The Implications for Environmental Regulation
The Implications for Environmental Regulation
Authors Introduction Current Legislative Framework Transitional Framework Post-EU Exit
3 5 5 6 11
Legal Brexit 2016
The Hogan Lovells global environment, practice, consisting of more than 50 specialist lawyers, advises across all environmental, health and safety issues, assisting clients to identify and manage the business risks and opportunities they face wherever they may do business.
The team supports clients in connection with major corporate transactions, projects and commercial agreements, and in handling internal reviews and investigations arising from environmental and safety issues. Lawyers apply knowledge and expertise of international best practice across key industries, including energy, manufacturing, transportation, chemicals, agriculture and many other sectors in which environmental law is a key factor. The firm has a standout regulatory practice, providing advice and support on existing and developing national and international regulation and policy in Europe, the USA and around the world.
We have been leading analysis of Brexit since before the referendum was promised. We have been collaborating with our clients and other experts to provide a holistic view of the risks and opportunities presented by Brexit.
Head of Hogan Lovells Environment Practice (International), Hogan Lovells, London
Louise is a partner with more than 25 years' experience and is widely recognised as a leading lawyer in the fields of environmental, social, and health and safety issues by industry publications and her peers. She advises on environmental, social, and health and safety issues, both in the context of corporate, finance and real estate transactions and energy and infrastructure projects, as well as stand-alone regulatory and strategic, high-impact contentious and non-contentious matters.
Louise has particular experience in the industrials, energy (oil and gas and nuclear), natural resources and infrastructure sectors. She is a member of the United Kingdom Environmental Law Association and the Health and Safety Lawyers Association, a trustee of Thames21 and a former trustee of the BioRegional Development Group.
4 Hogan Lovells
Senior Associate, Environment Practice, Hogan Lovells, London
Associate, Environment and Commercial Practice, Hogan Lovells, London
Kevin advises on the environmental, health and safety aspects of corporate, real estate and finance transactions, projects and stand-alone advisory matters (dealing with issues including pollution control and liability, nuclear regulation and liability, corporate reporting and governance, sustainable financing, and environmental, health and safety and social risk management).
He has particular expertise in the energy (particularly oil and gas and nuclear) and industrial sectors. Kevin is a member of the United Kingdom Environmental Law Association.
Amma advises on a range of transactions with a particular focus on commercial, regulatory and environmental matters. She has experience in both drafting and reviewing commercial agreements, including endorsement agreements, supply agreements and agreements governing general trading arrangements, and has advised on compliance with environmental legislation.
Legal Brexit 2016
Introduction Current Legislative Framework
Brexit will have implications for all businesses subject to environmental regulation. In some cases, the implications could be significant; for others they may prove negligible. Much depends on the sector, the business strategy, and the precise road to and from Brexit. Because of the breadth of environmental regulation, this article provides an overview, and then appraises by subject matter.
As the boundaries of the EU have expanded over time, so too have the boundaries of EU environmental law. In all, this has culminated in over 800 pieces of EU environmental legislation. Much of this is deeply embedded in UK statute, in some cases supplementing existing UK regimes (for example, integrated environmental permitting) and, in others, almost directly transposed by way of referential drafting (for example, the EU Emissions Trading Scheme).
In terms of ambit, EU environmental law encompasses climate change, protection of air, water and land (pollution control and pollution liability), conservation, resource management (including waste and extended producer responsibility), environmental and ecological impact safeguards (interfacing with planning/land use control in UK), and aspects of consumer, worker and public health.
In terms of practicalities, the sheer bulk of environmental regulation and the capacity constraints within UK government and relevant government departments are likely to influence the UK's approach, whatever the future relationship between the UK and the EU. This is likely to necessitate the identification of key priorities in the first instance including those for any negotiating position as well as the measures needed to ensure as much legal (and business) certainty as possible in the run-up to and post Brexit.
In terms of prominent Brexit issues, the most significant on the table to date is the implication for UK climate policy, and a House of Commons Select Committee inquiry has already been launched. Other hot topics have been conservation, most notably the prospective loss of development restrictions under the Habitats and Birds Directives, and the future of EU environmental targets (notably in the renewables and waste sectors). These, and other potentially material business issues, are considered below under subject headings.
