Brexit’s Impact on the EU’s Climate Leadership: Net Costs vs. Net Opportunities
By Larissa Iannella Oliveira
Introduction
Brexit – the United Kingdom’s departure from the European Union (EU) – was initially seen as a serious threat to the EU’s cohesion and global influence. Many feared that the loss of one of the Union’s most climate-active members could fracture the EU’s unity and weaken its ability to lead on climate change. This paper examines Brexit’s impact on the EU’s climate leadership through two critical lenses: 1) the political dimension and 2) the economic dimension. Central to this analysis is the concept of “net” costs vs. “net” opportunities, which weighs the setbacks against the gains. The key question is whether Brexit ultimately weakened or strengthened the EU’s climate leadership. Almost a decade after the 2016 UK referendum, this question is timely. The EU has been navigating overlapping challenges – energy security concerns, economic recovery from COVID-19, and escalating climate impacts – all against a shifting geopolitical backdrop. Through milestones like the European Green Deal (EGD), the Fit for 55 package, and reforms to the EU Emissions Trading System (EU ETS), we evaluate how Brexit has shaped the EU’s climate ambitions. The findings indicate that while Brexit imposed certain costs on the EU’s climate efforts, it also unlocked new opportunities. In net terms, the EU has emerged as strong – or even stronger – in its climate leadership.
Political Dimensions
A. EU’s Internal Cohesion and Climate Governance
Before Brexit, the UK was a leading advocate for ambitious EU climate policies. As a EU member, the UK consistently pushed for higher greenhouse gas (GHG) reduction targets and tougher caps in the EU Emissions Trading System (EU ETS) (the key EU mechanism that mandates polluters to pay for their GHG emissions through a carbon pricing system). Given the UK’s prominent role, one immediate worry after the 2016 Brexit referendum was the risk of “Brexit contagion.” Policymakers feared other countries might follow the UK’s lead or that internal divisions would deepen, undermining the EU’s ability to agree on bold climate goals. A fragmented EU might no longer present a united front on climate, jeopardizing its reputation as a global “climate leader.”
However, those fears did not materialize. As analysts later noted, early warnings of a Brexit contagion effect “did not come to anything in the end.” Under chief negotiator Michel Barnier’s leadership, the remaining EU27 stayed remarkably unified in the Brexit talks. This display of solidarity helped maintain cohesion at a critical moment. In fact, rather than paralyze EU climate policy, Brexit galvanized the EU27 to advance some of their most ambitious climate initiatives to date.
In December 2019, shortly after the UK confirmed its exit plans, European Commission President Ursula von der Leyen unveiled the European Green Deal (EGD) – a sweeping vision to make Europe the first climate-neutral continent by 2050. The Green Deal quickly became the cornerstone of the EU’s agenda. By mid-2021, the EU had enacted the European Climate Law, which made the Green Deal’s targets legally binding. That same year, the Commission introduced the ‘Fit for 55’ package – an umbrella of more than 20 legislative measures aimed at overhauling EU climate and energy policy to meet the new 55% emissions reduction goal. Fit for 55 proposed stricter ETS emission caps (meaning a faster decline in allowed emissions), a higher carbon price floor, a Carbon Border Adjustment Mechanism (CBAM) to curb carbon leakage, and updates to the Renewable Energy Directive (REDs), among other measures. These steps demonstrated a greater level of climate ambition, not less, in the post-Brexit EU.
Some experts suggest that the UK’s absence did not remove an opponent of climate action. Francesco Graziani, a senior EU energy policy expert, argued in a post-Brexit scenario analysis that he doesn’t believe the UK would have blocked the 2021 Climate Law. On the contrary, he says, “they would have played along and would have likely supported an even more ambitious approach had they remained in the EU.” [1] Regarding the Fit for 55 framework, Graziani noted that, “the ambition the UK has demonstrated in climate policy—both under the Conservative and now the Liberal government—suggests that [the UK] would have been a strong advocate for an ambitious EU climate approach today.”[2] In other words, the EU’s newfound boldness cannot be attributed simply to the UK leaving. Nonetheless, Brexit did eliminate the need to negotiate compromises with a major member state, potentially smoothing the path for rapid agreement among the EU27 on initiatives that might have otherwise faced delay or dilution.
