The EU’s internal energy market ensures the security of supply of electricity, gas and oil. It also enables the free flow of energy throughout the EU based on adequate infrastructure and without technical or regulatory barriers.
Within this market, EU and UK energy markets were deeply interlinked, thanks to interconnectors (electricity cables and gas pipelines) running between Great Britain and France, the Netherlands, Belgium, Ireland and Northern Ireland. Today, the UK is a net importer of energy, with the EU currently providing some 5-10% of its electricity supply and 12% of its gas needs.
What changes on 1 January 2021?
On 1 January 2021, the UK will leave the EU’s internal energy market.
Energy trades over electricity interconnectors between the EU and Great Britain will then no longer be managed through existing Single Market tools, such as market coupling, as they are reserved to EU Member States.
Only Northern Ireland will maintain the Single Electricity Market with Ireland as provided by the Withdrawal Agreement.
The UK will also no longer be part of the EU’s joint action against climate change. It will no longer benefit from the financial support EU Member States receive to develop and deploy low-carbon technologies, or for adaption measures. It will leave the EU’s Emissions Trading Scheme (EU ETS) – the EU’s flagship cap-and-trade tool for reducing greenhouse gas emissions – and will be excluded from its effort-sharing arrangements which allow Member States to share the burden of meeting decarbonisation targets.
Furthermore, the UK will leave the European Atomic Energy Community (Euratom), the Single Market for trade in nuclear materials and technology, which ensures the security of atomic energy supply and enables the pooling of knowledge, research, infrastructure and funding of nuclear energy.
What is covered by the Trade and Cooperation Agreement?
The EU and the UK have agreed to establish a new framework for their future cooperation in the energy field, ensuring the efficiency of their cross-border trading. This framework is underpinned by strong provisions in the Agreement aimed at creating a robust level playing field.
The Agreement also establishes an ambitious framework for cooperation in the fight against climate change, as well as provisions for cooperation in the development of offshore energy, with a clear focus on the North Sea.
A separate agreement between Euratom and the UK on the safe and peaceful uses of nuclear energy provides for wide-ranging cooperation on nuclear safety and peaceful uses of nuclear energy, underpinned by assurances that both sides will comply with international non-proliferation obligations and will not lower their current level of nuclear safety standards.
Will energy trading be as efficient as before?
The EU has an interest in the continuation of cost-efficient, clean and secure supplies of energy that are essential to the functioning of EU economies.
As of 1 January 2021, the UK will no longer participate in the internal energy market of the EU, and will have to trade with the EU on third-country terms. Nevertheless, the Agreement foresees the possibility to develop, over time, separate arrangements for trade over interconnectors, based on a coupling model [multi-region loose volume coupling].
This model is different from and less efficient than the market coupling used within the EU. However, within the constraints applicable to energy trade between the EU and a third country, the model should still allow to maximise benefits for both the Union and the UK in the trade of electricity over interconnectors.
The Agreement also includes:
- provisions guaranteeing non-discriminatory access to energy transport infrastructure and a predictable and efficient use of electricity and gas interconnectors. These should allow energy providers to trade efficiently and competitively across the Channel;
- a new framework for cooperation between EU and UK Transmission System Operators (TSOs) and energy regulators (given that the UK will no longer participate, inter alia, in the European Network of Transmission System Operators for Electricity and Gas);
- provisions regulating subsidies to the energy sector to ensure they will not be used to distort competition;
- provisions committing the Parties to ensuring the security of supply, particularly relevant for Ireland, which will remain isolated from the EU internal energy market until new interconnections become operational.
What measures are foreseen to ensure a robust Level Playing Field in the energy sector?
On the one hand, the Agreement’s horizontal level playing field provisions, including those on social and environmental issues, will apply to the energy sector.
On the other, the Agreement also includes specific provisions aimed at creating a robust level playing field in the energy sector.
In particular, it contains principles and provisions to regulate subsidies to the energy sector, as well as to promote renewable sources in a non-discriminatory manner.
It also includes a prohibition on export restrictions (including export monopolies and export licences) and on dual pricing of energy goods.
In addition, it sets out provisions on authorisations for exploration and production, which are aimed at ensuring the respect by both parties of important safety and environmental standards.
All these measures are aimed at encouraging open and fair energy trade and cross-border energy investments and ensuring that a proper level playing field applies to the energy sector.
