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
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
This week’s report by the World Meteorological Organisation makes for alarming reading. The report warns there is a 66% likelihood of exceeding the 1.5°C threshold in at least one year between 2023 and 2027 and notes that such a rapid change in global temperatures will take the world into ‘uncharted territory’, with an anticipated El Nino weather system likely to push already high temperatures even higher this year. Since we have already seen the impact of a 1.1°C rise, the conclusions of the WMO report are deeply uncomfortable.
This blog looks at some of the data which give context to the Report’s conclusions.
Gas
Russia is the world’s largest natural gas exporter; the second-largest exporter of crude oil; and the third-largest producer of crude oil. The Russian invasion of Ukraine spooked global gas markets and pushed prices to record highs – the TTF European gas price peaked at a record €343/MWh in August (equivalent in oil terms to more than $500 a barrel). But as world gas markets have adjusted, the price has fallen – €75 per megawatt hour at the end of December and under €50/MWh by the end of April 2023.
Like global markets, the EU has demonstrated remarkable agility in its response to Russia’s invasion. In 2020, Russia supplied nearly 43% of all EU energy imports. The EU set itself the target of reducing Russian gas imports to 55 bcm/year by March 2023 (down from 158 bcm in 2021). At the time, this seemed ambitious, but in the event, the EU easily exceeded that target and, by October 2022, the EU’s Russian gas imports had fallen to 38 bcm (12 % of the EU’s energy consumption).
Last spring, the EU required that Member States’ winter storage be 90% full by the end of autumn. Again, at the time, that seemed a tough ask in the face of global constraints on alternative supplies. But in any event, the EU easily exceed the target, reaching 96% by the beginning of November 2022.
A combination of factors means the outlook for the EU is more positive than expected:
The relationship between the UK and the Republic of Ireland (ROI) came into sharp focus recently, as US President Joe Biden visited ROI. Biden’s visit coincided with the 25th anniversary of the Belfast (Good Friday) Agreement 1998 (GFA) which brought an end to 30 years of Troubles in Northern Ireland (NI). The UK government will have welcomed the fact that President Biden described the Windsor Framework (WF) as one of two pillars (along with the GFA) which are key to future peace and prosperity in NI. The WF is also fundamental to the recent improvement of the tripartite UK-EU-ROI relationship.
The Northern Ireland Protocol (NIP) was part of the UK’s withdrawal from the EU and sought to square the circle of respecting the GFA, whilst maintaining NI’s place in the UK Single Market. But the Unionist community in NI felt the NIP left NI being treated differently from the rest of the UK – a feeling which led to the 2022 suspension of the Stormont Assembly. The negotiation of the WF demonstrated a new and welcome willingness of the UK and the EU to negotiate mutually acceptable solutions to some of the problems created by Brexit (even if the WF has not (so far) achieved one of its objectives of re‑starting power-sharing at Stormont).
What has Changed under the WF?
The WF addresses a number of the difficulties with the NIP — including arrangements for medicines, cross‑border transport of plants and pets, and the power of the NI Government to raise objections to EU legislation that applies in NI (the “Stormont Brake”). The WF also creates a “Green Lane” (for agri‑foods being traded only into NI) and a “Red Lane” (for agri‑food products ‘at risk’ of leaving the UK’s Single Market and being traded into the EU’s Single Market). Green Lane goods will be required to carry new labelling stating ‘not for sale in the EU’ and, in comparison with the checks on such goods required under the NIP, Green Lane goods will be subject to reduced customs checks and procedures.
As with its decision to implement a ban on cigarette smoking in public places, Ireland is ahead of the EU curve on the issue of requiring warning labels to be placed on alcohol products. With 72% of Irish consumers welcoming the initiative and the EU Commission recently giving it a green light, it seems likely that Ireland will press ahead with enforcing the measure.
Some background
Section 12 of Ireland’s Public Health (Alcohol) Act 2018 includes a provision requiring health warning labels to be placed on alcohol products. In June 2022, Ireland took first steps towards implementation of that provision by notifying the draft Public Health (Alcohol) (Labelling) Regulations 2022 (the Draft Regulations) to the European Commission.
