Uncertainty rules the waves

4th August 2016

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Carley Allison

Catherine Early and Paul Suff report on the possible implications of Brexit for the environment and sustainability profession

IEMA chief policy advisor Martin Baxter summed up the mood after the vote to leave the EU: ‘Environment and sustainability professionals will now look to the future with a sense of uncertainty.’

This perception is founded on the fact that more than 80% of UK environment law derives from Brussels and the UK’s climate and environmental protection ambitions are intrinsically linked to Europe. Ahead of the referendum, IEMA members offered their views on UK membership and the environment. Fully 81% believed European laws and regulations had been important in providing them with a framework to deliver environmental protection and environmental improvements, while 82% believed that being part of the bloc had given the UK more international clout and greater global influence on environmental outcomes.

So, what is the electorate’s decision to leave likely to mean for environment and sustainability?

Carbon and climate

Brexit supporters include several notable climate change sceptics. These include the chair of the Leave campaign, Nigel Lawson, who also chairs the Global Warming Policy Foundation (GWPF), leaving some to fear that the Climate Change Act will be under threat once the UK has disengaged. The GWPF has already tried to undermine the act, claiming approval of the fifth carbon budget should have been delayed and was potentially unlawful because it assumes that the UK will still be part of the EU and active in the bloc’s emissions trading system (ETS).

However, Lord Deben, chair of the Committee on Climate Change, an independent advisory body, told a meeting hosted by the Aldersgate Group that he believed the act was safe because there was not enough support among MPs to repeal it. Amber Rudd, when energy and climate change secretary, also felt that repeal was unlikely. ‘The act was not imposed on us by the EU,’ she said after the referendum. ‘It was delivered with cross-party support by the UK Parliament. Leading Leave campaigners made clear they remain committed to it.’

Richard Black, director at the Energy and Climate Intelligence Unit (ECIU), agrees that the act is unlikely to face a ‘full-frontal’ assault, but warns that, without an effective strategy and investment, its goals may be missed.

Deben’s group published its annual progress report on the UK’s emissions reductions just after the referendum result was announced. It concluded that the UK may need to use other methods for future emissions cuts, but that it was too early to say what these would be and that it would report back later this year.

Achieving the UK’s carbon budgets is dependent on participation in the ETS. According to a briefing from law firm Norton Rose Fulbright, if the UK becomes part of the European Economic Area (EEA) and European Free Trade Association (EFTA), then, like Norway, Liechtenstein and Iceland, UK industry would still participate in the EU cap and trade scheme. If the UK did not participate in the ETS, transitional and linking arrangements would be required. These would be particularly important for companies that hold a surplus of allowances.

Silke Goldberg, a partner at legal firm Herbert Smith Freehills, says changes to the system would be triggered by the UK exiting the ETS because the UK’s pro rata share would be removed from the overall cap. ‘The UK is the second largest emitter of GHGs in the EU and its utilities are among the largest buyers of ETS allowances, so the UK leaving could be a defining moment for the system,’ she says. Goldberg also points out that work on reforming the system is under way (headed in the European Parliament by Conservative MEP Ian Duncan) and that the UK would lose its voice in these negotiations when it leaves.

Before the vote, the International Emissions Trading Association (IETA) warned: ‘Not only would a Brexit vote undermine [reform] efforts, it would also make reforms more difficult, given the added complexity of how to restructure the UK’s involvement in Europe’s carbon market – which is significant given the UK’s current commercial role.’

In the immediate wake of the vote to leave, the cost of ETS allowances plunged more than 12% to €4.96 and, five weeks later, as the environmentalist went to press, had dropped further, to €4.56.

In terms of the Paris agreement, the UK is a signatory and would have to ratify it. The only difference, says Jonathan Gaventa, director at consultancy E3G, is that, whereas previously the UK submitted a joint Intended Nationally Determined Contribution (INDC) together with other EU member states, after leaving it would have to submit its own and the EU re-submit its INDC in light of this. In a House of Commons debate on the implications of Brexit for environment and energy policy on 12 July, Rudd said the government was pushing the EU for early ratification of the Paris treaty.

Brexit may also weaken the bloc’s climate ambitions. The UK has pushed the EU to commit to a 50% reduction in GHGs by 2030 compared with 1990 levels, as opposed to the current 40%. In March, Bulgaria, Czech Republic, Hungary, Italy, and Latvia all rejected a call for deeper cuts.

Energy and power generation

E3G says the market and political uncertainty since the vote will ‘shape UK and EU energy for years to come’. Black at the ECIU predicts an increase in energy prices because about 45% of the coal, gas and oil the UK consumes is imported, and a falling pound would make them more expensive. ‘It won’t be a sudden impact, as companies regularly make deals months and years ahead. But it’s there all the same.’

