13 Apr 17

The green business guide to Brexit: 10 questions to ask

brexit.pngThis article was recently published on GreenBiz. 

The biggest challenge for businesses as they consider the implications of Brexit is the uncertainty.

Fundamental issues relating to their trading conditions and regulatory environment, issues that have been settled for decades, are now up for debate and could change beyond all recognition in less than two years' time. For businesses working on multi-year, and in some cases multi-decadal, business strategies and investment plans, the challenge is particularly acute.

For the green economy the EU's involvement in many environmental policies and programs means this uncertainty is far-reaching. Numerous crucial questions remain unanswered, ranging from the existential to the bureaucratic — last summer Carbon Brief listed 94 questions while acknowledging its list was not comprehensive.

How can green businesses navigate this uncertainty and minimize the risks they face? Here are10 critical unanswered questions presented by Brexit and how best to respond to them.

1. How will green trade be affected?

This is the big one — the multi-billion euro question. Will the U.K.'s green economy be able to trade with its largest market and connect with crucial supply chains in much the same way as before, or does a world of trade tariffs and stifling bureaucracy loom? Electric cars, offshore wind turbines, innovative clean tech products, London's growing array of green environmental services — all could face a massive blow if the U.K. reverts to WTO rules and exits the EU's Customs Union.

Alternatively, the promised new trade deal with the EU could minimize disruption while ensuring the U.K. has to broadly retain the European environmental regulations that largely have served the sector well. Meanwhile, the promise of new international trade deals with other major countries, including the ongoing effort to deliver an Environmental Goods Agreement, could open up important new markets.

What to do? Business leaders need to recognize an ideologically motivated campaign is firmly underway to ensure the U.K. crashes out of the EU and takes its chances with WTO rules. They need to push back and make it clear the consequences of walking away from the EU without a trade deal are potentially hugely damaging.

Common cause needs to be made with businesses on the continent that also will be adversely affected by tariffs and trade barriers. Green businesses have an important role to play in highlighting that when tackling shared environmental challenges, free trade in green goods benefits all parties. They also have to make it clear that in any new trade deal with the U.S. or other parties, environmental protections and climate action are non-negotiables.

In terms of the Customs Union, the best thing to do is hope for the best and plan for the worst. That means investing the time in becoming familiar with the country of origin rules and many other technical requirements that will need to be fulfilled if British firms are to continue trading with their European neighbors.

2. What will happen to the U.K.'s air quality standards?

The best example in recent years of the EU's pushing the U.K. to embrace more ambitious environmental standards is provided by the issue of air quality. European air quality standards were the basis for the successful legal action against the government over its underpowered air quality plans. But what happens to those rules once the U.K. leaves the EU?

The government has said the Great Repeal Bill will ensure all such standards are transferred into U.K. law pretty much as is and ministers have suggested environmental protections will not be diluted. But how binding will such standards prove without the threat of EU fines?

Moreover, the government repeatedly has asserted that the Great Repeal Bill means future governments can change EU rules as they deem appropriate. Weakening air quality rules would be a hard sell to the public, but the vigor with which the government fought the court case against its current breaches suggests the temptation to water down the rules could be considerable.

What to do? The courts have ruled the U.K. is in breach of EU air quality standards and ordered it to produce a new plan. That plan is due within months, well before the EU exit. The law is still the law and the government has to comply. A new plan will be forthcoming soon.

In the longer term, any government wanting to water down standards will struggle to answer why the British deserve dirtier air than their European cousins.

Businesses developing clean transport technologies or operating in urban centers can be confident pressure on governments to deliver more ambitious clean air policies is only moving in one direction regardless of Brexit. Any firm looking to address the issue through fleets of EVs or encouraging staff to use public transport need to recognize such initiatives have major co-benefits that go far beyond legal compliance, such as reduced transport running costs and improved health. Brexit uncertainty is no excuse for stalled action on air quality.

3. Will the U.K. keep the Circular Economy revolving?

The EU has played a major role in pushing the U.K. to improve its recycling rates, often in the face of pushback from Westminster. The British government long has been frustrated at the metrics the EU uses to measure recycling, arguing there is a better way of approaching the issue. But at the same time, U.K. waste policy has been neglected for years, if not decades, and while recycling rates significantly have improved since 2000, that improvement has stalled in recent years.

The EU is in the process of agreeing to a new circular economy package that could see recycling targets for 2030 as high as 70 percent, alongside a raft of measures to encourage more circular business models and tackle food waste. But post-Brexit, will the U.K. import this strategy wholesale as a condition of any trade deal, largely emulate it while tweaking it for national circumstances or ignore it altogether? If it is the latter option, where will the pressure come from for the government to deliver a new and more effective waste and resource strategy?

