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Ambassador Thomas Reilly, Covington’s Head of UK Public Policy and a key member of the firm’s Global Problem Solving Group and Brexit Task Force, draws on over 20 years of diplomatic and commercial roles to advise clients on their strategic business objectives.

Ambassador Reilly was most recently British Ambassador to Morocco between 2017 and 2020, and prior to this, the Senior Advisor on International Government Relations & Regulatory Affairs and Head of Government Relations at Royal Dutch Shell between 2012 and 2017. His former roles with the Foreign and Commonwealth Office included British Ambassador Morocco & Mauritania (2017-2018), Deputy Head of Mission at the British Embassy in Egypt (2010-2012), Deputy Head of the Climate Change & Energy Department (2007-2009), and Deputy Head of the Counter Terrorism Department (2005-2007). He has lived or worked in a number of countries including Jordan, Kuwait, Yemen, Libya, Iraq, Saudi Arabia, Bahrain, and Argentina.

At Covington, Ambassador Reilly works closely with our global team of lawyers and investigators as well as over 100 former diplomats and senior government officials, with significant depth of experience in dealing with the types of complex problems that involve both legal and governmental institutions.

Ambassador Reilly started his career as a solicitor specialising in EU and commercial law but no longer practices as a solicitor.
Continue Reading Thomas Reilly

In early March, the EU released its first-ever European Defence Industrial Strategy (EDIS), accompanied by a proposed regulation establishing the European Defence Industry Programme (EDIP). The aim is to boost defence capabilities in Europe through greater and more efficient spending. In particular, the strategy seeks to reverse recent trends, whereby 78% of defence acquisitions by EU countries since Russia’s full-scale aggression against Ukraine were made with non-EU producers, with U.S. firms accounting for 63%. It also addresses recent concerns by the defence industry over ESG constraints on obtaining private financing.

The ultimate benchmark for success, as recounted by one EU foreign minister, is whether these measures will help deter Russia and other adversaries. Nonetheless, it reflects greater operational focus of the EU on defence and security issues, and what in practice the European Commission and other EU institutions can do to bolster capabilities in a policy area that will remain the primary prerogative of EU Member States.

Plugging Defence Gaps

Since the end of the Cold War, European defence has suffered from perennial underinvestment and lack of policy support for the defence industry. Whereas Europe collectively spent on defence over half of the U.S. totals in the early 1990s, it now spends about one-third compared to the United States—arguably at a time of much greater security threats to Europe compared to America. There are simply not enough soldiers, tanks, planes, ships, missiles, guns, and ammunition in Europe, nor domestic facilities to produce the necessary weapons systems and materiel. Moreover, EU countries have procured defence products at a national level, exacerbating fragmentation within the European market. This fragmentation has led to the creation of national industrial silos and numerous defence systems that often lack interoperability.

Continue Reading Mobilizing Greater Defence Capabilities in Europe: the EU’s Defence Industrial Strategy

Our December blog, examined the optimism at the end of last year that a way could be found out of the political deadlock that has paralysed the Northern Ireland Assembly for the last two years. As our blog noted, although those hopes did not materialize, the fact that the discussions had reached such an advanced stage suggested that a solution might be found in the New Year.  The announcement by the Democratic Unionist Party (DUP) on 30 January that a Deal had been reached seems to justify that optimism.

A Historical Recap

The 1998 Belfast Good Friday Agreement (GFA) brought an end to 30 years of ‘The Troubles’.  It struck a delicate balance between the competing interests of the Unionist and Nationalist communities in Northern Ireland.  Key to its success was the removal of border infrastructure between Northern Ireland and the Republic of Ireland, and the creation of a Power Sharing Executive (PSE) for Northern Ireland.  The PSE allocates the position of First Minister to the largest political party in Northern Ireland, and the position of Deputy First Minister to the second largest.  Other than the status implied by the titles, there is very little practical difference between the two roles.

Northern Ireland’s parliament, the Stormont Assembly, only actually sat for any extended period of time between 2007-2017, but, until the last set of elections, the DUP had always held the position of First Minister.

Brexit and Northern Ireland

Northern Ireland voted by 56:44 to remain in the EU in the 2016 Brexit referendum.  The Unionist community largely voted ‘Leave’, believing it would consolidate Northern Ireland’s position within the UK; the Nationalist community generally voted ‘Remain’ for the opposite reason. 