The UK’s energy infrastructure requires upgrading and a question now hangs over whether investors will commit the resources to fund this. Shadow energy secretary Barry Gardiner made this point in the House of Commons on 12 July. ‘There is a need for £100bn of investment by 2020 to make the UK’s energy infrastructure “fit for purpose”. Any hiatus in project development threatens the UK’s ability to meet its energy and climate security targets,’ he warned.

Goldberg says: ‘Brexit may make investment more costly. Economic commentators have suggested that this may well be the largest risk facing the energy sector as a result of the vote to leave the EU.’

Government cuts to subsidies for renewable energy projects had already made investors wary. The latest E&Y renewable energy country attractiveness index, published in May, placed the UK 13th, down from eighth in 2015. The uncertainty of Brexit is likely to make investors even more cautious. Dr Nina Skorupska, chief executive at the Renewable Energy Association, says the referendum result raises serious questions for investor certainty, energy security and much-needed investment in the UK’s energy infrastructure. Already, German industrial giant Siemens has said the vote had put in jeopardy plans to export wind turbines from its factory in Hull. Jürgen Maier, the firm’s UK chief executive officer, told The Guardian: ‘Those plans were only beginning to happen and I expect that they will stall until we can work out exactly what the [government’s] plan is, how we can participate in EU research programmes, and until all the issues around tariffs and trade have been sorted out.’ However, the company subsequently said it would continue to invest in the UK.

Goldberg warns that Brexit may cut off UK access to European Investment Bank (EIB) loans. Bloomberg warned in February that a vote to leave would put at risk investment in renewables and energy efficiency. Since 2007, it said the EIB had invested €7.2bn in renewable energy projects, with the UK the biggest beneficiary, accounting for 24%. Whether the UK would continue to receive EIB money is unclear, but the non-EU countries had received only 12% of the funds disbursed by the bank since 2007. Rudd told MPs on 12 July that she hoped the EIB would continue to fund projects in the UK.

The UK has a number of energy-related, EU-imposed targets to meet by 2020, including generating 15% of its energy from renewable sources and saving 20% of the energy it uses. These targets may need to be reviewed, modified and possibly even repealed, which could present a further challenge for a sector that already has to cope with substantial subsidy reductions, says Alan John, partner at legal firm Osborne and Clark. Parliamentary under secretary for climate change Nick Bourne told the House of Commons Energy and Climate Change Committee in July that the 2020 renewables target would remain relevant and binding until it was clear how Brexit would be achieved.

EU legislation on improving the energy efficiency of buildings – the energy performance of buildings and the energy efficiency directives – has been transposed into national regulations. These include the Energy Savings Opportunity Scheme [ESOS] Regulations 2014, which oblige companies to carry out energy audits. In a briefing, Joanna Ketteley and Michael Rudd at law firm Bird & Bird said: ‘These regulations would be unlikely to change directly because of a Brexit, although – depending on the form of the Brexit – the UK may have to amend its national legislation to account for changes or progress in the EU frameworks.’

Planning, EIA and nature

Most planning law is UK-based and does not derive from the EU. The main exceptions are the Environmental Impact Assessment (EIA) Directive and the birds and habitats directives.

Practitioners were expecting a consultation on the transposition of revisions to the EIA directive this summer. This should go ahead as normal because the UK would still be a member of the EU at the time of the transposition deadline in May 2017, according to Stephen Tromans QC, barrister at 39 Essex Chambers. Josh Fothergill, policy and practice lead at IEMA, says the government team responsible for transposing the directive met at the end of June. However, consultations have to be signed off by ministers, which could be tricky politically, he adds.

‘Whether the consultation is delayed is hard to say,’ Tromans says. ‘Would it be seen as politically unpalatable to transpose what might be seen as a regulatory burden if we are on our way out? But legally, there’s no question. We have to transpose it as long as we are part of the EU and the courts have to support that.’ Even if the directive is not transposed, there could be legal challenges to environmental statements that do not comply with EU law, he believes.

Angus Walker, partner at legal practice Bircham Dyson Bell, questions whether the EU would take enforcement action against a member state that has committed to leave the union. However, he warns that whatever deal the UK reaches with the EU could include a requirement to adhere to the directive. Nigel Howorth, partner at global law firm Clifford Chance, believes that, even if the government chooses not to transpose the reformed EIA directive fully, it is likely to retain some elements, such as the need to incorporate consideration of climate change, in order to meet domestic targets.

Other measures that could prove time-consuming and onerous for developers, such as the expected effects of vulnerability of the development, might be ignored, Howorth says. The government could also change the thresholds at which EIA is required so that fewer developments need to undergo assessment. Ultimately, there are several international commitments that now expect some kind of environmental assessment so the concept would have to be retained in some form, he said.

