GAS INDUSTRY AND BROADER IMPLICATIONS FOR THE GLOBAL …/media/files/insights/... · 2017. 3. 31. · • participation in emission trading scheme (carbon tax as an alternative?)

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BREXIT’S IMPACT ON THE OIL &

GAS INDUSTRY

AND

BROADER IMPLICATIONS FOR THE

GLOBAL ENERGY SECTOR

March 27, 2017

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Key Treaty Relationships Relevant to EU Energy

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Type of Agreement /

Example

EFTA +EEA

(Norway)

EFTA + bilateral

agreement on

energy

(Switzerland)

Association

Agreement +

Custom Union

(Turkey)

Association

Agreement + Energy

Community Treaty

(Ukraine)

Partnership

Agreement and

Energy Charter

Treaty (Russia)

Free Trade

Agreement and

WTO (Canada)

Gas and Electricity

Third Package

Not yet fully

transposed

Partial voluntary

alignment

(until bilateral

agreement comes

into force)

Partial alignment

(voluntary) Yes

No, but

cooperation on

certain security of

supply issues

N/A

EU Gas and

Electricity Network

Codes

Not yet fully

transposed, partial full

transposition or

alignment due to

interconnected

system

Partial voluntary

alignment due to

interconnected

system

No

Not yet applicable,

Commission to

propose for

implementation

no N/A

EU ETS Directive +

Regulations

Yes No; own Swiss ETS,

EU ETS linking No No No No

MIFID, EMIR, REMIT

Not yet applicable,

partial voluntary

alignment

Partial practical

alignment due cross-

border activities

No No No No

Energy Regulator

NVE SFOE EMRA

NERC and Energy

Community

Secretariat

(no decision making

power)

FECRF NEB and state

regulator

ENTSO-E

Membership

Yes Yes Yes Yes No N/A

EU Energy Law and Association Options

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More Impacted by EU Directives Less Impacted by EU Directives

More Impacted by EU Directives Less Impacted by EU Directives

Utility Procurement Regulations

Electricity (Fuel Mix Disclosure)

Regulations 2005

UK Renewable Energy Strategy

Environmental Permitting Regulations

UK GHG Emissions Trading Scheme Regulations Climate Change Act 2008

Renewable Transport Fuels

Obligation (Energy Act 2004)

Climate Change Levy (Finance Act 2000)

Climate Change Agreements Regulations

Feed in Tariffs and Renewable Heat Incentive

(Energy Act 2008) Energy Act 2008

Contracts for Difference

Regulations

Electricity Capacity Regulations 2014

Infrastructure Act 2015

Electricity Market Reform (Energy Act 2013)

Electricity Act 1989

Utilities Act 2000

Sustainable Energy Act 2003

Planning Act 2008

CRC Energy Efficiency Scheme

Energy Act 2011

The Climate Change and

Sustainable Energy Act 2006

Renewables Obligations Order 2006

Carbon Emission Reduction Target and Home

Energy Saving Programme

Feed in Tariffs and Renewable Heat Incentive

(introduced under Energy Act 2008)

Impact of EU Secondary Law on UK (selected examples)

Gas Act 1986

Standard Licence Conditions/

Standard Special Conditions

Energy Act 2004

Energy Act 2013

The Electricity and Gas (Internal

Markets) Regulations 2011

The Gas and Electricity (Internal

Markets) Regulations (Northern

Ireland) 2011

Gas Transporter (Modification of

Licence Conditions) Regulations

2011

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Already demanding legislative schedule for UK and EU until March 2019

Special position compared to other co-operation agreements - starting

from a D+1 alignment position

'Great Repeal Bill' approach and need to incorporate directly applicable

EU law

Custom issues for energy trading in case of a 'hard' Brexit

Impact on energy trading and infrastructure use contracts

– Change in law / frustration related termination issues

– Tax provisions

Certain additional requirements for third country IEM participants

– Ownership of energy infrastructure

– Licensing

– Limitation of certain markets, e.g., short-term markets (Switzerland)

Main Issues for Energy Trade and Infrastructure

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Practical compliance realities for cross-border infrastructure irrespective of

an international agreement requiring the application of EU law

Transaction reporting and potential dual UK and EU requirements?

Adequacy of WTO and Energy Charter Treaty as fall back regime in case

of a 'hard' Brexit

Treatment of electricity under GATT, GATS and Energy Charter Treaty

Right to participate in relevant market institutions (e.g., ENTSOG,

PRISMA)

Impact on EU grants running beyond March 2019

Need for project specific intergovernmental agreements for cross-border

infrastructure to stabilise legal regime?

Commercial uncertainty, e.g., impact of Euratom treaty exit on UK nuclear

energy generation

Main Issues for Energy Trade and Infrastructure

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Remaining in the EU ETS

Leaving the EU ETS, and

– Establishing a UK ETS, and

– Linking to EU ETS under cooperation agreement with EU

– No linking to EU ETS (but linking to other schemes?)

– Discontinuation of an ETS

Key issues/questions:

– Is remaining at all possible if there is no EEA or EFTA relationship?

– Can remaining or linking be agreed under the exit agreement?

