BoJo bluff on no-deal Brexit?

Boris Johnson’s “do or die” Brexit pledge means the UK could crash out of the EU without a deal on 31 October. 

A bluff or not, the energy sector now faces more uncertainty and could lose an important transition period to finalise trading details, says Antony Froggatt of Chatham House. 

Host:

•  Richard Sverrisson, Editor-in-Chief Europe, Montel. 

Guest:

• Antony Froggatt, senior research fellow, Chatham House. 

Transcript

Richard Sverrisson, Editor-in-Chief Europe, Montel: 0:05

Hello listeners and welcome to the Monte Weekly podcast. This is our first pod following our small summer break. I'm Richardson, and joining me today is Anthony Frogger of Chatham House. Welcome back, Anthony.

Antony Froggatt, senior research fellow, Chatham House: 0:17

Thank you.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 0:17

Pleasure to have you on the pod. Again, we are gonna be talking Brexit and the new UK government, which is quite relevant. It's only been in place for a few days. What are your feelings so far? I mean, mainly it seems to be clear whether it's a bluff or not, that the, the direction is towards a no deal Brexit. Is this something you would agree with or Yeah. Is there more to it?

Antony Froggatt, senior research fellow, Chatham House: 0:39

No, I mean, I think it's getting slight mixed messages from the new Prime Minister of Boris Johnson. On the one hand, he's saying there's a one in a million chance, one in a thousand chance that there's gonna be a no deal. But yet Michael Gove has now become the, the minister design or designated to prepare for no deal. And he said it's now the central scenario for their work. So a bit bit messages, but I think what is clear is that the government will, over the next three months, do more effort to prepare for no deal. Uh, will. Are at the moment saying that they will leave at the end of October, even with a no deal. And we know that Theresa May was saying that for a number of times. But. I, I guess there is more belief that the current government led by the, the people that were at the forefront of, of the, the leave, the EU leave campaign would go through with that. So their threat is, is that they will leave without a deal, and the hope is that they hope that that will force some change within the EU so that there can be an acceptable way in which they will leave with a deal, but. At the moment, you can't see any shift within the EU position. Mm-hmm. They make it very clear that the agreements on, on the divorce, as it were, won't change. Uh, the political declaration may change. But within the, the. The, the sort of leaving arrangement, the issues around the backstop they say are hardened firm. And that is what the British government says, the current British government says is unacceptable. So unless one of these unacceptable things moves, then we will leave without a deal because it's quite an impasse that, I mean, uh, the Boris Johnson government is saying, we won't accept the backstop, whereas the U says. It's That's, it's

Richard Sverrisson, Editor-in-Chief Europe, Montel: 2:22

closed.

Antony Froggatt, senior research fellow, Chatham House: 2:22

It's closed. Yeah. So we can't deal with that. So, so we'll have to see. And there isn't actually that much time, I mean, although we're talking about 31st of October, we know the UK Parliament has gone in, in into recession. It doesn't come back till sort of the end of August. And we then have the. Party political season. So there's actually not that many days of parliamentary sitting. And we also know that the EU Parliament has gone on, is going on holiday. The commission is there, but in a slimmed down version in August. And the commission is, is preparing for the election of the new commission. I mean, so we now know who the new commission, the commission that EU president is, but we don't know, uh, who the other sort of members of the commission will be. But the

Richard Sverrisson, Editor-in-Chief Europe, Montel: 3:02

new government is formed of sort of quite hard line. Brexiters mainly. Now it's, it's that, that's the. That's the,

Antony Froggatt, senior research fellow, Chatham House: 3:10

that's a significant shift. Yeah. Uh, and you have those in key ministerial positions and key advisor positions that are much more determined to leave at all costs. And that's, I think we've seen that in the markets, I guess is the, the slide in the pound over the last week. I think more, more people are recognizing that the likelihood of leaving without a deal is, is significantly higher than it was. Before,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 3:32

and there's also increasing noises coming from industry, from the farmer's lobby saying there will be protests in the street, et cetera, et cetera. Should they go ahead with a no deal. So I'm just wondering, against all this backdrop, do you think a new election is likely?