Lawyers have flagged the nature directives on habitats and birds as possible regulation the UK would seek to water down. Neither directive would continue to apply, even if the UK pursues membership of the EEA. Both are part of UK law, but Tromans says: ‘This is the main area where there could be rollback. We know that they are not liked by developers as they see the requirements as onerous.’ The UK would still have obligations as a signatory to international agreements, such as the Bern Convention on biological diversity, but they are not as strong as the nature directives, Tromans adds.

Howorth agrees that the nature directives could be targets, in particular the need to demonstrate imperative reasons of overriding public interest (IROPI) if a development is judged as damaging to a European protected site. However, Simon Colvin, partner and head of environment at law firm Weightmans, believes the nature directives would not just stop applying once the UK leaves the EU. Colvin cannot see any political appetite for scrapping them, with consulting on reform more likely.

Products and services

In 2015, about 44% of UK exports went to other EU countries, while 53% of imports came from them. Irrespective of what a future UK government decides to do about legislation stemming from the EU and its ongoing relationship with Europe (see panel, below), businesses that place goods on the European market or supply EU companies would need to continue to comply.

The EU chemicals regulation (REACH) places obligations on EU manufacturers, importers and suppliers of substances. Matthew Germain, legal director in the environment group at Osborne Clarke, says opting out of REACH would present the government with the challenge of how it ‘tracks, evaluates and registers the (often seriously hazardous) chemicals that are used in commercial supply chains’.

Obligations under REACH will continue to apply and, as lawyers at Clifford Chance point out, are unlikely to change whatever exit agreement is reached between the UK and EU. They say: ‘It is worth noting that REACH already impacts upon non-EU manufacturers since its requirements apply at the point of entry of products into the EU. In many cases, non-EU countries use local subsidiaries or EU-based third party representatives to assist in compliance. Similarly UK manufacturers may well have to restructure their supply chains to comply.’

The final REACH registration deadline is 31 May 2018, so it is likely firms will have to comply before the two-year timeframe for Brexit negotiations under Article 50 is completed. In a statement, the European Chemicals Agency said the deadline would still apply to UK chemicals companies.

The REACH evaluation process enables member states to influence the authorisation and restriction of substances identified as of very high concern. Although EEA membership would allow the UK to continue to play a role in authorisation, this would cease if it exited completely. The global classification, labelling and packaging rules for chemicals (UN GHS system) are implemented in the UK through EU regulation. The UK would have to retain the regime for companies to export substances to the EU.

The EU legislation restricting the use of specified hazardous substances in electrical and electronic equipment (RoHS Directive) must also be complied with for trade. Simon Tilling, senior associate in Burges Salmon’s environment and energy team, says: ‘If the UK does not implement identical regulation there is a danger that UK products cannot be exported into the EU. Given that Europe is our major trading partner, there would be no option but to continue to keep pace with European product stewardship legislation.’

The environmental permitting regime in the UK derives partly from the EU system of integrated pollution prevention and control (IPPC) set out in the Industrial Emissions Directive (previously the IPPC Directive). Under this, emissions to air, water and land, plus a range of other environmental effects, must be considered together. Regulators must set permit conditions, based on the use of the Best Available Techniques (BAT), to achieve a high level of protection for the environment as a whole. Over the past 15 years the EU has published reference documents (BREFs), setting out how to achieve BAT standards. Lawyers at Clifford Chance say that, post Brexit, the government could revert to the cost-benefit model that existed under the UK integrated permitting regime before the IPPC Directive was enacted. ‘Given that BREFs would no longer formally apply, the UK might also have to design a whole new set of technical guidance,’ they warn.

Enforcing regulations

Enforcement of environmental regulations could suffer as a result of the decision to leave the EU, lawyers believe. Colvin says that, although the UK will continue to abide by EU law until it completes the leaving process, he has concerns that enforcement may slacken: ‘I have a horrible feeling that an element of paralysis will creep in in terms of environmental regulators and their approach to enforcement and guidance.’

He ponders whether regulators will pursue offenders if they need to start litigation based on a piece of European legislation knowing that it will take some time to come before the courts. ‘I think there are things that can be done to prevent that – I expect some primary emergency legislation in the very near future about what current legislation and case law is in the interim period. Without that there’s not enough certainty for regulators and businesses to operate.’

Caroline May, partner and head of environment at Norton Rose Fulbright, says big business could self-regulate, but smaller firms found this impossible. ‘We do need a stick as well as a carrot to provide that certainty and framework,’ she says.

