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Political Instability and Brexit Threaten UK Energy Sector and Decarbonisation

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The absence of a long-term, strategic approach to energy in the UK is the biggest threat to the sector, according to the Energy Institute’s annual survey of its members. The future of the clean energy transition was also an area of concern, along with security of supply, investment, and the consequences of Brexit. The results underline how Brexit is a cross-cutting issue, and that it could damage the energy sector in two main ways: firstly, through the direct impact of leaving the EU and the internal energy market, and secondly through leading to the diversion of policy resources away from the other policy issues.

The survey reported members feel that current government policy is uncertain, inconsistent and too short-term in its outlook. In the absence of a clear framework and policy direction to encourage investment, the UK will not successfully make the transition to a low carbon economy, and its energy security will be at risk as a result.

Members also regarded Brexit as a material concern, with the UK’s departure posing a threat to regulation and trade, energy costs, and security of supply. Restrictions on free movement of labour would also harm the sector by reducing the number of skilled workers. Members noted future energy policy should be informed by existing EU legislation, and continued cooperation with the EU should complement UK policy decisions. This reflects how interconnected the UK and EU are in energy, both physically with gas pipelines and electricity connections and in policy and governance terms.

While the government’s failure to develop a long-term energy policy was the area of most concern in this year’s survey, the field work for it was carried out in February – before UK prime minister Theresa May called a snap general election in April.

May called the election to secure her mandate for a Brexit focused on national sovereignty over economic cooperation, and to increase the slim majority her Conservative party held in parliament to gain domestic political stability. But the resulting hung parliament has weakened her mandate, and she has been forced into seeking a coalition with the Northern Irish Democratic Unionist Party (DUP) to ensure a working majority.

This has weakened her authority – including among MPs in her own party. By contrast, in Europe the election results in France and the Netherlands earlier this year have strengthened the EU’s position, as far-right and Eurosceptic parties were prevented from gaining power.

Following the UK and European elections, E3G updated its ‘Brexit Scenarios: Implications for Energy and Climate Change’ to reflect the shifting political landscape. The situation is now one that allows the EU to have a clear, unified Brexit negotiating mandate. For the UK, a ‘softer’ form of Brexit with a focus on an economic transition is now more likely; however, the weakness of the government could lead to another election within the two-year Article 50 period. This could result in a ‘crash’ Brexit outcome and a rise of hostile nationalism if the UK fails to deliver an orderly negotiation process.

The results of the Energy Institute survey are indicative of a consistent trend on the energy sector’s worries on government policy and Brexit. In last year’s survey, ‘energy policy continuity’ and ‘investment and cost’ were the areas of most concern. Brexit did not feature in the main survey, but respondents believed it would have negative consequences across a range of areas, including ‘addressing climate change’, ‘supporting renewable energy development’, and ‘securing energy supplies’.

Mirroring this, last year the UK fell to 14th in Ernst and Young’s Renewable Energy Attractiveness Index because of concerns about Brexit, the closure of Department for Energy and Climate Change, and the government approval of Hinkley Point C. In the most recent edition last month it had recovered to 10th but a lack of clear policy on renewables, subsidies, and overall policy direction remained of concern – and these are unlikely to be resolved before Brexit.

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