An analysis conducted by academics from the University of Sussex suggests that the European Union’s Carbon Border Adjustment Mechanism (CBAM) could become a test for the Stormont brake, a key component of Northern Ireland’s Brexit deal. The brake, part of the Windsor Framework, gives the Northern Ireland Assembly the ability to veto new EU rules being applied in the region. According to the analysis, the CBAM would be considered a new rule, thereby invoking the Stormont brake. However, for the brake to be used, the UK government would have to agree to the CBAM applying in Northern Ireland, and the Northern Ireland Assembly would need to be sitting.
The CBAM is a carbon or fossil fuel tax on imported goods like steel, cement, and fertilizer. It is intended to ensure fair competition for European industry, which has to purchase permits to use carbon. The EU plans to begin the transitional phase of the CBAM in October, with full implementation by 2026. However, the EU has not yet officially stated whether it believes the CBAM should be incorporated into the Windsor Framework.
The analysis highlights potential challenges for trade between Great Britain and Northern Ireland, as well as trade from Northern Ireland to the Republic of Ireland. If the EU believes that goods from Great Britain are being transported through Northern Ireland to circumvent the CBAM, it could impose CBAM measures at the Irish Sea border. This could also impact goods manufactured using electricity bought from Northern Ireland’s retail electricity market, as they are subject to the UK’s carbon price rather than the EU’s.
The University of Sussex academics, Xinyan Zhao and Dongzhe Zhang, suggest that the only way to implement the CBAM in Northern Ireland without negatively affecting imports is for the UK and EU to align their carbon pricing schemes and for the UK to establish an EU-style CBAM. This would involve consistent carbon content measurement of imports and exempting Northern Ireland importers from EU CBAM tariffs at Northern Ireland ports. The European Commission’s approach to this issue is currently uncertain.
What is the Stormont brake?
The Stormont brake is a conditional veto power granted to the Northern Ireland Assembly, allowing them to object to new EU rules being applied in Northern Ireland.
What is the EU Carbon Border Adjustment Mechanism (CBAM)?
The CBAM is a carbon or fossil fuel tax on imported goods aimed at ensuring fair competition for European industry.
How could the CBAM impact trade in Northern Ireland?
The CBAM could potentially affect trade both from Great Britain to Northern Ireland and from Northern Ireland to the Republic of Ireland, especially if goods are being transported through Northern Ireland to avoid the CBAM. It could also impact goods manufactured using electricity bought from Northern Ireland’s retail electricity market.