What did you agree with regard to offshore renewable energy?
The Agreement contains provisions for cooperation in the development of offshore energy, with a clear focus on the North Sea. The EU and the UK will be able to continue to cooperate in this area, building on the North Sea Energy Cooperation, a platform developed by the EU, a number of its Member States and Norway to develop the use of renewables in this region. The scope of the cooperation in the area of off-shore energy envisaged by the Agreement reflects the EU’s Strategy on Offshore Renewable Energy, as presented on 19 November 2020, in which the Commission proposes to increase Europe’s offshore wind capacity to at least 60 GW by 2030 and to 300 GW by 2050.
Will the UK still be bound by EU climate change targets and policies?
The UK will define its own climate change targets and policies.
However, the Agreement establishes an ambitious framework for cooperation in the fight against climate change.
Under the Agreement, both sides agree that the fight against climate change, and in particular the 2015 Paris Agreement on climate, constitute an essential element of their partnership. Any violation of this essential element by one Party gives the other Party the right to terminate or suspend all or parts of the Agreement.
The EU and the UK also reaffirm their ambition to achieve economy-wide climate neutrality by 2050.
A strong principle of non-regression, including on carbon pricing, is included in the Agreement, ensuring that the current level of climate protection in the EU and in the UK will continue to be upheld. This means that both sides have agreed to ensure that, at a minimum, the level of climate protection in place at the end of the transition period shall be guaranteed also in the future. Moreover, each Party also committed to seeking to increase its levels of protection over time.
Finally, under the aviation title, both sides also agreed not to prohibit the taxation of fuel supplied to aircraft on a discriminatory basis, as this would go counter to ensuring a level playing field and meeting climate-neutrality targets.
Will the UK continue to participate in the EU Emissions Trading System (ETS)?
The UK committed to implementing a system of carbon pricing as of 1 January 2021. The EU and UK committed to ensure that their carbon-pricing systems cover greenhouse gas emissions from electricity generation, heat generation, industry and aviation.
The UK will no longer participate in the EU’s Emissions Trading System, but the Parties will give serious consideration to linking their respective carbon pricing systems in a way that preserves the integrity of these systems and provides for the possibility to increase their effectiveness, for instance by adding further sectors, such as buildings. This would be subject to an agreement to be negotiated separately in the future.
Separate Agreement: Safe and peaceful uses of nuclear energy
A separate agreement between Euratom and the UK provides for wide-ranging cooperation on safe and peaceful uses of nuclear energy, underpinned by commitments by both sides to comply with international non-proliferation obligations and uphold a high level of nuclear safety standards.
This Agreement enables:
- the supply and transfer of nuclear material, non-nuclear material, technology and equipment;
- trade and commercial cooperation relating to the nuclear fuel cycle;
- cooperation in the safe management of spent fuel and radioactive waste;
- nuclear safety and radiation protection;
- use of radioisotopes and radiation in agriculture, industry and medicine;
- geological and geophysical exploration;
- development, production, further processing and use of uranium resources.
The Agreement also allows for continued cooperation between the EU and the UK in the European Community Urgent Radiological Information Exchange (ECURIE) or the European Radiological Data Exchange Platform (EURDEP). This will make early notification and reliable radiological information available to EU Member States and to the UK, in case of nuclear accidents. It will also allow rapid, coordinated responses to radiological emergencies by sharing real-time data.
Finally, this Agreement enshrines a clear commitment by both parties not to reduce their current standards of nuclear safety, as well as a joint commitment to cooperating internationally to ensure the implementation, and promote the improvement of, international nuclear safety standards.
Why did you conclude a separate agreement on nuclear safety and not include the provisions in the Trade and Cooperation Agreement?
The Euratom Community has negotiated separate agreements on the peaceful uses of nuclear energy with a number of third countries based on the Euratom Treaty, and a well-established pattern in this sense exists both in the Community and at international level.
Moreover, Euratom possesses specific competences linked to the substance of these type of agreements, for which the specific and separate Euratom legal basis is necessary.
How will disputes be managed and what remedies are foreseen in case of non-compliance in the context of the separate agreement on nuclear safety?
As per other agreements in the areas of nuclear safety and peaceful uses, disputes between the Parties are to be addressed mostly via consultations, with the possibility to suspend or terminate the agreement in case of non-compliance.