The UK Government Publishes Series of Commodity Trading Guidelines Regarding Event of No-Deal Brexit

The UK Government has begun publishing guidance notices concerning commodities that are commonly traded with the European Union, regarding the event of a ‘no-deal Brexit’. The notes include the trading gas, electricity, as well as meeting climate change requirements.

The series is part of the Governments on-going process of publishing guidelines in the event of a Brexit ‘no-deal’. The UK and the European Union are currently in the process of negotiating this withdrawal in attempt to meet an agreement, minimising future disruption. Whilst a deal is favoured by Government and the EU, there has been deadlock through much of the process and as a result of Article 50 having been invoked the negotiations are stated at the end of March 2019.

The trading of commodities with the EU including gas and electricity, is highly integrated. The UK has historically pushed for liberalisation of these markets, favouring closer economic integration. By leaving the EU this would impact a large number of different areas of these trading areas. This includes electricity, which takes place through the use of interconnectors between Member States and gas via connecting pipelines. Furthermore, meeting climate obligations is also interlinked with EU policy, through such platforms like the EU Emissions Trading Scheme. Each of these topics includes specific guidance, with an abridged assessment stated below:

Electricity in the Event of No-Deal:

The UK and the EU have coupled electricity markets, meaning they are linked with common rules that govern operations. This takes place through the UK participating in the EUs Internal Energy Market, which it will no longer be a part of. Northern Ireland is part of the Single Electricity Market, which creates a wholesale electricity market with Ireland, which is dependent on cooperation between each country. This has led to greater efficiency between the networks, whilst providing economic benefits to consumers. Once the UK leaves the EU, the networks will become ‘uncoupled’ and therefore EU legislation will not apply.

It is likely that changes will be required to domestic industry codes (the technical rules of the domestic electricity system) and licences, which will be provided by the Office of Gas and Electricity Markets (OFGEM) and the Utility Regulator for Northern Ireland. The Government is working with both OFGEM and National Grid, operator of the domestic electricity network, to ensure that in the event of a ‘no-deal Brexit’ supply remains. Due to the mutual benefits of the Single Electricity Market, the Government intends to maintain this, working with both the Irish Government and the wider EU Commission. However, in the event that such workings cannot continue, contingency plans are in place to ensure minimal disruption for Northern Ireland. This may require further transmission capabilities from Great Britain through the developed interceptor in such an event. Industry participants including those involved with interconnectors, code administrators and market participants should undertake contingency planning, to assess measures that will be undertaken in the event of a ‘no-Brexit deal’.

Gas Trading in the Event of No-Deal:

The UK is connected via pipeline with the Netherlands, Ireland and Belgium. In the event of a ‘no-deal Brexit’ taking place, whilst EU Energy law will no longer be applicable in the UK, the fundamental trading of gas will not see widespread changes. This is a result of the trading platform PRISMA, that National Grid, Premier Transmission (Northern Irelands Transmission System Operator) and the UKs interconnector operators all use for trading and allocation. This allows efficient transfer of gas when necessary between Member States, as well as non-EU countries. There are no plans to change this process in the UK or the EU and therefore in this regard disruption should be managed effectively.

Where changes will be seen is the access rules of approval and trading arrangements, essentially the first point for authorisation. This means that those involved in the trading of gas across border interconnectors should engage with the relevant Member State regulators, to assess whether the current certification is still acceptable. Similarly with electricity, network rules and codes will also change. Furthermore, contingency planning should be undertaken by all participants to plan in the event of a ‘no-deal Brexit’.

Climate Change Obligations in the Event of No-Deal:

The UK has been at the forefront of global climate change mitigation, as the first nation to introduce binding targets of carbon emissions it has continued to lower emissions since 1990. Leaving the EU will not have significant impacts on the countries psyche in regards to climate change and the need to lower emissions. There will however be impacts due to the interconnecting policies between the EU and the UK, discussed below.

There will widespread changes for installations that are subjected to the EU Emissions Trading Scheme (EU ETS). Approximately 1,000 domestic sites that are high carbon emitters are subjected the scheme, including oil and gas platforms, steel and iron manufacturing and power stations. This constitutes approximately 10% of all EU ETS sites. Operators are required to develop reporting mechanisms of annual emissions, conducted through the European Commissions Monitoring and Reporting Regulation, as well as the Accreditation and Verification Regulation. The system works through the ‘cap and trade’ principle, where sites can buy and sell emission allocation, dependent on the emissions they are producing. The cap is then gradually reduced in order to lower emissions each year, providing financial incentive for operations to lower emissions each year.

In the event of a ‘no-deal Brexit’, UK sites will no longer be subjected to the EU ETS and government will remove requirements relating to the surrender of emissions allowances. It does however aim to keep Monitoring, Reporting and Verification arrangements in place, so it is possible to collect emission data, report on it and then assess future mitigation efforts, providing transparency of the process. Access to the ‘open’ section of the EU ETS database will remain, however the ‘closed’ section to which government Market Surveillance Authorities currently use will be closed.

In conclusion, it can be assessed that there a significant number of changes that will take place once the UK leaves the EU in a ‘no-deal Brexit’ regarding energy trading. Climate change mitigation will also see impacts, though to a lesser extent. The UK government will continue to work with stakeholders to minimise disruption, with on-going guidance notes published by the Department for Business, Innovation and Skills.

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Full text published on the gov.uk: