Beggar Thyself
Beggar Thyself
Electricity trading, data restrictions, can Trump tariff, and Dani R
One of the issues I neglected when writing my surprisingly popular post ‘9ish Ways to Improve the UK-EU Trade Agreement’ was electricity trading.
Since Brexit (well, technically the end of the post-Brexit transition period), trading electricity between the UK (WELL, technically Great Britain) and the EU has become more complicated due to the UK no longer being part of the EU’s internal energy market (IEM).
According to Energy UK, the IEM …
brought together bids and offers in the Single Day- Ahead Coupling arrangements, and the available capacity to optimise the power flows across electricity interconnectors. One of the by-products of these arrangements was that a single GB day-ahead clearing price was created; ensuring interconnector flows were efficiently calculated. However, one of the immediate consequences of Brexit and the departure of the UK from the IEM was a GB market de-coupling and the loss of a single GB day-ahead clearing price.
Since Brexit, interconnector capacity on most interconnectors between the EU and GB is allocated using something called “explicit capacity rights”.
This, apparently, leads to large inefficiencies in the market.
However, here is one of those areas where the TCA envisions a negotiated solution, of sorts.
See Article 312 (1):
Electricity trading arrangements at all timeframes
1. For capacity allocation and congestion management at the day ahead stage, the Specialised Committee on Energy, as a matter of priority, shall take the necessary steps in accordance with Article 317 to ensure that transmission system operators develop arrangements setting out technical procedures in accordance with Annex 29 within a specific timeline.
And Annex 29 which sets out the process:
ALLOCATION OF ELECTRICITY INTERCONNECTOR CAPACITY AT THE DAY-AHEAD MARKET TIMEFRAME
PART 1
The new procedure for the allocation of capacity on electricity interconnectors at the day-ahead market timeframe shall be based on the concept of "Multi-region loose volume coupling".
The overall objective of the new procedure shall be to maximise the benefits of trade.
As the first step in developing the new procedure, the Parties shall ensure that transmission system operators prepare outline proposals and a cost-benefit analysis.
Multi-region loose volume coupling shall involve the development of a market coupling function to determine the net energy positions (implicit allocation) between:
(a) bidding zones established in accordance with Regulation (EU) 2019/943, which are directly connected to the United Kingdom by an electricity interconnector; and
(b) the United Kingdom.
… etc
However, so far these discussions have not progressed and industry is worried that the proposed solution doesn’t go far enough.
See this letter, supported by [I think] all of the impacted companies, as reported in the FT, which argues …
[points cribbed and collated by me]
The Multi-Region Loose Volume Coupling (MRLVC) mechanism, as set out in the EU-UK Trade and Cooperation Agreement (TCA) Annex 29, may not be sufficient to support efficient operaon and investment in simple cross-border interconnectors, let alone hybrid grids. Moreover, its introduction could detrimentally impact market functioning by introducing inefficiencies and delays. At best, MRLVC will take several years to implement, and there is a risk that once the MRLVC design is fully evaluated it is found not to be fit for purpose.
In our view, reestablishing a system of price coupling between the IEM and GB markets is the only market mechanism able to realize the untapped potential of the North Seas. It is broadly recognised that this would provide the framework for the opmal development and operation of the North Seas, meeting the climate and energy goals of the EU and UK. We call upon both sides of the seas to seize the opportunity to overcome the past political impasse following the UK’s withdrawal from the EU and to open up for a new phase that allows mutual benefits to be secured via a pragmatic approach.
The solution would require only limited changes to Annex 29 of the TCA, which is within the remit of the Specialized Committee for Energy.
I know what [some of] you are thinking: they’re asking to change the TCA, the EU would never agree to this, blah blah blah.
But that’s where [some of] you are WRONG.
Just last year the EU and UK tweaked the EV rules of origin provisions in an Annex of the TCA using the committee process, as suggested here.
The challenge isn’t whether the EU and UK could agree to this. They absolutely could.
It’s more a question of **will** they agree to this, taking into account the wider discussions and politics.
Here my assumption is … maybe?
In practice, I think any discussions on fixing electricity trading will inevitably be mixed up with those about linking the EU and UK ETSs. More frustratingly, they could also get linked to discussions on fishing quotas (reminder: the June 2026 review of the TCA energy provisions is deliberately designed to align with fresh negotiations on fishing quotas).
So can this be fixed? Yes!
Should it be fixed? Yes!
Will it be fixed? Umm, hopefully.
No more data transfers
One of the most interesting aspects of the US’s proposed restrictions on connected vehicle hardware/software is that it will apply not only to inputs obtained directly from China or Russia, but also to those with “a sufficient nexus” to China or Russia.
This means, for example, that the prohibition would apply to hardware obtained from a US-based manufacturer if the manufacturer was deemed to be linked to a Chinese or Russian entity. In other words, Chinese hardware/software providers won’t be able to dodge the prohibitions by localising production in the US (or US allies).
I’ve been on the lookout for similar examples elsewhere.
Now, this may be a bit speculative, but the Irish Data Protection Commission’s investigation into TikTok’s transfer of personal data to China potentially fits the bill.
As reported here it looks like the Irish regulator may find against the company. This is interesting, because, according to the internet, TikTok has spent billions building data centres in the EU to store and process European data.
Some of the people I’ve asked about the case say a negative ruling could also trigger a wider tightening of restrictions on the ability of companies to transfer data to sensitive countries and non-adequacy countries.)
But if it turns out localising data storage and processing in Europe is not enough … what then?
Can Trump Tariff?
One of the annoying things about writing the second most popular trade newsletter in the world [Ed: source please] is that the most popular one — Alan Beattie’s Trade Secrets, sign up — often writes about the thing you wanted to write about both first and more interestingly.
Well, it happened again this week with his coverage of a new Cato paper looking at the legal routes available to Trump if he wants to slap tariffs on everything.
Domestic and international trade policy has always relied on a degree of self-restraint — an unspoken agreement to use national security loopholes only in compelling circumstances and comply with WTO rulings even if faced only with weak sanctions. Trump seems incapable of restraining himself in any of his actions, trade or not, and so does Congress, the courts and, most of all, the Republican party itself.
So, assuming the tariffs are coming, how should other countries respond?
My Flint colleagues Kathryn Watson and Will Haworth look at the different options — do nothing, negotiate or retaliate — here.
Other things
Some other Flint colleagues — Pierpaolo Proni and Alice Coffey — have written a piece comparing the EU and UK approaches to tackling deforestation here.
Dani Rodrik, of trilemma fame, has written an interesting piece for Project Syndicate arguing trade policymakers should differentiate between “beggar-thy-neighbour”, “enrich-thy-neighbour” and “beggar-thyself” interventions when calibrating their response to foreign trade-distorting industrial policies. He uses China’s green industrial policy as an example of an intervention that could be classified as either enrich-thy-neighbour (the rest of the world benefits from cheap green goods) or beggar-thyself (if the interventions create domestic inefficiencies) but doesn’t give any examples of what he would consider an example of beggar-thy-neighbour (and therefore justify other countries retaliating).
Best,
Sam