Antony Froggatt, senior research fellow, Chatham House: 3:46

I think you could say it is. I mean, I don't know. I mean every there, there's so many things are in, in some ways, probably the next big test is does the EU come back with a. Revised deal in some shape or form that they, they can alter with the withdrawal agreement. Mm-hmm. To a degree that is seen as acceptable Mm. To the current government. The language at the moment would imply not. But we do have to remember that Boris Johnson, Michael Gove and other key brexiters all did vote for a third time round. Um, so there was only. Yeah, the, the ERG group and the DUP and even only a small part of the, the ERG group that didn't vote for it. So, but anyway, either there has to be a shift in that or they have to be able to get it through parliament and, 'cause it's,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 4:35

there's a very slim majority as well, and it could even be reduced even further.

Antony Froggatt, senior research fellow, Chatham House: 4:38

And as of this week, it's almost certainly the liberal Democrats will. On Thursday of this week, we'll win a, a by-election and take a seat away from the conservatives. So down to two, uh, we know that there are more ex cabinet ministers emboldened against no deal. So it seems quite likely that the parliament will block no deal. So where does that leave us? And maybe that leaves us with a referendum. Or maybe it leaves us with. A election. And the, the labor party aren't, don't seem to be in a strong position either. Mm-hmm. There's, there is a traditional new ministerial, new prime minister bounce. So the conservatives have gone up in the polls in two months time. Will they still be, who knows, but. It would seem a potential solution to get something through Parliament would be to change the Parliament numbers. Yeah. But you have to be confident that you're gonna get it. Absolutely. And that probably would require a coalition, some sort of deal with the Brexit party, because otherwise they will probably split the vote.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 5:33

Yeah. Or it could go the other way. Could be, you know, majority of remain potentially. Yeah. Uh, with Labor and Lib Dems, if the Lib Dems make some sort of comeback or Yeah. Yes. Who, but there, there are lots of, you know, variants and,

Antony Froggatt, senior research fellow, Chatham House: 5:46

but it's. It, it does seem unlikely with the current parliaments that they will get a no no deal through.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 5:54

Yeah.

Antony Froggatt, senior research fellow, Chatham House: 5:54

Yeah.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 5:55

Do

Antony Froggatt, senior research fellow, Chatham House: 5:55

you think there could be an extension again, uh, again, to Brexit? The EU has said that that's possible. Mm. But the current government has ruled it out. Mm. The language of ruling out is, yeah. Again, it's possible.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 6:06

So if the likelihood is growing greater, the likelihood of a no deal is growing ever greater. Where does that leave the energy sector?

Antony Froggatt, senior research fellow, Chatham House: 6:15

For me, the key issue about no deal. Isn't necessarily about the future relationship, it's the fact that you lose the transition period. Okay. Yeah. Um, so in terms of within the withdrawal or within the political declaration it wasn't really clear about what the future relationship would be. It would just be to say, and now we're gonna negotiate the future relationship. So the key issue was that within the withdrawal agreement it said that there would, the eu, the UK, would remain part of the EU institutions and rules through until the end of 2020. So that gave an additional, at the time, 20 months in order to put in place or to negotiate something and then put in place the arrangement. So not having that is the key question.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 6:57

What are, what are the implications of that for sector?

Antony Froggatt, senior research fellow, Chatham House: 7:00

Well, it just means, for example, how you operate Interconnectors. Mm-hmm. As of the 1st of November, assuming that there's no deal, the operations interconnectors no longer falls under EU regulations. So what has to be put in place, which that was being prepared and being put in place for the end of March, was that a, there would be bilateral. Legal arrangements between each end of the interconnectors, so the UK and the Netherlands and UK and France would have these, these put in place. So, and you go, for example, you go to explicit auctions rather than

