BROADER IMPLICATIONS FOR THE GLOBAL ENERGY SECTOR March 27, 2017 - PowerPoint PPT Presentation

BREXIT’S IMPACT ON THE OIL & GAS INDUSTRY AND BROADER IMPLICATIONS FOR THE GLOBAL ENERGY SECTOR March 27, 2017 www.dlapiper.com 0

Key Treaty Relationships Relevant to EU Energy www.dlapiper.com 1

EU Energy Law and Association Options EFTA + bilateral Association Association Partnership Free Trade Type of Agreement / EFTA +EEA agreement on Agreement + Agreement + Energy Agreement and Agreement and Example (Norway) energy Custom Union Community Treaty Energy Charter WTO (Canada) (Switzerland) (Turkey) (Ukraine) Treaty (Russia) Partial voluntary No, but alignment Gas and Electricity Not yet fully Partial alignment cooperation on (until bilateral Yes N/A Third Package transposed (voluntary) certain security of agreement comes supply issues into force) Not yet fully transposed, partial full Partial voluntary Not yet applicable, EU Gas and transposition or alignment due to Commission to Electricity Network No no N/A alignment due to interconnected propose for Codes system implementation interconnected system EU ETS Directive + No; own Swiss ETS, Regulations Yes No No No No EU ETS linking Not yet applicable, Partial practical MIFID, EMIR, REMIT partial voluntary alignment due cross- No No No No alignment border activities NERC and Energy Community Energy Regulator NEB and state NVE SFOE EMRA Secretariat FECRF regulator (no decision making power) ENTSO-E Yes Membership Yes Yes Yes No N/A www.dlapiper.com 2

Impact of EU Secondary Law on UK (selected examples) More Impacted by EU Directives Less Impacted by EU Directives Renewable Transport Fuels Electricity (Fuel Mix Disclosure) Obligation (Energy Act 2004) Regulations 2005 Utility Procurement Regulations Renewables Obligations Order 2006 UK GHG Emissions Trading Scheme Regulations Climate Change Act 2008 Carbon Emission Reduction Target and Home Environmental Permitting Regulations Energy Saving Programme The Electricity and Gas (Internal Markets) Regulations 2011 The Climate Change and UK Renewable Energy Strategy Sustainable Energy Act 2006 The Gas and Electricity (Internal CRC Energy Efficiency Scheme Markets) Regulations (Northern Ireland) 2011 Planning Act 2008 Sustainable Energy Act 2003 Gas Transporter (Modification of Electricity Market Reform (Energy Act 2013) Licence Conditions) Regulations 2011 Climate Change Levy (Finance Act 2000) Utilities Act 2000 Standard Licence Conditions/ Standard Special Conditions Feed in Tariffs and Renewable Heat Incentive Electricity Act 1989 (introduced under Energy Act 2008) Infrastructure Act 2015 Gas Act 1986 Contracts for Difference Regulations Energy Act 2013 Feed in Tariffs and Renewable Heat Incentive Energy Act 2011 (Energy Act 2008) Energy Act 2008 Climate Change Agreements Regulations Energy Act 2004 Electricity Capacity Regulations 2014 More Impacted by EU Directives Less Impacted by EU Directives www.dlapiper.com 3

Main Issues for Energy Trade and Infrastructure  Already demanding legislative schedule for UK and EU until March 2019  Special position compared to other co-operation agreements - starting from a D+1 alignment position  'Great Repeal Bill' approach and need to incorporate directly applicable EU law  Custom issues for energy trading in case of a 'hard' Brexit  Impact on energy trading and infrastructure use contracts – Change in law / frustration related termination issues – Tax provisions  Certain additional requirements for third country IEM participants – Ownership of energy infrastructure – Licensing – Limitation of certain markets, e.g. , short-term markets (Switzerland) www.dlapiper.com 4

Main Issues for Energy Trade and Infrastructure  Practical compliance realities for cross-border infrastructure irrespective of an international agreement requiring the application of EU law  Transaction reporting and potential dual UK and EU requirements?  Adequacy of WTO and Energy Charter Treaty as fall back regime in case of a 'hard' Brexit  Treatment of electricity under GATT, GATS and Energy Charter Treaty  Right to participate in relevant market institutions ( e.g. , ENTSOG, PRISMA)  Impact on EU grants running beyond March 2019  Need for project specific intergovernmental agreements for cross-border infrastructure to stabilise legal regime?  Commercial uncertainty, e.g. , impact of Euratom treaty exit on UK nuclear energy generation www.dlapiper.com 5

