Working Paper

Where Technical Meets Political: The Complexity of the EU CBAM in Northern Ireland

Zhao, X and Zhang, D (2023) Where Technical Meets Political: The Complexity of the EU CBAM in Northern Ireland, Centre for Inclusive Trade Policy, Working Paper 004

Published 4 September 2023

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CITP Working Paper 4

Xinyan Zhao and Dongzhe Zhang

Abstract

The European Union Carbon Border Adjustment Mechanism will influence UK-EU trade, raising particular issues regarding Northern Ireland (NI). We analyse EU CBAM-related NI issues in four scenarios in terms of whether the UK and the EU link their Emission Trading Schemes (ETS) and whether the UK has an EU-style CBAM. Our research covers direct emissions and indirect emissions (i.e., electricity market), with its importance evidenced by economic data. Relinking the UK and EU ETSs and establishing an EU-style UK CBAM would be the best way to resolve the complications the CBAM creates for NI. The alternative of using the Stormont Brake to prevent the implementation of the EU CBAM in NI would be significantly less satisfactory.

Acknowledgements:

The authors are indebted to L. Alan Winters and Emily Lydgate for their valuable comments. All errors are the authors’ sole responsibility.

The European Union (EU) is poised to start the transitional period of its Carbon Border Adjustment Mechanism (CBAM) on 1 October 2023. The EU CBAM will influence UK-EU trade. This Working Paper sheds light on the particular issues it raises regarding Northern Ireland. We point out that Northern Ireland raises the most complex of UK-EU trade issues in the EU CBAM era and discuss both ideal and suboptimal solutions to facilitate seamless trade and effective climate cooperation.

The EU CBAM and Northern Ireland

Although the UK Government has opened a consultation about setting up a UK CBAM, it has yet to decide whether it will do so. As with the EU CBAM, the potential UK CBAM would aim to prevent carbon leakage. The UK already has an Emissions Trading Scheme, based on the EU scheme, including free allowances. If the UK were to establish a CBAM, it would regulate the cost of carbon emissions embedded in the goods imported by UK importers so that the cost of carbon emissions from these goods would be the same as the cost of carbon emissions from domestic products. Applying the same carbon cost for domestic and imported products would eliminate the incentive for UK producers to outsource or move their production or supply chains to countries with lower carbon costs, thereby preventing carbon leakage in the UK.

However, climate action is not the only reason why the UK should have an EU-style CBAM. After the introduction of the EU CBAM, the UK Government should establish such a CBAM to avoid the spill-over effect of the EU CBAM on the Northern Ireland market. Without it, the border issue between the UK and the EU in Northern Ireland may affect the regular trade flow of non-EU goods (including those from third countries) into Northern Ireland. The UK and the EU announced the Windsor Framework, which has replaced the previous Protocol on Ireland/Northern Ireland (NI Protocol), to create a green lane in which simplified customs procedures and no customs tariffs apply on qualifying goods imported into Northern Ireland (NI) from Great Britain (GB) and third countries. But not all goods can go through the green lane under the Windsor Framework, because those ‘at risk’ of moving into the Republic will have to use the red lane.4 Those destined for Northern Ireland but in the red lane will suffer unnecessary CBAM measures. This impact will be relatively greater on those third-country goods for which the UK duty is less than the EU’s by three percentage points because they must all go through the red lane.5 This effect may cause a trade diversion from those not wanting to pay for the extra cost of customs procedures related to the red lane.

Impact of Divided Northern Ireland Electricity Market on the EU CBAM Costs

The NI Protocol split the electricity market in Northern Ireland into wholesale and retail parts. Wholesale electricity trading refers to purchasing electricity from generators through auctions by electricity suppliers. Article 9 of the NI Protocol includes Northern Ireland in the EU wholesale electricity single market.6 In other words, because Northern Ireland is part of the EU single wholesale electricity market, its electricity producers must purchase EU (not UK) ETS allowances for the carbon emissions they generate.