Continue Reading The DUP and The Deal: Power-Sharing Returns to N Ireland

On January 24, the EU Commission released a communication announcing the European Economic Security Package (EESP) – as trailed in our previous blog. The Communication, which implements the EU’s Strategy (published in June 2023), is aimed at strengthening the EU’s economic security in a number of areas:

  • improved screening of foreign investment into the EU;
  • greater export controls coordination;
  • identification of outbound investments risk;
  • enhanced support for research and development involving dual-use technologies;
  • upgraded research security.

The EESP comprises five measures – a legislative proposal; three white papers; and a Proposal for a Council Recommendation.

Proposed revision of the Regulation on the screening of Foreign Direct Investment

The proposed revisions to the screening framework would broaden the scope of the existing FDI Screening Regulation by:

  • extending screening to cover indirect foreign investment, including acquisitions by EU investors ultimately controlled by a non-EU country;
  • bringing certain greenfield investments within the scope of screening regimes;
  • ensuring all Member States have a screening mechanism in place, with better harmonised national rules (there are currently five Member States without complete foreign investment screening legislation); and
  • identifying minimum sectoral scope where Member States must screen foreign investments.

Notably, the proposed minimum scope for Member States’ screening regimes would encompass military, dual-use and medical sectors; projects identified as sensitive or as being of ‘Union interest’; and certain ‘critical technology’ sectors including- advanced semiconductors, artificial intelligence, biotechnologies, and quantum technologies.

The Commission also proposed requirements for greater coordination in the submission of foreign investment review filings across the EU, which could significantly impact transaction timelines. These proposals will be covered in more detail in a blog post on our Covington Competition blog.

White Paper on Outbound Investment

The non-binding nature of the White Paper reflects both the limited information available to substantiate perceptions that potential security risks could arise from EU outbound investment, that would not be addressed by existing tools and the tensions between the Commission and Member States’ positions on this issue (whilst the Commission stressed the need to scrutinize outbound EU investments to protect the EU’s security interests by preventing technology and know-how leakage, Member States feared the loss of sovereignty).

As a compromise, the White Paper proposes a detailed analysis of outbound investment; a three-month stakeholder consultation; and a 12-month monitoring and assessment of outbound investments at national level. The White Paper initially proposes that the monitoring phase focuses on the four ‘critical technology areas’ mentioned above. The assessment period will conclude with a joint risk assessment report, expected in Autumn 2025, which will enable the Commission to decide whether a more concrete policy response is required.

The Commission’s consideration of outbound investment screening follows similar moves by other countries to review or make enhancements to their capacity to intervene in such transactions – including the United States and the United Kingdom (where the Government has been undertaking engagement with industry stakeholders to understand and assess potential risks).

White Paper on Export Controls

The White Paper proposes the creation of a political coordination forum to help Member States reach common positions on export control matters, and proposes bringing forward the evaluation of the recast Dual-Use Regulation to the first quarter of 2025.

While the modernization of the EU export control regime effected by the adoption of the recast Dual-Use Regulation in 2021 is still relatively recent, the White Paper contemplates a need for further changes prompted by current geopolitical tensions, the continued pace of technological change, and the increased use of trade restrictions for foreign policy purposes by the EU and its partners.

In a notable departure from the EU’s previous position, the Commission will make a proposal to introduce controls at an EU level for items that ‘would have been adopted’ by multilateral regimes (such as Wassenaar Arrangement and the Missile Technology Control Regime) but have not been so-adopted because members of those regimes have blocked such revisions. 

The Commission will also adopt a Recommendation to encourage coordination within the EU on any new national control lists.  Particularly relevant for advanced and emerging technologies, these measures are designed to avoid divergence between Member States’ national controls, and to aid the EU in responding to third countries outside the EU that impose new controls unilaterally. However, the possibility that EU-level lists could further fragment the enforcement of multilateral regimes and undermine their implementation and effectiveness will remain controversial with industry and a consideration for Member States.

White Paper on enhancing support for research and development involving technologies with dual-use potential

The White Paper opens a consultation with public authorities, civil society, industry, and academia on options for strategic support for dual-use technology development aimed at maintaining a competitive edge in critical and emerging dual-use technologies.

The Paper also reviews the R & D support offered under current EU funding programs and identifies three potential options for the future:

  • no change to existing regimes;
  • removing the exclusive focus on civil applications in selected parts of the successor program to Horizon Europe; or
  • creating a dedicated instrument with a specific focus on dual-use R&D.

