LONDON — In 2019, Boris Johnson promised his Brexit deal would do away with checks on the Northern Irish border. Five years later, the region is about to be whacked with yet another trade headache.

The latest tension comes from net zero rules, with the U.K. and EU preparing separate schemes on either side of the border to tax climate-damaging imports.

Britain’s proposals on high-carbon imports don’t kick in for at least a year after the EU’s start — leaving Northern Ireland, and its half-in half-out status, at risk of getting caught in the middle of yet another Brexit-driven political row. 

Experts say the latest dispute will hike business costs and threaten jobs in the region, and could reopen arguments about laws separating Northern Ireland from the rest of the U.K.

Meet the CBAM

The carbon border adjustment mechanism (CBAM) is key to the net zero strategies of both the EU and U.K, and works by taxing imports from high-emitting industries such as steel and cement. The EU’s CBAM is currently in a transitional phase, with full costs set to apply from 2026. The U.K. government plans to introduce its own CBAM from 2027.

The levy is applied when taxes on pollution in the exporting country — the carbon price — are lower than in the destination country. The EU’s carbon price is currently around £56 per ton, compared to around £40 in the U.K.

Britain’s proposals on high-carbon imports leave Northern Ireland, and its half-in half-out status, at risk of getting caught in the middle of yet another Brexit-driven political row. | Charles McQuillan/Getty Images

Industry groups have warned that unless the U.K. introduces its own CBAM and links its emissions trading scheme (ETS) with the EU, aligning carbon prices on each side of the border, Northern Ireland could become a backdoor into the EU market for high-carbon goods after 2026, including from third countries. The risk is that exporting countries could bring their goods into the bloc via its soft border with Northern Ireland, having paid either a lower carbon tax or no tax at all.

To prevent this, EU officials may push to apply the carbon tax, and additional paperwork, on goods coming into Northern Ireland from the rest of the U.K. Businesses in Northern Ireland could also be whacked with compliance costs when exporting some carbon-intensive goods to the Republic of Ireland. 

Either way, it’s bad news for Northern Irish business, said Adam Berman, deputy director of advocacy at Energy UK.

“Unfortunately, like any trade issue with Northern Ireland, this is one of so many issues where, without a relatively high degree of alignment on both sides, there is simply no solution other than to put up significant new trade barriers. Which, in this case, would penalize primarily businesses in Northern Ireland,” Berman said.

Even if London and Brussels found a way to align carbon prices — the solution Brexit negotiators promised to seriously consider during post-2016 negotiations, and which already applies to Northern Irish electricity generators operating in the all-island single electricity market — Northern Irish firms would still take a hit, he added.

Northern Irish businesses which have never previously had to submit paperwork about the carbon intensity of their goods would face the costs of doing so, making them less competitive, he argued. “I don’t have a financial figure for what that would look like. But it’s not insignificant,” Berman said.

‘Unnecessary differences’

Were the EU to attempt to apply additional checks on goods coming into Northern Ireland, this would likely be viewed with deep suspicion by the DUP, the leading pro-U.K. party which opposes moves to impose EU rules on the region, from goods checks to laws on mini shampoo bottles. The party did not respond to multiple requests for comment from POLITICO.

It would also require fresh talks between EU and U.K. negotiating teams — as would linking the ETS, which would need to be thrashed out and added to the Windsor Framework, the deal brokered by prime minister Rishi Sunak to set out the trade playing field for Northern Ireland.

Local politicians could also object under the “Stormont Brake,” a mechanism by which they are permitted to raise objections to EU involvement, while decision-makers would need to agree on how to monitor any enforcement of rules on carbon-intensive goods flowing across the border.

John Penrose, a Conservative MP who served as a Northern Ireland minister under Theresa May, argued that including Northern Ireland in the EU CBAM would divide the region from the rest of the U.K. without helping trade elsewhere. Any such move “would protect their businesses and jobs from the rest of the world dumping high-carbon, un-green products,” while companies elsewhere in the U.K. remained exposed for “at least a year,” he told POLITICO.

“It would create new, unnecessary differences between Northern Ireland and the rest of the U.K, too,” Penrose added.

And such a move may bring practical, as well as political, issues. Recent research from the Centre for Inclusive Trade Policy found more than a thousand jobs in Northern Ireland could be disrupted by the EU CBAM.

John Penrose, a Conservative MP who served as a Northern Ireland minister under Theresa May, argued that including Northern Ireland in the EU CBAM would divide the region from the rest of the U.K. without helping trade elsewhere. | Justin Tallis/AFP via Getty Images

“There is an economic impact because Northern Ireland is manufacturing these things, and it’s going to have to be charged for them before they can go to the rest of Ireland,” said Emily Lydgate, an environmental law professor at Sussex University.

“Then there’s also a question about how that’s administered, and how that’s even enforced,” she added. 

The split

In the meantime, officials in the U.K. and EU are split on what to do.

EU officials take the view that the bloc’s CBAM should apply to Northern Ireland, one person familiar with decision-making in London and Brussels, granted anonymity to speak candidly about the policy, told POLITICO. The U.K. government — despite having no public position — is opposed to the idea, they said.

A European Commission official, also speaking on condition of anonymity, said that, given U.K. policy has yet to be finalized, Brussels needs more time and information before it considers its response. “We have not seen the details on what the U.K. initiative will look like,” they said. “It’s much too early to speculate about the how the two measures could interact.”

On the plus side, there has been a “softening of the mood” towards linking systems, and a sense of “renewed goodwill” between Brussels and Westminster as a result of the Windsor Framework negotiations and the global energy crisis, said Berman.

But potential negotiations could still be complex and lengthy. An agreement between the EU and Switzerland to link their ETSs took more than seven years.

A second official familiar with U.K. government decision-making hinted at a separate split inside Whitehall over the best way forward. The Department for Energy Security and Net Zero is pushing for linking emissions systems on the same terms as Switzerland, they said, but responsibility ultimately rests with the Treasury — where there has been more resistance from ministers cautious about the U.K.’s ability to carve its own regulations post-Brexit.

A Treasury spokesperson made clear that no final decisions had been made, and insisted Northern Ireland’s rights would be protected.

“The EU’s CBAM could only apply in Northern Ireland with the agreement of the U.K. and in line with the democratic safeguards of the Windsor Framework,” they said. “The Trade and Cooperation Agreement leaves open the possibility of linking the U.K. and EU schemes. The government is considering a range of options and, while we are open to exploring linking with other schemes, no decision on any preferred linking partners has yet been made.”

A Labour spokesperson declined to comment on the specific situation on the Irish border, saying only that the party supported the introduction of a U.K. CBAM and would “scrutinize the government’s plans to implement it.”