brexit

Brexit: Impacts to Energy and Environmental Policy

The unexpected Brexit result has opened up a period of great uncertainty as politicians grapple with the election of a new party leader and the associated decision of when to trigger Article 50 of the Lisbon Treaty, which officially commences the two-year period of negotiations to an exit from the EU.

While these decisions impact the economy as a whole, what specific energy and climate change policy changes can be expected? Electricity Market Reform is the UK’s central piece of policy to address the trilemma of: security of supply, minimising the cost of electricity, and decarbonisation. It has two main support mechanisms: the capacity market supports fossil fuel generation and Contracts for Difference supports renewables. However, added to this, the UK relies heavily on overseas investment, the most obvious example being the planned nuclear generation plant at Hinkley Point, which is based on investment from both France and China. While negotiations are being conducted with the EU and a period of uncertainty persists, a delay of crucial investment decisions can be expected.The UK independently chose to phase out coal-fired power stations by 2025 so is unlikely to backtrack in order to allow longer lifetimes to ageing coal-fired plants when it exits the EU. There is also speculation that the adherence to planned closures of coal-fired plants could in any case be a condition set by the EU as part of a negotiated exit agreement.

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The Brexit Referendum – What Are the Economic Implications?

After months of uncertainty, the result of the UK referendum will finally be known early this Friday morning. The campaign commenced with Remain ahead in all early polls. The Leave campaign then began gathering steam, building up momentum with Boris Johnson and Nigel Farage key figures in promoting the benefits of leaving the European Union. The polls then flipped with Leave campaign ahead by 4-6 points in numerous reputable polls, spooking global markets, which began to believe that Brexit was a strong possibility. Volatility gauges (also known as fear gauges) on both the UK and US markets reached levels last observed during the Lehman’s crash in 2008. The FTSE suffered heavily at the start of the previous week, with £98bn wiped off the value of the UK’s biggest companies in only four days of trading. This was replicated across global markets with Euro Stoxx 600 down €580bn in the same period. Asian and American indexes also suffered heavy losses. In commodities, oil futures slid 10% with demand destruction across the EU seen as bearish for crude products. The flight from equities and other riskier assets saw investors plough into traditional safe havens such as the yen, gold, and government bonds. The German 10-year bond saw negative yields for the first time, with investors effectively paying the German government for the privilege of parking their cash. UK-10 year bonds yields also fell to record lows without turning negative. The pound slumped to its lowest level in 2 months against a basket of global currencies as fear crept in that the UK could be close to leaving the EU.

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Brexit Pros & Cons

It has been the topic of many a conversation, dividing opinion from the people on the street to offices, factories, and homes across the country. Widespread coverage in the media with the nos and yeses receiving plenty of air time and column inches have only served to make predicting the result or even the consensus more unpredictable. The Brexit referendum takes place on the 23rd June 2016.

Let’s take a look at some of the pros and cons of both sides:

Notable Ins: David Cameron, Mark Carney, George Osborne, and Richard Branson

Notable Outs: Boris Johnson, Ian Duncan Smith, Nigel Farage, and Michael Caine

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