Negotiations between the UK and EU following the Brexit do not bode particularly well for either party’s transition to a low carbon economy, writes Dr Anthony Horton.
IN THE WAKE of the Brexit vote, I have chosen to devote this article to discussing what it means for environmental policy in the United Kingdom (UK).
In conducting my research, I have looked at newspapers and websites, read reports and followed the conversation on social media.
Distilling all of this information, it’s apparent that while there is some uncertainty as to the path along which the UK and EU must travel over the next two years, one thing is certain — the environmental policy implications of the Brexit must be given priority in the negotiations between the respective parties regarding the UKs exit from the EU.
A report entitled ‘Brexit – the Implications for UK Environmental Policy and Regulation’ published in March this year by the Institute for European Environmental Policy (IEEP), outlines a number of important factors needing to be debated in order for the full implications of future UK environmental and climate policies to be understood.
According to the IEEP, the UK has played a significant role in environmental management in the EU – particularly with respect to water pollution and the development of an integrated approach to controlling industrial emissions. The UK has also actively advocated more ambitious greenhouse gas (GHG) emissions reductions and the building of a lower carbon economy.
The report discusses four main environmental policy consequences of the UK leaving the EU:
- The UK can no longer make decisions on EU environmental policies. This means the UK loses significant influence with respect to environmental issues.
- The UK can no longer influence the future direction of policies associated with the Seventh Environmental Action Program — the Europe 2020 program for smart, sustainable and inclusive growth or decisions regarding medium term climate and energy targets.
- The UK would participate in international negotiations on the environment (for example the UN Framework Convention on Climate Change) as a sovereign nation rather than as a EU member. In the lead up to the Paris Climate Change conference (COP21) in December last year, the EU and its 28 Member states (including the UK) committed to a target of a minimum 40 per cent reduction in greenhouse gas (GHG) emissions by 2030 compared to 1990 levels in its Intended Nationally Determined Contribution (INDC)
- The Common Agricultural Policy (CAP) and Common Fisheries Policy (CFP) would no longer apply; however, the UK would have to introduce equivalent policies. These policies would have legislative, trade and economic implications for each country in the UK. There would also be implications for terrestrial and marine environmental management.
As a result of its vote to leave the EU, the UK now faces a period of negotiation with the remaining 27 members of the EU that may last at least two years. There are many uncertainties as to how these negotiations will proceed, on the basis that there is no precedent. The one certainty is that the negotiations will be based on Article 50 of the Treaty on European Union. During these negotiations, the UK remains a member with voting rights and current EU environmental and climate legislation and policies would still apply in the UK.
Once the UK leaves the EU, the UK relinquishes its power to determine any EU environmental policy or participate in any international meetings as a member of the EU. If it negotiated membership of the European Economic Area (EEA) and joins current members Norway, Iceland and Liechtenstein, legislative measures covering pollution control, chemicals and waste management would continue to apply.
If the UK stood alone rather than joining the EEA, a majority of the EU legislation would no longer apply. Important exceptions in this case would be product standards and other requirements that underpin the exportation of products from the UK into the EU. Future UK governments would not have to obey EU environmental regulations if they believed a competitive advantage could be gained from doing so.
A minimum two-year period of negotiations between the UK and EU following the Brexit do not bode particularly well for either party’s transition to a low carbon economy. According to a report published by the Advisory Scientific Community of the European Systemic Risk Board (ESRB) in February this year, the right timing of the transition to a low carbon economy in the EU is crucial. The report entitled ‘Too late, too sudden: Transition to a low-carbon economy and systemic risk’ describes how while starting the transition too soon would still allow for economic costs to be effectively managed, greenhouse gas (GHG) emissions would increase in the medium term unless additional emissions reduction policies are implemented.
Leave it too late, and the transition to a low carbon economy would be need to abrupt and both the economic and environmental costs would be significantly higher than in a slow transition. The ideal scenario would be to commence as soon as possible and implement additional emissions reduction policies so economic costs can be managed while emissions reductions can be achieved.
