BROADER IMPLICATIONS FOR THE GLOBAL ENERGY SECTOR March 27, 2017 - - PowerPoint PPT Presentation

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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

• f 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

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Energy Community Secretariat Energy Community Secretariat

brexit scenarios – the dust settles

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• 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

Energy Community Secretariat Energy Community Secretariat

• 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

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Energy Community Secretariat Energy Community Secretariat

• 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

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Energy Community Secretariat Energy Community Secretariat

• 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

main options: no deal

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Energy Community Secretariat Energy Community Secretariat

• 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?

main options: no deal

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Energy Community Secretariat Energy Community Secretariat

• 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

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Energy Community Secretariat Energy Community Secretariat

• 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

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Energy Community Secretariat Energy Community Secretariat

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

Energy Community Secretariat Energy Community Secretariat

• 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

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Energy Community Secretariat Energy Community Secretariat

• 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

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Energy Community Secretariat Energy Community Secretariat

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Thank you for your attention!

Dirk Buschle, Deputy Director 12