Proposal for a Council Recommendation on enhancing Research Security

The Commission recognizes that international tensions, combined with the increasing geopolitical relevance of research and innovation, mean that European researchers and academics are increasingly confronted with risks when cooperating internationally.  These risks may mean that research and innovation is targeted and used in ways that threaten EU security and facilitate undesirable transfer of critical technology.

The Proposal sets out a number of EU-level cooperation and coordination principles that should underpin all research security policies, such as academic freedom, institutional autonomy, and non-discrimination. The Proposal includes practical safeguarding measures that can be taken by the Member States and suggests the establishment of a European Centre of Expertise on Research Security as well as encouraging Member States to establish a policy framework for research security, including by incentivizing research centers to appoint research security advisers.

Comment

The EESP is another plank in the EU’s policy of Strategic Autonomy.  It gives legislative weight to the Commission President’s speeches in March and April 2023 (which focused on re-balancing the trading relationship with China) and the European Economic Security Strategy of June 2023 (aimed at creating a framework for assessing and addressing risks to EU economic security, while ensuring that the EU remained an open and attractive destination for business and investment).

The EESP brings the EU into line with the US approach of a more national security-focused approach to foreign investment – an approach which appears reciprocated in China. Whether this approach to economic security will continue depends to a large extent on the outcome of the European elections in June, which will shape not only the new Parliament, but also the Commission.

Covington’s international teams of policy and regulatory experts are well-placed to help and advise companies caught in the middle of this geopolitical and policy tussle, grappling with the competing demands of de-risking inward and outward Chinese investment without de-coupling trade. 

In previous blogs, we have written about the EU-China relationship and how the EU was increasingly focused on delivering its policy of Strategic Autonomy. We are beginning to see the concrete implementation of this strategic intent, with the EU Commission approving a €902 million German State aid measure to support the construction of an electric vehicle battery production plant.  As Margrethe Vestager, EVP for Competition Policy noted, this is the first individual aid to have been approved under the Temporary Crisis and Transition Framework since March 2023 and its approval will keep the battery plant in the EU, rather than it moving to the US.

And the EU is planning to take further measures to enhance and protect its economic security in pursuit of the goal of strategic autonomy. On December 10, the Commission unveiled its Agenda outlining for items to be addressed in early 2024. Of note is the European Economic Security Package (EESP), due for discussion on 24 January.

It had been planned to adopt the EESP by the end of 2023.  However, its adoption faced delays due to Member States’ concerns about ceding authority to Brussels in an area traditionally reserved for national competence. For its part, the Commission argues that a “Europeanization” of the EU trade rules was required to ensure consistency across the bloc following decisions by various Member States to issue their own trade measures (for example, on export controls).

Although full details of the EESP have not yet been released, key components of the EESP will include a revision of the Foreign Direct Investment Screening Regulation and an initiative regulating outbound investments. The Agenda for 24 January also includes a non-binding Communication restricting export of dual-use items.

Continue Reading The European Economic Security Package

Over the last few weeks, hopes have been rising that a way could be found out of the political deadlock that has paralysed the N Ireland Assembly over the last two years. Those hopes were cruelly dashed on 18 December, but the fact that the discussions had reached such an advanced stage gives hope that a solution may be closer and reachable in the New Year.

A Historical Recap

The Belfast Good Friday Agreement (GFA) of 1998 brought to an end 30 years of ‘The Troubles’ through a delicate piece of negotiation which carefully balanced the competing goals and interests of the Unionist and Nationalist communities in N Ireland.  A key element of the Agreement was the removal of all border infrastructure between N and S Ireland (which for the Nationalist community was a very visible reminder of the division of the Island of Ireland).  Another crucial ingredient was the creation of a Power Sharing Executive (PSE) for N Ireland. Under this part of the Agreement, the largest Political Party in Northern Ireland would hold the position of First Minister, with the second largest holding the position of Deputy First Minister.  The Agreement ensured that in practice, there was very little difference (other than status) between the two roles.

For 24 years, the largest political party in N Ireland was the Democratic Unionist Party (DUP) who accordingly held the position of First Minister, with Sinn Fein holding the position of Deputy First Minister.

