The UK and EU finally got an historic trade agreement across the line on 26 December, ending four years of uncertainty. But what does the final deal mean for the green technologies and services sector?
The full 1,255-page ‘Canada-style’ free trade agreement is available online, but if you don’t have time for that, here’s a summary of some of the key points:
The trade deal means zero tariffs or quotas on the trade of clean technologies, which would have been highly damaging for the green tech sector. Furthermore, the deal explicitly states that the UK and EU will cooperate to promote trade policies that contribute to the transition to a “low greenhouse gas emission, resource efficient economy”. This includes promoting trade and investment in green goods and services, including renewable energy, energy efficient products and services and the circular economy.
One of the areas of particular interest is electric vehicles. Zero tariffs are subject to ‘rules of origin’, meaning that goods need to have ‘originated’ (i.e. manufactured or sufficiently processed) in the UK or EU to qualify. For the next three years, batteries for electric vehicles will need to contain at least 30 per cent materials manufactured in the UK or EU to be traded tariff-free. However, from 2024 this will rise to 50 per cent. This will require a ramping up of battery manufacturing in the UK, making investment in this industry a priority.
The deal is strongly worded when it comes to tackling climate change. According to one legal expert interviewed by The Independent, the agreement contains “the most ambitious climate language I’ve ever seen in any trade deal”.
In the text, both parties reaffirm their shared ambition for achieving carbon neutrality by 2050. The international Paris Agreement on climate change – which commits countries to work together in a bid to limit global warming to 1.5°C and collectively reach net zero emissions by mid-century – is a core pillar. In fact, “materially defeating the object and purpose” of the Paris Agreement will be considered a “serious and substantial failure” that could lead to the suspension or termination of all or parts of the deal.
In other words, both parties will have to uphold their positions as global leaders on climate change and reflect this in their trade policy, and therefore any future trade agreements the UK signs with other countries.
The UK has now left the EU’s Internal Energy Market, which enabled the free flow of electricity through interconnectors running between the UK and the continent. However, both parties have agreed to work towards creating a new system that will ensure smooth trade in electricity in a way that supports the expansion of renewables and a more flexible, lower carbon electricity grid.
The UK has also left the EU Emissions Trading Scheme, the EU’s primary method of putting a ‘price’ on carbon and regulating greenhouse gas emissions from energy generation, heavy industry and aviation. The UK has instead launched its own, similar, Emissions Trading Scheme as of 1 January. The two parties have agreed to cooperate on carbon pricing and there is the potential for the two schemes to be ‘linked’ in future, perhaps paving the way for linking to other carbon trading schemes worldwide.
A ‘non-regression’ mechanism in the deal means that both parties agree to maintain and enforce a level playing field that upholds existing climate and environmental standards in areas like industrial emissions, air and water quality, nature and biodiversity, waste management, chemicals and agriculture.
Any weakening of standards that can be proven to impact trade or investment for either party could result in remedial countermeasures, such as temporary tariffs. However, experts have pointed out that proving if a breach in the agreement has impacted trade or investment would be difficult in practice.
Nevertheless, both parties have agreed to “strive to increase” their respective standards. A ‘rebalancing’ mechanism in the deal aims to protect either side from being held back from bringing in higher standards if they wish. In other words, if one side decides to strengthen environmental protections in a way that could risk a significant divergence in standards, they could potentially introduce countermeasures to prevent being undermined by lower standards on the other side. The trade agreement may also be reviewed after a minimum of four years to ensure it is balanced appropriately.
To ensure environmental and climate standards are properly enforced, the deal requires that the UK and EU have “competent” authorities and institutions with adequate powers at their disposal. Both parties also agree to cooperate on the monitoring and enforcement of environmental and climate law.
In the UK, the nature of how environmental law will be enforced and regulated will not be clear until the forthcoming Environment Bill has been finalised and passed into law. The Environment Bill will fill the gaps that were previously occupied by EU law, set new legally-binding environmental targets and introduce a new Office for Environmental Protection (OEP). Watch this space.
The UK will continue to participate in some EU funding programmes, most notably Horizon Europe – the EU’s flagship R&D and innovation programme.
As an EU member state, the UK was the second largest recipient of funding under the previous Horizon programme ending in 2020, much of which supported green innovation. Examples of Horizon-funded projects here in Greater Manchester include GrowGreen, which has been integrating ‘nature-based solutions’ into local development, and Triangulum, which supported the rollout of ‘smart city’ infrastructure in the Manchester Corridor.
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