Lobby spread 1
Policy & Regulation
Policy & Regulation
Referendum special report
What might ‘Out’ look like? If, come 10pm on 23 June, the British public has voted in favour of leaving the European Union, the next – and immediately pressing – question will be what ‘out’ path will the UK follow?
UK contributions to the EU budget
25
U
development of those rules. This is described by National Grid director of UK LNG Jon Butterworth as “not having a chair at the table but standing at the back of the room”. To further hamper the UK utilities – as well as wider UK plc in general – a Policy Network report states that the nature of this type of agreement and bureaucratic delays in rule adoption would place “companies at a competitive disadvantage”. Under a similar type of settlement the UK could join the European Energy Community, as a number of non-EU Balkan states have, but the same situation applies, with these nations also having to “adopt en masse” EU laws while having no say in their creation, according to Froggatt.
The Swiss model
I
f the UK followed the Swiss model, the prime minister and the government would be tasked with negotiating a series of deals with the EU on specific policies. However, negotiating with the EU, especially on access to the single energy market, is neither quick nor straightforward. Switzerland began its negotiations in 2007 and these were temporarily suspended in 2014 because of a separate dispute over immigration. University College London professor of international energy and climate change policy Michael Grubb says the talks are stuck in gridlock and are “actually quite a mess”,
10 | 17th - 23rd June 2016 | UTILITY WEEK
with the European Union saying “flatly that is not on offer” to Britain. He adds that the UK would be better off in the single energy market” but that would inevitably mean giving up control over relevant policies. The nature of the Swiss option also raises similar questions to that of Norway over the amount of independence the UK would have. Switzerland keeps its laws in alignment with those of the EU to ensure its businesses are able to trade with member states, effectively meaning the country adopts EU laws without a say in their development. The Swiss also contribute to the EU budget.
20
The UK has been a net contributor to the EU budget in 42 out of its 43 years of membership, contributing a total of £496 billion in real terms gross, and £177 billion net of receipts and the budget rebate. The UK has received an abatement, or rebate, on its budget contribution since 1985, worth £4.9 billion in 2015 and £116 billion (in real terms) since it was first agreed. Source: House of Commons briefing paper - Exiting the EU: impact in key UK policy areas
15
“The energy’s sector’s relationship with Europe is changing regardless.”
abatement (rebate) Public sector receipts Net contributions
10 5 0 -5 -10 -15
The WTO option
I
f the UK followed this route, it would aim to strike its own deals with the rest of the world, independently from the EU. However, this move is fraught with risk. If the UK was unable to agree any international trade deals, UK exports would be subject to tariffs. The chief danger is the amount of time it takes to strike these deals. Canada has spent seven years negotiating with the EU, and that deal still has to be ratified by the European Council and Parliament. Added to this, US president Barack Obama stated that Britain would be at the “back of the queue” in any trade deal with the US if the country chose to leave the EU. The UK could also end up sitting outside the single energy market, and according to shadow energy minister Alan Whitehead, Britain would have to ensure sufficient domestic generating capacity or potentially pay more for the electricity and gas imported to the UK through the interconnectors. Energy minister Andrea Leadsom has said that remaining in the EU would limit the UK’s ability to strike gas deals with non-EU nations under forthcoming European Commission plans. Having the ability to agree independent deals would help increase the nation’s energy security.
1973 1978 1983 1988 1993 1998 2003 2008 2013
If vote Leave gains popular support and the UK heads towards Brexit, the decision then will be how far out of the EU the country goes. This would affect the amount of autonomy Britain would have, and its access to the European single energy market, as well as other energy markets. In the event of an Out vote, one thing is clear: it will be a long and complex procedure while the UK finds its new place in relation to Europe.
Exit Greenland The first – and so far the only – country to have left the EU (in any of its iterations) is Greenland. The country joined the European Economic Community (EEC) in 1973 when Denmark, of which Greenland is a territory, joined. Greenland gained home rule in 1979, and in 1982 a referendum on its membership of the EEC was held. The country’s 56,000 inhabitants voted 53 per cent in favour of leaving. The territory left the EEC in 1985 after two years negotiating the Greenland Treaty. Since departing the EEC (now the EU), Greenland remains subject to EU treaties through the Association of the Overseas Countries and Territories of the European Union, and retains some integration with the EU internal market via association agreements. The Greenlandic people are also citizens of the EU and can
Opinion David Smith, Chief executive, ENA
Gross contributions
Out or out-out
The Norwegian model nder this model, the UK would become a member of the European Economic Area (EEA). Chatham House senior research fellow for energy, environment and resources Anthony Froggatt, says this would be the “least disruptive” but the move would not gain Britain more independence because “Norway just adopts the European legislation”. This would include legislation surrounding the single energy market, as well as environmental frameworks – such as the EU bathing and drinking water directives. Rather than gaining more say over rules and regulations, the UK would still have to contribute to the EU budget, and adopt twothirds of EU rules – as Norway currently does – without having any input into the
UK contributions to, and receipts from, the EU budget in real terms, £bn 2015 prices, 1973-2015
be granted the right to vote and participate in elections of the European Parliament, but subject to conditions defined by other member states. Despite its exit, Greenland is heavily dependent on EU funding. Between 2014 and 2020 the EU will have given Greenland €217.8 million as part of a fisheries agreement, which represents 2 per cent of the country’s overall annual revenue. The EU is also Greenland’s main trading partner, accounting for 92.7 per cent of exports and 68.9 per cent of imports. The example presented by Greenland’s exit more than three decades ago is that while an exit is possible, independence from the EU proves to be difficult in practice.