Brexit and N Ireland

In the 2016 referendum, N Ireland voted by 56:44 to remain in the EU, with the Unionist community broadly supporting Leave on the basis it would solidify N Ireland’s position within the UK.  The UK left the Customs Union and the Single Market as part of the Brexit deal with the EU.  In theory, that should have pulled N Ireland out of both entities as well, re-creating border infrastructure between N and S Ireland. Brexit (requiring a border) collided with the reality of the GFA (abolishing the border), creating a circle which was impossible to square. In the end, the UK government placed the border between the UK and the EU in the Irish Sea, effectively cutting the N Ireland economy off from the rest of the UK and enabling companies to trade more easily with the Republic of Ireland than with GB.

Continue Reading Brexit and N Ireland

What You Need to Know.

  • After two days of intense negotiations, world leaders adopted a draft decision that sets out international climate priorities in response to the findings of the first Global Stocktake under the Paris Agreement.  The decision covers several thematic areas, including mitigation of greenhouse gas emissions, adaptation and resilience in the face of climate change, financing and means of implementation and support for climate projects, and loss and damage funding for climate-vulnerable nations.  The text of the draft decision can be found on the UNFCCC’s website here.
  • The most highly scrutinized and heavily debated aspect of the agreement was the path forward on the use of fossil fuels, greenhouse gas emissions from which, the decision notes, have “unequivocally caused global warming of about 1.1 °C.”  Recognizing the need for deep, rapid, and sustained reductions in greenhouse gas emissions in line with 1.5 °C pathways, the decision calls on Parties to contribute to the following efforts related to the energy transition and fossil fuel use:
    • Tripling renewable energy capacity globally and doubling the global average annual rate of energy efficiency improvements by 2030;
    • Accelerating efforts towards the phase-down of unabated coal power;
    • Accelerating efforts globally towards net zero emission energy systems, utilizing zero- and low-carbon fuels well before or by around mid-century;
    • Transitioning away from fossil fuels in energy systems, in a just, orderly and equitable manner, accelerating action in this critical decade, so as to achieve net zero by 2050 in keeping with the science;”
    • Accelerating zero- and low-emission technologies, including, inter alia, renewables, nuclear, abatement and removal technologies such as carbon capture and utilization and storage, particularly in hard-to-abate sectors, and low-carbon hydrogen production;
    • Accelerating and substantially reducing non-carbon-dioxide emissions globally, including in particular methane emissions by 2030;
    • Accelerating the reduction of emissions from road transport on a range of pathways, including through development of infrastructure and rapid deployment of zero and low-emission vehicles; and
    • Phasing out inefficient fossil fuel subsidies that do not address energy poverty or just transitions, as soon as possible;
  • While coal has been mentioned in previous COP decisions, the language on “transitioning away from fossil fuels” represents the first time that countries have agreed to language that explicitly curtails all fossil fuels in the nearly three-decades-long history of the UN climate summit.  Though hailed by COP28 President Al Jaber and other world leaders as a “historic package to accelerate climate action,” the decision, and how it was adopted, was not without its critics.
    • UN Climate Change Executive Secretary Simon Stiell pushed the world to strive for more action.  “COP 28 also needed to signal a hard stop to humanity’s core climate problem—fossil fuels and their planet-burning pollution.  Whilst we didn’t turn the page on the fossil fuel era in Dubai, this outcome is the beginning of the end.”
    • Anne Rasmussen, lead delegate for Samoa, complained that delegates of the small island nation nations weren’t even in the room when President Al Jaber announced the deal was done.  Garnering the longest applause of the session, Rasmussen declared that “the course correction that is needed has not been secured” and that the deal could “potentially take us backward rather than forward.”
Continue Reading COP28 Final Negotiations Recap: A Global Agreement to Transition Away from Fossil Fuels

 What You Need to Know.

  • Azerbaijan is poised to host COP29 next year after receiving regional backing.  If formally confirmed, Azerbaijan’s COP Presidency would resolve months of deadlock.  It will also trigger criticism that next year’s COP will again be hosted by a nation heavily dependent on fossil fuel exports.
  • Brazil has been formally chosen to host COP30 in 2025.  The venue will be the city of Belém, located in the Amazon rainforest.  As Brazil’s Minister of the Environment and Climate Change, Marina Silva, commented: “With its immense biodiversity and vast territory threatened by climate change, the Amazon will show us the way.”
  • The UNFCCC has released a revised draft text of the negotiated outcome of the first Global Stocktake under the Paris Agreement.  The revised draft no longer mentions the “phase out” of fossil fuels and instead mentions the “substitution of unabated fossil fuels” and “tripling renewable energy capacity . . . by 2030.”
  • The inclusion of “phase out” language in the final agreement has been one of the yardsticks by which commentators have suggested the success or failure of COP28 should be measured.  Accordingly, the new draft was met by significant criticism, including by the European Union’s representatives who called elements of the text “unacceptable.”  Negotiations now center on finding a compromise, almost guaranteeing that discussions at COP28 will continue beyond the official close of the conference on Tuesday, December 12.
  • Following the official theme of the day, 154 nations signed the COP28 UAE Declaration on Sustainable Agriculture, Resilient Food Systems, and Climate Action.  The Declaration commits to “expedite the integration of agriculture and food systems into our climate action” and to “scaling-up adaptation and resilience activities and responses in order to reduce the vulnerability of all farmers, fisherfolk, and other food producers to the impacts of climate change.”  The contributions of the agriculture and forestry sectors, both as a source of emissions and as carbon sinks, are continuing to gain attention as an important part of the global efforts on climate change.
Continue Reading COP28 Day 10 Recap: Food in Focus, and a Look Ahead to COP29 and COP30

What You Need to Know. 

  • After a year of preparation and months of anticipation, the twenty-eighth annual United Nations Conference of Parties to the United Nations Framework Convention on Climate Change (COP28) opened in Dubai on November 30, 2023.  Live and recorded coverage of the plenary sessions can be found on the UNFCCC COP28 website.
  • UN Climate Change Executive Secretary Simon Stiell opened the conference with a powerful call to action and reminder of what is at stake at COP28.  “Remember this.  Behind every line you work on.  Every word or comma you wrestle with here at COP.  There is a human being, a family, a community, that depends on you.  Turn the badge around your necks into a badge of honour, and a life belt for the millions of people you are working for.  Accelerate climate action.  Teach it to run.”
  • With a standing ovation from attendees, delegates approved the operationalization of a fund to assist developing countries in responding to economic and non-economic loss and damage associated with the adverse effects of climate change.  COP28 President Dr. Sultan Ahmed Al Jaber praised the approval of the loss and damage fund—the first time a decision has been adopted on the first day of any COP—as setting “a clear ambition for [delegates] to agree [to] a comprehensive, ambitious GST [Global Stocktake] decision over the next twelve days.”
  • The fund will initially be hosted by the World Bank for an interim period of four years, at which time an independent assessment of the World Bank’s performance as a host will be conducted.  World leaders must now nominate and appoint a board to operationalize the fund.  The UNFCCC also must formulate and post a final decision reflecting today’s approval.
  • Funding commitments for the loss and damage fund are mounting, with contributing countries facing a mix of peer pressure and political constraints.  National contribution pledges to date include: UAE ($100 million); UK ($51 million); US ($17.5 million); Japan ($10 million); European Union ($245 million, including $100 million pledged by Germany).
Continue Reading COP28 Day 1 Recap: A Call for Action and Historic Decision on Loss and Damage Funding

This note provides highlights of the UK’s recently released and remarkably sweeping Energy Security Bill.  If enacted, the Bill will have profound impacts on energy investments and the pace and scope of the energy transition in the UK.  Before detailing the Bill, some political context may be useful.

The Uxbridge Surprise

Boris Johnson’s resignation as the Conservative MP for Uxbridge triggered a by-election, which Labour had been expected to win.  In the event, however, the Conservatives unexpectedly prevailed by effectively turning the campaign for the Uxbridge seat into a referendum on the popularity of extending London’s Ultra-Low Emissions Zone (ULEZ) – ironically initially proposed by Johnson in 2015 when he was still Mayor of London.

This victory may have led some in the Conservative Party to perceive a chink in Labour’s apparently impregnable opinion poll lead.  Focusing on the energy transition as a factor in the cost-of-living crisis creates a clear political divide between the two parties.  That conclusion which may lie behind recent announcements of policy reviews of car controls in inner cities; and pressure from Conservative members and MPs to drop commitments to ban the sale of hydrocarbon-powered cars by 2030, to phase-out gas boilers by 2035 and to impose energy efficiency targets on landlords.

