What a Closer UK-EU Relationship Could Mean for Energy
Prime Minister Andy Burnham has told MPs he will seek post-Brexit deals with the EU at a summit next month, with youth mobility, food and drink, and energy among the areas named. He also warned that the EU's "Made in Europe" plans, designed to protect European industry from Chinese competitors, pose "a risk to UK manufacturing", and said he is in talks to secure "an arrangement" that works for the UK.
The most concrete energy prize is a link between the UK and EU carbon markets. Both sides have said they intend to complete a deal, though no firm date has been set. Linking would allow allowances to be recognised across both systems and narrow the price gap between them, with UK allowances currently trading at around £63 a tonne against about €87 for EU ones. It would also largely remove the UK's exposure to the EU's carbon border charge, which puts an estimated £7 billion of UK exports at risk. Analysts expect a formal link would push UK allowance prices up towards EU levels. That would be good news for exporters facing border charges, but a higher UK carbon price can also push up power prices, particularly when gas sets the marginal price.
Electricity is the less certain part. Closer cooperation could mean more efficient cross-border power trading, helping a wind-heavy UK grid balance supply and ease price spikes. However, it is not yet clear that this is on the summit agenda.
The bigger risk sits with the EU's draft Industrial Accelerator Act, which would require minimum European content where public money is involved, covering steel, aluminium, cement, batteries and other clean technologies, as well as electric vehicles. Non-EU countries are excluded by default, and the UK would need to qualify as a "trusted partner", a decision that is partly at the Commission's discretion. If it does not, offshore wind component makers could face local-content rules, steel producers could struggle to meet origin tests for their exports to the EU, and battery supply chains could face the same questions. Nissan has reportedly warned the government that its Sunderland plant, which employs about 6,000 people directly, could close if the UK is excluded.
Much remains open. The act still has to pass the European Parliament and Council, which is likely to take at least a year and bring amendments, and much of the detail will be set in later technical rules. A carbon link would address only the carbon side of trade, not origin rules.