From a Brexit perspective, this presents a plethora of issues for UK government (and the residual EU), whilst for businesses, and for the sectors in which they operate, it presents parallel challenges and opportunities.
So soon after the referendum, it would be easy to evaluate the current position on post-Brexit environmental regulation as complex and uncertain (and that is not to say this is unfair comment). But it is already possible to identify some key features, considerations and potential next steps, which can be developed over the Brexit phases and used to mitigate potentially adverse impact to both business and the environment.
6 Hogan Lovells
Brexit does not happen immediately and the UK is still subject to EU laws and regulations in the same way it was before the referendum. The UK government now needs to decide when it will serve the notice to leave under Article 50 of the Treaty of the European Union and trigger the two-year exit negotiation period.
Brexit will occur upon agreement of exit terms or (if such an agreement is not reached) on expiry of the twoyear notice period, unless all remaining 27 Member States have agreed a later extension. In the interim, new environmental policies and laws are emerging from the EU which may affect businesses in the UK. Examples of specific issues, opportunities and modes of influence are discussed below.
Climate Change Paris Accord, EU Emissions Trading Scheme and UK Climate Change Act In addition to ground-breaking national initiatives, the UK has been a champion of climate change policy within the EU, and took a leading role in the delivery of the historic Paris Agreement. Whilst both the UK and the EU are signatories, neither has yet ratified the Paris Agreement. However, the EU has already committed to an emissions reduction of at least 40% by 2030 compared to 1990 levels, and had contemplated a process of individual Member State ratification followed by its own. The UK's proposed burden share of a 37% reduction by 2030 compared to 2005 (published on 20 July after the referendum) would have contributed to the bloc's committed reduction but the position is now very much open for consideration and negotiation, particularly in the transitional period. Given the potential for fluidity of EU membership to 2030, a "virtual Member State" reduction contribution, if such a way forward might be agreed, would uphold the spirit and objective of the EU's commitment. From the UK's perspective, though, it now has the option to submit its own nationally determined contribution to the UN, which could be the same as that proposed by the EU, or more or less ambitious.
Legal Brexit 2016
What should business look out for? This is openly a hot political issue both on the internal UK stage and in the international arena. The political reach extends to the future of the UK Climate Change Act 2008, including the yet more ambitious 5th Carbon Budget (a reduction of 57% by 2030 on 1990 levels) adopted by Parliament on 30 June this year.
A related consideration is the UK's future participation in the EU's Emissions Trading Scheme (EUETS), which is mandatory for all EU-prescribed industrial installations. The UK has historically supported the EUETS and similar mechanisms, and had adopted its own voluntary national emissions trading scheme prior to the introduction of the EUETS. Whether a new political direction will prevail remains to be seen.
If the UK leaves the EU but remains a part of the EEA, it will be required to continue with the EUETS. However, it will have less influence on future EUETS reforms, including ongoing discussions in the European Parliament's Industry and Energy Committee. As such, the UK is likely to be much more reliant on lateral lobbying techniques both in the transitional stage and, more so, post-Brexit.
If the UK is a member of neither the EU nor the EEA, and whether or not a member of EFTA, it can negotiate to link any national carbon trading scheme (by means of transitional and established linking arrangements) to the EUETS. This will enable access to a much larger trading pool and could address issues such as UK companies holding a surplus of otherwise non-tradable carbon allowances. Participation in the EUETS also supports delivery of the UK's Carbon Budgets under the Climate Change Act.
If it is not an EEA member, the UK government might, however, decide to address the impact on energy prices and consequent cost to UK industry, and pull back from this type of mechanism. Potentially, it could do this across the board or for specific industries possibly looking at other means of promoting low carbon energy sources and technologies in the longer term to offset the carbon impact. This would be controversial within and outside the UK unless greater achievements in net carbon reduction could be demonstrated.
The opportunity to influence the UK's approach has been expressly invited by the Select Committee on Energy and Climate Change. Its stated objectives are to understand the implications of Brexit on the UK's climate change commitments and ambitions, and to determine which policy areas will need to be addressed during exit negotiations. It has specifically requested views and evidence, by 22 August, on what the priorities should be on the EUETS and the UK's and EU's Paris Agreement pledges.
Monitoring the progress of the Select Committee's inquiry will be critical to potentially affected businesses, as will ongoing direct and indirect participation in the inquiry.
