Market view: How environmental laws will be affected by Brexit?

In the wake of the European Union referendum, and the public vote to leave, Weightmans’ head of environment team Simon Colvin discusses how the UK’s environmental laws will be affected.

Earlier this year, when 23 June was announced as the date for the referendum, we wrote in Utility Week about the possible consequences of an ‘Out’ vote for environmental controls applying to operators in the utility sector.

Perhaps unsurprisingly the environment as a whole did not feature in the UK debate concerning membership of the European Union. The debate focused instead on migration and the economy. Now that the UK has voted to leave, the impact on environmental controls, which has the potentiall to be hugely significant, can be best described as ‘collateral damage’.

So what next for environmental controls now we have voted to leave the EU?

As we all know, once article 50 of the Treaty on the European Union has been triggered, we will have two years to negotiate our exit from the EU, or longer if that period is extended by agreement of all the EU member states (unlikely). At the moment, it seems article 50 will be triggered in early 2017, meaning that our departure is likely to happen in early 2019.

There are various post Brexit models on the table. Some of these seem more likely than others.

Membership of the European Single Market (the Norwegian model) seems unlikely for a variety of reasons. Although there may be a host of economic benefits, the requirement to observe the principle of the free movement of people is likely to prove a barrier. In addition, the need to comply with the majority of existing EU laws without having any influence over their content may seem very unappealing. That is particularly true in relation to environmental controls. Pursuant to Annex 20 of the European Economic Area Agreement membership of the European Economic Area would come with an obligation to observe the majority of existing EU environmental controls. The UK would go from a position of significant influence over EU controls, to one of no influence.

The Swiss model in the form of a bilateral trade agreement with the EU would take some time to negotiate. Although some of the details could no doubt be agreed as part of the Brexit discussions pursuant to article 50, it is not realistic to expect the UK government to be able to achieve a favourable agreement with the two-year clock ticking in the background. It is likely that it would extend beyond the two-year time period. In addition, a lot is being written in the press about the availability of resources within central government to negotiate such agreements. It will not just be the EU we need to form agreements with, it will be all of the other countries that we need to trade with as well; there will be a long list.

It is therefore realistic to expect that if the Swiss Model is adopted, or some other form of hybrid trade agreement model, there will be a period of time immediately post Brexit during which there is unlikely to be a trade agreement in place with the EU. That will mean our relationship will be governed by the WTO trade rules meaning the absence of any EU environmental controls and complete autonomy other than in respect of international conventions and trade related EU obligations (eg REACH).

As part of any agreement reached with the EU, it is likely that the UK would be required to comply with certain environmental controls either directly, or indirectly. Directly because the EU requires the UK to comply with certain obligations as part of the trade agreement reached and indirectly because a number of controls apply to trading activities where products manufactured in the UK are supplied to EU members states and so must comply with the applicable controls. This is unlikely to be a problem at least initially while UK companies are closely aligned with the EU controls, but that will no doubt change over time.

The trade agreements between Switzerland and the EU, and Canada and the EU are relatively light touch when it comes to environmental controls. There are not any direct obligations to comply with a raft of EU based legislation. You would have to think the position with the UK will be different because of where we have come from. The EU could quite legitimately ask the UK to sign up to many of the existing EU controls, but the extent to which they do that, and the UK government’s response, will very much depend on where the environment sits on the agenda when it comes to the trade agreement negotiations.

To the extent the EU does call for the UK to be subject to any EU based controls as part of any trade agreement, it is likely they will be the controls that apply to transboundary activities and not those activities that are confined to the UK. Emissions trading and the export of waste are areas where you can see the need for some alignment. However, environmental permitting and BREF notes, as well as environmental damage are areas where you can see there could be more freedom.

In our February article we reported that Defra had undertaken a Brexit analysis of what the consequences for environmental law might be. You would expect they will have compiled a list of laws and determined which camp they are likely to fall into (i.e. transboundary or UK specific). You would therefore hope that when the Brexit negotiations begin Defra is not starting from scratch.

What would be beneficial between now and the negotiations commencing (and even while they are ongoing) would be some industry engagement so that the government can tap into the wealth of knowledge and experience that exists before it goes into battle. What has to be avoided is the government going it alone and returning with a deal that just does not work for UK Plc from an environmental perspective.

We all need to ensure that the government gets this message.