However, given that, at the same time, we have seen the PM commit to substantial long-term investment in the UK’s first at-scale CCUS project in Aberdeen and the long-awaited and ambitious Energy Security Bill being laid before Parliament, it is fair to say that the UK’s energy policy signals are mixed.

North Sea Oil and Gas Exploration to Continue

On 31 June, PM Sunak announced that his government would award over new 100 oil and gas licences for North Sea oil and gas exploitation under the current 33rd licensing round, (with a commitment to undertake future licensing rounds).  The Energy Minister, Grant Shapps, stated he wanted to “max out” the UK’s remaining reserves of North Sea oil and gas.

The IEA and the UN have argued that no new exploration and development of oil and gas fields should occur if the world is to limit global temperature rises to 1.5C above pre-industrial levels.  Since Labour has aligned its policy on new oil and gas with this position (pledging to ban drilling for new oil and gas projects in the North Sea, whilst allowing existing wells to remain operational), Sunak’s announcement and Shapps’ determination have created a clear policy divide between the two parties.

Armistice in the ‘War on Cars’?

Building on the ULEZ victory, the PM declared himself to be ‘on the side of the car-driver’ and announced a review of low-traffic neighbourhood (LTN) initiatives, including – according to some reports – restrictions on councils’ ability to impose 20mph speed limits, or install bus gates.

Although the PM did renew his commitment to the 2030 deadline for ending the sale of new petrol and diesel cars, that position is already under pressure, with 70% of Conservative Party members and a growing number of Tory MPs and peers reportedly opposing the ban. On 1 August, the Business Secretary told Cabinet colleagues that the Government’s EV targets risked damaging investment in Britain and 30 Conservative MPs signed up to the five pledges of the influential newspaper The Sun on Net Zero – one of which is the postponement of the 2030 ban.

Although Labour’s candidate in Uxbridge distanced himself from the UKEZ policy (and appeared to receive support in doing so from the Labour Leader), it is the poster-child of the Labour Mayor of London. 

Carbon Markets in Turmoil

In June the UK government offered more UK ETS allowances than expected as part of an overall reduction in the Scheme’s emissions cap – in the process making it cheaper for industry to emit greenhouse gases. The Government also announced that it would make 53.5m tonnes of extra allowances — about half a year’s worth of UK emissions covered by the scheme — available between 2024 and 2027 and would exclude domestic shipping from the Scheme until 2026 (two years later than the EU). These developments pushed carbon prices to trade at a steep discount compared with those in Europe – (nearly 40 % below the EU at £47 a tonne in the UK compared with £75.86 in the EU).

Although the change has pushed UK power prices below those on the continental mainland, given the centrality of the UK’s Carbon Market to its Net-Zero plans, the lower price could encourage power generators to burn more gas, whilst having a negative impact on efforts to attract the green investments needed to reduce carbon emissions by expanding renewable energy.

CCUS Ascending

However, in contradistinction to these apparently weaker-emission policy positions, the PM also used his trip to Aberdeen to confirm that the Acorn carbon capture and storage project in north-east Scotland, and Viking in the Humber had been chosen as the third and fourth CCUS clusters in the UK, to be supported by Government funding as a crucial part of the UK’s net zero strategy.  Critics note that although CCUS can be used to support net-zero ambitions, it also favors continued fossil fuel-powered electricity generation.

Energy Security Bill

Meanwhile, in the background, the Government presented its long-awaited UK’s Energy Security Bill (ESB) to Parliament on 6 July. This is an ambitious and complex piece of legislation – more than 300 pages long with 243 clauses and 19 Schedules.  If it passes serenely through Parliament, it could be in force by September.

It is a critical piece of legislation for the UK’s energy transition, including provisions to support energy efficiency, low carbon hydrogen, CCUS and nuclear fusion, as well as laying the foundations for structural regulatory reforms to electricity and heat networks. It also contains provisions affecting upstream oil and gas, electricity networks, fuel sector resilience and energy system governance. And it contains significant new regulator and Government powers which will re-shape the energy sector in the UK.

In response to concerns that the current remit of the UK electricity market Regulator (Ofgem) holds back the development of new wind turbines, cables and other measure, the Bill significantly expands the Regulator’s powers and responsibilities and places it under a legal obligation to assist the UK’s progress towards net-zero. This change will help empower Ofgem to oversee the enormous transformation of the UK’s energy sector required to reach net-zero including by developing flexible retail markets to manage the increasing greater proportion of the UK’s electricity generation which will come from intermittent renewable sources.

