Is the Clean Growth Strategy Brexit-proof?
The Department of Business Energy and Industrial Strategy published the long-awaited Clean Growth Strategy last week, setting out the ways in which the government aims to meet the UK’s legally binding climate goals under the Climate Change Act (CCA). The Strategy covers the fourth and fifth carbon budgets (2023-2027 and 2028-2032 respectively) and outlines how greenhouse gas emissions can be reduced by 57% below 1990-levels within this timeframe.
The publication of the strategy was severely delayed by the EU referendum and the general election. Yet despite having had over a year to work on the Strategy since the passing of the 5th carbon budget in June 2016 – and despite it identifying Brexit as one of three ‘significant challenges’ to progress – the document includes disappointingly little detail about how Brexit might impact the UK’s climate policies.
The implications of Brexit for the prospects of the UK achieving the main target of the CCA (80% emissions reduction below 1990-levels by 2050) naturally depend on the deal that will be negotiated between the government and Brussels. However, despite the CCA being domestic legislation Brexit nonetheless poses significant challenges for its ultimate success, even under the softest of Brexit scenarios.
Loss of EU benefits
Even if the UK decides to remain in the Single Market and the EEA it will still lose significant amounts of funding and investment which will make it harder to reach its climate targets. As a non-EU member, the UK would lose funding from a range of EU sources such as the EU budget, the European Investment Bank, the European Fund for Strategic Investment, the Connecting Europe Facility, research and development funding, and potentially a drop in foreign investment.
Although the Clean Growth Strategy presents an impressive amount of funding for various infrastructure and energy efficiency schemes, and even though the Chancellor Philip Hammond has guaranteed that current commitments from EU funding streams will continue until 2020, there is uncertainty as to the financial climate post Brexit. If the UK opts for a ‘harder’ version of Brexit, leaving the Single Market and Customs Union, restrictions on trade and reduced access to skilled workers could increase the costs of necessary infrastructure developments and delay their delivery. Moreover, with the UK no longer having to implement EU Directives on energy and the environment, UK businesses will lose an important source of investment stability, as climate policies become vulnerable to the domestic electoral cycle instead. Furthermore, if Brexit leads to an economic downturn climate change is likely to drop off the political and public agenda, and, as evinced by previous governments, climate promises could very well be broken.
Potential dismantling or future loss of EU legislation under a hard Brexit could also make it more difficult for the UK to achieve its ambitious climate target. The Committee on Climate Change, which provides independent advice to the government, estimates that EU policies have contributed to around 40% of UK emission reductions since 1990, and cover around half of the UK’s potential emissions reductions to 2030.
Likewise, EU reporting and monitoring requirements would need to be replicated, adding to the workload of the UK civil service. And as Theresa May has made the jurisdiction of the European Court of Justice (ECJ) a ‘red line’ the UK might also lose an important means of enforcement and dispute settlement on climate matters.
What to do about the ETS?
Another issue the Clean Growth Strategy is largely silent about is the EU Emissions Trading Scheme (ETS). As the government has indicated that it wishes to leave the Single Market and the jurisdiction of the ECJ, it is likely the UK will have to leave the ETS as well. Although the UK has a domestic floor price for carbon credits independent of the ETS, leaving it still poses significant challenges. UK companies benefit from being a member of the ETS as it increases the potential market within which they can sell and purchase allowances, reducing costs. The alternatives – creating a domestic ETS or a carbon tax – will take up valuable civil service time (both in setting up a new scheme and changing the way the carbon budgets are accounted), and leaving the ETS raises the difficult question of what to do with UK carbon credits – potentially undermining the integrity of the scheme. Given that the Clean Growth Strategy constitutes the roadmap for our emissions reductions until 2032 it is disappointing that it includes no analysis of how such significant changes could impact on key policies or sectors.
The tricky issue of Northern Ireland
The UK’s access to the internal energy market after Brexit is also brushed under the carpet, with the most glaring omission being the future of the all-Irish Single Electricity Market (SEM). Unless the UK wants to unwind the Irish SEM post-Brexit (which will be highly unpopular in both Northern Ireland and the Republic) it has two options – both of which will give Westminster a bit of a headache. The first is to make Northern Ireland a ‘special zone’, allowing the all-Irish energy market to continue under EU jurisdiction. However, this means different parts of the UK would be subject to different laws, and the people of Northern Ireland would be subject to laws over which they had no say. The second option is to create a special status for SEM which exempts Northern Ireland from the jurisdiction of the EU provided it remains compliant with EU law, though this would in turn require a body to ensure implementation and compliance. Interconnected energy markets – although not directly related to emissions reductions – are nonetheless important enablers of future decarbonisation. It is thus concerning that the Clean Growth Strategy is silent on this crucial matter.
The publication of the Clean Growth Strategy last week was met with mixed reactions, from people hailing its ambition to Client Earth threatening legal action as the document fails to meet the legal requirement of proposing policies that will reach the 57% reduction target. Climate change is a long-term issue that needs commensurately long-term policies to address it. Failing to provide businesses and investors with assurances over Brexit means that overall the Clean Growth Strategy falls short.