Richard Sverrisson, Editor-in-Chief Europe, Montel: 7:31

implicit, for example,

Antony Froggatt, senior research fellow, Chatham House: 7:32

the

Richard Sverrisson, Editor-in-Chief Europe, Montel: 7:33

trading arrangements. Yeah. So you,

Antony Froggatt, senior research fellow, Chatham House: 7:34

but you have to have the legal framework first course to have that, and then you have to have the trading arrangements. So. These will, were being prepared for the 31st of March. Presumably they can be dusted off and, and put back. So in certain areas, I, I think where there are very, very clear legal frameworks that needed to be put in place, that will be fine. I think the, the other questions though are, although trading will continue to take place across the electricity, across the gas interconnectors. Again, they may. That will continue to occur. But there may be issues. For example, there is solidarity agreements between member states about supplying of, of, of gas in the event of, uh, lack of supply within one member state that will no longer apply to the uk. And supplies that may be destined for the UK would then have to be diverted to another member state should they need it. So in some ways we go down the, the priority list of of, of recipients of gas in the event of supply crunching.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 8:28

So, so if there's another beast from the east, the UK could be left out in the cold quite literally.

Antony Froggatt, senior research fellow, Chatham House: 8:33

Yeah, because if, if we were having to import previously the gas from the continent, then yeah, it may no longer be available to us. So we'd, we wouldn't necessarily be out the cold. We'd probably have to just have to pay a lot more for it, because we'd just have to ship it in, in terms of LNG or the, the prices would go up. So we don't have the luxury in some ways of. Developing those new relationships, those new trading arrangements, those new guarantees. If there's a no deal, they may not all be in place. Mm. And then

Richard Sverrisson, Editor-in-Chief Europe, Montel: 9:00

to put them in place is far more problematic, uh, and time consuming.

Antony Froggatt, senior research fellow, Chatham House: 9:04

Yeah. And it's just, again, one, one issue out of a plethora that has to be dealt with under a shorter period of time. And yeah, as I said, the, the. In some ways the, the key thing was this 20 month extension effectively. Which you knew that there was a hard deadline. You had time to put in place, uh, the, the leaving arrangements. And for the missions trading scheme, again, it's really not clear. Yeah. Where that, where that finishes, we would have to see what sort of relationship. The government in the past has indicated that it would sort of prefer having a trading system. The UK government has. Had a consultation on the future e emissions trading system, and they said that they would publish the results of that in October. So, okay. They are gathering views on this, but they still haven't made clear what's their preferred option. And

Richard Sverrisson, Editor-in-Chief Europe, Montel: 9:51

again, there's a very little time to, to, to, to, to act on that once it comes out.

Antony Froggatt, senior research fellow, Chatham House: 9:54

Yeah. I mean, but what they have said in the past, in the event of a no deal, that there would be a, a tax that were put upon. Mm. Uh, the. Uh, price of carbon, you, you wouldn't see a reduction in the overall price. That would obviously go to the treasury here rather than in, into an EU system. So there would be a constant price of carbon for certain sectors, not for sectors like the aviation that it couldn't apply to. So some potentially the aviation sector would benefit

Richard Sverrisson, Editor-in-Chief Europe, Montel: 10:19

and the UK allowances couldn't be used in the eu. Yeah, exactly. Are there any other implications for, for infrastructure such as nuclear new build, et cetera, or,

Antony Froggatt, senior research fellow, Chatham House: 10:32

I don't think so. I mean, I don't, again, the government has been indicating that it would, is minded towards having a, a new system whereby it would be possible for utilities to charge the individual users of electricity. A upfront cost for the, the cost of a new build. So this was floated by the government about two weeks ago. Mm-hmm. Uh, I don't see that this is gonna be affected by Brexit. I mean, I guess as we are part, if we were remaining part of the eu, then that would have to go through the, the standard state aid rules. Because it was a new form of, of financial assistance. My personal belief is they got Hinkley through, which was a huge subsidy to the, OR was. Extremely beneficial, should we say to EDF. So if they got that through, then the, the new arrangement probably would be. Put through in any case. Yeah.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 11:23

Oh, it could be much looser. I mean, we wouldn't have to go through state aid guidelines, so, or comply with 'em. Yeah.