While Northern Ireland’s wholesale electricity market is an integral part of the EU single market, Northern Ireland’s retail electricity market is part of the UK market. The latter involves suppliers directly selling electricity to consumers (producers and households) located in Northern Ireland. Therefore, producers of goods subject to the ETS in Northern Ireland must purchase UK ETS allowances to cover indirect emissions for the electricity they consume in their production processes. When cement, fertiliser and electricity (the three products subject to the EU CBAM indirect emissions charge) enter or have the potential to enter the Republic of Ireland from Northern Ireland, therefore, it would make the most sense for importers in the Republic to purchase EU CBAM credits at a quantity that deducts the indirect emissions costs already paid in the UK, which, as explained above were paid at the EU ETS price. However, it remains unclear how the European Commission will deal with this issue.

The application of the EU CBAM – how big an issue for Northern Ireland?

The EU will levy CBAM credits on cement, steel, aluminium, fertiliser, retail electricity and hydrogen when these CBAM-targeted goods enter the EU, including via Northern Ireland. Just as Article 5(1) of the NI Protocol requires that goods brought into Northern Ireland from outside the Union, including Great Britain, that risk subsequently entering the EU customs union are subject to EU customs duties, so, too, they will be subject to CBAM-levies.

This section briefly discusses the possible economic significance of this development; the full analysis is available in the Appendix. The calculations are necessarily rather approximate, but they suggest that, from an economic perspective, the issue is not insignificant.

To estimate how many jobs derive from these regulated exports, we start from Northern Ireland’s employment and gross value added by Standard Industrial Classification (SIC) division. We convert the gross value added to gross output using 2019 UK input-output tables, assuming the UK-wide ratio between gross value added and gross output applies in Northern Ireland. We then allocate the SITC export data in Table 1 to SIC divisions and calculate its ratio to gross output in each division. The number of employee jobs can be calculated by applying the (export/gross output) ratio to the number of employees in each division. The result is given in Table 2. This suggests that around one-quarter (23%) of employees in the industries that produce regulated products in Northern Ireland were linked to exports to the EU+ (to the Republic) in 2021; that implies that around 1100 employees are vulnerable to disruption by the EU CBAM. Almost all of these jobs (1001 out of 1091) are related to exports to the Republic of Ireland.

Table 2: Number of employees vulnerable to the EU CBAM in Northern Ireland in 2021

Regulated products SIC code Number of employees Number of employees involved in regulated product exports to the EU+ (share of total employment in the SIC division %) Number of employees involved in regulated product exports to the Republic (share of total employment in the SIC division %)
Fertilizers 2015 55 42 (76) 40 (73)
Cement 233 and 2351 106 43 (41 30 (28)
Iron and steel; Aluminium 241, 242, 2442, 251 and 252 3854 910 (24) 845 (22)
Electricity 3511 370 96 (26) 96 (26)
Total 4385 1091 (25) 1001 (23)

Source: See Appendix

Potential Trade Issues Arising from the EU CBAM in Northern Ireland: Smuggling, Carbon Leakage, and EU Customs Measures

There are no checkpoints between Northern Ireland and the Republic of Ireland. For customs purposes, goods from outside the EU need to apply EU customs measures at the Northern Ireland border if they risk transferring to the Republic of Ireland. Similarly, these goods will be subject to CBAM measures.

To address the customs issues with imports from GB, the NI Protocol establishes a border between GB and NI on the Irish Sea. The NI Protocol allows the EU to impose customs measures on GB goods that may subsequently enter its market after being exported to Northern Ireland. Article 5(2) of the NI Protocol requires the UK-EU Joint Committee (the Joint Committee) to consider several factors to determine whether non-EU goods entering Northern Ireland would be at risk of subsequently entering the EU market. One of these factors is the incentive for undeclared entry, particularly that resulting from the duties payable under Article 5(1) (i.e., EU customs duties). If the EU considers that GB goods may move to the EU after entering Northern Ireland to circumvent the EU CBAM, the EU could argue for imposing CBAM measures on these goods at the Irish Sea border. The Joint Committee will discuss this issue and the Stormont Brake may be triggered. The latter allows 30 Members of the Legislative Assembly of Northern Ireland to initiate, and the UK Government to adopt, the suspension of new (or amended or replaced) EU Regulations  - regulation added to Annex II of the NI Protocol (now the Windsor Framework).7

