under the IEM system.
2. The UK to continue its participation in the IEM. Existing trading practices over interconnections would continue, and the UK would seek to agree a common rulebook with the EU on the technical rules for electricity trading and a consistent approach to carbon pricing. The paper suggests that the latter could be achieved through the UK remaining in the EU’s Emissions Trading System. In the event that the UK remains in the IEM, the Government is clear that such participation will not be subject to the agreement of a common rulebook with respect to wider environmental and climate change rules.

The Government also advocates for close cooperation on technical and regulatory energy arrangements, to include consideration of options for continued participation of the UK in the Inter-Transmission System Operator Compensation Mechanism and continued membership of the European Networks of Transmission System Operators for Electricity and Gas. Domestic regulation will ensure that business will not face substantially different requirements than their current obligations under the Regulation on Wholesale Energy Market Integrity and Transparency (REMIT).

It seems clear from the Government’s proposals that the goal is to ensure minimal disruption to the existing electricity and gas market. The Government relies upon the mutual benefit to trading partners if interconnection is maintained undisrupted. It is not clear from the paper how the Government would propose to ensure such trade of electricity in the event that the UK is required to leave the IEM, which would likely result in barriers to trade between the UK and EU.

Nuclear

The Government has proposed a new relationship with Euratom under “a new relationship that is more comprehensive and broad than any existing agreement between Euratom and a third country”. Again, the Government relies upon the mutual benefit to both parties in the event that its proposal is adopted. The Government proposes that the new relationship should be underpinned by the following:

1. A cooperation mechanism between the UK’s Office for Nuclear Regulation and Euratom (to include exchange of technical information, joint studies and consultation on regulatory and legislative changes). Notwithstanding the proposal of consultations relating to legislation and regulation, it is not clear whether the Government expects domestic freedom to legislate and regulate the nuclear sector.
2. UK association with the Euratom Research and Training Programme. The Government has not proposed terms of such association.
3. Allowing existing nuclear supply contracts with the UK to remain valid following the UK’s exit, or alternatively, provide for seamless re-approval of existing nuclear supply contracts prior to the UK’s exit, in order to ensure minimal disruption to existing nuclear trade arrangements.
4. Minimise barriers and simplify export control requirements for the transfer of nuclear materials, equipment and technology between the UK and the Euratom Community. The Government has not expanded on proposals to achieve this.
5. Continued technical cooperation on nuclear safety and continued UK participation in EU systems, specifically the European Community Urgent Radiological Information Exchange and the European Radiological Data Exchange Platform.
6. Continued UK cooperation and information-sharing with the European Observatory on the Supply of Medical Radioisotopes.

Not unexpectedly, the Government has focused on maintaining the existing benefits under Euratom membership of its access to technical knowledge and research in the nuclear sector. More surprisingly, the paper does not include any indication of how the Government proposes to deal with ownership of nuclear materials and nuclear waste going forwards.

Conclusion

Whilst the aim of the government’s proposals, to continue close cooperation with the EU, will be somewhat reassuring to the UK energy sector, there are a number of outstanding points where it is not clear how the Government proposes to deal with such matters unilaterally in the absence of EU agreement. Of particular concern is the Government’s proposal to leave the IEM, and the lack of proposed options to deal with such a scenario. This might be a tactical omission, however, will likely raise some concerns in the industry if this is being considered as a viable option.

There is a noticeable focus on the UK maintaining its access to knowledge and research in the energy sector. Whilst there is mutual benefit for the UK and the EU here, there is a risk that the EU will use this goal as leverage in negotiations