This so-called Technical Regulation Information System (TRIS) notification was required under the Single Market Transparency Directive 2015/1535 (SMTD), which seeks to ensure transparency of technical regulations adopted at a national level and reduce the risk of fragmentation of the single market by creating different marketing standards and requirements at national level. This is particularly relevant for food labelling, which is harmonized at the EU level, by, amongst others, the Food Information to Consumers Regulation (EU) 1169/2011. This Regulation requires certain national proposals for technical regulations, such as the Irish labelling proposal, to obtain a TRIS notification to allow Member States to comment on them and if necessary, raise concerns. There is a three month standstill period following notification during which the notifying country cannot adopt the technical regulation, which is extended by another three months if the Commission or a Member State submits a detailed opinion. If a detailed opinion is received, the notifying country must inform the Commission of the measures it intends to take to address the issues raised in the opinion.
The US Inflation Reduction Act (the IRA) has raised concerns in the EU about the potential impact on international investment – particularly the possibility that such investment will be pulled into the US, rather than directed to the EU and may encourage ‘green industries’ to relocate production to the US. The EU has been working on an appropriate response that would increase the attractiveness of the EU as a green investment destination without breaching either WTO rules or its own State Aid rules.
Background
The IRA has provoked diverse reactions across EU Members States. Whilst some countries have lined up behind calls for a “Made in Europe” strategy which would accelerate production targets (cf the EU Chips Act); weaken state aid rules; establish an EU emergency sovereign fund; and mobilize WTO-compliant trade defense instruments. Other Member States have expressed concern that such an approach would risk undermining EU provisions on State Aid and fragmenting the EU internal market.
With some justification, smaller EU Member States are concerned that weakening the EU’s State Aid rules would favour more fiscally powerful Member States (52% of the Temporary Crisis Framework (“TCF”) established following Russia’s invasion of Ukraine was notified by Germany and a further 24% by France). Such Member States would prefer the creation of a joint EU fund – a proposal in turn opposed by fiscally conservative Member States who reject any further joint EU borrowing.
On 1 February, the Commission released its Communication for A Green Deal Industrial Plan for the Net Zero Age (The Communication) which contains a series of proposals for discussion at the EU Council Summit on February 9-10. The differences between the various Member States noted above, are likely to influence the discussions at the Council Summit and impact the formal proposal which is expected to be presented to the European Council in late-March.
Continue Reading The EU’s Green Deal Industrial Plan for the Net-Zero Age
A Re-cap
The Good Friday Agreement (GFA)
The 1998 GFA brought an end to the 30 years of violent sectarian strife, euphemistically known as ‘The Troubles’. The GFA was carefully constructed so as to balance the competing positions of both communities and to remove all infrastructure on the border between N and S Ireland. Importantly, it also created a power-sharing system in N Ireland, with the largest political party appointing the First Minister and the second largest party appointing the Deputy First Minister.
The GFA was ‘guaranteed’ by the UK and the Republic of Ireland both being members of the EU and therefore subject to the same trading and legal arrangements. When the UK left the EU, it became necessary to work out a new arrangement for Northern Ireland which did not risk re-creating a border between N and S Ireland, but still enabled the UK as a whole to be treated as a third-country outside the EU.
The Northern Ireland Protocol (NIP)
A third country outside the EU requires a land border. The solution to squaring this complex and sensitive this circle (one of the most difficult elements of the UK’s departure from the EU, along with the status of Gibraltar) was The Northern Ireland Protocol (the NIP), an integral part of the broader Trade and Cooperation Agreement between the UK and the EU (The TCA).
The NIP allows N Ireland to remain in the EU Single Market, but takes it out of the Customs Union. This deliberate fudge imposes the requirement to carry out checks on goods coming from GB to N Ireland to avoid them entering the EU’s Single Market via the ‘back door’ of N / S Ireland trade. Since the GFA means there can be no infrastructure on the N/S Ireland Border, those controls have to be carried out ‘in’ the Irish Sea – in practice on arrival of goods in N Ireland.