Arguably, the Windsor Framework controls the risk of goods from GB  moving to Northern Ireland. The efficacy of this arrangement relies on Northern Ireland’s local regulations and border spot checks, though. UK decision-makers should be alert to possible future disputes. The following analysis takes into account such potential issues and also looks at the impact of the EU CBAM on Northern Ireland’s imports of third-country goods in different scenarios. The situation will vary depending on whether the EU and the UK link their ETS and whether the UK establishes an EU-style CBAM. We examine four scenarios:

1.     The UK and the EU do not link their ETS, and the UK has no CBAM.
2.     The UK and the EU do not link their ETS, and the UK has an EU-style CBAM.
3.     The UK and the EU link their ETS, and the UK has no CBAM.
4.     The UK and the EU link their ETS, and the UK has an EU-style CBAM.

After Brexit, the UK separated its ETS from the EU’s, so producers in the two regions bear different emissions costs. If the UK ETS price is significantly lower than the EU ETS price for a long time, smugglers may seek to bring goods made in the UK across the Northern Ireland border into the EU market which could cause carbon leakage from the EU. In such a case, the EU would have good reason to impose CBAM measures at the Irish Sea border on goods from GB at risk of moving to the EU market after entering Northern Ireland. It may also wish to explore how to levy the CBAM on regulated goods produced in Northern Ireland and sold in the Republic. The UK ETS price has fallen significantly since March 2023, and EU-UK ETS prices are now further apart than ever.8 This scenario is relevant only in the event of a long-lasting significant difference between EU-UK ETS prices. The fluctuation of EU-UK ETS prices in the short term would be unlikely to generate much carbon leakage in the EU.

Undoubtedly, the EU would need to develop a legal basis to implement CBAM measures on the GB-NI border in the hypothesised case. The CBAM is not an actual customs duty; the difference in carbon price caused by the EU CBAM will not automatically move goods from the green lane to the red lane. The EU CBAM itself is a new regulation; Article 13(4) of the NI Protocol accordingly requests the EU, if it plans to add the CBAM to the NI Protocol, to let the Joint Committee make the decision. Since the Windsor Framework, the Joint Committee can no longer make such a decision without hearing the Northern Ireland Assembly. Presumably, the UK Government would wait for the feedback of the Stormont Assembly. If the Stormont Brake is triggered and finally ratified by the pre-veto scrutiny process (which has yet to be designed by the UK Government), the UK Government could suspend the new EU CBAM rule in Northern Ireland. Thus, the Joint Committee is deprived of the decision-making power. This is based on the Windsor Framework: Paragraphs 65 and 68 discuss the relationship between the Stormont Brake and the Joint Committee, where the two signatories commit that the Joint Committee cannot adopt a new EU rule in Northern Ireland without cross-community support. The only caveat is that the UK Government can exceptionally overturn the decision of suspending the new EU rule in question made through the pre-veto scrutiny process in some circumstances, where it demonstrates that that rule cannot create a regulatory border between  GB and Northern Ireland.9

Nevertheless, implementing the EU CBAM in Northern Ireland will likely create a regulatory border at Northern Ireland ports for GB goods. The impact of CBAM measures on Northern Ireland citizens’ daily lives remains to be examined, though. Northern Ireland citizens may have different feelings about the actual effect. Anyway, once the UK Government adopts the Stormont Brake, Article 13(4) of the NI Protocol allows the EU to take remedial measures (i.e., safeguard measures10). Paragraph 66 of the Windsor Framework also recognises this point.

If the UK has no CBAM at its border, exporters from third countries (those outside GB and the EU) with no carbon pricing could try to export to the UK in order to circumvent the EU CBAM charges. If the EU believes that non-EU goods imported into GB could be smuggled into the EU market via Northern Ireland, the EU would have good reason to impose CBAM measures on these goods at the Irish Sea border. After all, the UK Government cannot ensure that smugglers will not bring these goods to the EU market.

It is worth noting that integrating so-called scope 3 emissions (those embedded in inputs) into the EU CBAM will significantly complicate the current scenario.11 Such an impact merits further analysis, but, we put the issue aside for now because the EU has yet to give a clear plan to extend the EU CBAM to scope 3 emissions.

