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European electric car battery rules could impact UK markets, investment

20 April 2021

The European Scrutiny Committee has highlighted the impact that proposed European Union (EU) legislation on electric vehicle batteries could have on UK markets and on inward investments in the sector in the UK. 

The ESC analysis comes in its latest regular report which sets out for Parliament and other interested parties the implications for the UK of new or proposed EU legislation.

In addition to the analysis of developments in the electric vehicle battery sector, the latest European Scrutiny Committee report includes segments on:

  • the prospects and implications of moves to encourage minimum wage legislation in EU member states;
  • how some EU funding streams to which the UK used to have access have been used to help tackle the Covid-19 pandemic in various parts of the UK; and
  • legal arrangements under international treaties for Northern Ireland to import timber.

The issue of electric vehicle batteries is important to the UK, even though it has left the EU, for three main reasons.

The first is that “rules of origin” agreed in the EU-UK trade agreement mean that batteries for electric vehicles will need to be made in the EU or the UK from 2027 in order for electric vehicles to benefit from import tax-free (or “tariff-free”) trade between the EU and the UK. This will become increasingly important if, as is already happening, legislation in both trading areas continues to encourage more environmentally friendly transport solutions.

The second main reason for UK interest is that the proposed EU legislation seeks to establish a “full life-cycle regulatory framework” for electric vehicle batteries. This full life-cycle legal framework would seek to ensure that battery raw materials are supplied sustainably and responsibly, that battery products are environmentally friendly and that once used the products are recycled.

If such a framework is established and enforced in the EU, and partly because the EU market is bigger than the UK market, it could encourage investment in the battery sector in EU factories rather than UK ones.

A third reason why the proposed legislation is important for the UK is that the new EU rules would apply in Northern Ireland under the so-called “Northern Ireland Protocol” – a part of the UK Brexit deal that came into force in January 2021 and is designed to avoid a “hard border” between Northern Ireland and Ireland.

The European Scrutiny Committee asked the Parliamentary Under Secretary of State at the Department for Environment Food and Rural Affairs, Rebecca Pow MP, for her analysis of the proposed EU legislation.

She replied that the UK was considering the various legal implications and would continue to work closely with car and battery manufacturers across the UK to accelerate plans for a UK electric vehicle supply chain. The government, she added, had announced up to £1bn in funding to develop the chain for both production and research.

Further information

Image: PA