Low carbon, renewables and energy efficiency
UK energy policy has been driven partly by requirements and environmental targets established by EU law. Brexit raises a number of critical questions, most of the answers to which are outside the scope of this chapter (but are being discussed as part of a separate Select Committee inquiry). A few points are worth noting, however, given the interrelationship with environmental/climate change regulation.
The nature of the future UK-EU relationship has the potential to influence significantly the UK's future energy policy and mix, with the Renewable Energy Directive (RED) being a principal driver for increased renewable power generation. As such, any future change needs to be appraised in the context of new opportunities and threats for all low-carbon energy sources, from renewables to nuclear.
One pertinent question is the nature of the UK's obligation to comply with RED targets which have provided a boost for UK renewables. Under the RED, there is currently a mandatory target of 20% energy from renewables by 2020 (for the EU as a whole and for electricity, heating and transport), with the UK sharing a more modest 15% target. More stringent (but non-binding) commitments apply to 2030. Little may change if, as noted above, the UK remains a member of the EEA as, like Norway, it would still be subject to the RED. There is also the potential for the EU to require some form of commitment in any bilateral agreement (whether the UK stays in EFTA or not) on low-carbon
8 Hogan Lovells
energy, given its policy objectives (and irrespective of any possible recalibration) in relation to the Paris Agreement. Whether the UK will promote nuclear over renewables, or continue the mix, remains to be seen and the issue will require careful monitoring. Investors, for their part, are going to require longterm predictability which in turn will require clear robust messaging from the UK government in Brexit negotiations and following Brexit.
Energy efficiency goods and service providers will also need to track, and seek to influence, policy developments and the separation path, given the lack of domestic policies in this area. The Energy Efficiency Directive (which introduced the new auditing requirements under the Energy Savings Opportunity Scheme (ESOS) at the end of 2015) and the Energy Performance of Buildings Directive could potentially be abandoned if there is limited access or bilateral trade only with the EU Single Market. They would continue to apply if the UK remains part of the EEA.
Conservation and Water Quality
Much of the UK's wildlife legislation is based on, or bolstered by, EU directives but, even if the UK joins the EEA, it will not automatically have to apply the Habitats Directive (which establishes a European ecological network and requires the designation of conservation areas) nor the Birds Directive. These conservation directives have been the Achilles' heel for many a developer (not just property or infrastructure project developers but also onshore and offshore oil and gas developers) as, in protecting habitats and species, detailed assessments are required of any project that is likely to have a significant effect on designated protected sites. If a negative effect is revealed, consent to development has to be refused unless strict criteria are met. These include demonstrating that there are imperative reasons of overriding public interest (IROPI) and implementing compensatory measures. Many a development has stalled due to legal challenges, or become more expensive due to EU conservation requirements, and a new flexibility may be welcomed in some quarters. Nonetheless, a current review of the conservation directives by the European Commission appears to suggest that across Europe (including from UK representations) there is support
and belief in the balance they bring to protecting nature without needlessly fettering development. For the UK, however, these EU protections currently sit in the "atrisk" category.
EU directive requirements in relation to Environmental Impact Assessments (EIA) and Strategic Environmental Assessments will still need to be followed if the UK remains part of the EEA, but are not likely to otherwise. This means that the revised EIA Directive, which needs to be implemented by May 2017, will require new UK law (by way of amendments to the current requirements), at least in the transitional period to a Brexit.
The Bathing Waters Directive, which has reformed the quality of UK bathing waters, like the nature directives, is not included in the EEA Agreement and would only continue to apply post-Brexit if the UK unilaterally decided to adopt the same or similar requirements. Other water quality directives (e.g. Water Framework Directive, Urban Waste Water Directive and Groundwater Quality Directive) would continue under an EEA model situation.
The EU REACH regime governs the manufacture, import and use of chemical substances in the EU. Given the scale of UK manufacturing, and global imports and exports to and from the UK and across Europe, how this is addressed post-Brexit will have significant implications for the chemicals sector. REACH would continue to apply if the UK remains within the EEA. Certainly, the continuance of this EU-based system, despite the workload, brings certain advantages in terms of ease of global trade and, conversely, difficulties if it does not.
