The voice of the energy industry

Article 50 – the Brexit clock starts ticking

An important milestone was reached on 29 March when the UK Government formally notified the European Council of its intention to leave the European Union under Article 50 of the Lisbon Treaty. Article 50 provides for a two-year period to negotiate exit arrangements and to establish a framework for future relations. The timescale is likely to be tight for such a complex negotiation, particularly since the Commission has announced the intention to finalise the agreement by September 2018 in order to allow six months for ratification.

The negotiating stance of the two sides has slowly become clearer in recent months. Theresa May has indicated that the UK will not remain a member of the Single European Market (generally taken to include the Internal Energy Market) and will leave the Customs Union. In addition, the UK will in future no longer accept the supremacy of the European Court of Justice.

The EU has not yet published a formal position, but the Commission’s chief negotiator, Michel Barnier, has set out some general principles. Firstly, the EU would like to reach a withdrawal agreement and a free trade agreement and does not wish to default to World Trade Organisation rules. Secondly, the UK will have less favourable access to the single market than EU members and should not be able to “cherry-pick” elements of the single market. Thirdly, the EU will be wary about “regulatory dumping”, i.e. will want a level playing field in employment, environmental and consumer protection rules.

On two points the two sides seem to have similar priorities: the need to clarify the rights of EU citizens living in the UK and UK citizens in other Member States; and the need to avoid a “hard” border between Northern Ireland and Ireland and any adverse effects on the peace process. There is, however, a difference of view on whether the withdrawal negotiations should take place first, followed by talks on a free trade agreement (the EU view) or whether the two discussions should run in parallel (the UK view). 

In energy four particular issues will need to be tackled: the UK’s access to the EU internal market in electricity and gas, which is based on harmonised rules governing wholesale markets and interconnector trading; the future of the single electricity market between Ireland and Northern Ireland, which has a high degree of regulatory convergence; the future EU/UK relationship in climate and environmental policy, e.g. whether the UK remains a participant in the EU Emissions Trading System; and finally arrangements to handle the cross-border trade and transportation of nuclear materials, given that the UK will also be leaving the Euratom Treaty.

Article 50 has never been invoked before, so the negotiations will enter uncharted territory and there is little clarity on how they will proceed. However, one point on which most commentators are agreed is the difficulty of concluding a comprehensive free trade deal within two years. Most EU trade agreements have taken at least six years and negotiations on the EU-Canada (CETA) trade deal, which has still to be ratified, began in 2009. This may point to transitional arrangements, at least in some areas. On the other hand, the UK and EU start from a point of regulatory convergence, which should ease discussions in some areas. 

 

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