To understand the implications of Brexit, it helps to go nuclear.

Of all the international regulatory challenges created by the U.K.’s impending departure from the European Union, the atomic-energy industry may best encapsulate the decision’s bottom-line effect: more bureaucracy and costs for a country that has long fought to curb both within the EU.

Untwining the U.K. from decades of centralized European supervision of nuclear material for civilian use mirrors the broader Brexit process. Each involves abandoning treaty-bound organizations, re-establishing links on less integrated terms and, in the meantime, creating uncertainty for everybody from executives to researchers.

“Brexit is a complete game changer for the nuclear industry in Britain, altering the regulatory environment, creating major complexity and leading the way to higher costs for businesses, the state and ultimately the British taxpayer,” said Simone Tagliapietra, a research fellow on energy at the Bruegel think tank in Brussels. “It’s a huge, self-inflicted problem.”

Brexit Microcosm

The EU’s nuclear framework is a microcosm of the Brexit hurdles because, like Europe’s single market and free-trade deals, it offers the U.K. benefits that the British government is keen to retain after the country withdraws from the 28-nation bloc in March 2019. Yet the act of leaving makes preserving those advantages difficult or even impossible.

With negotiations on the divorce terms stalled, numerous industries in Europe are stepping up calls for transitional arrangements that would maintain the status quo between the time of Brexit and the entry into force of any permanent agreements on future U.K.-EU ties.

While the EU’s national governments retain many of the policy powers associated with nuclear energy, the Euratom treaty creates a federal structure for some key elements. The centralized features include non-proliferation inspections, supply agreements with non-EU nations and research funding, all of which will fall on Britain to arrange for the first time in four decades.

When notifying its plan to withdraw from the EU, the government of British Prime Minister Theresa May also announced its intention to quit Euratom, which is governed by the bloc’s institutions. The move disappointed the U.K. nuclear industry, which had argued that post-Brexit Britain should stay in Euratom.

Risk of Disruption

Britain is a leading European nuclear nation, with 15 reactors accounting for about a fifth of domestic electricity production. The British atomic-energy industry employs more than 65,000 people and features companies ranging from plant operator EDF Energy and developer Horizon Nuclear Power — a unit of Hitachi Ltd. — to fuel producer Westinghouse Electric Co. and uranium enricher Urenco Ltd.

“Our primary concern remains the risk of significant disruption if we cease to be members of Euratom without new arrangements being in place,” said Tom Greatrex, chief executive of the London-based Nuclear Industry Association, which represents civil operators in the U.K. “The government’s priority should be seeking agreement with the EU to ensure there are transitional agreements in place, including continuing association to Euratom.”

The U.K., Euratom and the International Atomic Energy Agency are united under a single non-proliferation agreement. Under the three-party accord, Euratom helps carry out IAEA-mandated inspections on civil nuclear facilities in Britain to ensure that no material is diverted for atomic weapons.

In leaving Euratom, the U.K. will have to negotiate an inspection agreement of its own with the Vienna-based IAEA and beef up the national nuclear authority. Britain held an initial discussion with the IAEA on a new accord in September, according to the agency. The country also published draft legislation on Oct. 11 to create a domestic nuclear-safeguards system to replace provisions under Euratom.

Nuclear Accords

Post-Brexit Britain will also no longer be covered by cooperation accords that Euratom has with a range of non-EU countries including Australia, Canada, Japan, Kazakhstan, South Africa and the U.S. As a result, the U.K. will have to negotiate its own such deals, known as Nuclear Cooperation Agreements, or NCAs, including with the EU itself.

This exercise is similar to the general commercial challenge facing the U.K. as it looks to forge free-trade accords with the rest of the world that would mimic deals the EU already has or is seeking (with the likes of South Korea, Canada, Japan and Australia) and to fashion an open-market pact with the bloc itself. Continue reading.