EU Energy Competence

The EU’s competence in the area of energy includes

  • energy policy,
  • the functioning of energy markets,
  • security of supply,
  • energy efficiency and
  • promoting interconnection.

The EU competence is subject to the member states’ rights to determine the condition for exploiting its energy resources, the choice between different energy sources and the general structure of its energy supply.

Energy Policy

The EU’s current energy policy is being implemented by the Commission pursuant to the Third Energy Package 2009 and the Commission’s 2015 Energy Union package. The framework has five elements,

  • energy security
  • fully integrated energy market,
  • energy efficiency,
  • carbon reduction,
  • research, innovation and competitiveness.

The European energy policy has developed over a number of liberalisation packages through the  1990’s and the first decade of this century.

The UK must consider how its energy market will interact with the EU internal market in Brexit negotiations. Interconnected regulations must be renegotiated.

Energy efficiency, labelling and eco-design principles are likely to be maintained.

Investor confidence in large energy projects is important, including access to finance and general economic stability.

Energy is increasingly is multinational in nature.

The EU Large Combustion Plant Directive and its successor,  the Industrial Emissions Directive require e new power plants to comply stricter emission requirements in relation to pollution. Older plants must close or improve their standards by 2015 and 2023 respectively.

Markets & Infrastructure

There has been increasing interconnectivity with Europe in relation to energy infrastructure and the energy market. The UK government has generally sought to liberalise and develop cross-border energy markets. As in other sectors, it is likely that the UK will need to negotiate a partnership with the EU in relation to energy. This is likely to require compliance with EU standards and rules.

The EU Energy Package seeks to liberalise the European gas and electricity markets. Unbundling requires separate ownership and operation of electricity and gas transmission systems from generation production and supply interests, transparency rules and a level playing field.

State Aid

The UK Government has historically supported market-based interventions into energy markets including coupling.

EU state aid rules apply to support for energy. Similar criteria are likely to continue.

Subsidies must comply with WTO rules which are similar in substance but much less detailed and effective than the EU state aid rules.

Climate Change & Renewable Energy

The existing renewable energy use targets are set by 2009 directive. They implement international obligations. Renewable energy use must be 20 percent of total use by 2020. The renewable electricity share of total generation in 2015 was 22.3 percent. Overall renewable energy use in the UK is 8.3 percent. In order to reach the 20 percent target, the electricity target will need to be at 30 percent by 2020.

The Emissions Trading Scheme sets a  decreasing cap for emissions from energy-intensive sectors. Energy emissions are auctioned and can be traded on the open market. Successive phases have reduced the overall available emissions.

There was an overallocation of emissions in Phase 2 and prices collapsed due to the recession. The EU is taking measures to reduce the supply of allowances. The UK introduced a floor price for carbon by amending the Climate Change Levy to apply to fossil fuels for energy generation.

When the EUA falls below a certain level, revenue from the EUA and carbon floor price are retained by the national governments. In Budget 2016 the government stated that the £18 pounds per ton rate would be maintained and uprated for inflation in 2020.

Following the Paris Climate Agreement, there is an additional impetus for the expansion of emissions trading. The UK will  remain bound by the Climate Change Act targets post Brexit, which are the subject of an international agreement.

The UK currently negotiates in the United Nations Conference on Climate Change through the EU. It sets its internal targets together with those of other EU states in an overall EU target. Brexit will require the apportionment of the targets.UK industry is likely to wish to participate in the EU /EEA emissions trading scheme.

The Paris Agreement was signed by the UK in April 2016 and is to be ratified.

Phasing out Plants and Investment

EU Industrial Emissions Directive requires environmental permits subject to conditions which seek to reduce emissions and discharges into the environment and the generation of waste. This has an impact on coal fired stations which are expected to a close by 2023.

It is not clear to what extent these provisions will continue to apply. In principle, the UK could abandon the EU renewable energy targets under the EU renewable energy directive and sets its own criteria for phasing out energy support schemes.

A number of EU initiatives provide for investment in energy infrastructure. The European Investment Bank is an important source of financing. Provided €3 billion of loans for the energy projects, half of its total UK investment.

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