In sum, regarding internal cohesion and governance, Brexit has been at worst a minor speed bump and at best a catalyst for greater ambition. Thus, in terms of internal political dynamics, Brexit’s impact has been a net gain for the EU’s climate leadership – strengthening the Union’s resolve to act collectively on climate.
B. EU’s External Negotiating Power
Although internal cohesion is vital, the true test of climate leadership is also external: how effectively can the EU assert influence in international climate negotiations after Brexit? Prior to Brexit, the EU28 was a powerhouse in forums like the U.N. Climate Change Conferences (COP meetings). The successful coordination of the EU bloc was widely seen as instrumental in landmark outcomes such as the 2015 Paris Agreement, still regarded as the “most significant global climate agreement to date.” The UK, as part of the EU28, contributed diplomatically and financially to this collective influence. Understandably, there was concern that losing the UK’s contributions could diminish the EU’s weight on the world stage.
The first major test was COP26 in Glasgow (2021) – the first COP where the EU negotiated as EU27 without the UK. COP26 drew sharp criticism for its limited progress and accessibility. Observers branded it as the “most exclusionary climate summit ever.” Some also deemed the Glasgow outcome “ineffective” in closing the gap to the Paris goals. So did Brexit contribute to this disappointment? Was the EU a weaker force at Glasgow without the UK?
Evidence suggests that Brexit itself was not a decisive factor in COP26’s shortcomings. As Bill Reinsch, a senior adviser at CSIS, pointed out, the EU’s negotiating power in Glasgow was largely unaffected by the UK’s absence.[3] Instead, Reinsch directed the recent COP inefficacies as the result of insufficient climate financing from developed countries, driven in part by COVID-19’s economic slowdown and the war in Ukraine, issues that appeared regardless of the EU27 or EU28. Additionally, by most accounts, the EU’s influence in global climate talks remains high post-Brexit. The Union continues to coordinate a common position among its members and leverage its market power to drive global ambition. It’s true that the UK had been a prominent voice in climate diplomacy (and now articulates its own voice independently), but the EU’s credibility did not crumble without the UK.
Overall, Brexit’s impact on the EU’s external climate negotiating power has been minimal – a slight cost at most. The EU28 might have slightly benefited from the UK’s financial contributions as well as the UK’s diplomatic influence, but these are not decisive factors in how the EU27 asserts itself in COP negotiations today.
Economic Dimensions
A. Financing of Green Projects
One of the most tangible Brexit impacts was on European climate finance, particularly through the European Investment Bank (EIB). The EIB is the EU’s financing arm for development and climate-related projects; it has committed to direct at least 50% of its lending to climate action and environmental sustainability by 2025.
Prior to Brexit, the UK was a major shareholder in the EIB. It held roughly 16% of the Bank’s capital – contributing about €3.5 billion in paid-in capital and €35.7 billion in callable capital. This made the UK one of the EIB’s largest stakeholders, alongside Germany, France, and Italy. The concern was that when the UK left, the EIB would lose this substantial funding support, potentially undercutting the EU’s ability to finance clean energy, climate resilience, and other green projects. However, member states filled the void. The remaining EU27 collectively boosted their capital contributions to compensate for the UK’s departure. Notably, countries like Poland and Romania saw Brexit as an opportunity to increase their stakes in the EIB. Poland raised its EIB subscribed capital by about €5.4 billion and Romania by about €125 million, leaving the Bank with more capital than before Brexit.