W
ith the referendum just a few days away, the debate over the UK’s membership of the EU is reaching its peak. The majority of the discussion, including in the energy sector, has focused on the pros and cons of EU membership, weighed against the possible implications should we vote to leave. But the referendum also provides an opportunity to consider the role of UK utilities within Europe and how that may change, whatever the outcome after 23 June. The consequences of a vote to leave, across all sectors of the economy, would depend on the deal we strike with the EU in the two-year negotiating window that would follow the referendum. There is a debate over whether we should pursue a Norwegian, Swiss or bespoke model, but in essence there would be a balance between the level of independence we have and the economic benefit of access to the single market. That balance would need to be considered and negotiated. In terms of energy, this could take time. Our industry has not featured prominently in the referendum debate, so it is likely that other areas would be prioritised by government in its negotiations. But whatever the outcome of the referendum, there is no status quo option for the UK in terms of its relationship with Europe and how this will apply to the energy sector. If we remain in the EU we have an opportunity to consider how UK utilities engage at the European level to influence directives which have a significant domestic impact for businesses and consumers. National Grid has always taken a strong lead in this area, with the directives impacting at the transmission level. DNOs and GDNs will need to increase their engagement as EU legislation becomes more focused on the distribution level. We are already seeing the Commission focus on the transition to distribution systems operator and a new heating and cooling strategy as vital components of its energy package. Whatever the outcome of the referendum, the relationship between UK energy companies and Europe will change and our sector will need to take advantage of the opportunities which arise. Utility Week Lobby produced in partnership with:
UTILITY WEEK | 17th - 23rd June 2016 | 11
Policy & Regulation
Referendum special report
What might ‘Out’ look like? If, come 10pm on 23 June, the British public has voted in favour of leaving the European Union, the next – and immediately pressing – question will be what ‘out’ path will the UK follow?
UK contributions to the EU budget
25
U
development of those rules. This is described by National Grid director of UK LNG Jon Butterworth as “not having a chair at the table but standing at the back of the room”. To further hamper the UK utilities – as well as wider UK plc in general – a Policy Network report states that the nature of this type of agreement and bureaucratic delays in rule adoption would place “companies at a competitive disadvantage”. Under a similar type of settlement the UK could join the European Energy Community, as a number of non-EU Balkan states have, but the same situation applies, with these nations also having to “adopt en masse” EU laws while having no say in their creation, according to Froggatt.
The Swiss model
I
f the UK followed the Swiss model, the prime minister and the government would be tasked with negotiating a series of deals with the EU on specific policies. However, negotiating with the EU, especially on access to the single energy market, is neither quick nor straightforward. Switzerland began its negotiations in 2007 and these were temporarily suspended in 2014 because of a separate dispute over immigration. University College London professor of international energy and climate change policy Michael Grubb says the talks are stuck in gridlock and are “actually quite a mess”,
10 | 17th - 23rd June 2016 | UTILITY WEEK
with the European Union saying “flatly that is not on offer” to Britain. He adds that the UK would be better off in the single energy market” but that would inevitably mean giving up control over relevant policies. The nature of the Swiss option also raises similar questions to that of Norway over the amount of independence the UK would have. Switzerland keeps its laws in alignment with those of the EU to ensure its businesses are able to trade with member states, effectively meaning the country adopts EU laws without a say in their development. The Swiss also contribute to the EU budget.