The think tank Policy Exchange recently proposed a new approach based on more re-use of materials and increased investment in energy from waste infrastructure, which it argued could save the U.K. $2.13 billion a year. But critics will claim it was not the EU that stopped the U.K. from sorting out its hundreds of disparate approaches to recycling and relatively poor recycling rates. Without the nudging arm of Brussels, will ministers continue to pursue improvements in recycling rates? And what can businesses committed to more circular resource models expect?

What to do? There is no easy answer here.

Some firms accept the EU's approach has its flaws, but fear without its waste directives it will be too easy for the government to push waste to the bottom of its to-do list. Others think the Circular Economy package is underpowered anyway and the U.K. should seize the opportunity for a new approach. Businesses need to stress that even if the U.K. is leaving the EU, there are good economic, environmental and resource security reasons for meeting the recycling targets the country is currently on track to miss. For those targets to be met, a new waste strategy needs to be delivered, not least because developing one would be a "no regrets" move regardless of the U.K.'s eventual exit deal.

In the meantime, with so much activity in the waste sector determined by European policy, it seems inevitable some investors will wait for more clarity before proceeding with new projects.

4. How will agriculture and fisheries be affected?

Few sectors face more Brexit-related uncertainty than agriculture and fisheries, and by extension the millions of businesses that consume their products.

Farmers face a dual-pronged threat in the form of the potential erosion of subsidies and the prospect of extremely steep tariffs on exports to the EU. The government has said subsidies will remain at current levels until 2020, but beyond that no such assurances are on offer and plenty of people think the payments delivered through the Common Agricultural Policy (CAP) are unsustainable.

The challenge for fisheries is similarly complex. Many fishermen voted for Brexit in the hopes of more relaxed quotas and less red tape. But leaving the EU does not resolve ongoing concerns about fish stocks and any exit deal will have to address how an under-pressure resource is shared with our neighbors.

What to do? Green groups reckon the chance to reform the CAP could provide one of the biggest environmental upsides from Brexit. Proposals are being put forward for a new approach to agricultural subsidies where farmers are paid for the ecosystem services they provide through enhanced habitats, improved soils, bolstered flood resilience and renewable energy. This is a rare opportunity that all green businesses should throw their weight behind, not least because the alternative vision is one where subsidies and red tape are slashed in a way that further encourages unsustainable and intensive agricultural practices.

Fisheries are likely to be a political flashpoint as UKIP and others push for the U.K. to step up fishing activity in its own waters and hang the long-term consequences. Retailers in particular need to recognize early that their interests lie in sustainable fisheries management and make the case for a responsible post-Brexit fisheries policy.

5. How will the U.K.'s clean energy transition be affected?

The U.K. is off-track for meeting the EU's renewable energy target for 2020, but will the target be applied by the end of the decade? The U.K. will have left the bloc by then, but a transitional agreement while a trade deal is finalized could ensure the rules are still enforced.

Will the U.K. remain in the emissions trading scheme (ETS)? How will the U.K. integrate with the planned Energy Union that promises to make cross-border energy trading seamless and bolster the prospects of an EU-wide clean energy grid? Will an EU trade deal require the U.K. to sign up to the EU's new 2030 climate targets? What will happen to energy efficiency goals and regulations that require significant improvements in the efficiency of Europe's building stock? How will plans for a nuclear renaissance be affected by the decision to leave the Euratom alliance? These are just a few questions faced by the clean energy industry, none of which are close to being answered.

What to do? This is an area where there is currently little reason to panic. Technical uncertainties are tempered by some underlying realities. The goals of the U.K. Climate Change Act are as strong as, if not stronger than, the EU's climate goals. Clean energy costs are falling fast, the government has committed to phase out unabated coal power by 2025 and the U.K.'s carbon floor price imposes a higher carbon price than the ETS.

Investors should push for clarity on the future of U.K. energy policy and a decision on how U.K.-EU interconnectors will operate is of crucial importance. But all the evidence suggests the clean energy transition will continue to gather pace.

6. How will clean tech R&D be affected?

The U.K. may be a net contributor to the EU, but it is a major beneficiary of the bloc's R&D and regional development funding, and a large chunk of that investment is channeled towards clean tech and environmental projects.

According to the Royal Society, the U.K. got $9.37 billion of EU research funding between 2007 and 2013 out of a total of almost $114 billion. Countless clean tech projects have been beneficiaries with electric vehicles, marine energy and biotech all major recipients. Will the U.K. government make up any post-Brexit R&D funding shortfall?

What to do? Any company benefitting from EU R&D funding needs to plan for a future where such funding is no longer available. All parties will seek a scenario where multi-year projects are likely to continue, but in the long term the EU won't pay for U.K. projects. The business community needs to step up its own R&D investment and also make the case to the government that if it is serious about turning the U.K. into a more productive and innovative economy, then it desperately needs to bolster the country's relatively woeful levels of R&D funding. 

