What you need to know about the deal and energy (including nuclear)

What you need to know:

1. The big picture – The UK has left the EU's internal energy market but will continue to have access until 2026. Energy is being used as political leverage, with annual renegotiation of UK/EU fishing rights and continued UK access to the EU internal energy market access to start from 2026. There are risks to both sides of ceasing to co-operate on energy security and decarbonisation however.
2. Climate Change – The UK will set its own climate change targets and policies but the UK and the EU have reaffirmed their ambition achieve net zero emissions by 2050 and the TCA establishes a framework for cooperation on renewable energy and tackling climate change including a provision that would trigger a right to terminate or suspend the TCA if either side breaches its commitment to the Paris Agreement on climate change.
3. Greenhouse gas emissions trading – The deal confirms the UK’s exit from the EU ETS, and its replacement with a standalone UK ETS regime, which will be more ambitious with an immediate 5% reduction in the total emissions cap and further reductions to meet the UK’s net-zero targets. This may give rise to price volatility given the smaller (and potentially less liquid) UK market. Crucial issues such as allowance allocation and how participants can trade allowances have not yet been announced. Both sides have agreed to give serious consideration to linking their respective carbon pricing systems but it’s not clear how a divergent UK ETS scheme could link back into the EU ETS.
4. Offshore renewable energy - The UK and the EU have agreed to cooperate in the development of offshore renewable energy and to enable the creation of a specific forum for technical discussions in relation to offshore grid development and the large renewable energy potential of the North Sea.
5. Interconnectors – the TCA will facilitate continued cross-border flows of energy – essential to the functioning of both economies – by putting in place new market-based and non-discriminatory trading arrangements over interconnectors by April 2022. These trading arrangements will be on third-country terms and are likely to be less efficient than current EU market coupling.
6. Euratom and nuclear – the UK will leave the European Atomic Energy Community (Euratom), the Single Market for trade in nuclear materials and technology (although it will remain an associate member like Switzerland). A separate Nuclear Cooperation Agreement (NCA) was signed simultaneously with the Trade and Cooperation Agreement (TCA). The TCA confirms the parties intention to cooperate on various nuclear-related programmes, and that the UK will continue to have access to the various nuclear programmes such as Fusion 4 Energy subject to making a contribution to the EU’s budgets. The immediate priority for nuclear industry participants will be to ensure they have the various necessary import/export and other licences in place from the relevant UK or European regulator in order to continue being able to transfer nuclear material, expertise and dual-use items across the Channel.
7. Level playing field – the TCA’s horizontal level playing field provisions apply to the energy sector and the TCA includes energy specific provisions aimed at creating a level playing field such as to regulate energy sector subsidies and to promote renewable sources in a non-discriminatory manner.

For a more detailed discussion, please join us for our webinar at 12pm UK/1pm CET on 14 January 2021 where members of our Brexit taskforce will discuss the key implications of the TCA and how our clients can best plan for the future.