Minister for Climate Change and Corporate Responsibility Department for Business, Energy & Industrial Strategy EM 15051/19: Communication from the Commission to the European Parliament, the European Council, the Council, the European Economic and Social Committee and the Committee of the The European Green Deal Thank you for your Explanatory Memorandum (EM) on the abo ve proposal, which was considered by our Environment Sub-Committee on 20 May 2020. The European Green Deal Communication contains significant policy announcements. We are glad that the Government recognises this and has said it will examine the detailed proposals and legislation as they emerge. This letter first raises overarching questions about the European Green Deal, before moving on to consider in more detail the carbon border adjustment mechanism, circular economy action plan and farm to fork strat egy, on which our predecessor Committee has gathered evidence. We focussed on those areas because of their potential implications for the UK as a We understand that the Government’s immediate focus is on the COVID -19 response, but we consider it important to consider the implications of this policy package for the UK, given the link of some of the policies to the future relationship with the European Union (EU) and signalling from the European Commission that it intends for the Europea n Green Deal to be central to the EU’s economic recovery. Linked to this, w e will also be monitoring how the policy package evolves as part of the EU’s COVID response. We recognise that some of the issues are within Defra’s remit and would be grateful of your department coordinating a joint response. We have included a list of the questions and recommendations at the end of the letter to which we expect you to respond. The Commission’s Communication includes a proposal for Green Deal Diplomacy which you welcome in the EM. Its purpose is to promote the Green Deal as a model for other countries in reaching their carbon reduction targets. How will the Government seek to cooperate with the EU on climate diplomacy in the lead-up to COP26 in 2021? The European Green Deal demonstrates increased environment and climate ambition from the EU, with the European Climate Law introducing a new binding target and a range of measures be ing proposed to deliver greater environment and climate action . Has the Government assessed the implications of the EU's increased ambition for the level playing field in the UK-EU future relationship, both in how it might affect the EU’s negotiating position and how the measures proposed would impact on UK industry? The Commission intends to revise state aid guidelines to support the EU in achieving the Green Deal objectives. Any such changes will affect the UK as a trading partner. Do you have plans to assess the impact on the UK of the new state aid guidelines when they are released? Incompatibilities could have significant impacts for UK farmers and businesses, which evidence referred to below highlights. How will the Government take into consideration the European Green Deal when drafting regulations under the Environment and Agriculture Bills? As the EM notes, many of the policy areas covered by the European Green Deal relate to devolved responsibilities within the UK. How will the Government be enga ging with the devolved administrations as it monitors the European Green Deal’s detailed proposals and European Commission President Ursula von der Leyen has said that the European Green Deal should be the “motor for the recovery” of the EU from the economic impacts of COVID-19.1 Is the Government monitoring the development of the policy package as part of the EU’s wider COVID response? What measures are the Government considering to ensure that the UK’s economic recovery is similarly compatible with achieving net zero? Carbon Border Adjustment Mechanism The shared risk of carbon leakage in pursuit of net zero In the EM you note that the Government recognises the issues that carbon border adjustments seek to address, and carbon leakage is a key one of these. Carolyn Fischer, Professor of Environmental Economics at Vrije Universiteit Amsterdam, explained to the Committee that the existing measures for addressing carbon leakage within the EU Emissions Trading System (EU ETS) will not be effective as climate ambition “As the EU wants to be more ambitious, the old standby of free allocation … is not going t o work any more.” 2 Your consultation on the future of UK carbon pricing included free allocation as part of a UK Emissions Trading System (UK ETS). The Committee on Climate Change’s Net Zero report 1

noted the risk of carbon leakage and said that carbon border adjustments are a tool that should be considered .3 In light of the evidence highlighted above, is the Government considering new policies to mitigate the risk of carbon leakage in a net zero context? Michael Mehling, Professor of Practice at the Univer sity of Strathclyde Law School , told the Committee that “t he biggest challenges for the EU going forward [in delivering the carbon border adjustment mechanism] will be the political ones ”.4 Carolyn Fischer said that World Trade Organization (WTO) complianc e would also be a “ the policy will have to demonstrate that it is necessary to protect the environment and that all the aspects are geared towards preventing carbon leakage and not for protectionist purposes… It is a tricky area”.5 Michael Mehling added that “having a large trading bloc, such as the EU, exploring this policy and rolling it out first may be tactically advantageous for the UK to see and observe whatever lessons can be learned from this mechanism ”.6 We welcome that the Government is closely monitoring the development of this policy.
Have your officials e ngaged with the European Commission on the proposed carbon border adjustment mechanism and if not, when will they Possible impacts of the EU’s proposed carbon border adjustment mechanism on the UK Michael Mehling told the Committee that the UK’s track record “ suggests that the UK has nothing to worry about in terms of being deemed to have climate policy that is much less ambitious than a new kind of [EU] policy going forward”,7 and this means that UK exporters are unlikely to face significant adjustments. However Carolyn Fischer “ If the UK chose to do nothing at all or to reduce its ambitions, that could create serious problems within the trading relationshi p which requires a certain amount of environmental alignment for preferential trading treatment.”8 Carolyn Fischer and Misato Sato, Assistant Professorial Research Fellow at the London School of Economics and Political Science , said that the UK’s choice o n the type of carbon pricing policy was unlikely to influence the size of any border adjustments. Carolyn Fischer told “Between an ETS system linked with the EU versus an ETS system of comparable ambition versus a carbon tax with comparable ambition, I do not see that as economically creating that much of a difference. The key factor will be the ambition and the price and the coverage of UK Steel suggested that if the EU introduced the mechanism and the UK did nothing, there was a risk that carbon-intensive products could be diverted to the UK “From a steel perspective, the UK could be flooded with high -emission, lower-cost steel, which cannot be sold to the EU market and would have a detrimental impact on the domestic steel 3 The report is available here. 10 Written evidence from UK Steel (MR0002)