7. Will EU product standards be retained?

The right-wing press has made it explicit that one of its top Brexit priorities is the torching of EU product standards that require improvements in energy efficiency and recyclability. On an almost daily basis, rules governing the power usage of hairdryers and vacuum cleaners are pilloried, despite that they have driven innovation and helped save households hundreds of dollars. However, the EU already has signaled it intends to make the retention of product standards and environmental protections a key component of any new trade deal. Will the U.K. government recognize these standards are broadly in the U.K.'s interests or will it pander to media campaigns and make toasters and lightbulbs a totemic issue in the talks, undermining environmental progress in the process?

What to do? This is another area where the business community needs to recognize battle has been joined and urgently get itself back on the front foot. Many businesses do not regard these rules as red tape. They recognize they result in more attractive products and stop rivals engaging in free-riding, while also reducing energy bills and enhancing energy security. They need to say so.

8. How will environmental regulatory stability and enforcement be maintained?

Last week's Great Repeal Bill whitepaper went out of its way to offer reassurances to the environmental community, declaring that "the Great Repeal Bill will ensure that the whole body of existing EU environmental law continues to have effect in U.K. law." But it also acknowledges government will be able to change legislation in the future and offers little clarity as to how it will address the many areas where rules are policed or enforced by European agencies.

The government's guidance for businesses on the Great Repeal Bill declares that "much EU legislation is in line with U.K. environmental aims." But as Green Alliance's Amy Mount observed, that raises the question: Which EU rules are not in line with U.K. environmental aims? What is in the firing line? Some Brexiteers have made it clear they want to scrap the Habitats Directive, the precautionary principle and other rules, but will the government accede to their wishes? Even if the government wants to ax these rules, will an EU-U.K. trade deal allow the U.K. to wield the ax? And how will regulations such as REACH that require U.K. firms to report to European agencies be governed?

What to do? The first thing to recognize is that nothing has changed yet, and any transitional deal could result in all EU environmental rules remaining in force for quite some time. Businesses need to continue to comply with regulations and assume they will continue indefinitely. More broadly, those businesses that value regulatory stability and ambitious environmental standards need to make their views known, or risk seeing standards torched for the simple reason that their critics were more vocal and better organized.

9. Has the government got the capacity to manage Brexit and the green economic transition?

Questions about government bandwidth and Brexit's opportunity cost are oft-ignored, but they relate to one of the biggest challenges presented by Brexit. Can the government adequately address many other long-term challenges and opportunities the U.K. faces if it is spending five to 10 years fixated on extricating the country from the EU?

The jury is very much out. The crucial and long-awaited Emissions Reduction Plan is still yet to emerge; the equally important 25 Year Plan for Nature remains locked in cold storage. Decisions on clean energy funding keep getting deferred, and the Industrial Strategy has yet to be finalized and lacks the spending commitments likely to determine its success. Whitehall already appears to be both stretched and led by a prime minister who regards intense control-freakery as her modus operandi — it is a worrying combination.

What to do? Businesses need to resist the temptation to give ministers a free pass because they know they are busy with Brexit. Public pressure needs to be applied to ensure important issues such as decarbonization do not slip down the priority list (on this front, a functioning opposition would be useful). Advocates for the green economy should start by highlighting how it can aid the Brexit process by providing the exports, jobs and innovation the U.K. economy will need.

At the same time, businesses need to recognize that the government will be stretched and focus on the progress that can be made independent of policy decisions. 

10. How will the political context evolve?

This is the big unanswered question that could provide the answer to all the other unanswered questions. Will Prime Minister Theresa May ultimately side with the extremist wing of her party who wish to use Brexit to tear down environmental policies and in some cases think climate change is a socialist plot, or will she side with the vast majority of the British public and business community who like clean energy and electric cars, value clean beaches, air and water, and want the U.K. to play a full role in tackling climate change?

The signs to date are encouraging. May approved the fifth carbon budget, signed the U.K. up to the Paris Agreement and has been noticeably quiet about predecessor David Cameron's promised fracking boom. The Great Repeal Bill whitepaper went out of its way to stress that the government remains committed to ensuring the U.K.'s environment improves over the coming decades.

But May has yet to offer anything like full-throated backing to the green economy, and the government's commitment to maintain environmental protections is incompatible with the calls from the right wing press and Tory backbenches for an end to EU green rules. A reckoning is coming over the next two years, and the long-term health of the U.K.'s green economy rests on the outcome.

What to do? In the continuing absence of a functioning opposition, any organization that has an interest in the development of a sustainable economy needs to find ways to demonstrate a political upside to driving the low carbon industrial revolution and a political cost to hampering its progress. The evidence from Trump's America shows how even when most of the public back climate action and the economics of clean technologies make them an attractive proposition, political forces still can align to impede environmental progress.

Green businesses must continue to promote the myriad benefits they can offer the U.K. or risk becoming one of the casualties of Brexit.

To read the original article, please visit the GreenBiz website