- The Writer holds an MSc in Eurasian Political Economy & Energy from King’s College London and also an MA in European Studies from Sabancı University.
The U.K.’s planned departure from the EU, as one of the leading entities in shaping the EU’s energy and climate policy and a strong advocate for a pro-free market, will have wide implications for both sides once it happens. Over the past decade, energy and climate policies pursued in the U.K. and the EU have evolved, however, following the vote to leave the EU, the balance of power within the EU will likely shift, notably in areas concerning the emissions trading scheme, market liberalization and climate change.
As a forerunner of market liberalization, the U.K.’s experience in electricity as well as in gas with its progressive unbundling has paved the way for greater consumer choice, moving regulatory power away from the government to EU governing bodies. The U.K.’s 1989 Electricity Act set the standard that many EU states followed in liberalizing their energy markets. At EU level, electricity and gas experience has been followed closely and utilized so that three sets of directives aimed at unbundling gas and electricity companies in the EU have put into practice.
On the investment side, the U.K. has always been one of the major receivers of foreign direct investment (FDI). In 2013, the volume of FDI given to the U.K. ranked second after the United States and was almost double compared to other EU states. EU membership with access to the single market were the main reasons in attracting such a big FDI flow, which most likely will be lost because post-Brexit, market accession will be limited. Evidence of this has been seen just after the leave vote, with downgraded credit ratings for the U.K., fluctuations in sterling and an increased risk premium for the country. This suggests that the degree of continuity in energy investments are at risk, and will likely negatively affect energy investment decisions in the future.
The extent to which Brexit could affect the EU’s energy policy agenda greatly hinges on the choice of exit model that will be agreed between the parties. In the run up to the referendum, several models for Brexit were discussed, but given that no full member has previously left the European Union, there is no precedent to be followed. Unless the U.K. comes up with a new alternative model that is tailored to this particular case during negotiations, the most rational and sound options from all available options for the U.K. appears to be either the Swiss or Norwegian models. However, each option has trade-offs.
Climate and energy policies would not be treated as separate agenda items during negotiations and would possibly fall under the overall package. Public and political sentiments rather than a model that provides an extensive level of continuity would most likely determine the energy agenda. Particularly for those who oppose the U.K.’s continued EU membership, models proving highest levels of integration as well as market access to the Union would present a challenge to negotiators and politicians who could have difficulties in convincing the hard Brexiteers.
Norway and Switzerland are not member states and have different levels of economic and political integration with the EU. Negotiations between the EU and the U.K. will not be easy both sides. For instance, completion of the bilateral agreement with Switzerland took twelve years. In another recently agreed trade agreement – the Comprehensive Economic and Trade Agreement with Canada, negotiations took seven years and the agreement has yet to be ratified.
In the Norwegian model, Norway fully integrates with the European Economic Area (EEA) as well as the European Free Trade Association (EFTA), which allows and guarantee free movement of goods, services, capital and people. Energy- related issue falls under the EEA. In drafting the EU legislation, the EEA states have no role or say and have limited influence over institutions. Norway also has no voting power and has to adopt related legislation while contributing to the EU budget.
In the Swiss model, however, there is no membership to the EEA but the country makes a relatively smaller contribution to the EU budget. Currently, Switzerland is a member of the EFTA and signs bilateral sector-specific agreements with the EU. In addition, Switzerland is not automatically obliged to conform to the EU’s energy and climate change policy.
While the Norwegian model would continue to provide long-term access to the market, however, the Swiss model will not be able to be put into force in the short to medium-term. Therefore, it seems logical to opt either for the Norwegian model or create a sui generis model mutually agreed by the EU and the U.K. Following the leave vote, many commentators and experts claimed that one of the major pro-market voices in the EU would be lost, shifting the gravity of power and responsibility among the remaining EU states.
If the Swiss model that would allow for greater flexibility is of major concern for the top negotiators, the Norwegian model would ensure continuity of the EU’s standard but with little influence for the U.K. to set these standards.
Overall, Brexit increased uncertainty in the EU, paved the way for greater fragmentation among EU states, and weakened the EU’s power on global issues. All available models have their trade-offs. While the Norwegian model provides greater access to the EU, the Swiss model offers greater sovereignty over policy decisions with which the U.K.’s energy agenda would be bound.
Because of the Brexit, the EU has lost its strongest pro-free market voice, which historically balanced states that had more of a tendency towards a statist system. However, the U.K. outside the EU would result in a cut from the EU continent, which may not be the best option for its overall interests.
- Opinions expressed in this piece are the author’s own and do not necessarily reflect Anadolu Agency's editorial policy.