The Potential Consequences of Brexit for British Energy Security

In Issue Briefs by editor0 Comments

by Robert Swanson

union-jackAfter the victory of the “leave” campaign, there is no shortage of commentary on the wide-ranging social, political, and economic effects of Britain’s coming departure from the European Union. While the majority of Brexit’s supporters point to the benefits of greater national autonomy, controlling immigration, and charting a course away from the culturally distant Continent, little attention has been paid to the consequences of Brexit for the country’s energy security. Britain, nudged by EU guidelines, has made great strides in reforming its energy portfolio to include more renewables and less oil and gas. But it still imports the majority of its fuel in the form of coal, natural gas, and oil. By leaving the EU, Britain will, by necessity, likely reverse its progress on the greening of its energy mix and concurrently pay more for imported fossil fuels.

The UK’s Energy Disposition

The UK’s electricity mix, based on 2015 data, indicates a greater degree of source diversity than in 2014. Coal was the big loser of the mix, falling from 29.7% in 2014 to 22.6% in 2015. Natural gas and oil comprised 31.9% of the electric mix, slightly lower than the 32.4% of the previous year. Nuclear power comprised 20.8% of the mix, up from 18.8%, and renewables jumped from 19.1% to 24.7%. Large investments in bioenergy, offshore and onshore wind power, and solar photovoltaics over the last ten years accounted for the majority of the change. Transport fuel accounted for about 75% of UK’s total oil consumption in 2014 and 2015.

In 2014, the EU at large agreed on energy efficiency targets to cut emissions by at least 40% by 2030 compared to 1990 levels. The UK’s own targets are greater, as the Climate Change Act of 2008 seeks to reduce emissions by 80% in 2050 from 1990 levels. The UK is the largest recipient of proceeds from the European Investment Bank’s Climate Awareness Bonds, with nearly €7.8 billion in total loans going to the UK for renewable energy and efficiency projects.

The Energy Implications of Brexit

Two prominent Conservatives, former London Mayor Boris Johnson and Secretary of State for Justice Michael Gove, opined that Brexit would drastically lower the average consumer’s energy bills. Both pointed to the current 5% VAT on UK energy bills, which adds around £60 to the average bill per year. Under current EU regulations, VAT taxes on energy usage are required, and no government is allowed to reduce the tax to less than 5%. Both Johnson and Gove claimed the £2 billion per year generating tax cut could be funded from the overall £11 billion pounds per year the UK would save in fees currently paid to the EU.

The United Kingdom Independence Party (UKIP) has been uniform in its support for Brexit, particularly in its call to remove multiple energy regulations. UKIP’s 2016 Local Manifesto calls for an end to “renewable energy scams,” and seeks to bring back jobs in mining. MEP Roger Helmer, in an article from May, claimed that current UK energy policies, “dictated by Brussels” have “clo[sed] down proven, reliable, and cost-effective coal capacity” and replaced it with “expensive, unreliable and intermittent renewables.” He also pointed to “plant closures and job losses” in affected industries, and argued that the EU’s Large Combustion Plant Directive, a scheme to close old coal power plants, “threaten[s] the most almighty energy shortage in the UK.”

Chancellor of the Exchequer George Osbourne referred to Johnson and Gove’s VAT claims as “fantasy economics,” noting that the £11 billion the UK spends on EU membership cannot be so easily reapportioned. Citing the reality of “a smaller economy” and “a hole in public finances” after Brexit, the UK would be strapped for cash and would, by necessity, have to raise taxes on many goods and services. While the VAT would no longer go to Brussels, it would likely still exist and simply go to London instead.

 Further undermining the “leave” energy argument is the fact that Britain receives significant quantities of its oil, natural gas, and coal from other EU members or countries with which the EU has trade agreements. Brexit would invalidate its participation in the existing customs union with other EU members, and remove Britain from EU trade agreements with third parties, causing import prices for these energy sources to rise immediately. Consumers would see not only higher electricity bills, but higher prices for gasoline and potentially higher prices for air travel. Unless Britain can somehow conclude new trade agreements from a more disadvantageous negotiating position, prices will increase.

While Britain’s long term climate goals are more ambitious than the EU’s, Chatham House energy researcher Antony Froggatt praised the “double lock on…climate change policy” that the EU provides, and noted that without the “EU framework to keep it on that path,” Britain’s long-term climate change measures would be more susceptible to revision or outright cancellation.

According to a recent poll by the Energy Institute (EI), a majority of energy industry leaders are pessimistic about Brexit. In that poll, respondents predicted negative effects on “securing energy supplies, renewable energy development, climate change and sustainability, and air quality….” Amber Rudd, the UK’s energy secretary, projected that energy costs would increase by up to £500 million pounds per year if the UK leaves. Rudd also noted that Britain benefits from the collective ability of the EU to prevent bullying by energy exporters, particularly Russia. Without “a bloc of 500 million people” to “force Putin’s hand,” Rudd warned that the energy security of the country would be at greater risk.

Even if it develops domestic sources of energy, such as coal, and oil and gas in the North Sea, the energy costs for consumers would still increase. But these steps could be derailed if Scotland holds another independence referendum. If Scotland leaves, Britain would lose yet another major source of its oil and gas. Brexit will also elevate UKIP to a greater position of power, placing the future of Britain’s alternative energy program in doubt. In the longer term, should the Transatlantic Trade and Investment Partnership (TTIP) deal pass, Britain would miss out on lower prices for energy imported from the U.S.

Robert Swanson is a Transatlantic Security Analyst at the Streit Council. Photo credit: Openclipart

Share this on:

Leave a Comment