Thirty-fourth Report of Session 2019–21 Contents

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3Northern Ireland Protocol: Batteries Regulation and Electric Vehicles8

This EU document is politically important because: it will apply in Northern Ireland under the terms of the Ireland/Northern Ireland Protocol annexed to the Withdrawal Agreement; it has implications for UK-wide batteries and electric vehicle policy given the Government’s desire to avoid any legislative divergence from Northern Ireland which could have a negative effect on the UK internal market; and it is a potentially significant step towards attracting investment in the EU’s electric vehicle battery industry, which is important because—under the terms of the EU-UK Trade and Cooperation Agreement—rules of origin requirements mean in practice that batteries for electric vehicles will need to be sourced from the EU or UK from 2027 in order to benefit from tariff-free trade between the EU and UK. Action Write to the Minister. Draw to the attention of the Northern Ireland Affairs Committee, Transport Committee, Environmental Audit Committee and the Business, Energy and Industrial Strategy Committee.

Overview

3.1The European Commission has proposed a wide-ranging new Regulation to promote the development, and sustainability, of batteries, notably for use in electric vehicles. Once in force, the Regulation will apply in Northern Ireland as it replaces the existing EU Batteries Directive, with which Northern Ireland is already required to remain aligned. The Regulation could affect the UK as a whole both because of the impact of Northern Ireland’s alignment on the UK internal market but also because of the provisions in the EU-UK Trade and Cooperation Agreement limiting how much of an electric car may contain materials not sourced from either the UK or the EU.

3.2In summary, the Regulation seeks to ensure that: battery raw materials are supplied sustainably and responsibly; battery cells, modules and packs are manufactured using clean energy, contain low amount of hazardous substances, are energy efficient and designed to last long; and that batteries are properly collected, recycled or repurposed so that the materials they contain feed back into the economy.

3.3The proposed new Regulation suggests mandatory requirements on:

• sustainability and safety (such as carbon footprint rules, minimum recycled content, performance and durability criteria and safety parameters);
• labelling and information (such as storing of information on sustainability and data on state of health and expected lifetime), including a “passport” scheme from 2026 for industrial and electric vehicle batteries;
• end-of-life management (such as extended producer responsibility, collection targets and obligations, targets for recycling efficiencies and levels of recovered materials);
• obligations of economic operators linked to product requirements and due diligence schemes; and
• electronic exchange of information.

3.4In addition, the proposal contains provisions on mandatory green public procurement, on facilitating the enforcement of product rules, namely rules on conformity assessment, notification of conformity assessment bodies, market surveillance and economic instruments.

3.5It is proposed to phase-in the various changes between 2023 and 2030. For portable batteries, for example, the current 45% collection target is increased to 65% from 2025 and 70% from 2030.

3.6In her Explanatory Memorandum, the Parliamentary Under-Secretary of State (Rebecca Pow MP) observes that the proposal is “wide-ranging, extending some way beyond the requirements of the existing 2006/66/EC Batteries Directive”. The UK Regulations transposing the 2006 Directive are currently being reviewed, says the Minister, to consider how to strengthen the approach. As the UK would also like to drive and support the circular economy, the proposed EU Regulation will inform the UK’s process.

3.7Noting that the requirements introduced by the Regulation will need to be applied in Northern Ireland, the UK’s review of existing batteries regulations “will have due regard to the application of this EU Regulation in Northern Ireland”. This includes understanding and avoiding any legislative divergence between GB and Northern Ireland which could have negative impacts on the UK internal market.

3.8The Minister goes on to indicate that the UK’s review is also considering how to improve arrangements related to the collection of portable batteries, particularly those that are classified as portable batteries of general use under the Commission’s proposal. The current collection target for portable batteries of 45% is proposed to increase to 65% in 2025 and 70% in 2030 under the Commission’s proposal, both of which the Minister describes as “challenging”.

3.9Finally, the Minister notes that the Regulation would set new requirements that batteries, particularly industrial and automotive batteries, will need to meet before being placed on the EU market. There are accompanying conformity assessment processes, including “CE” marking, to demonstrate compliance with these requirements. The Minister says that batteries are an international product and many battery manufacturers are located outside both the UK and the EU. It is anticipated that these manufacturers will choose to meet the new EU conformity assessment requirements to continue to place batteries on the EU market. UK-based battery manufacturers are likely, she says, to do the same.

Our assessment

3.10We agree that the draft Regulation is wide-ranging and it consequently merits close scrutiny by the Government. In adopting a life-cycle approach and in regulating lithium-ion batteries, its scope is much broader than the existing Directive. To implement such a Regulation will undoubtedly be a substantial step for Northern Ireland even though, as the Minister says, the broad approach is in line with the UK’s desire in any case to support and promote the circular (life-cycle) economy. Applicable targets and obligations on economic operators will require particularly detailed examination. From the perspective of the UK internal market, we anticipate that labelling obligations, including the proposed passport scheme from 2026, and new rules concerning sustainability and safety will be of interest given their implications for the placing of products on the market.

