EPRG Spring Summit focuses on UK and EU energy policies

“After initiating the so-called EU-UK reset last year, energy and climate policy has proven to be a particularly appealing area for both sides, and there is the potential for reaching some important agreements in the coming months,” says David Reiner, Professor of Technology Policy at Cambridge Judge who chaired a panel entitled Re-alignment of UK and EU carbon and energy policies: opportunities and challenges. “Of course, to reach agreement there will need to be some concessions made by both sides and that involves finessing some tricky technical questions,” David said in remarks following the Spring Seminar.

Panellists at the session were:

• Lena Kitzing, Professor of Energy Economics and Policy at Technical University of Denmark and a member of the European Scientific Advisory Board on Climate Change
• Robert Ritz, energy and climate economist at the University of Cambridge and an Associate Researcher at EPRG
• Roy Collins, Policy Manager for Net Zero Strategy and Policy at EDF
• Mark Duffield, who leads market design at National Grid Interconnectors, the business that physically manages the cables connecting the UK to neighbouring countries
• Paul Dawson, Head of Regulatory Affairs at RWE Supply and Trading

The EPRG Spring Seminar was held under the Chatham House Rule, meaning that information discussed can be conveyed publicly but the names of individual speakers connected to their remarks cannot be reported.

The challenge of aligning carbon markets after Brexit

As discussed at the EPRG event, Brexit has resulted in separate emissions trading schemes in the EU and UK, resulting in what was described as a “yo-yoing price differential” between the 2 systems, ranging from zero to 50% over the past few years, driven by the differing approaches to the design of the 2 systems.

As addressed by several speakers, the UK’s new separate ETS since 2021 has faced some difficulties including periods of low prices. An important driver for aligning emissions trading schemes is the need for the UK to avoid becoming subject to the EU’s new carbon border adjustment mechanism (CBAM), which is intended to impose tariffs on those countries where the carbon price is judged to be weaker than that of the EU.

Several speakers noted that linking the UK’s own ETS (one-tenth the size of the EU’s ETS) with the EU’s system would be beneficial to both sides, but a key challenge identified was that the way to price carbon dioxide removal was the elephant in the room, as neither side has yet figured that out properly. Nevertheless, there was optimism that this issue would not interfere with the potential realignment.

One speaker raised the additional challenge of political opposition in the UK to jurisdiction by EU courts, but noted that a joint arbitration court had resolved a similar issue regarding Switzerland and the EU.

Renewables, interconnectors and the road to deeper integration

Beyond the ETS question, the session on EU-UK relations heard that both the UK and EU seek rapid increases in renewables and interconnectors, but that key policy alignment questions include whether governance structures are robust enough including in producing compatible assumptions about planning, responsibility and risk. There is a need for dynamic alignment including greater co-operation among regulators, on detailed market rules and on governance through various EU and European bodies. Ideally, there would also be co-development of the longer-term (post-2031) framework.

The EPRG’s Spring Seminar, entitled Strategic Energy Planning, also explored other topics including expanding offshore wind, energy policy implications of AI, and data centres and energy system security.

Speakers at the EPRG Spring Seminar praised its open and honest atmosphere, allowing unique conversations to be had between policymakers, industry and academic researchers. It is this convening power, along with the team’s deep experience in the sector, that enables the EPRG to provide such a unique forum.

Cambridge Judge research helping to shape the policy agenda

At last year’s UK-EU Summit, major commitments were made by both sides to work toward convergence on energy and carbon policy. Just before that summit, EPRG’s co-directors David Reiner and Michael Pollitt, Professor of Business Economics at Cambridge Judge, released a paper that listed 5 recommended climate policies and 9 recommended energy priorities to help shape the conversation. Many of those recommendations have since been taken forward as part of these ongoing discussions.

“We live in a world of rising geopolitical tensions involving restriction of international trade in energy, critical minerals and energy equipment, which will inevitably hamper the energy transition needed to meet the goals laid out in the Paris Agreement,” the paper reads. “The EU and UK should seek to set an example of how reducing barriers to trade and mutual cooperation can be good for the economy and the environment. The evolving post-Brexit world offers an opportunity for both the EU and the UK demonstrate how distinct jurisdictions with closely aligned energy and climate targets can work together in ways that the rest of the world can learn from.”

Participants in the EPRG’s Spring Seminar underlined how, given dramatic global events such as the current war in the Middle East, the need for closer alignment is more pressing than ever.