Key elements of the Bill include:

  • Increased power to Ofgem

The Bill moves responsibility for energy code governance to newly-created code managers, which will be directly accountable to Ofgem. And gives the Competition & Markets Authority (CMA) power to assess whether a merger between energy network companies would substantially prejudice Ofgem’s price control-setting functions.

  • Heat networks

The Bill also gives Ofgem the power to monitor and intervene in the heat network market. It gives the government powers to introduce heat network zoning as well as price regulations. And it introduces measures allowing developers to access powers equivalent to other utilities such as electricity and gas to scale up heat network infrastructure.

  • Competition in onshore electricity networks

The Bill introduces new enabling powers for Ofgem to tender network projects identified under a new Centralised Strategic Network Plan for delivery by third parties, beyond the existing network owners.

  • Greenhouse gas removal in the UK

The Bill allows for new greenhouse gas removal (GGR) methods to count towards UK carbon budgets and launches a consultation on business models for GGRs.

  • Funding regime for CCUS networks

The Bill creates a basis for a CCUS regulatory regime in the UK. It appoints Ofgem as the regulator and creates a methodology for the provision of financial assistance to network operators and early projects. And creates the basis for decommissioning and insolvency regimes.

  • Financial support for hydrogen and industrial carbon capture (ICC)

The Bill creates the powers which underpin low carbon hydrogen and ICC business models (including to offer hydrogen and carbon capture contracts to projects; organise allocation rounds and establish a hydrogen levy to fund financial support for hydrogen production from 2025).

  • Trials of hydrogen heating

The Bill provides the powers required for full gas grid conversion to 100% hydrogen, including powers for a trial hydrogen village by 2025.

  • Low-Carbon Heat Scheme

The Bill introduces a scheme which will set targets for “scheme participants” in terms of the energy efficiency or carbon intensity of the equipment they supply.

  • New energy market arrangements

The Bill extends the UK energy price cap beyond 2023 and enables the inclusion of smaller suppliers in the energy company obligation (ECO) scheme.

  • Independent System Operator and Planner

The Bill creates a new public body to consolidate operation and planning functions across a range of existing and future power systems into a single institution with operational independence from government to promote efficiency and reduced costs for energy consumers.

  • Enabling multi-purpose interconnectors (MPIs)

The Bill redefines licensable activity under the Electricity Act 1989 as part of the wider Offshore Transmission Network Review, allowing for the operation of MPIs, defined as interconnectors that transmit electricity between the UK and a third country or territory; an offshore generation station and a substation; or between two or more substations. 

  • Delivering a smarter electricity system

The Bill defines electricity storage as a distinct sub-set of generation. It extends powers under the Energy Act 2008 to modify energy licences and codes to enable smart meter roll-out, and provides powers to set requirements for energy smart appliances.

  • Ensuring fuel resilience

The Bill gives the government additional oversight and powers to protect supplies from critical fuel infrastructure sites.

  • Promoting responsible oil and gas investments

The Bill expands the powers of the North Sea Transitional Authority (NSTA) to identify and prevent undesirable changes of ownership and control.

  • New Powers for Offshore Petroleum Regulator for Environment and Decommissioning (OPRED)

The Bill provides for secondary legislation to ensure that the offshore oil and gas environmental regime remains effective. It gives OPRED the power to make legislative changes to cover offshore hydrogen operations; and offshore gas unloading and storage and enables the Government to recover more of the costs associated with regulating offshore oil and gas decommissioning activities from the industry.

  • Incentivising nuclear energy infrastructure

The Bill simplifies nuclear decommissioning and third-party liability regime to align with international standards. It sets out the regulatory regime governing a UK-based geological disposal facility and exempts fusion energy facilities from nuclear site licensing requirements.

  • Improving the energy performance of buildings

The Bill provides the government with a power to amend the assessment, certification, and publication of the energy certificates regime.

Conclusion

With the Conservatives consistently trailing Labour by 20-plus points in polls, the unexpected victory in Uxbridge has given Tory election strategists pause for thought. There is a section of UK society that traditionally votes Conservative for whom rolling back (or slowing down) the implementation of green policies would be popular. And it is tempting to conclude from the Government position on ULEZ and its shift in stance on LTN that Conservative strategists have made the assessment that this is its path to electoral victory next year.

