Forty-third Report of Session 2019–21 Contents

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4Northern Ireland Protocol: Batteries Regulation and Electric Vehicles28

This EU document is politically important because: it will apply in Northern Ireland under the terms of the Northern Ireland Protocol; it has implications for UK-wide batteries and electric vehicle policy as legislative divergence between Great Britain and Northern Ireland could affect 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.

Overview

4.1In December 2020, the European Commission 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.

4.2In summary, the draft 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 amounts of hazardous substances, are energy efficient and designed to last for a long time; and that batteries are properly collected, recycled or repurposed so that the materials they contain feed back into the economy. Further information on the content of the draft Regulation, and the Government’s initial response, was set out in our Report29 of 20 January 2021.

4.3After considering the proposal and the Government’s position, we wrote to the Parliamentary Under-Secretary of State (Rebecca Pow MP) requesting further analysis of the proposal, including implications for Northern Ireland and for the UK internal market. We also asked how the Government intended to address any identified concerns to the EU institutions. Finally, we drew attention to the relevance of the EU-UK Trade and Cooperation Agreement provisions concerning rules of origin for batteries and electrified vehicles (EVs). In practice, the Agreement means 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. Noting the potential risk that the EU’s establishment of a full life-cycle regulatory framework may encourage investment there rather than in the UK, we asked whether the UK’s domestic regulatory considerations might be accelerated in response.

The Government’s position

4.4In her reply of 1 February 2021, the Parliamentary Under-Secretary of State (Rebecca Pow MP) committed to ensuring that the UK’s statute book is fully functioning with respect to the EU law applicable in Northern Ireland (NI) under the Protocol, such as the draft batteries legislation in question.

4.5Concerning the impact of the EU legislation on the UK internal market, the Minister recalled that, under the terms of the UK Internal Market Act 2020, NI batteries produced under the new EU legislation would be able to be placed on the Great Britain (GB) market without additional requirements. GB batteries would, however, need to meet EU requirements in order to be placed on the NI market. The Minister acknowledged that there would inevitably be additional processes and costs for GB battery producers in meeting those requirements. The Government’s intention was to minimise the impacts in NI and GB, as far as it is possible to do so.

4.6When assessing the impact of the proposal on the UK internal market, the impacts which would be considered, said the Minister, cover the economic effects specified in the United Kingdom Internal Market Act 2020 for the Office for the Internal Market to consider. These include the indirect and cumulative effects, distortion of competition or trade and the impact on prices, quality and choice for consumers. A range of options for limiting these impacts can then be considered.

4.7The Minister noted that the proposal could broadly be broken down into those matters relating to criteria and standards for placing batteries on the market, which are reserved, and those relating to waste matters, which are devolved. It would be for Northern Ireland, she said, to determine its approach in respect of the waste matters. In a subsequent letter to the then House of Lords EU Committee, the Minister clarified this, noting that the UK Government and Northern Ireland Executive were working closely together on the proposals and to establish who would be responsible for bringing forward legislation to implement various aspects of the proposals.

4.8While the Minister did not yet have an initial analysis to share with the Committee, she confirmed that the Government was working with other Government Departments, Northern Ireland, the other devolved administrations, regulators and industry to analyse the EU proposals and the UK’s policy approach, together with what this means for the ongoing review of domestic batteries legislation. That domestic review was scheduled to lead to a consultation in the fourth quarter of this year. The Minister will share the analysis of the EU proposals as soon as it is available.

4.9The Minister indicated that any UK concerns with the legislation would be addressed to the EU institutions through the Joint Consultative Working Group (JCWG) established under the Northern Ireland Protocol. In her letter to the House of Lords, the Minister noted that the JCWG met to agree its Rules of Procedure on 29 January 2021 and the dates of subsequent meetings would be a matter for the co-chairs.

4.10Concerning the bespoke rules of origin for batteries and electrified vehicles agreed as part of the EU-UK Trade and Cooperation Agreement (TCA), the Minister noted that the Government had received positive feedback from stakeholders on the outcome of the negotiations in that regard and would continue to work closely with car and battery manufacturers across the UK to accelerate plans for a UK electric vehicle (EV) supply chain. She said that the Government had announced up to £1bn funding to develop UK supply chains for the large-scale production of EVs and for further research and development. It would accelerate mass production of key technologies in the UK through major investments, including in the manufacturing of batteries, along with their component and materials supply chains.

Our assessment

4.11We welcome the further information provided by the Minister and look forward to pursuing this matter with her once the Government has completed its analysis of the proposals.

Action

4.12We have written to the Minister as set out below.

4.13We are reporting the Minister’s response to the House as politically important and drawing it to the attention of the Northern Ireland Affairs Committee.

Letter from the Chair to the Parliamentary Under-Secretary of State at the Department for Environment Food and Rural Affairs (Rebecca Pow MP)

We considered your letter of 1 February 2021 at our meeting of 14 April 2021.

We welcome the further information that you provided and look forward to pursuing this matter with you once you have completed your analysis of the proposals, in cooperation with the Northern Ireland Executive and stakeholders.

We would welcome an update from you as soon as you have completed your analysis.