If the UK does not remain a part of the EEA, or does not reach agreement with the EU to apply REACH, the validity of existing chemical substance registrations by UK-based manufacturers, importers and the many "only representatives" of non-EU manufacturers may be put in doubt. This could entail EU-based customers needing to submit their own substance registrations or find alternative suppliers within the EEA.
It is hoped that negotiations between the UK and the EU, and the extensive goodwill between the UK chemicals sector and the European Chemicals Agency
Legal Brexit 2016
(ECHA), will resolve these issues and ensure continued access across the market.
In the transitional period to Brexit, UK business subject to REACH will need to continue working towards the next REACH registration deadline of 31 May 2018 (applicable to the manufacture or import of chemicals above one tonne per year) given that it is highly unlikely, as things currently stand, that the UK will have exited the EU by then.
The standardised system for the classification and labelling and packaging of chemicals under the EU CLP Regulation is likely to be adopted by the UK under any Brexit scenario, given that it reflects the GHS system established at UN level. If the UK is not tied to full compliance (because it ceases to be part of the EEA) it may, however, have much greater flexibility on the pending poison centre rules (a new Annex III to CLP) requiring medical information on chemical mixtures to be submitted to national poison centres.
Waste, resource management and manufacturing
Forty years ago, the UK was at the forefront of waste management. Today the sector is heavily regulated pursuant to EU measures. From the Waste Framework Directive to the Circular Economy, from the Landfill Directive to the Waste Incineration Directive (now encompassed within the Industrial Emissions Directive), the EU has dictated change that has reformed the waste sector in the UK, and elsewhere. In considering the impact of Brexit, it is also important to recognise that waste is no longer localised but is a transnational industry; further, this is no longer just a waste sector matter but impacts manufacturing and export. Conversely, what was once waste is now a resource, with the UK ever increasing the amount of exports of secondary materials and refuse-derived fuels.
If the UK should remain within the EEA, the sector will be able to continue in large part as normal. Critically, however, it will not be able to guarantee that its voice will be heard in Europe when new policy, law and standards to which it will be subject are formulated.
10 Hogan Lovells
In a bilateral trade agreement, it will be a matter for negotiation as to what measures might continue, but if left at large and subject to WTO rules, for example, there will be trade barriers to accommodate, including the burden of much higher tariffs.
The UK government, together with industry, will need to consider its policy position on the EU's Circular Economy Package. The CE is an innovative and ambitious package of measures including legislative proposals, as well as policies and other mechanisms that are not legally binding. Importantly, it diverts the emphasis away from an end-of-life approach to one of extracting the maximum value from resources throughout their life cycle by also considering design, manufacture and use a market disruptor. As such, this is not simply an issue for the waste sector, but one for the manufacturing sector too, which has shown initiative in driving change forward. Emerging common standards, such as potential eco-design standards, including minimum recycled content, also require consideration as, whatever is agreed going forwards, the UK will continue to trade with the EU and there will continue to be trans-Europe supply chain considerations.
As waste/resource management is unlikely to be a high priority for UK government currently, this provides opportunity for the waste and manufacturing sectors to fill a current policy void by packaging their own proposals (preferably by way of an agreed cross-sector approach). Even in a total break situation, these developments and existing controls such as WEEE for waste electrical equipment and RoHS for hazardous substances will necessitate product compliance.
Industrial emissions and clean air
Since the Clean Air Act 1956, much of the improvement in UK air quality has been driven by EU air quality standards introduced in the 1970s and currently encapsulated in the Ambient Air Quality Directive. In 2001, the EU adopted the National Emissions Ceilings (NEC) Directive to set national caps for certain atmospheric pollutants. These measures have had major effects on improving air quality.
However, the UK has found it challenging to meet current air quality standards particularly for particulate matter and nitrogen oxide. The UK has frequently but unsuccessfully sought derogations from EU standards. Earlier this year, the Supreme Court ruled that an immediate plan was needed to address compliance with nitrogen dioxide standards, and a further legal challenge by campaigners is underway. EU air quality standards will continue to apply if the UK joins the EEA, but there is speculation that, outside the EEA, the UK might be tempted to relax standards generally or in specific cases (for example, to facilitate expansion of Heathrow Airport). The UK has found it easier to comply with the NEC Directive and successfully lobbied for less stringent limits to be included in a draft revised NEC Directive published in June.