Scenario 2: The UK and the EU do not link their ETS, and the UK has an EU-style CBAM.

As with the first scenario, if the UK and EU do not link their ETS, the UK and EU would have to negotiate whether to apply CBAM rules to GB domestically produced goods based on subparagraph (d) of the fourth paragraph of Article 5(2) of the NI Protocol. The difference between the second and first scenarios is that the UK is now assumed to have established an EU-style CBAM. In this case, non-EU goods imported into the UK would bear the same emissions costs as those made in the UK, but the EU may still argue for invoking subparagraph (d). As with applying this provision to goods made in GB, the UK and the EU would negotiate whether to impose CBAM measures at the Irish Sea border on third-country goods that may enter the Republic of Ireland via the checkpoint-less Northern Ireland border.

Scenario 3: The UK and the EU link their ETS, and the UK has no CBAM.

If the UK and EU were to link their ETSs, producers in both places would bear the same emission costs. In this scenario, under EU CBAM rules that exempt goods imported from countries that participate in or link their ETSs to the EU’s, EU importers would not be required to pay CBAM credits for imports of products made in the UK. But customs requirements and procedures would still apply as they do now. Circumventing the EU CBAM levies would be impossible in this case. Hence, the EU has no reason to argue for extending the application scope of the EU CBAM to GB domestically produced goods by invoking subparagraph (d) of the fourth paragraph of Article 5(2) of the Northern Ireland Protocol.12 In other words, even if the EU considers that somebody may smuggle GB domestically produced goods into the EU market via Northern Ireland, it cannot impose CBAM measures on these goods at the Irish Sea border.

As with the first scenario, since the UK has not established its own CBAM and the price of goods from most countries does not include similar emission costs to EU ones, the EU would also have good reasons to impose CBAM measures at the Irish Sea border on third country goods entering Northern Ireland via GB.

The difference between the fourth and third scenarios is that, in the fourth, the UK is assumed to have established its own CBAM which mirrors that of the EU. In this case, the price of goods imported into the UK will contain the same emissions costs as UK products. In addition, as the UK and EU have linked their ETS and, by extension, their CBAMs, non-EU goods imported into the UK will bear identical emissions costs to EU ones. As with the third scenario, there is no legitimate reason for the EU to invoke subparagraph (d) of the fourth paragraph of Article 5(2) of the NI Protocol to apply the EU CBAM to goods made in the UK. What is more, there is also no legitimate reason for the EU to invoke subparagraph (d) of the fourth paragraph of Article 5(2) of the NI Protocol to apply CBAM measures to non-EU goods imported into the UK because these goods bear the same emission costs as EU ones. Therefore, in the fourth scenario, the EU should not extend the application scope of the EU CBAM to non-EU goods destined for Northern Ireland, either for goods from GB or from third countries. Assuming that the UK CBAM mirrors the EU CBAM in its sectoral coverage, this option will best facilitate seamless trade in Northern Ireland.

In sum, analysis of these options reveals that relinking the UK-EU ETSs and establishing a UK CBAM that mirrors the EU CBAM is the ideal solution to the Northern Ireland issue.

The Stormont Brake: A Sub-optimal Solution to the Northern Ireland Issue

The Windsor Framework’s Stormont Brake provides a suboptimal solution to resolving potential CBAM-related trade friction in Northern Ireland. The Windsor Framework allows 30 Members of the Legislative Assembly (MLAs) from two or more political parties of Northern Ireland to sign a petition to initiate the Stormont Brake. If the pre-veto scrutiny process confirms eligibility for activating the Stormont Brake, the UK Government can implement the Brake to suspend immediately the EU CBAM measures targeting non-EU goods (i.e., GB and third-country goods) destined for Northern Ireland.