20
The UK has been a net contributor to the EU budget in 42 out of its 43 years of membership, contributing a total of £496 billion in real terms gross, and £177 billion net of receipts and the budget rebate. The UK has received an abatement, or rebate, on its budget contribution since 1985, worth £4.9 billion in 2015 and £116 billion (in real terms) since it was first agreed. Source: House of Commons briefing paper - Exiting the EU: impact in key UK policy areas
15
“The energy’s sector’s relationship with Europe is changing regardless.”
abatement (rebate) Public sector receipts Net contributions
10 5 0 -5 -10 -15
The WTO option
I
f the UK followed this route, it would aim to strike its own deals with the rest of the world, independently from the EU. However, this move is fraught with risk. If the UK was unable to agree any international trade deals, UK exports would be subject to tariffs. The chief danger is the amount of time it takes to strike these deals. Canada has spent seven years negotiating with the EU, and that deal still has to be ratified by the European Council and Parliament. Added to this, US president Barack Obama stated that Britain would be at the “back of the queue” in any trade deal with the US if the country chose to leave the EU. The UK could also end up sitting outside the single energy market, and according to shadow energy minister Alan Whitehead, Britain would have to ensure sufficient domestic generating capacity or potentially pay more for the electricity and gas imported to the UK through the interconnectors. Energy minister Andrea Leadsom has said that remaining in the EU would limit the UK’s ability to strike gas deals with non-EU nations under forthcoming European Commission plans. Having the ability to agree independent deals would help increase the nation’s energy security.
1973 1978 1983 1988 1993 1998 2003 2008 2013
If vote Leave gains popular support and the UK heads towards Brexit, the decision then will be how far out of the EU the country goes. This would affect the amount of autonomy Britain would have, and its access to the European single energy market, as well as other energy markets. In the event of an Out vote, one thing is clear: it will be a long and complex procedure while the UK finds its new place in relation to Europe.
Exit Greenland The first – and so far the only – country to have left the EU (in any of its iterations) is Greenland. The country joined the European Economic Community (EEC) in 1973 when Denmark, of which Greenland is a territory, joined. Greenland gained home rule in 1979, and in 1982 a referendum on its membership of the EEC was held. The country’s 56,000 inhabitants voted 53 per cent in favour of leaving. The territory left the EEC in 1985 after two years negotiating the Greenland Treaty. Since departing the EEC (now the EU), Greenland remains subject to EU treaties through the Association of the Overseas Countries and Territories of the European Union, and retains some integration with the EU internal market via association agreements. The Greenlandic people are also citizens of the EU and can
Opinion David Smith, Chief executive, ENA
Gross contributions
Out or out-out
The Norwegian model nder this model, the UK would become a member of the European Economic Area (EEA). Chatham House senior research fellow for energy, environment and resources Anthony Froggatt, says this would be the “least disruptive” but the move would not gain Britain more independence because “Norway just adopts the European legislation”. This would include legislation surrounding the single energy market, as well as environmental frameworks – such as the EU bathing and drinking water directives. Rather than gaining more say over rules and regulations, the UK would still have to contribute to the EU budget, and adopt twothirds of EU rules – as Norway currently does – without having any input into the
UK contributions to, and receipts from, the EU budget in real terms, £bn 2015 prices, 1973-2015
be granted the right to vote and participate in elections of the European Parliament, but subject to conditions defined by other member states. Despite its exit, Greenland is heavily dependent on EU funding. Between 2014 and 2020 the EU will have given Greenland €217.8 million as part of a fisheries agreement, which represents 2 per cent of the country’s overall annual revenue. The EU is also Greenland’s main trading partner, accounting for 92.7 per cent of exports and 68.9 per cent of imports. The example presented by Greenland’s exit more than three decades ago is that while an exit is possible, independence from the EU proves to be difficult in practice.
W
ith the referendum just a few days away, the debate over the UK’s membership of the EU is reaching its peak. The majority of the discussion, including in the energy sector, has focused on the pros and cons of EU membership, weighed against the possible implications should we vote to leave. But the referendum also provides an opportunity to consider the role of UK utilities within Europe and how that may change, whatever the outcome after 23 June. The consequences of a vote to leave, across all sectors of the economy, would depend on the deal we strike with the EU in the two-year negotiating window that would follow the referendum. There is a debate over whether we should pursue a Norwegian, Swiss or bespoke model, but in essence there would be a balance between the level of independence we have and the economic benefit of access to the single market. That balance would need to be considered and negotiated. In terms of energy, this could take time. Our industry has not featured prominently in the referendum debate, so it is likely that other areas would be prioritised by government in its negotiations. But whatever the outcome of the referendum, there is no status quo option for the UK in terms of its relationship with Europe and how this will apply to the energy sector. If we remain in the EU we have an opportunity to consider how UK utilities engage at the European level to influence directives which have a significant domestic impact for businesses and consumers. National Grid has always taken a strong lead in this area, with the directives impacting at the transmission level. DNOs and GDNs will need to increase their engagement as EU legislation becomes more focused on the distribution level. We are already seeing the Commission focus on the transition to distribution systems operator and a new heating and cooling strategy as vital components of its energy package. Whatever the outcome of the referendum, the relationship between UK energy companies and Europe will change and our sector will need to take advantage of the opportunities which arise. Utility Week Lobby produced in partnership with:
UTILITY WEEK | 17th - 23rd June 2016 | 11
