Is an EU in/out referendum good news for green businesses?

Energy investors trying to predict the impact of EU policies on prospective projects now also have to consider the likelihood of 'Brexit'

23 Jan 2013, 14:25

Whatever the rights and wrongs of an in/out referendum on the UK's EU membership, one thing is now certain: the UK's business community, including its green business community, now faces five years of significant uncertainty.

Hopefully, it will not prove to be crippling uncertainty, but it will be uncertainty all the same and everyone who works in business knows there is nothing more frustrating than uncertainty. Eurosceptics do their cause no favour if they deny this incontestable fact.

Inevitably, business groups are reluctant to be too critical of Cameron's plans publicly, but there are plenty of high-profile execs who are privately frustrated at the confusion that will be created, and a few, such as Sir Martin Sorrell, who are happy to go on the record to say so.

That is not to suggest there isn't an undoubtedly strong case for a renegotiation of the UK's relationship with the EU, and potentially even a case for leaving if negotiations fail.

Moreover, before Eurosceptics assume environmentalists are inherently pro-European it is worth pointing out green groups were busy campaigning against Brussels' meddling back when the current generation of young eurosceptic Tories were more worried about who was the best Power Ranger. Green groups have done far more to highlight the dysfunctional nature of the Common Agricultural Policy, the Common Fisheries Policy, more recent biofuel policies, and many other environmentally counter-productive EU dictats than the vast majority of Conservative backbenchers. Equally, green businesses have repeatedly condemned the EU's chronic mis-handling of the EU emissions trading scheme, which has seen a mechanism for driving low carbon investment have a negligible or arguably even negative effect.

Most green execs will also recognise that the nature of the EU is changing and will continue to change fundamentally as members battle with the eurozone crisis. As such there is a strong democratic (and a much weaker, but still legitimate, economic) argument for a referendum on EU membership. It would also be wrong to embrace a blanket assumption that green-minded voters would instinctively vote to stay in the bloc.

But what is much harder to understand from a business perspective (although not from a brutal party politics perspective) is why we need an immediate commitment to a referendum in 2017 based on the unknown result of an election, the unknown conclusion of negotiations that may not even happen, and the unknown and unknowable implications of a British exit - or "Brexit" as the headline writers insist we style it.

As Sir Martin observed today: "The problem is it creates uncertainty. At the very best you have to say it's neutral. At worst, it's negative. It cannot be positive."

Some businesses and industries will be able to navigate this additional uncertainty, but it is inevitable others will see their lives made considerably harder.

Take the energy industry as just one example. Both fossil fuel and clean energy developers now have to make investments based not only on projections about the likely EU carbon price and the impact of EU regulations governing coal and gas plants, but also on the possibility none of these EU policies will even apply in the UK from 2017 onwards. The government's Energy Bill promises to increase investor certainty right across the energy sector, just as Eurosceptic machinations threaten to undermine it.

Admittedly, Cameron said in his speech that he wanted more pan-European integration of energy infrastructure, just as he encouragingly said that he believes in working with Europe to "protect the security and diversity of our energy supplies [and] tackle climate change and global poverty". But that integration becomes very difficult (although perhaps not impossible) to deliver if a referendum sends the UK towards the exit.

Green businesses are likely to be particularly badly afflicted by this uncertainty, because, rightly or wrongly, many of the environmental regulations that have helped drive demand for their products and provide the policy framework in which they operate originated in the EU, albeit with British participation and consent. Air quality rules, habitats directives, renewable energy targets, biofuel and electric car goals, hazardous chemical restrictions and reporting rules, the Common Agricultural and Fisheries Policies, all now have a significant question mark hanging over them. "Good riddance to the lot of them," Tory backbench MPs may gleefully declare, but for the businesses in their constituencies striving to deliver economic growth and new jobs the development of future investment plans has just become a whole lot trickier.

Cameron confirmed today at Prime Ministers Questions that at least some of these regulations are in the firing line, stating that there are "whole series of areas - social, employment, environmental legislation - where Europe has gone far too far". Precisely which regulations needed rolling back he would not say, but it is worth noting there are no EU environmental and climate change policies or regulations that were developed for the sake of it, regardless of what Eurosceptics might think. They might not always be well structured, but they are there for a purpose and in most instances it is a purpose supported by the British government and much of the public.

For example, the UK has a Climate Change Act as well as a government and opposition that is still committed to meeting its legally-binding emissions reduction targets. If an EU exit excludes the UK from the EU emissions trading scheme and other mechanisms designed to curb emissions then alternative mechanisms will have to be found to help drive low carbon investment. Equally, heading for the exit door might allow London to avoid those multimillion euro fines for repeatedly breaching air quality rules, but will the public really be happy with this outcome when tens of thousands of people see their health suffer as a result, or will calls for tougher national rules increase in volume? The unfortunate reality is that any exit from the EU would inevitably trigger a major overhaul of national regulations, creating many more years of uncertainty.

None of these problems are insurmountable, but on every policy front raising the prospect of a referendum almost five years before such a referendum is scheduled to take place creates uncertainty - and that is before you even get into the deeply vexed issue of the likely impact on trade. Eurosceptics may talk up the chances of the UK becoming an offshore Norway or Switzerland, but plenty of multinationals will be asking themselves if they want new European headquarters and factories to be located outside one of the world's largest single markets. Would Nissan have opted to build their new Nissan Leaf in Sunderland if they thought there was even the slightest possibility of the UK one day ending up in a trade war with Europe?

None of this is to argue that we should definitely stay in or definitely exit the EU. How can it when we still don't know what it is that we are being asked to stay in or leave? Nor is it to suggest a referendum is unjustified. If there is a democratic mandate for a referendum then one should be delivered and businesses will just have to do what many of them do best - navigate the uncertainty.

But business leaders in general, and green business leaders in particular, will be forgiven for wondering why the Prime Minister wants to add an additional and largely unnecessary two years to this period of uncertainty. Why not wait until the next election, or even better until we know what any renegotiation with Brussels actually delivers?

If you are being kind the answer lies in Cameron's desire to deliver strong leadership on a crucial issue that he deems more important than the delivery of certainty to those private sector businesses he also praises as the engine room of the British economy. If you are being less kind it is the inevitable and unseemly result of his repeated failure to stop his party "banging on about Europe". Either way, sadly it is British businesses that will have to handle the repercussions.

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Previously known as the BusinessGreen Blog, James' Blog features musings, observations and occasional rants from BusinessGreen editor James Murray

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