In parallel, the EU demonstrated financial innovation with instruments that may have been politically difficult to realize if the UK were still a member. A prime example is the NextGeneration EU recovery plan. In response to the COVID-19 pandemic’s economic fallout, the EU27 agreed in 2020 to an unprecedented €750 billion joint borrowing program to fund recovery in member states, with a heavy emphasis on green and digital investments. Crucially, this kind of large collective borrowing was something the UK had long been hesitant about within the EU. In fact, the UK likely would have vetoed the NextGen EU plan had it been a member. As Sir Ivan Rogers (the UK’s former EU ambassador) pointed out, Britain would “never have approved” the EU’s joint debt issuance for the recovery fund. While the EU might have found a way to launch a recovery fund even with the UK (perhaps through an intergovernmental treaty), insiders acknowledge that Brexit made the process far smoother and faster.
The outcome of these developments is that the EU’s green financing capacity has grown, not diminished, post-Brexit. The EIB not only compensated for the UK’s departure but also reinforced its climate-oriented mandate. Additionally, new funding mechanisms like NextGen EU have added hundreds of billions of Euros into clean energy, energy efficiency, sustainable transport, and other climate solutions across Europe – funding that might never have been unleashed in a pre-Brexit EU due to political reservations. This suggests that in the realm of financing green projects, Brexit turned out to be a net opportunity for the EU.
B. Fragmented Carbon Markets
A second economic aspect of Brexit’s impact is on carbon markets, specifically the EU Emissions Trading System (EU ETS). The EU ETS is the flagship market-based tool for reducing GHG emissions in the EU, covering power plants, industries, and aviation. By putting a cap on emissions and allowing trading of emission allowances, the ETS creates a carbon price signal to drive emissions cuts. Prior to Brexit, the UK’s participation meant the EU-wide carbon market included British industries and power generation, integrating one of Europe’s largest economies under a single emissions cap-and-trade system.
With Brexit, the UK withdrew from the EU ETS as of January 2021 and established its own parallel UK ETS. This separation had immediate mechanical effects: the total size of the EU ETS market shrank because the UK’s emissions were no longer included. The EU’s cap on emissions (the total allowances issued) had to be reduced to account for the UK’s exit. In practical terms, the EU ETS cap was cut by about 11% once the UK left. On one hand, a smaller cap could be seen as positive (fewer allowances means potentially higher carbon prices in the EU). On the other hand, fragmentation of carbon markets is generally inefficient: it creates two separate markets (EU and UK) where previously there was one larger, liquid market. This also leads to imbalances and higher administrative costs. For example, companies operating across both the EU and UK now have to navigate compliance with two different ETS regimes. Although the EU-UK Trade and Cooperation Agreement (TCA) (which outlined post-Brexit trade and cooperation rules) (Article 395) encourages linking both systems, as of early 2025 this remains unsolved.
The immediate effect of Brexit was a negative in this context: the EU ETS became a smaller market overnight and lost the direct participation of a climate-progressive country. While not catastrophic (the EU ETS continues to function and the UK’s separate system is similarly stringent) this split represents a lost opportunity for greater European cooperation on emissions trading.
Conclusion
Brexit’s impact on the European Union’s climate leadership, when assessed through political and economic lenses, reveals a clear verdict: it has been a net opportunity for the EU. Politically, Brexit created a greater internal cohesion, as the EU27 emerged more unified and ambitious in pursuing climate goals, exemplified by transformative initiatives such as the European Green Deal and ‘Fit for 55.’ Economically, while the UK’s departure initially posed challenges, EU countries adapted by leveraging innovative tools like the NextGeneration EU recovery plan that brought more funding for the transition to green energy.
This assessment underscores that Brexit, rather than weakening the EU’s climate leadership, has allowed it to pursue even bolder policies unrestricted by UK opposition. However, this net opportunity comes with some drawbacks. Cooperation with the UK in areas like carbon market integration is still uncertain, and future geopolitical pressures could test the EU’s ability to sustain this trajectory. Ultimately, Brexit has set a new precedent for how the EU converts disruption into progress, positioning it as a stronger climate leader on the global stage than ever before.
References
[1] Francesco Graziani, Brexit’s Impact on EU’s Climate Policy Frameworks, interview by Larissa Iannella Oliveira, November 10, 2024.
[2] Ibid.
[3] William Reinsch, Brexit’s Impact on EU Energy and Trade Policy, interview by Larissa Iannella Oliveira, December 1, 2024.