Antony Froggatt, senior research fellow, Chatham House: 11:28

Well, I mean, still we don't actually know yet because in terms of electricity trading, if we're carrying on trading electricity, the European Parliament has said that if that were to happen, then the UK would have to comply to, or market and electricity rules. So maybe we still have to apply to some sort of state aid rules. Mm. Who knows? It's still, yeah, it's still the only, the

Richard Sverrisson, Editor-in-Chief Europe, Montel: 11:47

only certain thing is the uncertainty in a way. Yeah.

Antony Froggatt, senior research fellow, Chatham House: 11:50

But. As you said, I mean, it's probably a, a likely to be a looser arrangement, but in terms of the, the nuclear construction, I, yeah, I, I don't think that's gonna happen.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 11:58

What about the, the new government's energy policy? Do we know anything about the way Boris Johnson thinks in terms of, uh, electricity or, or gas? Not

Antony Froggatt, senior research fellow, Chatham House: 12:08

really. I mean, we've been waiting for some time for a white paper that the government was supposed to bring up before the summer, which indicates more in terms of the future direction, that hasn't happened. I mean, I guess. It probably didn't make much sense to put it out just before you get a new government. So, uh, one assumes that there will be more time spent on developing that. In terms of Boris Johnson himself, uh, he, when he was mayor of London, was supportive of action on climate change, uh, and talks about his record in, in glowing terms, in the first sort of prime minister's question time. He was asked if he would declare a climate emergency that I don't, the Parliament had passed a amendment declaring this. A couple of weeks, couple of months earlier, he didn't. Take up the offer to, to say that. So whether or not that he's taking a step back or whether not, he just not, doesn't like that language. We don't really know, but we'll have to see. What about

Richard Sverrisson, Editor-in-Chief Europe, Montel: 12:57

members of the cabinet? I mean, there's quite a diverse group and there's not a lot of, I mean, a lot of, some of them have uttered or some sort of quite anti renewables, or not, not generally in, um,

Antony Froggatt, senior research fellow, Chatham House: 13:08

I mean, it's, yeah, we have to see, I, I, I guess, mm-hmm. The Claire Perry has been made a special sort of envo or for the cop, so the UK's hosting. Okay. The 2020 conference parties of the UNF ccc. It's a very important one that you had Copenhagen, then you had Paris, then you're gonna have hopefully have London. It's not a hundred percent confirmed yet, but she's been given that. Ministerial responsibility. So in some ways that is a good thing because it means that we have a, a high level champion in order to, to prepare for that. Mm. Because it's not just hosting it. There's a lot of work in terms of the preparation of it. It may well be that the UK government sees this as an opportunity. To portray the, the UK outside of the EU as a powerful political force. Important in diplomatic circles, et cetera. So importance beyond climate change. And so if that were the case, then you could see that climate change would take a, a higher profile than purely environmental within the next year or so. And that would be. Yeah. I, I, I think a good thing in terms of climate change does need, uh, important action from government across different departments.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 14:13

So really you could say there's all, all to play for, and lots of issues to keep an eye eye on in, in the, in the coming weeks and months.

Antony Froggatt, senior research fellow, Chatham House: 14:19

Yeah, absolutely. So even though we're moving into the summer and. Things tend to go quite as we've already seen. The prime Minister's going around the country, talking about his plans, et cetera. And I suspect that that will be, ministers over the summer will roll out new, new plans. So within the energy climate environment industry section, that there'll be a lot more to watch for.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 14:38

Perfect. Anthony, thank you very much indeed. Thanks very much. Thank you. Well, listeners rest assured that we will keep you up to date on all the Brexit issues up until the 31st of October, the day the UK is due to leave eu. We'll also have a packed schedule for for the autumn and winter, so please stay tuned and don't forget to follow all the news on Montel and on Twitter and LinkedIn. Until next time, it's goodbye from me.