– Is linking possible under a general cooperation agreement or is a special

agreement required?

– What are the consequences for the UK under the UNFCCC and Paris

Agreement?

Main EU ETS Options

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Key issues/questions (ctd.):

– What happens to EU allowances allocated to UK operators?

– What happens to EU allowances auctioned on behalf of UK?

– Can a UK company use the EU registry in case of a 'hard' Brexit to

retire EUAs?

– Risk of having to pay the EEP or being non-compliant

– Risk of defaulting under a contract because of inabiltiy to deliver EUAs

in accordance with contract

– Risk of business interruption during exit and linking period

– Exemptions and interaction risks with other related de-carbonisation

schemes (from which EU ETS installations are exempted)

– Impact on aviation and maritime related international agreements

Main EU ETS Options

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Art. 50 Roadmap and Compliance Cycle

Art 50

Triggered

EU ETS Phase 3 01/01/2012 – 31/12/2020 EU ETS Phase 4

01/01/2021 – 31/12/2030

2 year negotiation period Possible extension

Surrender Report

Surrender Report

Surrender Report

EUA futures auctions take place on ICE every second Wednesday throughout the yearA

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Energy Community Secretariat Energy Community Secretariat

Prof. Dr. Dirk Buschle

Deputy Director, Energy Community Secretariat

ALCOA Energy Policy Chair, College of Europe

BREXIT AND ENERGY

1


brexit scenarios – the dust settles

2

• EU-UK relations bilateral rather than multilateral

• free trade agreement rather than integration agreement

• EU has better BATNA and not pressed by time

• priorities of both sides do not include energy


• general requirements, lessons learned from CH

• taking over acquis, incl horizontal

• free movement

• independent enforcement

• impact on the energy sector

• main options

• no deal

• energy part of the bilateral FTA

• multillateral off-the-shelf solution

how can market access be ensured under a bilateral free trade

agreement

3


• the WTO and its weaknesses

• no market access

• state-driven and enforced

• difficult to reform

• market access = bridging the legal gap

• EU law, and in particular regulations (never transposed) lose effect

• validity of exemption regime for interconnectors

• losing PCI label, the end of cheap (EIB) funding

• the end of market coupling? the swiss experience

• membership in institutions (special case of entso-e)

main options: no deal

4


• the legal gap

• ... will ineviatbly occur due to different development/lack of harmonization

duty (clean energy package taking shape)

• the national perspective

• disentangling will start, de/re-regulation will kick in

• eg environmental protection/emission standards/climate change

framework: attracting FDI?

• EU/MS may erect (non-tariff) trade barriers

• eg third country clause for exemptions

• eg supply disruptions in „emergencies“

• eg discriminatory gas exit tariffs


5


• the great repeal bill - can ‘autonomous implementation’ work?

• law without governance?

• case law

• ACER/EC decisions

• compliance without guardians? the case of euratom

• the swiss experience

• some areas depend on agreement

• supply of NPP with fuel

• participation in emission trading scheme (carbon tax as an alternative?)

• third country clauses in network codes

• solutions in the absence of a deal

• private law as a silver bullet?

• the return of inter-governmental agreements?


6


• a role for energy?

• examples

• switzerland

• from FTA to bilaterals

• the limits of the bilateral/sectoral approach

• ukraine (DCFTA)

• energy

• association council/committee and ISDS

• canada (CETA)

• energy included but no specific rules

• dispute settlement: from ISDS to permanent court (WTO model)

main options: an FTA

7


• a role for energy?

• governance issues

• removing obstacles vs harmonization

• scope – how close to original acquis (incl horizontal)?

• conclusion and EU competences

• packaging with other policies

• upgrades

• surveillance/enforcement – joint committees or courts?

main options: an FTA

8


European Union Contracting Parties Candidate Parties Observers

Why? Creating single regulatory

and market framework to:

increase energy trade,

attract investments,

enhance security of supply,

improve environmental

situation and

increase competition in the

energy market

How? By the Rule of Law

Extending the EU internal energy market Where? South East Europe and Black Sea Region

Candidate Observers


• a niche for a off-the-shelf solutions in energy? the energy

community

• scope limited to energy

• signed by EU only

• integration agreement, no FTA

• market access through full acquis (unlike EEA) and free

movement of goods/non-discrimination

• decision-making: majority voting (unlike bilateral joint

committees etc.), EU one vote

• easy updates (no amendments), flexibility possible and

used (the case of georgia)

energy community

10


• a niche for a off-the-shelf solutions in energy? the energy

community

• directly applicable in UK/EU courts (except secondary

legislation)

• no court (unlike EEA), soft enforcement mechanism

• weaknesses: no ETS, no voting rights in ACER (like

EEA), reciprocity in practice questionable

• a psychological no-go? • the energy community as the EU’s main external energy policy arm

• the UK effect

energy community

11


www.energy-community.org

Thank you

for your attention!

Dirk Buschle, Deputy Director

12

Documents

GAS INDUSTRY AND BROADER IMPLICATIONS FOR THE GLOBAL …/media/files/insights/... · 2017. 3. 31. · • participation in emission trading scheme (carbon tax as an alternative?)