Continue Reading The Northern Ireland Conundrum: A Path Forward?
Perhaps the best way of summarizing COP27 was that, in the end, it boiled down to solving a tension between competing views of global priorities in addressing climate change. The Developed World was primarily focused on improving mitigation (emissions reduction offers at COP27 in the shape of a welter of improved Nationally-Defined Contributions (NDC). However, the Developing World was focused on the need to address the impacts of increased global temperatures which climate change is already inflicting on them – the now famous ‘Loss and Damage’ issue (broadly, unavoidable losses and damages caused by climate impacts that are not tackled through adaptation and risk reduction strategies).
The fact that COP27 will be remembered for the historic creation of a Loss and Damage Fund (LADF) perhaps demonstrates a recognition that without addressing climate justice now, it will be difficult to achieve progress on mitigation (even though any delay in taking aggressive emissions reduction action is likely to increase dangerous global warming and therefore cause greater climate-changed-related damage in the future).
The History of the LADF
The creation of a dedicated LADF was proposed more than three decades ago, by the Alliance of Small Island States (AOSIS). Although discussions on the issue since then had remained superficial and highly technical, in retrospect there were some important developments which prepared the ground for the agreement in Sharm.
The United Nations annual climate change conference—officially known as the 27th Conference of the Parties to the UN Framework Convention on Climate Change (“UNFCCC”), or COP27 for short—held in Sharm el Sheik, Egypt, finally concluded early Sunday morning, more than 24 hours late.
COP27 was held amidst the ongoing Russian war in Ukraine and the consequent economic turmoil, including Europe’s scramble to secure non-Russian gas. It was previewed by a UNFCCC report which concluded that on its current trajectory the world faced warming of between 2.5 and 2.9 degrees Celsius by the end of the century, and accompanied by a new report from the International Energy Agency’s 2022 World Energy Outlook which concluded that the world needed to spend at least $4 trillion annually to tackle climate change from now until 2030.
Against this challenging backdrop, COP27 was never going to be straightforward. But those difficulties were compounded by divisions between developing and developed world over the priorities that should form the focus for COP27. Those divisions manifested themselves most clearly in tensions before, during, and at the conclusion of the Conference over the issue of “loss and damage.” This acrimony overshadowed almost all other aspects of the COP, which will nonetheless be viewed as historic for being the first COP to not only place the loss and damage issue on the official agenda, but for its creation of a separate fund to compensate countries most impacted by climate change. But loss and damage aside, the broader picture that emerged from COP27 was one of lost opportunities to adopt more ambitious and accelerated climate mitigation commitments in response to the dire scientific warnings about the impact of rapid global warming on the planet. In particular, efforts calling for a phase down of all fossil fuels were ultimately unsuccessful in the Summit’s final agreement and highlighted the mismatch between the pace of global emissions reduction commitments and that which is needed to avoid the most disruptive climate impacts.
Continue Reading COP27: A Flawed though still Consequential Climate Summit
COP27 was never going to be a ‘Big COP’ in the way that COP26 in Glasgow was. It was not originally designed to be one of the five-year ratchet reviews of NDCs set out by the 2015 the Paris Agreement and there were no major new climate change texts due to be negotiated. Sharm’s value is likely to be assessed, at least in part, on whether it effectively tees up important items for next year, including:
However, COP27 remains an important waypoint – not least in how successful it eventually is in avoiding acrimonious debate and significant tensions over loss and damage.
Glasgow was a five-year review point. But the UNFCCC assessed that not enough progress had been made by countries’ emissions reductions targets towards the 1.5 degree target and required all member countries to return to COP27 with improved goals. So COP27 represents an important departure from the UNFCCC’s agreed timetable and in that sense demonstrates the increasing urgency of reducing emissions: an urgency juxtaposed against the record high attendance of representatives from oil and gas companies and the anguished debate about the role of gas as a transitional fuel.