Brexit: the only certainty is uncertainty

There is a big question as to how the legal landscape in the UK would change in the event of Brexit. Whilst the nature of change is difficult to predict, the uncertainty associated with the period of renegotiation with the EU is likely to have serious implications for property investment and the green economy in the short to medium term.

The founding treaties of what is now the EU did not explicitly identify a power to act on matters of environmental protection. Development of EU control in this area was initially intended to offer a level playing field to all Member States in order to improve the functioning of the single market. As concerns about environmental degradation grew over time, the EU became increasingly focused on environmental protection for reasons of sustainability – recognising of the fact that the health and functioning of the environmental, social and economic spheres are interrelated and interdependent. Much of the UK’s environmental law now originates from the EU, including that on water, air quality, habitats and species, noise, chemicals, waste, climate change and energy efficiency.

The nature of the changes in environmental law will depend upon the nature of the future relationship the UK would have with the EU. There are various models of how this might work:

The ‘Norwegian model’ – the UK remains part of the European Economic Area (EEA), which would mean it is still bound to implement and apply much of EU law, though without the ability to influence its future direction. An independent study commissioned by the Norwegian Government in 2012 calculated that Norway has had to incorporate approximately three-quarters of all EU laws into its own domestic legislation in return for its access to the EU market, though estimates vary.

The ‘Swiss model’ – the UK has a trading relationship through the European Free Trade Association (EFTA), without being part of the EEA. This would involve the UK abiding by certain EU laws through the negotiation of new treaties or amendments to old treaties – as opposed to having to continuously update domestic law in response to changes at EU level – in return for access to the single market and other EU activities.

The ‘Canadian model’ – the UK reaches an economic and trade agreement along the lines of the Comprehensive Economic and Trade Agreement (CETA) agreed between Canada and the EU in 2014, but which is yet to be ratified. On entering into force, the intention is that it would allow EU and UK exporters to sell goods and services to one another more easily.

The ‘US/China model’ – the UK relies on its membership of the World Trade Organisation (WTO) as a basis for trade with the EU.

Whatever the preferred model, it is unlikely that a vote to leave would result in any immediate changes to environmental law in the UK. There would first be a need to undertake a comprehensive review to identify what UK law is currently derived from EU law and a need to consider what the government want to (or can) keep, scrap – either in whole or in part – or alter.

The volume of work required to unpick the various EU Directives (e.g. EIA Directive) and Regulations (e.g. REACH) – some of which are also the means by which the UK implements international agreements (e.g. the Framework Convention and Kyoto Protocol) – makes the specified two year period from the point of notification of the intention to withdraw appear hugely ambitious (Article 50 of the Treaty on European Union). There is scope to extend this period through agreement of both parties, which is likely to be necessary given that it took seven years for Canada to negotiate CETA.

A recent letter signed by, among others, the former heads of Natural England, English Nature, the RSPB and the National Trust warned that a vote to leave would put in jeopardy international efforts to tackle climate change and pollution, restore fish stocks, and improve biodiversity. It is easy to see why prominent environmentalists might be wary of the potential consequences of Brexit – initiatives such as the Red Tape Challenge reflect the importance the current government attaches to minimising the ‘burden’ of environmental legislation on the UK planning system – but their assumptions that 1) the government will look to significantly diminish environmental protections; and 2) the majority of voters would accept it if they did, seem slightly premature.

No-one can be certain of what the future holds in the event of a vote to leave, in fact the only certainty is that there will be uncertainty over the state of environmental legislation in the UK for a considerable period of time. Though difficult to quantify, such uncertainty over the short to medium term is likely to diminish confidence for investors, developers, consultants, manufacturers, industries and environmental-related businesses alike. Research undertaken by CBRE has shown that the proportion of property investors who think the UK would be a slightly worse place to invest in the event of Brexit has risen from 32% in 2014 to 46% in 2016, bringing the total that think the UK would be a worse place to invest to 73%, up from 69% last year. According to other reports, the green economy accounted for over a third of the UK’s economic growth as recently as 2011-12. Together these figures suggest that Brexit could have a significant effect on the UK’s longer term economic prospects.

One only has to look at the consequences of comparatively minor changes to renewables tariffs and policies over the past few months to get a feeling for the real costs of shifting environmental policy. Interesting times…

 

Brexit, Environmental, Investors, Sustainability,