The referendum is due of course, on 23 June 2016 and it will take a number of years after that to conclude Brexit negotiations if indeed that is the outcome. The legal consequences are complicated, and treaties, directives, regulations and court judgments may cease to apply to the UK unless specifically provided for in UK law.
Whilst the precise nature of the UK-EU relationship after Brexit cannot be known now, it is possible to speculate a little about how a general Brexit might affect energy management law and policy in the UK and this note considers - in brief, general detail only - some issues relating to demand management, demand response and distributed generation in the UK. We focus on energy management in this briefing, and do not cover issues relating to more traditional energy topics like oil and gas, interconnectivity and the Internal Energy Market.
1. Energy Efficiency Targets
The EU has set ambitious energy savings targets (20% on projected use by 2020 and 27% by 2030). As noted in our Brexit Environment briefing, the UK government has its own legally-binding climate change targets – whilst the aim to cut carbon emissions is unlikely to change in the event of a Brexit, it is difficult to predict what role energy management will play in achieving these emission reduction targets. The EU energy efficiency targets have without doubt provided some certainty in the energy management sector and contributed to investors' confidence; the intangible effect on investor confidence may be the most important consequence of any Brexit.
2. Energy Efficiency in Buildings
The EU has been important in encouraging UK legislation and action to improve energy efficiency in buildings, especially since independent UK action has not been particularly effective (look for example, at the withdrawn Green Deal scheme, national zero carbon homes policy and Code for Sustainable Homes). The Energy Performance of Buildings Directive 2010 and Energy Efficiency Directive 2012 require EU Member States to introduce measures to promote energy efficiency and reduce the energy consumption of buildings (obligations relating to energy performance certificates ("EPCs") and display energy certificates ("DECs"); air conditioning inspection requirements; all new buildings to be nearly zero energy by end of 2020; setting of minimum energy performance requirements for new buildings; obligations to prepare national energy efficiency action plans; obligations on companies to carry out energy audits; etc.).
The UK has implemented the relevant obligations into national law, for example, the Energy Performance of Buildings (England and Wales) Regulations 2012 in relation to EPCs and DECs, the Energy Savings Opportunity Scheme Regulations 2014 in relation to energy assessments and Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 in relation to minimum energy efficiency standards.
These Regulations would be unlikely to change directly because of a Brexit, although (depending on the form of the Brexit) the UK may not have to amend its national legislation to account for changes or progress in the EU frameworks. Rather, it is domestic policy that may lead to a change in these schemes where permitted, for example, the ongoing review of the business energy efficiency tax landscape and proposal for a simplified reporting framework may expand the ESOS reporting requirements.
3. Energy Efficiency in Products
The Energy Labelling and Ecodesign Directives set labelling and design requirements, requiring manufacturers to label and decrease the energy consumption of their products. There are also voluntary EU schemes, such as the ENERGY STAR programme. Regardless of Brexit, it is reasonable to speculate that the government and industry will continue to meet these European standards and obligations as a minimum:
- due to the need to meet these standards to access the EU market; and
- to meet commercial requirements (such as supply chain obligations and consumer pressure).
We consider the key effect of Brexit in this area would be our government's reduced influence on the development of product standards (and hence its reduced ability to represent and protect UK industry's interests).
This is largely within domestic control, as measures such as participation of electricity demand reduction in the Capacity Market auctions are associated with the government's reform of the electricity market. It is difficult to see that Brexit would have a significant impact here, certainly in the short-medium term at least.
Also, whilst the roll-out of smart meters may have had its genesis in EU energy market legislation, it is doubtful that Brexit would interrupt the UK's progress on this reform.
Again, this is largely within domestic control with our planning system implementing requirements for heat networks and onsite generation, especially within urban areas. Whilst planning obligations are supporting a transition to more efficient heating and cooling systems and networks, there has been significant support financially from the government through national renewable generation subsidies and renewable heat incentives.
Whilst UK planning policy etc. may not change tack in the event of Brexit, EU framework support and policy direction would be removed. The UK government is reducing renewable generation subsidies and so its legislative attention will perhaps now turn to demand-side measures to encourage sustainable and efficient energy consumption. It is here that EU support and policy direction can have an important impact, for example, the February 2016 Commission Heating and Cooling Strategy will encourage all Member States to move towards more efficient heating and cooling systems, thus supporting UK government action through planning obligations, the Renewable Heat Incentive and its 2013 Action Plan.
The EU has played a key role in energy management to date, through setting targets and legislating to improve energy efficiency in buildings and products. It seems unlikely that a Brexit would affect existing legislation in the UK in these areas. Conversely, domestic policy is driving demand response and distributed generation in the UK and again, it is unlikely that Brexit would have a significant impact here, certainly in the short-medium term.
Some may argue that Brexit could lead to the UK government moving away from new law or policy requiring energy management improvements, certainly when faced with arguments from sectors such as the construction industry for more freedom from central policy decisions and building standards. We consider alternatively that in fact, the UK government and industry will support and perhaps require energy efficiency improvements regardless of any Brexit. Indeed, even now momentum is growing, driven in part by the UK's proactive and commercial ESCO and funding stakeholders, but also by commercial requirements and the huge impact of (high) energy costs on manufacturers; the competitiveness of UK industry demands these costs to be kept to a minimum with or without the EU's support.
This article is part of our Brexit series.