Many EU and UK energy policies are closely aligned (see graphic). In many respects, the UK has taken the lead in shaping EU energy policy, with its focus on open and transparent markets, energy security, low carbon energy sources, energy efficiency and high levels of environmental protection. Yet, EU membership has undoubtedly constrained UK policy choices in a way that some believe is detrimental to UK business and/or consumer interests. EU law has closed many of the UK's coal-fired power stations, some would say prematurely. EU state aid rules have arguably resulted in sub-optimal rules for the UK's Contracts for Difference and Capacity Market regimes. EU trade policy measures against Chinese manufacturers mean that the UK solar industry has to pay more for its PV panels.
Most of these constraints would remain if the UK were to leave the EU but remain within the European Economic Area (EEA) as a member of the European Free Trade Association (EFTA). In that scenario, the Government would need to think carefully about all the EU rules that fall outside the scope of, or have not been adopted into, the EEA Agreement. Should they be kept (which in the case of previously directly applicable EU Regulations like that on energy market integrity and transparency (REMIT) would require new legislation), modified or repealed/allowed to fall away? Ministers may want to make a "bonfire of Brussels red tape", but some regulations facilitate business, at least as much as they burden it. Industry will need to evaluate any proposals carefully to make sure the baby is not being thrown out with the bathwater.
More generally, it is not clear how easily the UK would fit into the EEA Agreement given its more advanced implementation of EU law. For example, as the EU looks towards a possible Fourth Package of energy liberalisation measures as part of its Energy Union project, the Third Package, legislated in 2009, has still not been adopted into the EEA Agreement. The EEA also lacks the EU's nuclear dimension (embodied in the separate Euratom Treaty, whose post-Brexit status is unclear).
If the UK were to leave the EU and not join the EEA through EFTA, its Government would be in a position, at least from a legal point of view, to introduce some very radical changes to current energy policies – and in some cases it might well be tempted to do so. The UK could leave the EU Emissions Trading Scheme and adopt an entirely domestic "carbon pricing" regime, or apply to join one of the increasing number of other emissions trading schemes around the world. It could adopt much less "technology-neutral" forms of electricity market subsidy (for both renewable generation and capacity). It could intervene in different ways to facilitate the decommissioning or retention of essential infrastructure in the North Sea oil and gas industry. Non-EU-based international law and the UK's own Climate Change Act 2008 would impose some continuing constraints, but there is a risk that, with so many options potentially opened up, UK energy policy could become politically volatile to a degree that (along with other potential macroeconomic effects of Brexit like exchange rates) would make the UK a less attractive destination for those looking to build, invest in or finance energy infrastructure.
For those active in Ireland, or (in the event of Scotland becoming independent and joining the EU) having dealings with Scotland, there will be additional layers of regulatory complexity as efforts are made (one assumes) to preserve the benefits of the Single Energy Market and GB electricity trading arrangements (BETTA) as some of the foundations on which they were built fall away.
At a practical level, it is worth reviewing any clauses in contracts (existing or under negotiation) where rights or obligations could be triggered by Brexit if, for example, it falls within the definition of a "change in law", "material adverse change" or "force majeure". There will also be no substitute, as energy Brexit unfolds, for keeping a close eye on what is proposed in relation to area of energy policy over the coming years (even if it is not presented directly as a response to Brexit). It may be that "this country has had enough of experts", but both the UK Government and EU legislators and policymakers will need clear advice from the UK energy industry more than ever over the next few years.
Law stated as at 5 July 2016