Launching the Stormont Brake includes a pre-veto scrutiny process, which the UK Government needs to establish through consultations with all stakeholders. The UK Government said that the pre-veto scrutiny process would be similar to a consultation procedure, where all stakeholders examine whether new EU rules severely affect Northern Ireland citizens’ daily lives and if there is a severe effect, trigger Stormont Brake. In the CITP Briefing Paper on the Stormont Brake, Zhao proposed that the UK Government could create a third-party dispute settlement system (i.e., an ad-hoc arbitration tribunal) for the pre-veto scrutiny. We believe that this ad-hoc arbitral tribunal could review the compliance conditions for the activation of the Stormont Brake with due regard to the impact that its use may have on the prevention of carbon leakage. The ad-hoc arbitration tribunal could follow the proportionality principle. This principle, widely used in national court judgements and international arbitration, requires that a decision should secure a legal value with minimal prejudice to the conflicting one.13 In this way, an ad-hoc arbitration tribunal could find a balance between supporting the UK’s international reputation and ensuring Northern Ireland citizens’ well-being, thus appropriately addressing the conflicting interests.

Table 1: The shares of regulated products at SITC 2-digit level in the UK’s exports to the EU+ in 2021

Regulated Products CN Code CN Code SITC code (regulated-products shares of UK’s exports to the EU)
Iron and Steel 72; 26011200; 7301, 7302, 730300, 7304, 7305, 7306, 7307, 7308, 730900, 7310, 731100, 7318, 7326 Except 72022, 72023000, 72025000, 72027000, 72028000, 72029, 7204 28 (0.00012%); 67 (95.2%); 69 (52.5%)
Cement15 25070080, 25231000, 25232100, 25232900, 25233000, 25239000 250700 includes 25070020 and 25070080 27 (30.5%); 66 (2.4%)
Fertilisers 28080000, 2814, 28342100; 3102, 3105 Except 31056000 52 (8.1%); 56 (73.8%); 27 (30.5%)
Aluminium 7601, 7603, 7604, 7605, 7606, 7607, 7608, 76090000, 7610, 76110000, 7612, 76130000, 7614, 7616 68 (15.3%); 69 (52.5%)
Electricity 27160000 35 (100%)
Hydrogen 28041000 52 (8.1%)

The data comes from World Integrated Trade Solution (World Integrated Trade Solution (WITS) | Data on Export, Import, Tariff, NTM (worldbank.org)). The regulated products in the CN codes come from the EU CBAM regulation (EUR-Lex - Ares(2023)4079551 - EN - EUR-Lex (europa.eu)). We use the correspondence table from United Nations Statistics Division (UNSD — Classifications on economic statistics).

Table 2 reports Northern Ireland's total exports in each related SITC division, the share that went to the EU+, and the estimated export value of regulated products in 2021 based on the data from the NISRA. Column 5 tells us that out of the 9 divisions, more than 90% of NI’s exports went to the EU+ in 7 divisions (excluding the two with the smallest export amounts, i.e., SITC 52 and 68 division). Assuming that Northern Ireland has the same shares of regulated products in each SITC division of exports to the EU+ as the UK, shown in Column 6, we can estimate the export value of regulated products from Northern Ireland to the EU+ by using the product of Columns 4, 5 and 6. Northern Ireland’s total exports of regulated products to the EU+ are estimated at £348 million, accounting for approximately 5.8% of Northern Ireland's total goods exports to the EU+. This is not an insignificant amount.

Table 2: Northern Ireland’s exports to the EU+ by SITC Division in 2021

SITC code SITC division Regulated products NI’s export value (£ million) Shares of NI’s exports to the EU+ in NI’s exports of the division (%) Regulated-products’ export shares in UK’s exports to the EU+ (%) Estimated export value of regulated products (£ million)
(1) (2) (3) (4) (5) (6) (7)
27 Crude Fertilizers and Crude Minerals Cement; Fertilizers 38.9 98.9 30.5 11.7
28 Metalliferous Ores and Metal Scrap Iron and Steel 108.1 95.5 0.00012 0.001
35 Electric Current Electricity 148.3 100.0 100.0 148.3
52 Inorganic Chemicals Fertilizers; Hydrogen 10.7 51.8 8.1 0.4
56 Fertilizers Fertilizers 17.2 98.4 73.8 12.5
66 Non-Metallic Mineral Manufactures, n.e.s Cement 99.1 95.7 2.4 2.3
67 Iron and Steel Iron and Steel 81.7 95.6 95.2 74.4
68 Non-Ferrous Metals Aluminium 12.1 64.0 15.3 1.2
69 Manufactures Of Metal, n.e.s. Iron and Steel; Aluminium 202.2 91.8 52.5 97.5
Total 718.3 348.3

The data comes from Northern Ireland Statistics and Research Agency NISRA (UK Regions Imports and Exports of Goods by Country and World Region (nisra.gov.uk)) and regulated-products export shares are calculated by using the data from World Integrated Trade Solution (WITS).

