Guidance

Energy and climate after Brexit

When the UK leaves the EU there may be changes to areas including energy renewables, the nuclear industry and regulated carbon emissions.

This will affect your business if you are:

  • a UK operator of installations (for example power stations, oil refineries)
  • a UK-administered aircraft operator that currently participates in the EU Emissions Trading System (ETS)
  • engaged in any energy sector activities (for example oil and gas exploration and production operations)
  • a researcher or a research organisation in the field of nuclear fission research
  • a supplier, installer or generator of electricity, renewable energy or certain microgeneration technologies
  • working in the civil nuclear sector
  • the owner of a large industrial facility
  • an organisation currently registered on the UK’s Kyoto Protocol National Registry

What will stay the same if there is no deal

  • the Industrial Strategy, including the Grand Challenges and Sector Deals
  • the Climate Change Act, which will continue to apply across the whole of the UK
  • trading practices and enforcement standards on eco-design and energy labelling
  • the legislative regime for hydrocarbon licensing and environmental protection
  • electricity supplier Guarantees of Origin issued in all EU countries will continue to be recognised in the UK
  • microgeneration technology installer certificates issued by EEA states will also continue to be recognised in the UK
  • civil nuclear trade and cooperation will continue with the EU and third countries, including (where necessary) under bilateral agreements the UK has concluded
  • all requirements under both the Feed-in Tariffs Scheme and Contracts for Difference schemes and the Renewables Obligation
  • regulations for the monitoring, reporting and verification of greenhouse gases

What your business should consider

EU Emissions Trading System (EU ETS)

If the UK leaves the EU without a deal, then the EU rules governing the EU ETS would no longer apply to the UK.

Business emissions from 1 January 2019 onwards will no longer be covered by the EU ETS, so UK businesses would no longer need to surrender allowances for these emissions. Flights within the UK will no longer be covered by EU ETS obligations and UK-administered aircraft operators will no longer need to surrender allowances for flights within the UK, or flights from the UK to an EU or EEA country.

All stationary installations and UK registered aircraft operators currently in the EU ETS should continue to comply with the regulations for the monitoring, reporting and verification of greenhouse gases. These regulations will underlie the new UK Carbon Emissions Tax, which will apply to stationary installations currently participating in the EU ETS.

The UK Carbon Emissions Tax will support emissions reductions in the UK and will commence on 1 April 2019. The 2019 tax will be set at £16 per tonne of greenhouse gas emitted over and above an installation’s emissions allowance, which would be based on the installation’s free allowance allocation under the EU ETS. Stationary operators should be aware that the reporting period under the new tax will be 1 April 2019 to 31 December 2019. The UK government has no plans to introduce additional domestic policy to cover emissions from January to March 2019. Subject to state aid approval, the scheme to compensate energy-intensive industries for the indirect costs of the EU ETS would remain in place to compensate for the indirect emission costs of the new Carbon Emissions Tax.

Accounts administered by the UK in the EU ETS allowance registry and Kyoto Protocol registry will be blocked from the point of the UK leaving the EU. Operators wishing to retain access to their allowances after the withdrawal date should consider opening an account in another member state’s registry for this purpose, and should consider the amount of time this is likely to take. Clean Development Mechanism project developers with a UK Letter of Authority will also need a letter of approval from a different Designated National Authority.

The EU has suspended the UK’s ability to issue and auction EU ETS allowances in 2019. In line with this suspension, the UK government will not issue or auction any 2019 EU ETS allowances unless and until the suspension is lifted. Allowances issued by the UK in 2018 have not been identified with a country code and, as with all allowances issued previously by the UK government, they will be valid for EU ETS compliance and indistinguishable from allowances issued by other EU member states.

The UK electricity market

If the UK leaves the EU without a deal, the UK will no longer be able to trade with the European Union in the way it does today and there will be changes to the legal and regulatory framework, including the approach to monitoring the market.

UK market participants will need to register under the Regulation on Energy Market Integrity and Transparency (REMIT) with an EU regulatory authority for the purposes of market monitoring to avoid disruption. The majority of the existing REMIT regime will be maintained in Great Britain with minimal changes. Ofgem published an open letter with steps for market participants in Great Britain to take.

In the event of no deal, alternative trading arrangements across gas and electricity interconnectors will need to be developed. The UK government, Ofgem and where appropriate, the Northern Ireland Utility Regulator, are working to ensure new access rules are approved in Great Britain and are providing support to interconnectors engaging with EU Member State authorities. Market participants will need to make use of the alternative arrangements developed for purchase and sale of power cross-border.

Read further guidance on trading electricity if the UK leaves the EU without a deal.

The Single Electricity Market in Northern Ireland

We expect the SEM to continue to operate as it does today in a no deal scenario. The government will take all possible measures to maintain the Single Electricity Market and continue to work with the Irish Government and European Commission to seek agreement that the Single Electricity Market will continue. Northern Ireland electricity market participants should continue using the Single Electricity Market processes and arrangements. However, market participants should be aware of the risk that the Single Electricity Market may not be able to continue, in which case government and the Northern Ireland Utility Regulator will take action to seek to ensure continued security of supply and market stability.

Nuclear

If the UK leaves the EU without a deal, a new UK domestic nuclear safeguards regime will come into force. It will be run by the Office for Nuclear Regulation (ONR), which already regulates nuclear safety and nuclear security in the UK. If you are an operator in the UK civil nuclear sector, you will need to comply with this. These requirements are set out in the Nuclear Safeguards Regulations, which will be administered by ONR and published on its website.

In a no deal scenario, the UK would also cease to be a member of the Euratom Research & Training Programme or of Fusion for Energy. This would mean that UK organisations could no longer bid for International Thermonuclear Experimental Reactor contracts through Fusion for Energy. The UK government has guaranteed funding for any successful UK bids for Euratom projects that took place before the end of 2020, even if the project itself runs beyond the end of 2020.

In November 2018 the ITER Council confirmed that:

  • the contracts of current UK nationals directly employed by the ITER organisation will be considered valid until their contractually agreed end date
  • signed contracts/agreements with UK operators (including private companies, institutes and universities) will be considered valid until their contractually agreed end date

If you wish to continue to import nuclear material from the EU, you will need to get an import licence.

You may also need to seek re-approval from the Euratom Supply Agency for supply contracts for nuclear material, depending on when the contract was, or is due to be, concluded.

More information is available in the guidance on civil nuclear regulation if there’s no Brexit-deal.

Oil stocking

If the UK leaves the EU without a deal, UK oil stocks will no longer count towards EU obligations. You may need to consider purchasing tickets from EU countries to meet UK oil stocking obligations.

Guarantees of Origin, trading, importing and exporting, and standards

Renewable Guarantees of Origin and Guarantees of Origin for combined heat and power issued in EU countries will continue to be recognised in the UK after the UK leaves the EU, even in a no deal scenario.

However, UK-issued Renewable Guarantees of Origin and Guarantees of Origin for combined heat and power will no longer be recognised in the EU. If an existing contract with an EU countries’ electricity supplier or trader requires an EU-recognised Guarantee of Origin, it is possible that the contract could be compromised. This is a highly unlikely situation, but you may wish to check your existing contracts regardless.

Published 6 February 2019