Will EU sanctions slow down UK environmental deregulation?

This blog looks at whether the UK-EU Trade and Cooperation Agreement (TCA) would act as a check against weakening existing EU-derived laws on environmental protection which the Retained EU Law (Revocation and Reform) Bill risks enabling ministers to do easily. The TCA includes the commitment not to weaken existing EU-derived laws on environmental protection. Whilst this only applies to deregulation that affects trade and investment between the UK and EU, regression could lead to trade sanctions. The authors analyse both the UK and EU perspectives and the strength of this external check on the UK’s regulatory baseline on environmental protection.

‘Taking back control’

The UK has now had three years post-Brexit to ‘take back control’ of its domestic regulation. 

That may now be about to change. The UK Government introduced the Retained EU Law Bill in September last year. The main aim of the Bill is to ‘sunset’ retained EU law by the end of 2023. This is critical for environmental law. The Government ‘dashboard’ currently shows environment as the policy area with the most retained EU law. Such wholescale sunsetting would have a profound impact across the UK, unless ministers exempt, restate, reproduce or replace these laws, or delay the deadline to June 2026, as allowed for in the Bill. In other words, the Bill may not result in any change to legislation, but at a minimum, each piece of retained EU law will need to be reviewed and restated. It will then become ‘assimilated law’. But the Bill also enables the possibility that environmental regulations across a wide range of areas could be changed, more or less overnight.

The Bill has caused an outcry on several grounds. These include the sheer workload it implies for civil servants in addressing a vast body of legislation in a very short time, the regulatory uncertainty it creates for businesses and the potential for increased costs, issues it raises for devolved nations, and for Northern Ireland in particular. Most directly relevant here is the prospect that key protections for the environment could be removed without sufficient scrutiny.

The UK-EU Trade and Cooperation Agreement

The implementation of the Bill may also violate the trade agreement between the UK and the EU (the TCA). While the UK is free to regulate independently post-Brexit, both Parties agreed that neither would weaken or reduce their level of environmental protections as they stood at end of the transition period, when they shared much of the same environmental regulation. (This of course also means the EU must not lower its level of environmental protection.)

The requirement not to regress from this regulatory baseline applies to emissions, biodiversity and conservation, waste management, aquatic and marine conservation, chemical production and disposal, and food production – in other words, almost all areas of environmental and climate protection. However, it only applies to deregulation that affects trade and investment between the UK and EU. (Conversely, the requirement doesn’t apply to any regression that doesn’t affect trade. How this is measured is the subject of another blog.)

Similar non-regression requirements exist in other FTAs, but breaches of the requirement between the UK and EU are easier to track because at the end of the transition period environmental laws were very similar between the two Parties. Also, unusually for an EU FTA, regression can result in trade sanctions. If the EU wishes to initiate a dispute against the UK for environmental regression, it would undergo a ladder-style escalation, from consultation to arbitration. Eventually, this could result in a TCA trade tribunal deciding that the UK has regressed and gained competitive advantage. Non-compliance with a ruling there would result in the UK being required to offer temporary compensation or the EU suspending parts of the TCA. While the precise nature of this suspension is not specified, it typically consists of tariffs equivalent to the cost EU industries face due to UK deregulation.

In response to the Bill, there have been some indications that the EU is prepared to pursue sanctions for non-regression. But how likely is this, and what impact might it have?

The UK perspective

The first question is whether the UK is likely to change or weaken its environmental laws. The UK’s current position is that it will largely maintain existing environmental regulation, but intentions are unclear. While there have been indications that environmental laws will be ‘saved by default’ under the Bill, amendments to carve out the environment have so far been rejected.

Thus, it is possible that a number of UK environmental standards and rules will change (beyond changes to legislative processes that have already taken place). The UK Government assesses the impact of the Bill on international trade and investment as N/A. This may be excessively sanguine. If UK producers reduce costs due to environmental deregulation, this could affect trade and investment with the EU. In practice, however, any such economic benefit may be offset by regulatory uncertainty. Indeed, the impact assessment acknowledges this: ‘As with other sized businesses, small and micro firms will be impacted by the greater uncertainty arising from the sunsetting and reform provisions in the Bill. Uncertainty and being unsure about what regulations it needs to abide by are generally bad for businesses as it makes it hard to plan and thus can discourage investment.’

A second question is whether the threat of EU sanctions plays a role in UK Government strategy.  The UK’s past conduct suggests that avoiding trade barriers with the EU has not figured high in its priorities. The current Government might find environmental regulatory divergence worth the price of new tariffs, even if painful for a few sectors.

The EU perspective

The EU’s concern about shared levels of environmental protection is based largely on economic motivations: deregulation giving UK producers a competitive advantage. This is clear from the fact that in the TCA (as well as other EU Trade and Environment chapters), the requirement not to lower environmental standards is qualified: it must affect trade and investment with the EU.

This will limit the areas in which the Commission would be likely to take action against the UK, as not all environmental regulation is equally likely to provide competitive advantages. During Brexit negotiations, the Commission made plain that derogation from some EU environmental regulations was of particular concern. This included reduced UK ambition on national emissions ceiling standards and the Industrial Emissions Directive’s requirements to use ‘best available technologies’, which it estimated could cost the EU 4.7 billion euros. It also singled out atmospheric pollutants and sulphur content of marine fuels through commitments on these areas in the proposed ‘backstop’ of 2018, later rejected by UK Parliament.

Beyond these areas which are linked relatively explicitly to EU competitiveness concerns, the EU has raised a wide range of issues about UK environmental protection in the TCA committee on the level playing field. These include environmental impact assessment pursuant to changes to nature conservation regulation and UK sewage treatment problems. Despite expressing concern, the EU has not attempted to pursue TCA enforcement in any of these areas, likely because the immediate competitive threat to EU producers is not evident.

Conclusion

While the EU might take action in narrow areas, it is no longer an external monitor and enforcer of the UK’s failure to maintain its own environmental protections. However, by introducing an international legal obligation not to regress, and by providing a forum for scrutinising UK action and calling attention to deregulation, the TCA does act as an additional check on the UK in reducing environmental protections.

It also raises a larger point: as the UK and EU continue to develop environmental regulation independently, it may be more difficult to identify regression, or even to separate divergence from regression. To take a purely hypothetical example, imagine that the UK introduces a standard and the EU a market incentive for reducing emissions in a particular sector: is this regression, divergence, or neither? Both the TCA and also the new Windsor Framework for Ireland/Northern Ireland contain novel and untested potential response mechanisms to future divergence, which may increasingly become the focus for concerns about competitive deregulation between the EU and UK; the implications and interaction of these mechanisms is a subject for future analysis.