The current EU regulatory regime

Main Sector-Specific Rules Governing the Provision of this Activity in the EU

The IEM provides a technical framework for the transmission, distribution and efficient trading of electricity and gas; transparency to ensure fair access to others’ networks; a regulatory co-operation mechanism; and measures to ensure security of supply and deal with energy shocks. It is a long-term project to liberalise and integrate the energy markets of individual EU Member States. The IEM also facilitates the fair trading of electricity and gas across the EU, enabling new gas and electricity suppliers to enter EU Member States’ markets, and allowing domestic and industrial consumers to select their own suppliers. It is being reformed (through the European Commission’s proposals on a new electricity market design) to better facilitate the integration of low carbon energy sources. The UK has been a leading advocate for the development of the IEM and has heavily influenced the EU-wide rules, which draw on UK practice.

The legal basis of the IEM is Article 194 TFEU. EU energy policy is predominantly set out through Regulations, which are directly-applicable; and through Directives, which require domestic transposition. There is a significant amount of technically-detailed tertiary legislation, known as network codes and guidelines, which take the form of Commission Regulations.

Competence under the energy legal base (Art 194 TFEU) is shared, as stipulated in Article 4(2)(i) TFEU, although the EU has exercised its competence in many areas of energy policy. The relevant legal framework recognises some areas where Member States continue to be able to adopt domestic measures. For example, both the Electricity Regulation (714/2009) and the Gas Regulation (715/2009) provide that the requirements to develop network codes (Commission Regulations), to address crossborder network and market integration issues, are without prejudice to Member States’ right to establish national network codes which do not affect cross-bordertrade.

EU legislation has an impact on the energy sector which means that much of UK electricity (and gas) policy is driven by policy agreed at EU level. The UK has played an important role in EU energy negotiations and much of the EU energy legislation, especially on the internal energy market, is modelled on UK arrangements. There are, however, important areas where the UK and other Member States have freedom to decide their own national policy, notably on security of supply, choice of fuel mix and the use of indigenous energy sources.

Areas of Devolved Responsibility or Any Issues Relating to Gibraltar, the Crown Dependencies or Overseas Territories

Energy policy is largely devolved to Northern Ireland, but largely reserved for Scotland and Wales. The internal energy market legislation does not apply to Gibraltar or the Crown Dependencies.

The EU ETS Regulations extend to the whole of the UK. However, greenhouse gas emissions trading is a devolved matter in Scotland, a transferred matter in Northern Ireland, and in Wales is an area where the Welsh Ministers exercise a wide range of executive functions. The Regulations accordingly provide for distinct “regulators” or “authorities” in relation to those different parts of the UK. The “regulator” may be the Environment Agency, Natural Resources Body for Wales, the Scottish Environment Protection Agency, or the chief inspector in Northern Ireland; and the corresponding “authority” will be the Secretary of State, the Welsh Ministers, the Scottish Ministers, or the Northern Ireland Environment Agency (NIEA) which is an executive agency within the Department of Agriculture, Environment and Rural Affairs. In the case ofcertain offshore installations, including those on the United Kingdom Continental Shelf, the Secretary of State is the regulator as well as the authority. However, relations with the European Union (other than assisting, or otherwise observing and implementing, EU obligations in devolved areas) are the responsibility of the UK Government.

The UK Government therefore takes part in negotiations at the EU level on the future of the EU ETS, although there is a political commitment to work closely with the DAs to develop the UK negotiating position. The working arrangements between the UK Government and the DAs are set out in a Memorandum of Understanding, and the Concordat on Coordination of European Union Policy (Annex B to the MOU).

Energy efficiency is devolved to Northern Ireland. The encouragement of energy efficiency otherwise than by prohibition or regulation is devolved to Scotland and Wales. For some implementing measures, different parts of the UK have agreed to adopt the same measures.

Northern Ireland and Ireland have integrated their wholesale electricity markets so there is now a SEM on the island of Ireland. This is being reformed to bring it into compliance with the EU internal market rules, including market coupling, and is planned to go live in May 2018. NI and Ireland have indicated that they are committed to this reform and want a SEM to continue to operate efficiently after EU withdrawal35. The UK position paper on Northern Ireland and Ireland, published in August 2017, sets out the importance of the continuation of a single electricity market covering Northern Ireland and Ireland.

In the case of the SEM, stakeholders view the preservation of a SEM as a top priority as it is important to keep down costs for consumers in the market and help to maintain security of supply (e.g. Eurelectric, Centrica, SSE, Energy UK).

The Scottish Government has stated in discussions with UK officials, that it would like to see the maintenance of full access to the benefits of the Internal Energy Market for Scottish businesses. Namely, the UK remaining part of EU-wide solidarity mechanisms including the greater security alternatives offered by interconnection and the continued integration and interconnection of gas, electricity and hydrocarbon markets and infrastructures.In their view, the continued free movement of labour is vital for energy engineering, offshore oil and gas and research collaboration. This includes maintaining access to EU funds to support R&D and energy infrastructure investment.

Existing Frameworks for How Trade is Facilitated Between Countries

The arrangements described in this section are examples of existing arrangements between countries. They should not be taken to represent the options being considered by the Government for the future economic relationship between the UK and the EU. The Government has been clear that it is seeking pragmatic and innovative solutions to issues related to the future deep and special partnership that we want with the European Union.

Globally, there are a range of existing frameworks which facilitate the interaction of electricity markets, both between the EU and non-EU Member States, but also more generally.

Switzerland has a series of bilateral agreements with the EU which give it access to the single market for certain sectors. The terms of a Swiss-EU electricity agreement are yet to be concluded.

More generally, countries which are physically connected may trade electricity, subject to the arrangements they put in place to do so. There are transnationalelectricity interconnectors around the globe. Arrangements for how electricity is traded over those interconnectors and brought to the respective markets differ widely, based on the particular arrangements of the countries concerned.

These existing arrangements provide context, but the UK has been clear that the future economic partnership between the UK and the EU should be ambitious and should not simply be based on an existing model. We will seek the best deal for energy consumers within this future framework.

Energy Efficiency

Non-EU countries looking to export products into the EU will need to comply with EU Ecodesign and energy labelling standard requirements. Such products may be subject to customs controls to ensure compliance. In some cases, (e.g. with the voluntary US ‘energy star’ labelling scheme for office equipment), the EU has existing agreements in place with non-EU countries to ensure their mutual recognition with EU standards.

There are also some, mostly small, tariffs in place for environmental goods imported into the EU, some of which may be relevant to the electricity sector. The EU is party to the Plurilateral WTO negotiations to agree an Environmental Goods Agreement, which aims to remove tariffs on a wide variety (around 300) of such goods.