Leaving the transition too late will expose the economies of EU member states to three risks as follows:
1) A sudden transition away from fossil fuel energy could significantly harm Gross Domestic Product (GDP), as the demand for alternative energy sources could dramatically exceed supply. In this scenario the cost of those alternative sources could increase dramatically.
2) The market and investors could value carbon intensive assets differently. In this scenario the most carbon intensive assets are at high risk of becoming stranded.
3) The frequency of natural disasters could increase as a result of climate change. In this scenario the liabilities carried by general insurers and reinsurers would increase.
The Paris Climate Change conference held in November 2015 demonstrated that there is a need for decisive policy action on climate change if the global average temperature increase is to be kept at a maximum of 2°C. Beyond 2°C, the consequences could be irreversible and catastrophic. While pledges to reduce emissions over the coming decades were made in Paris with conviction, there was far less conviction regarding the timing and speed of these emissions reductions.
According to the ESRB report, a late transition to a low carbon economy is likely based on an extrapolation of the emission reduction pledges made by countries attending the Paris Climate Change conference.
If EU member governments implement their pledges early, a "soft landing" is possible. In a soft landing scenario, the transition to a low carbon economy would be planned, managed and gradual, allowing sufficient time for the replacement of fossil fuel infrastructure without driving energy costs unsustainably high. Carbon pricing and the higher marginal cost of renewable energy may result in a short-term energy price increase however the transition to a low carbon economy would not be adversely impacted. Policy innovations such as a carbon tax for fossil fuels would incentivise a shift to renewable energy.
In the medium to long-term under a soft landing, energy prices are likely to decrease as the production of renewable energy becomes more efficient. A transition to a low carbon economy could have a positive effect on EU member economies. This positive effect is on the basis of new technologies arising from innovation, new jobs being created and lower production costs.
Starting too late would require the sudden implementation of constraints on the use of carbon intensive energy and could result in a "hard landing". In this scenario, energy prices may spike sharply. There may not be sufficient energy available for EU citizens given that technologies such as renewables may not be market ready. Fossil fuel energy infrastructure and companies with carbon intensive resources or technologies may also be stranded. Policy interventions at such a late stage could require extremely dramatic emissions reductions across the EU. In addition, coordinating emission reductions on a global scale is difficult at the best of times, so attempting to coordinate with other countries in a short time period would be extremely difficult.
Australia’s Climate Change Institute issued a statement last week regarding the status of the Paris Agreement given the Brexit vote in the UK. According to the Institute’s statement, the UK has signed the Paris Agreement and no further negotiations will be held.
Once the UK leaves the EU, the UK will be required to submit its own target, and the EU will need to submit a revised target. The EU has not yet signed the Paris Agreement as it needs to work through the issues with all remaining members. Fifty countries have committed to ratifying the Agreement this year or early next year.
The UK already has its own target of a 50 per cent emissions reduction based on 1990 levels by 2025, which is stronger than that of the EU and is detailed in the UK Climate Change Act 2008.
The optimist in me likes to think that now the UK has signed the Paris Agreement, the effort they need to apply over the next two years of negotiation with the EU regarding their exit will not come at the cost of the climate change action they will be required to implement under the agreement. The realist in me, however, knows that given the extent of the economic loss experienced by UK stock markets following the announcement, environmental policies may not be very high on the list of domestic investor priorities within the UK — despite the commitment shown by the UK Government in signing the Paris Agreement.
In addition to domestic investor uncertainty, it is reasonable to question the extent to which international investor appetite will be tempered by the Brexit vote. A number of my previous articles have discussed the important roles that strong and enduring policy signals from governments play in encouraging investors to fund renewable energy and other projects as part of a transition to a low carbon economy.
Thus it is clear to me that to maintain progress towards low carbon economies in the UK and EU, the environmental policy implications of Brexit must be given priority in the exit negotiations.
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia License
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