My most recent blog posts had to do with ways in which the Brexit might impact specific nuclear power projects from in the U.K. Today, I am going to talk about impacts of the Brexit on the U.K. and European Union energy sectors.
Some members of the EU want the European Commission to have major influence over the energy policies and climate change mitigation measure of all member nations while other nations would prefer more local control. Central and Eastern European nations as a group prefer the local control option. The U.K. was also in favor of local control. Due to the fact that voting in the European Commission is proportional to population, the U.K. had a lot of influence over E.U. policies due to its large population. The Brexit will mean that the Central and Eastern European countries will be subjected to more European Commission control and monitoring of energy generation efficiencies, carbon emissions and the move to renewables. While the Central and Eastern European members of the E.U. have realistic concerns about the cost of complying with strict European Commission goals on energy, the objection of the U.K. was more philosophical because they did not like being told what to do even if it intended to do those things all along.
The U.K. was a pioneer in setting up a legally binding framework for mitigating climate change. In 2008, they decided on a goal of cutting their carbon emissions by eighty percent by 2050. While the recent Paris climate agreement endorsed the 2050 goal of the U.K, it also added additional provisions including the goal to restrict global temperature change to less than one and a half degrees Celsius by 2050. Analysts say that while the U.K. climate change goals are good policy, without the E.U. climate goals, they would have been at the mercy of changing political and economic realities in the U.K. With the full weight of the European Union enforcing E.U. climate change goals, it would have been more difficult for the U.K. to change its mind and policies before 2050. With respect to the U.K. and the E.U. meeting ambitious climate change goals, the prospect is more likely if they were working together rather than separately. The Brexit will likely weaken ambitious climate change goal.
Stability of markets and predictability of governmental policies are preferred by investors in general. Specifically, the outlook for investments in new energy projects including renewables is now for greater risk in light of the Brexit. Major energy suppliers came out strongly against the Brexit for this reason among others. With the Brexit, it may be more expensive to import equipment from within the E.U. for energy projects such as the Hinkley Point C nuclear project or offshore windmills. On the other hand, it will now be easier for companies to import cheap solar panels from China which is a threat to the U.K. solar panel producers. Until new trade policies are worked out between the U.K. and the E.U., there may be a reluctance of investors to take a chance on big energy projects in the U.K.
The E.U. has a policy of preventing member state subsidies for industrial sectors and this includes the energy sector. Austria brought suits against the U.K. and the Hinkley Point C energy project because it claimed that the U.K. government was violating the E.U. rules on subsidies. The Brexit will allow the U.K. to subsidize projects such as Hinkley Point C if it wants to. However, the E.U. has managed to sign treaties with other countries that include rejection of state subsidies which could interfere with U.K. trade with those countries. Supporters of renewable energy projects in the U.K. fear that with the restrictions imposed by the E.U. on subsidies removed, the U.K. government might be tempted to pour subsidies into gas fired power plants and nuclear fuel plants while decreasing support for renewables.
The U.K. exists on islands that are separate from the European mainland and most E.U. nations. However, the U.K. does have connections to the natural gas system and the electrical grid on the mainland. There are infrastructure projects in the works to expand these connections. The Brexit may mean that these projects could lose funding and priority.
As they say, it is an ill wind that blows no one good. The Brexit will have both positive and negative impacts on the U.K. and the E.U. with respect to energy projects and climate mitigation efforts.