3.11We consider the information provided by the Minister to be incomplete. On the one hand, the Minister concludes that the draft Regulation is wide-ranging, she confirms that it will apply in Northern Ireland and she indicates that it will inform the UK’s own review, particularly with a view to avoiding any legislative divergence between Northern Ireland and Great Britain which could have negative impacts on the UK internal market. On the other hand, the Minister does not explain:

• how the Government will assess the implications of the proposal for Northern Ireland;
• how the Government will approach those implications, including how it will address any concerns to the EU institutions;
• whether it has already identified any concerns and drawn them to the attention of the EU institutions given that the Commission had already signalled its intention to propose this legislation;
• how it will approach an assessment of the impact on the UK internal market, and when; and
• how the Government defines “negative impacts” on the UK internal market, noting that it is not a concept that it is incorporated into the UK Internal Market Act 2020.

3.12In our engagement with the Minister, we will emphasise the need for the Government to engage closely with this draft Regulation given its direct applicability in Northern Ireland and its potential regulatory implications for the rest of the UK. We will ask her to explain the Government’s intended approach and to provide any initial analysis that the Government may have undertaken to establish likely areas of interest to the UK.

3.13Under the terms of Article 15(3)(b) of the Protocol, the EU is required to inform the United Kingdom about planned Union acts within the scope of the Protocol, including Union acts that amend or replace the Union acts listed in the Annexes. The obligation should be fulfilled within the Joint Consultative Working Group, which—to the best of our knowledge—is yet to meet. We will seek clarity on whether the EU has informed the UK about this planned act and if the EU has invited the UK to comment on it at all.

3.14Turning to the EU-UK Trade and Cooperation Agreement (TCA), electric vehicles (EVs) are treated differently from combustion engine cars, largely because neither the UK nor the EU currently has the capacity to supply them with battery cells. Those are mainly produced in China, South Korea and Japan, and make up about 40% of the value of an EV. The deal therefore phases-in rules of origin requirements for electric vehicles, including the contents of battery packs. To qualify for tariff-free trade between the UK and EU, a maximum of 60 percent of the components in finished electric vehicles can come from outside the EU or the UK by the end of 2023. That will be reduced to 55 percent by the end of 2026 and to 45 percent from 2027.

3.15Given the significance of batteries as a proportion of the value of EVs, the TCA rules of origin provisions mean in practice that EV batteries will need to be sourced from either the UK or the EU by 2027 in order to secure tariff-free trade, thus requiring the swift development of both UK and EU batteries markets. While there are signs of developments in both markets—including the announcement in December 2020 that Britishvolt (a start-up battery manufacturer) will build the UK’s first battery Gigafactory by the end of 20239—the EU’s establishment of a full life-cycle regulatory framework may encourage investment there rather than in the UK. It is consequently important that the UK moves quickly to clarify its own framework even if—as the Minister acknowledges—UK battery manufacturers choose to follow EU conformity assessment requirements in any case in order to be able to place batteries on the EU market.

Action

3.16We have written to the Minister as set out below. We are reporting this document to the House as politically important and drawing it to the attention of the Northern Ireland Affairs Committee, Transport Committee, Environmental Audit Committee and the Business, Energy and Industrial Strategy Committee.

Letter from the Chair

We considered your Explanatory Memorandum on the above draft EU Regulation at our meeting of 20 January 2021.

You describe the draft Regulation—which will apply directly in Northern Ireland—as “wide-ranging”. You also identify the need, as part of the UK’s review of batteries regulation, to understand and avoid any legislative divergence between Great Britain and Northern Ireland which could have negative impacts on the UK internal market. That being the case, we were surprised that you did not set out any further analysis of the proposal or, at least, the steps that you intend to take.

We remind you that your EM concerns an EU act which will be directly applicable in Northern Ireland and may in practice have regulatory implications for the rest of the UK. As such, we expect the UK Government to be analysing the text closely—working with the devolved administrations and stakeholders—and engaging with EU decision-makers as necessary. We therefore ask that you send the following information to us:

• any initial analysis that you may have undertaken, including identification of areas that are likely to be of greatest interest to the UK;
• how you will assess the implications of the proposal for Northern Ireland;
• how you will address any identified concerns to the EU institutions;
• whether you had already identified any concerns and drawn them to the attention of the EU institutions given that the Commission had previously signalled its intention to propose this legislation;
• how you will approach an assessment of the impact on the UK internal market, and when; and
• how the Government defines “negative impacts” on the UK internal market, noting that it is not a concept that it is incorporated into the UK Internal Market Act 2020.

Under the terms of Article 15(3)(b) of the Protocol, the EU is required to inform the United Kingdom about planned Union acts within the scope of the Protocol, including Union acts that amend or replace the Union acts listed in the Annexes. The obligation should be fulfilled within the Joint Consultative Working Group, which—to the best of our knowledge—is yet to meet. Has the EU informed the UK at all about this planned act, and has the EU invited any comment on it from the UK?

Your EM did not reference the EU-UK Trade and Cooperation Agreement (TCA), but it is of some relevance. The TCA phases-in rules of origin requirements for electric vehicles, including the contents of battery packs. From 2027, a maximum of 45 percent of the components in finished electric vehicles can come from outside the EU or the UK in order to qualify for tariff-free trade between the UK and EU. Given the significance of batteries as a proportion of the value of EVs, this means in practice that EV batteries will need to be sourced from either the UK or the EU by 2027 in order to secure tariff-free trade, thus requiring the swift development of domestic markets. To what extent is there a risk that the EU’s establishment of a full life-cycle regulatory framework may encourage investment there rather than in the UK? Will the publication of the EU’s proposal accelerate the UK’s domestic regulatory considerations, particularly given the potential linkages between the two frameworks?

We look forward to a response to our queries within ten working days.