The impact of Brexit on climate and energy policy
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Transcript of The impact of Brexit on climate and energy policy
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The impact of Brexit onclimate and energy policy
Richard S.J. TolUniversity of Sussex
Vrije Universiteit, AmsterdamTinbergen Institute
CESifo
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Outline
• EU Emission Trading System
• Impact of ETSexit on EU
• Impact of ETSexit on UK– Costs
– Financial sector
– Regulations
• Nuclear power
• Interconnection
• Ireland
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EU ETS
• Tradable emission permits– Regulator sets a cap on total emissions, issues
permits.
– Companies that want to emit more than allowed buy additional permits from companies that want to emit less.
– If market works well, all companies face the same emission reduction cost at the margin.
• The EU Emissions Trading System is the world’s largest emission permit market.
• ETS regulates some 45% of all greenhouse gas emissions in the EU, from some 11,000 installations.
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EU ETS
• Started in 2005
• Now in Phase 3, from 2013 to 2020
• Emission permits are issued by Member States– Partly auctioned
– Partly grandparented
• Monitoring and enforcement by Member States
• Emission permits are valid in all of the EU.
• Permit do not have a country of origin.
• Emission permit gives the right to emit a tonne of carbon dioxide (or equivalent) at any time after January 1, 2013.
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ETSexit
• The UK will leave the EU on March 30, 2019.
• Brexit means that the UK will leave the ECJ.
• ECJexit implies ETSexit.
• Not inevitable: Norway, Iceland, Liechtenstein are in the EU ETS.
• Swiss ETS is linked to EU ETS, overseen by PCA.
• If there is a transition agreement that keeps the UK in the ETS until the end of 2020, DG Climate Action will need to redo some of its preparatory work for Phase 4.
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Impact on EU27
• Without a transition agreement …
• Total amount of permits will need to be adjusted downwards by some 270 mln tCO2, the UK allocation for 2019 and 2020.
• This is small relative to the 900 mln tCO2 of delayed permits that the EU plans to reinject into the market in 2019 and 2020.
• On 30 March 2019, EU will stop buying permits from the UK, and will need to declare that all permits in circulation are valid.
• Permit sale, emission and verification are not synchronous, so there will unvalidated permits.
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Impact on EU27
• The UK is a net importer of permits.
• Permit price would fall.
• After the referendum, ETS price dropped by 20%, from €5.86 to €4.67/tCO2
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Impact on EU27
• Increasing share of emission permits are auctioned.
• 90% of auction revenue goes to the Member State in which the buyer is incorporated.
• 10% goes to Eastern Europe.
• €150 million
• UK has been a green champion in the EU.
• Balance will shift to brown position of France, Poland.
• Weaker voice in international climate negotiations.
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Impact on UK - ETS
• In 2013 (2014), 19% (25%) of emission reductions in the UK were met by imported permits.
• House of Commons has voted to maintain targets in Climate Change Act 2008.
• Clean Growth Strategy reaffirms this.
• Without permit imports, climate policy will be 40% more expensive.
• Climate policy cost 0.5% (CCC) to 0.9% (Lilley) of GDP in 2020.
• ETSexit alone will cost 0.2-0.4% of GDP by 2020.
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Impact on UK - Finance
• City is heart of permit trade.
• In 2013, 1.7 billion permits were sold by UK companies.
• In 2013, UK emissions were 0.5 billion tCO2e.
• Permits do not have a country of origin, but the current permit owner does. The EU will have no choice but to close the door to UK companies selling permits.
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Impact on UK - Regulation• Some 55% of UK emission reduction measure
originate in EU laws and regulations.
• The UK has 18 months to fix this.
• EU (Withdrawal) Bill will create a UK ETS, identical to EU ETS (but less liquid).
• The UK has a “carbon” tax.
• DECC has been folded into BEIS, which is losing people.
• BEIS has been silent on Brexit, also in Clean Growth Strategy.
• Committee on Climate Change:– UK would not import permits anyway.
– Policy implementation lags behind targets.
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Impact on UK - EurAtom• UK climate policy has two additional planks:
nuclear and interconnection.
• Hinkley Point C (3.2 MW) and Sizewell C (1.6 MW) are only the start: 9 more units (14.2 MW) are foreseen (initially for 2030).
• Civilian use of nuclear power is regulated by EurAtom, which is overseen by the ECJ.
• Foreign companies would not be allowed to sell fuel, equipment or know-how to the UK until– regulations are non-proliferation compliant; and
– nuclear inspectorate has IAEA accreditation.
• Further delays: Hinkley C was announced in 2008 for 2018-9, now 2025-7
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Impact on UK - interconnection• UK has 5 GW
interconnection, plans another 11 GW.
• Power markets are heavily regulated for capacity, frequency, reliability, environment, price, access.
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Impact on UK - interconnection• Power markets are heavily regulated for
capacity, frequency, reliability, environment, price, access.
• A merchant interconnector buys power in one jurisdiction, sells in another … regulatory uncertainty doubled.
• UK policy has focussed on retail market (where the votes are), EU policy on wholesale market (where the problems are).
• Regulatory convergence and certainty has stimulated interest in interconnection – gone now.
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Ireland• The Single
Electricity Market for generation and transmission started in 2007, overseen by EirGrid and SONI, and ECJ.
• Assets owned by Irish, US, British companies.
• SONI is NI gov’t.
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Ireland• The Single Electricity Market will end if SONI
should be free of the ECJ.
• Northern Ireland would have a small* and, because of economies of scale in generation and reliability, expensive grid with severe market power in the wholesale market.
• Major costs imposed on Republic of Ireland, which relies on the UK for gas storage.
* 1.9 v 6.7 million people
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Wrap-up• Brexit creates a few small problems in energy
and climate policy for the EU as a whole, but bigger problems for the Republic of Ireland.
• Brexit undermines three central planks of UK climate and energy policy, and destroys Northern Ireland energy policy.
• BEIS and CCC pretend there is no problem.