Table 3 shows the value of Northern Ireland's exports of regulated products to the Republic of Ireland in 2021. We still assume that Northern Ireland has the same shares of regulated products in each SITC division of exports to the Republic as the UK, to compute the export value of regulated products. With its different basis, this calculation is not perfectly consistent with Table 2 because the estimated export values of regulated products to the Republic are larger than those to the EU+ (SITC divisions 56, 66 and 68). Since Northern Ireland and the Republic of Ireland share a land border, the trade of regulated products seems likely to be easier than between the rest of the UK and the EU+, so we give preference to Table 3 for the Republic of Ireland figures. However, these numbers are not dominant in computing the total export value of regulated products. In addition, 100% of Northern Ireland's exports go to the Republic of Ireland in the electricity division.

Northern Ireland’s total exports of regulated products to the Republic are estimated at £333 million, the sum of the products of Columns 3, 4 and 5, accounting for approximately 10.1% of Northern Ireland's total goods exports to the Republic. This large portion shows that regulated products are important in Northern Ireland’s exports to the Republic of Ireland. If the EU CBAM applies, Northern Ireland’s exports to the Republic of Ireland could be impacted significantly. The impacted exports might also raise other issues, like smuggling.

Northern Ireland’s employment

If the EU CBAM impacts the exports of Northern Ireland, jobs in related industries might be impacted. Thus, we now try to estimate the number of jobs that could be vulnerable. First, we roughly map the regulated products to the UK Standard Industrial Classification (SIC) by matching the product definitions in the CN code in CBAM and in the UK SIC codes. Note, however, that the mapping is only approximate because there are fundamental differences between the two classifications. For example, SIC code 241 refers to the group of manufactures of basic iron and steel and of ferro-alloys, but the EU CBAM includes only ferro-chromium and ferro-nickel for ferro-alloys. Based on the data from NISRA, Table 4 shows the number of employees16 employed directly in the industries that produce regulated products (excluding hydrogen, because it should be in the class SIC code 2011 referring to the manufacture of industrial gases where hydrogen is just one of 20 gases, and we don’t know how much it accounts for in this class). Overall, more than 4,300 employees are directly involved in the sectors producing regulated products in Northern Ireland in 2021, accounting for 0.56% of its total employment. In terms of direct jobs, these figures are the upper bound of the number of jobs vulnerable.

Table 4: Number of employees in the groups or classes producing the regulated products in Northern Ireland in 2021

Regulated products SIC code Number of employees
Fertilizers 2015 55
Cement 233 and 2351 106
Iron and steel 241, 242, 251 and 252 3,854
Aluminium 2442, 251 and 252
Electricity 3511 370
Total 4,385

The data comes from NISRA (BRES Publication and Tables 2021 | NISRA (nisra.gov.uk)).

Identifying vulnerable jobs

The next step is to try to determine how much of the employment in Table 4 is driven by exports to the EU+ and to the Republic of Ireland, and hence vulnerable to disruption by EU CBAM. Unfortunately, because the data are so scarce, this has to be done indirectly and approximately. First, we convert the gross value added in each SIC division in Northern Ireland to gross output using 2019 UK input-output tables, assuming the ratio between gross value added and gross output of UK applies in Northern Ireland. Table 5 records the ratio and estimated gross output of each of Northern Ireland’s related divisions in 2021. It is worth noting that the gross value-added data is reported for divisions 19-20 together while our target is division 20 only. To be consistent, we compute the UK ratio for the combined two divisions to compute the estimated gross output.

