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UTILITY WEEK | 17TH - 23RD JUNE 2016 | 13 Policy & Regulation "Brexit would allow the government to level the energy playing field – with tariffs." S urprisingly, despite the UK being part of the EU single market, there is currently no level playing field for UK generators to compete with their EU counterparts. Thermal generators in Europe have an advantage over their UK peers due to lower CO2 taxes, transmission, and balanc- ing charges. If the UK le the EU and was not successful in negotiating a free trade agreement, the govern- ment could, in theory, level the playing field by imposing a tariff on electricity imports, making it more expensive for foreign generators to export electricity to the UK. The rationale behind this could be that, if tariffs are inevi- table, it is better to impose them in a way that mitigates existing distortions to trade. The estimated result of such a levy is that energy imports to the UK would fall by roughly one- third. Lower imports would need to be compensated by higher domestic generation, allowing room for new capacity investment or delayed retirement of old capacity. By using the levy to reduce reliance on imported energy, the UK government would be ensuring greater security of supply through additional flexibility to increase imports if a supply crunch occurred. Any measure to increase security of supply would be helpful at a time when security margins in genera- tion have been falling rapidly. However, increasing security of supply by these means would come at a cost — both measurable and intangible. In the first instance, import tariffs would increase the cost of electricity to British consumers by an estimated £140 million a year. A more significant concern is that introduction of import tariffs would be likely to cause problems in other areas of negotiation with the EU. Once imple- mented, this could set a precedent for similar levies across other sectors and make any trade agreement Opinion Dr Vladimir Parail, Senior consultant, Oxera Brexit and the EU ETS The EU Emissions Trading System (ETS) puts a cap on the carbon dioxide (CO2) emitted by business and creates a market and price for carbon allowances. It covers 45 per cent of EU emissions, including energy- intensive sectors and approximately 12,000 installations. An exit from the EU would not automatically result in the UK leaving the EU ETS, nor remove the carbon price floor introduced by the UK government. In fact, a House of Commons briefing paper has stated that the UK is "directly involved" in plans to expand the EU ETS to include nations such as China, so would be likely to remain part of the scheme. Price of carbon: €6.10/tCO2 "Thermal generators in Europe have lower CO2 taxes, transmis- sion, and balancing charges" via coastal combined sewer overflows." These standards and fines for breaches have been part of the reason the Thames Tideway Tunnel is being developed, in a bid to prevent pollution flow- ing into the River Thames from combined overflow sewers when they are unable to handle sur- face water run-off in periods of heavy rain. The project is not said to be under threat from a possible Brexit, but the risk of fines for future pollutions spills would be removed. However, not all agree that leaving the EU would be a bad thing. Anthesis associate direc- tor Andrew Noone states that some of the directives – because they have to apply across all the member states – are broad based. He highlights that the WFD has been "good for main- land Europe" but has created unforeseen consequences for the UK due to its island nature. On top of this, he says the EU Drinking Water Directive is largely irrelevant to the UK because "we are world leaders" in this area. Leaving the EU would poten- tially allow the UK to set its own, tailored standards – without abiding to general EU legislation – to improve water quality. As with so much in the EU referendum debate, the outcome in the event of an exit is unclear. A lot will depend on what "out" looks like (see page 10) as to what regulations will remain in force or fall away. But there is a risk that EU laws which have seen Britain shi from the dirty man of Europe to one of the environmental pioneers will dis- appear and standards will slip. The contrary to this is that without restrictive and limiting EU legislation, the UK can push forward with its water quality standards. An exit vote could give with one hand and take away with the other. BATHING WATER QUALITY FOR 9,594 BATHING WATER SITES 100 90 80 70 60 50 40 30 20 10 0 % of all bathing waters The trend is based on bathing water sites (12 member states) where quality observations exist for all years from 1991 to 2015. Source: WISE bathing water quality database data from annual reports by EU member states). 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: European Environment Agency Poor quality or non-compliant At least sufficient quality or compliant with mandatory values Excellent quality or compliant with guide values Closed or banned Not enough samples