Will European energy cooperation bring down Britain’s bills?

Britain and the European Union reached an agreement last week on trade, defence, fisheries, energy cooperation, and future policy alignment. Sir Keir Starmer said “it’s time to look forward”, while European Commission President, Ursula von der Leyen, hailed the summit as a “historic moment”, made possible by Starmer’s leadership. Starmer defended his new “landmark” agreement with the EU, calling it a return to “common sense” and urging the UK to move beyond the “political fights” of Brexit.

The cost of household bills, particularly energy bills, has dominated headlines since Labour entered office and their pre-election pledge to cut energy bills by £300 on average has drawn much attention. In February, the Prime Minister stood by the pledge, "We said we'd aim for £300, up to £300. That's what I want to achieve… I want those bills to be low for a prolonged period of time. I think many businesses, many families have suffered their bills going up and down and we can't have that volatility anymore.” Following last week’s agreement with the EU, he hailed that it will be “good for bills”, and will be hoping the agreements on energy will contribute to cutting bills.

The main measures on energy were commitments on linking the UK and EUs Emissions Trading Systems (ETS), closer cooperation on electricity and continued regulatory exchanges on new energy technologies such as hydrogen, CCUS and biomethane.

The most eye-catching announcement from the deal was the agreement to enter negotiations to link their ETS so that they are more closely aligned. This is expected to align carbon pricing across the two markets – meaning UK companies can trade emissions allowances with EU counterparts. In effect, this could see the UK rejoin the single market for electricity and follow EU regulations, with oversight from the European Court of Justice, which has already reopened old Brexit wounds.

While this move was welcomed by EnergyUK, who said, “Linking ETS will incentivise investment in clean technologies by creating a larger more efficient market with enhanced abatement opportunities; allowing for decarbonisation at lower cost.“ However, ahead of the talks The Telegraph argued that this move would push up the cost of producing electricity from gas-fired power plants, adding to the costs faced by British industry and increasing household bills. Nick Timothy, Conservative MP for West Suffolk, criticised the move and said the government should realise “actions have consequences” for voters. He added “we could be heading towards an extra £112 on the cost of living because of European alignment… If the government signs up for the EU’s cap and trade scheme, then we will lose control and allow carbon prices to hit eye-watering levels. This is going back on what was promised to voters during the election.”

As the debate over energy policy heats up, this seems certain to be a new battleground in the field, and Starmer will be hoping this move helps to bring down bills and ease the pressure on his government.