Table 5: Estimates of gross output for SIC divisions producing the regulated products in Northern Ireland in 2021

SIC code SIC division UK ratio between gross output and GVA (2019) NI GVA (2021 in £ million) Estimates of gross output for NI (2021 in £ million)
19 and 20 Manufacture of coke, refined petroleum and chemicals 4.18 293 1,225
23 Manufacture of other non-metallic mineral products 2.56 370 947
24 and 25 Manufacture of basic metals and fabricated metal products 2.32 751 1,742
35 Electricity, gas, steam and air conditioning supply 4.20 700 2,940

UK input-output tables for 2019 are used, which are the latest, provided by the ONS (https://www.ons.gov.uk/economy/nationalaccounts/supplyandusetables/datasets/ukinputoutputanalyticaltablesindustrybyindustry). The gross value-added data comes from Office for National Statistics and NISRA (Regional gross value added (balanced) by industry: all ITL regions - Office for National Statistics).

We then map our estimates of regulated products exported to the EU+ to each SIC division and compute the shares of regulated products exported to the EU+ in the gross output of each division - shown in Table 6. Finally, we estimate the number of employees involved in regulated product exports to the EU+ by using the shares and total number of employees in each division. Table 7 reports that between 43 and 910 employees in each division are involved in regulated product exports to the EU+.

Table 6: Share of exports of regulated products to EU+ in each SIC division for Northern Ireland in 2021

SIC code Regulated products (SIC code) Estimated export value of regulated products (£ million) Estimates of gross output for NI (2021 in £ million) Share of exports of regulated products in gross output of each SIC division (%)
19 and 20 Fertilizers (2015) 18.75 1,225 1.53
23 Cement (233 and 2351) 8.15 947 0.86
24 and 25 Iron and steel (241, 242, 251 and 252); Aluminium (2442, 251 and 252) 173.10 1,742 9.94
35 Electricity (3511) 148.30 2,940 5.04

All numbers are from authors’ calculations.

Table 7: Number of employees related to regulated product exports to EU+ in each SIC division for Northern Ireland in 2021

SIC code Regulated products (SIC code) Number of employees in NI Share of exports of regulated products in each SIC division (%) Number of employees involved in regulated product exports
19 and 20 Fertilizers (2015) 2,798 1.53 42
23 Cement (233 and 2351) 5,024 0.86 43
24 and 25 Iron and steel (241, 242, 251 and 252); Aluminium (2442, 251 and 252) 9,160 9.94 910
35 Electricity (3511) 1,923 5.04 96

The data of the third column comes from NISRA (BRES Publication and Tables 2021 | NISRA (nisra.gov.uk)). Other numbers are from authors’ calculations.

To estimate the number of jobs related to regulated products exported to the Republic of Ireland, we use the same method. Table 8 and 9 show the results of the process.

Table 8: Share of exports of regulated products to the Republic in each SIC division for Northern Ireland in 2021

SIC code Regulated products (SIC code) Estimated export value of regulated products (£ million) Estimates of gross output for NI (2021 in £ million) Share of exports of regulated products in each SIC division (%)
19 and 20 Fertilizers (2015) 17.55 1,225 1.43
23 Cement (233 and 2351) 5.75 947 0.61
24 and 25 Iron and steel (241, 242, 251 and 252); Aluminium (2442, 251 and 252) 160.90 1,742 9.23
35 Electricity (3511) 148.30 2,940 5.04

All numbers are from authors’ calculations.

Table 10 displays the comparison between the number of employee jobs related to regulated product production and how much of this employment is driven by exports to the EU+ and to the Republic of Ireland. Around one-quarter of the total employment in industries that produce regulated products in Northern Ireland were linked to exports to the EU+ in 2021, and thus vulnerable to disruption by the EU CBAM, which is around 1100 employees. Calculated in terms of direct jobs only, these figures are the lower bound of the number of jobs vulnerable.

Interpretation

The numbers in Table 10 indicate that the impact of the EU CBAM on the related industries’ employment in Northern Ireland is potentially significant. Policymakers should pay attention to the potential damage to employment in Northern Ireland that being outside the EU CBAM may cause. Also note that because of the Passport Union between the UK and the Republic of Ireland, workers affected within these industries might cross the border, which could inhibit the ability of industries in Northern Ireland to recover in the future.

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Dongzhe Zhang

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