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The EU Referendum and the Low Carbon Transition

The forthcoming referendum on membership of the EU on 23 June has major implications for energy and climate policy, and the UK’s transition to a low carbon economy.

EU energy policy is progressive, long term and focused on an effective energy transition to a low carbon future. It has been shaped by input from member states including significant input from several UK Governments. This ensures that EU energy policy is not subject to change every UK electoral cycle, unlike much of UK domestic energy policy.

Should the UK vote to leave the European Union, energy and climate policy – the key drivers of the low carbon transition – will make up a small part of a package of negotiations which can be expected to take several years to complete.

How might the referendum affect energy policy?

The UK is subject to both UK and EU energy and climate policies, with the EU generally imposing a Directive and member countries placing their own legal framework around it.  Through its strong leadership, the UK has a high success rate in influencing and shaping EU agenda and Directives to align with its own priorities– resulting in mutual evolution and strong intertwinement of UK and EU policy.

A recent paper by Chatham House looked at several models of a post Brexit UK with regard to energy policy, concluding “In the field of energy and climate change policy, remaining in the EU offers the best balance of policy options for Britain’s national interests: the UK would continue to benefit from the integrated energy market, while maintaining influence over its direction and minimizing uncertainty for crucial investment.”

The UK energy sector benefits from stability and funding from the EU

The EU is a significant funder of energy-related projects in the UK. The EU’s current seven-year budget framework (2014–20) for the UK specifically, includes €1.95 billion for climate change adaptation and risk prevention, and €1.6 billion to support the transition to a low-carbon economy. On the flipside, the UK is a net contributor to the EU budget, giving more in direct contribution than receiving in expenditure allocation.

90% of the European Investment Bank’s (EIB) funding is spent within the EU. The UK is one of the bank’s largest stakeholders: in the past five years alone, the EIB has provided €31 billion in long-term loans for UK projects, with more than €9 billion going to energy projects (Chatham House). There are no “non-member” states that are stakeholders with the EIB, meaning a leave outcome would close access to most of the EIB finance support that the UK currently receives.

Under the European Energy Programme for Recovery (EEPR), established in 2009, the UK received almost €300 million in allocated funding for a variety of projects including the Don Valley CCS project, Scottish offshore wind and electricity interconnection with the Republic of Ireland.

Theoretically, a leave outcome would allow the UK government to deploy their previous EU contribution on domestic energy and climate change projects, but this appears unlikely and would be subject to short term electoral interests.  Given current government priorities and recent track record on low carbon energy policy change, increased investment into low carbon infrastructure would seem unlikely.

In summary, the consequences of the UK leaving the EU are unattractive from an energy and climate perspective:

  • It is likely to be harder and more expensive for the UK to achieve energy security.
  • It is likely to reduce the UK’s influence at global climate negotiations since it will no longer be a leader in Europe.
  • It would make the UK subject to EU policy and regulation over which it had no control.
  • It would reduce the ability of UK energy projects to obtain financing because of reduced access to the EIB and a reduction in the appetite of commercial finance houses for funding long term energy projects through short term electoral policy cycles.
  • It may dilute the ability of UK government to pursue a low carbon transition.

As part of the EU, the UK is a positive force for climate change policy, setting standards and pushing the EU forward, and there are areas where the EU has pushed us and is helping the UK low carbon agenda.  A post “Brexit” UK is likely to enter a decade or more of negotiation and uncertainty- a low-carbon economy is unlikely to be at the heart of this.

This article was written by Frances Harding.

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