As noted above, the PM has (so far) continued to support the 2030 date for the ban on new petrol and diesel cars.  This position may be explained by concerns that uncertainty about the date could deter EV investment in the UK (cf Tata’s recent announcement of a battery gigafactory in Somerset).  However, in the face of growing opposition in the Conservative Party; concerns that the UK’s electricity infrastructure is not yet capable of supporting a wholesale switch to EV in the short to medium term; and a series of newspaper reports warning that Chinese-produced EVs could be switched off, paralysing UK roads, there are signs of a tentative softening in the official stance with Ministers beginning to emphasise 2035 (the date for the end of the sale of new hybrid vehicles), rather than 2030.

The ambition of the significant changes to the UK’s energy system foreseen in the Government’s own ESB, suggest that if the Government is seeking to water down its green commitments in response to pressure from inside the Conservative Party, it may choose to focus those changes in areas where there is political capital to be made.  Being ‘on the side of the motorist’ plays well with the electorate, especially during a cost-of-living crisis – PM Sunak hinted at this policy shift when he commented that ‘ordinary people’ must not bear the cost of compulsory green initiatives, and that the path to net zero must be “proportional and pragmatic”.

Whilst the shifting position on cars may be explained by short-term politics (the Uxbridge effect), it is also clearly part of an emerging longer term dynamic.  Current record global temperatures, ice-cap melt, wildfires and flooding have demonstrated that the energy transition is urgent and imperative.  But there is also a dawning realisation that the enormous economic cost and physical disruption to individuals and society of pushing ahead with that transition carries an increasingly significant political risk.  

Whereas the US and the EU benefit from broad-based taxpayer-funded subsidy regimes – the Inflation Reduction Act and the Green Industrial Plan respectively – the absence of an equivalent regime in the UK means that the cost burden of the energy transition in the UK is likely to fall more heavily and directly on the UK energy consumer.  This distinction seems destined to sharply test the UK’s political willingness to endure short-term financial (and electoral) pain for more nebulous, distant, difficult to grasp and yet necessary, environmental gain.

Two speeches by the EU Commission President, Ursula Von de Leyen in March and April 2023, set out the EU’s policy towards China. In late April, the UK Foreign Secretary set out the UK’s emerging strategy and on the same day earlier this month, a UK Government Committee released a report which heavily criticized the UK’s dealings with China and the German Government released its long-awaited (and much-redrafted) China Strategy. 

This blog looks at similarities between the three approaches and what conclusions we might draw about the implications.

EU China Strategy

The EU first labelled China a systemic rival in 2019.  Since then, the European Commission has promoted the idea of “de-risking” the bloc’s most sensitive economic sectors to limit their dependence on China.

In a powerful speech in March 2023 Commission President Ursula Von der Leyen set out the need for the EU to develop its China Strategy.  The new strategy was needed because of what she described as the hardening of China’s overall strategic posture, matched by human rights abuses at home and an increasingly assertive stance in Asia. She was careful to note that the EU’s position on China would depend on how China interacts with ‘Putin’s war’ and how China meets international human rights obligations.  President Von der Leyen labelled as deliberate Chinese policies of disinformation and economic and trade coercion, saying they were used to target ‘countries to ensure they comply and conform’.

The tone of President Von der Leyen’s speech was set against the EU’s assessment that a newly assertive China was moving from an era of ‘reform and opening’ to one of ‘security and control’ whose purpose was ‘a systemic change of the international order [to place] China at its centre’.  In her speech, The Commission President noted that ‘all companies in China…are…obliged … to assist state intelligence-gathering operations and to keep it secret’. President Von der Leyen concluded that Chinese focus on military, tech and economic security would increasingly trump the appeal of free markets and open trade.

However, President Von de Leyen made clear that the EU did not seek to ‘cut economic, societal, political or scientific ties’, but rather to ‘rebalance the relationship on the basis of transparency, predictability and reciprocity.’ Using language reminiscent of President Macron’s call for the EU to seek greater ‘strategic autonomy’, President Von der Leyen argued that the new relationship would require the EU’s economy and industry to be more competitive and resilient in the cyber and maritime, space and digital, defence, innovation, health, digital and clean-tech sectors. President Von der Leyen pointed to the Net-Zero Industry and the Critical Raw Materials Acts as examples of the EU’s determination to respond to Chinese domination of these critical sectors.

Continue Reading China and Europe: De-Risking the Relationship