Main EU ETS Options  Remaining in the EU ETS  Leaving the EU ETS, and – Establishing a UK ETS, and – Linking to EU ETS under cooperation agreement with EU – No linking to EU ETS (but linking to other schemes?) – Discontinuation of an ETS  Key issues/questions: – Is remaining at all possible if there is no EEA or EFTA relationship? – Can remaining or linking be agreed under the exit agreement? – Is linking possible under a general cooperation agreement or is a special agreement required? – What are the consequences for the UK under the UNFCCC and Paris Agreement? www.dlapiper.com 6

Main EU ETS Options  Key issues/questions (ctd.): – What happens to EU allowances allocated to UK operators? – What happens to EU allowances auctioned on behalf of UK? – Can a UK company use the EU registry in case of a 'hard' Brexit to retire EUAs? – Risk of having to pay the EEP or being non-compliant – Risk of defaulting under a contract because of inabiltiy to deliver EUAs in accordance with contract – Risk of business interruption during exit and linking period – Exemptions and interaction risks with other related de-carbonisation schemes (from which EU ETS installations are exempted) – Impact on aviation and maritime related international agreements www.dlapiper.com 7

Art. 50 Roadmap and Compliance Cycle Art 50 Triggered Report Report Report Surrender Surrender Surrender 2 year negotiation period Possible extension EU ETS Phase 4 EU ETS Phase 3 01/01/2012 – 31/12/2020 01/01/2021 – 31/12/2030 EUA futures auctions take place on ICE every second Wednesday throughout the yearA www.dlapiper.com 8

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B REXIT AND E NERGY Prof. Dr. Dirk Buschle Deputy Director, Energy Community Secretariat ALCOA Energy Policy Chair, College of Europe Energy Community Secretariat Energy Community Secretariat 1

brexit scenarios – the dust settles • EU-UK relations bilateral rather than multilateral • free trade agreement rather than integration agreement • EU has better BATNA and not pressed by time • priorities of both sides do not include energy Energy Community Secretariat Energy Community Secretariat 2

how can market access be ensured under a bilateral free trade agreement • general requirements, lessons learned from CH • taking over acquis, incl horizontal • free movement • independent enforcement • impact on the energy sector • main options • no deal • energy part of the bilateral FTA • multillateral off-the-shelf solution Energy Community Secretariat Energy Community Secretariat 3

main options: no deal • the WTO and its weaknesses • no market access • state-driven and enforced • difficult to reform • market access = bridging the legal gap • EU law, and in particular regulations (never transposed) lose effect • validity of exemption regime for interconnectors • losing PCI label, the end of cheap (EIB) funding • the end of market coupling? the swiss experience • membership in institutions (special case of entso-e) Energy Community Secretariat Energy Community Secretariat 4

main options: no deal • the legal gap • ... will ineviatbly occur due to different development/lack of harmonization duty (clean energy package taking shape) • the national perspective • disentangling will start, de/re-regulation will kick in • eg environmental protection/emission standards/climate change framework: attracting FDI? • EU/MS may erect (non-tariff) trade barriers • eg third country clause for exemptions • eg supply disruptions in „emergencies“ • eg discriminatory gas exit tariffs Energy Community Secretariat Energy Community Secretariat 5

main options: no deal • the great repeal bill - can ‘autonomous implementation’ work? • law without governance? • case law • ACER/EC decisions • compliance without guardians? the case of euratom • the swiss experience • some areas depend on agreement • supply of NPP with fuel • participation in emission trading scheme (carbon tax as an alternative?) • third country clauses in network codes • solutions in the absence of a deal • private law as a silver bullet? • the return of inter-governmental agreements? Energy Community Secretariat Energy Community Secretariat 6

main options: an FTA • a role for energy? • examples • switzerland • from FTA to bilaterals • the limits of the bilateral/sectoral approach • ukraine (DCFTA) • energy • association council/committee and ISDS • canada (CETA) • energy included but no specific rules • dispute settlement: from ISDS to permanent court (WTO model) Energy Community Secretariat Energy Community Secretariat 7