There will also be uncertainty over the question of case law and how long it continues to apply. Colvin says this is particularly important in terms of how directives governing waste and EIA have been interpreted. ‘There’s going to have to be a cut-off date in terms of how we’re bound by judgments and a cut-off date for referrals to the European Court of Justice. That should be part of the exit agreement.’ But he predicts increased litigation and uncertainty over the outcome of court cases in the future, as barristers start to pick apart case law. ‘The fact that you will no longer be able to refer an issue back to the ECJ will inevitably increase litigation, as people will adopt a “have a go” attitude to see if they can get a different result,’ he says.

According to Tromans, case law will not necessarily cease if the UK remains part of the EEA because the EFTA court would apply case law in deciding compliance matters. ‘UK courts have now got very much into the mindset of interpreting legislation in a European way and I don’t think this will change,’ he says. ‘At some point ECJ case law will have less relevance but I don’t think lawyers will be able to stop referring to Europa and the ECJ website.’ Ultimately, it could be some time before the UK gets to that stage, Tromans believes. ‘The administrative task is mindbending – to reach an agreement with the EU in the first place, and then to disentangle decades of law. It’s going to be extremely difficult and the question of environmental law is going to be a long way down the list of priorities.’

Resource management

Recycling targets, the waste hierarchy and definition of waste all stem from Brussels, and Brexit has significant implications for the waste sector. Steve Lee, chief executive at Resources & Waste UK, says: ‘EU legislation has been a key driver behind the UK’s rapid progress on sustainable resource and waste management over the past two decades and the referendum outcome leaves our sector particularly exposed to the financial and policy uncertainty.’

A pre-referendum briefing paper from UKELA, the environmental lawyers group, warned: ‘Any relaxation of producer responsibility rules [such as those governing waste electrical and electronic equipment, batteries and packaging] at national level might impact on the ability of businesses to undertake trade within the EU, if revised UK standards varied from those adopted in the EU.’

It concluded that the UK could apply its own definition of waste that is traded nationally but still adhere to the EU and Basel convention on exports of hazardous waste. However, it is likely that this would increase rather than reduce perceived regulatory burdens.

After Brexit, the UK could opt out of plans for a more circular economy in Europe, including the higher recycling targets proposed by the European Commission in December. Other elements of the circular economy package would apply, however. Requirements for better eco-design of products, including improving repairability, durability and recyclability, is one area that will apply irrespective of whether the UK is fully outside the bloc. Nonetheless, the UK’s influence in developing the policy legislation to bring to life the circular economy package will now be limited.

In the run-up to the referendum, Roy Hathaway, European policy adviser at the Environmental Services Association, warned that Brexit would weaken the UK’s position in the circular economy negotiations: ‘If I put myself in the shoes of the commission’s environment department, I don’t know whether I should take seriously any points made by UK officials and ministers.’

Repealing the European Communities Act would result in EU regulations and secondary legislation no longer applying in the UK

The legal position

Until the UK leaves the EU, legislation originating in Europe remains in place. The European Communities Act 1972 (ECA) enables EU regulations, such as REACH, to apply directly in the UK and EU directives to be implemented through primary national legislation (acts) or secondary (regulations, rules and orders).

There are various options available to a future government, including repealing the ECA without qualification. This would result in EU regulations and secondary legislation emanating from EU laws no longer applying, although primary legislation would be unaffected. Alternatively, the ECA could be amended so all or some laws remain in place.

Brexit: what happens next?, a briefing paper published at the end of June by the House of Commons Library, states: ‘There is no reason why EU-based UK law could not remain part of UK law, but the government would have to make sure it still worked without the UK being in the EU.’ This could entail replacing references to the European Commission or Council with ‘the secretary of state’, for example.

Devolved administrations would be responsible for EU legislation transposed into Northern Irish, Scottish or Welsh laws. Brexit, coupled with possible future Scottish independence, could lead to greater legal divergence across the UK.

The approach adopted will depend on the new relationship between the UK and the EU. UKELA, the association for environmental lawyers, has set out three scenarios:

  • Little change – this would be the case if the UK followed Norway, Iceland and Liechtenstein and became a member of the European Economic Area. The UK would have little influence over new environmental laws, however.
  • Broadly the same – the UK may decide to preserve existing laws to enable businesses to trade with countries in the EU.
  • Home grown – the UK could opt to go it alone and replace some environmental protection laws with its own. However, the government would not have an entirely free hand since many EU laws also implement international treaties and agreements. It would also have to consider what to do about national laws that implement EU law. UKELA warns: ‘Given the large number of laws and measures at issue, this exercise could take a huge amount of time and effort, and will raise some knotty questions.’

The UK remains bound by the international conventions to which it is a signatory, including: access to environmental justice (Aarhus); climate action (Kyoto protocol); habitat protection (Ramsar); and the control of transboundary movements of hazardous wastes and their disposal (Basel convention).


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