Industrial emissions are regulated at source through an integrated permitting system, established initially in 1996 under the IPPC Directive, and currently under the Industrial Emissions Directive (IED). The integrated approach and the requirement to apply Best Available Techniques (BAT) drew heavily from the pre-existing UK permitting regime. The Medium Combustion Plant Directive (MCPD) will apply similar requirements to operators of smaller combustion plants (between 1 MW and 50 MW), and is due to be implemented in the UK by December 2017. The UK has been highly influential in the development of EU industrial emissions technical guidance and reference documents. If the UK remains within the EEA, it will need to continue to implement the IED and the MCPD. In those circumstances, a critical consideration will be how the UK will address performance and operating standards set by EU reference documents which it will have no formal capacity to influence. Even if the UK does not have to comply with the IED and MCPD, it is likely to continue with a similar permitting regime. One issue is likely to be the capacity to develop domestic guidance, and EU guidance may, therefore, have to continue as a reference point for some time.
Legal Brexit 2016
The UK is now evaluating what its future relationship with the EU might look like. Given the interconnectivity between UK domestic environmental law and EU laws, it will be imperative that UK government ensures that its laws continue to function, as intended, on Brexit. There are a multitude of possibilities for a negotiated exit.
The UK leaves the EU but remains part of the EEA
The UK (like, for example, Norway) will have full access to the Single Market subject to it complying with relevant EU legislation and paying a contribution to the EU budget. Annex 20 of the EEA Agreement sets out the environmental controls to which the UK would be subject. In many senses, it would be business as usual but the UK would potentially have significantly less influence over the future direction of EU law and policy, irrespective of its impact on the UK's commercial interests.
The UK leaves the EU but joins EFTA
T he UK could rejoin the European Free Trade Association (EFTA) and, like Switzerland, negotiate a series of bilateral agreements with the EU. Membership of EFTA alone would not give the UK full access to the Single Market. However, the UK will most likely want to negotiate the maximum possible access to the Single Market. In return, the UK may be expected to adhere to most, if not all, environmental regulations relating to the areas of trade that are covered by the bilateral agreements, although any negotiated agreement could require more.
The UK leaves the EU and trades with the EU
In this situation, the UK leaves the Single Market completely. It may or may not seek to negotiate a free trade agreement with the EU (as Canada is doing; perhaps even piggy-backing on the EU-Canada Agreement) as well as with other countries with which it had agreements as a member of the EU. Goods imported into the EU will still need to comply with EU environmental product requirements, unless there is a specific exemption, which is unlikely. Pending conclusion of such bilateral agreements (which may include environmental requirements as part of their terms), the UK will have to rely on World Trade Organization access, and will need to negotiate relevant WTO terms.
Certain subject and sector-specific considerations in relation to negotiated strategies are discussed above. Further information about possible models and Brexit generally can be found at www.hoganlovellsbrexit.com.
Alicante Amsterdam Baltimore Beijing Brussels Budapest Caracas Colorado Springs Denver Dubai Dusseldorf Frankfurt Hamburg Hanoi Ho Chi Minh City Hong Kong Houston Jakarta Jeddah Johannesburg London Los Angeles Louisville Luxembourg Madrid Mexico City Miami Milan Minneapolis Monterrey Moscow Munich New York Northern Virginia Paris Perth Philadelphia Rio de Janeiro Riyadh Rome San Francisco So Paulo Shanghai Silicon Valley Singapore Sydney Tokyo Ulaanbaatar Warsaw Washington, D.C. Zagreb
Our offices Associated offices
"Hogan Lovells" or the "firm" is an international legal practice that includes Hogan Lovells International LLP, Hogan Lovells US LLP and their affiliated businesses. The word "partner" is used to describe a partner or member of Hogan Lovells International LLP, Hogan Lovells US LLP or any of their affiliated entities or any employee or consultant with equivalent standing. Certain individuals, who are designated as partners, but who are not members of Hogan Lovells International LLP, do not hold qualifications equivalent to members. For more information about Hogan Lovells, the partners and their qualifications, see www. hoganlovells.com. Where case studies are included, results achieved do not guarantee similar outcomes for other clients. Attorney advertising. Images of people may feature current or former lawyers and employees at Hogan Lovells or models not connected with the firm. Hogan Lovells 2016. All rights reserved. 11075_CM_1016