While it appears that UK exporters are unlikely to face significant adjustments in trade with the EU, the EU’s policy could affect UK industry in other ways. Have your officials begun assessing the possible impacts of a carbon border adjustment mechanism on the UK, including engaging with industry and specialists to gather the necessary evidence? The UK’s relationship with the mechanism Witnesses said that there would be benefits from seeking an agreement with the EU to be ‘within’ the EU’s carbon border adjustment mechanism. Michael Mehling highlighted that “one of the advantages is that we can benefit from the environmental and economic reasons that supported carbon adjustment being explored in the first place… [the UK] can do so without being as exposed politically as the EU will be”.11 The Committee heard of a couple of ways that the Government could manage the risks of being ‘within’ a mechanism designed and overseen by another party. Michael Mehling “A potential staged entry is important—for the UK to negotiate an arrangement where it might have time before it joins, to see how this works. ”12 He also proposed that “ the UK might want to have a clause in a linking arrangement, for instance, that allows it to withdraw from the borde r carbon adjustment with notification, if it perceives that the benefits are outweighed by political or legal risks”.13 However UK Steel noted that “the mechanism could be designed from an EU perspective and not take account of UK specific market character istics”.14 Misato Sato said that a benefit of being outside the mechanism was that “i f the compromise that is reached in the EU lacks environmental ambition, the UK may have an opportunity to try to avoid those problems by deviating”.15 While not stating a preferred position, UK Steel added “Should the EU apply such a policy, the UK would benefit by applying a similar, although independent, policy to ensure that imported products are in line with its own climate change policies.”16 If the UK is designing its own carbon border adjustment mechanism, Carolyn Fischer said that this may be easier with a domestic carbon “ In a lot of ways, border carbon adjustment could be easier if it is complementing a carbon tax rather than an emi ssions allowance or compliance requirement.
The prices are a lot more certain and, legally, it may be easier to do aspects of rebating for exports with a carbon tax.”17 Given the relevance of this proposal to future domestic carbon pricing policy and the ongoing negotiations with the EU, have the Government begun assessing the costs and benefits of different ways of interacting with the EU’s mechanism and of developing a UK 14 Written evidence from UK Steel (MR0002) 16 Written evidence from UK Steel (MR0002)

The EU’s Plan compared to the Government’s Resources and Waste Strategy18 We welcome that the Government, in the Circular Economy Action Plan EM, recognises that “it will be important to monitor the Commission’s detailed policy proposals and assess how well the systems work in parallel to future UK policy in this area”.19 While the Aldersgate Group stated that a direct comparison between the EU’s Circular Economy Action Plan and the Government’s Resources and Waste Strategy was difficult, they said that the Action Plan “suggests that EU policy thinking is now more advanced than England’s / the UK’s resource efficiency policy in some areas – most notably that of sustainable product design, green public procurement, consumer rights and support for alternative business models”.20 Are there any aspects of the EU’s Circular Economy Action Plan that the Government is monitoring particularly closely with a view to adopting similar policies or Green Alliance argued that the UK currently – through its consultations and the powers in the Environment Bill – and the EU previously, have been overly focused on recycling and waste at the final stage in the circular economy, but that “the EU’s new strategy looks set to change this approach” by introducing more measures focused on earlier stages, such as standards to improve design.21 We welcome that the Circular Economy Action Plan EM says that a revised Waste Prevention Programme for England “will aim to stimulate further action on policies to design out waste, as well as reuse, repair and remanufacture ”.22 When do you expect the consultation to develop the revised Waste Prevention Programme to be announced? Our witnesses welcomed the Commission’s plan to extend the approach taken in ecodesig n standards to include resource efficiency criteria and cover a wider range of products, with the Aldersgate Group “The Aldersgate Group is strongly supportive of this policy approach since around 80% of a product’s environmental footprint is determined at the design stage.”23 The Aldersgate Group and Green Alliance both stressed the importance of at least matching the EU’s approach to facilitate exports, with Green Alliance “ Meeting ecodesign and other product standards will be necessary for UK businesses to sell into the EU market, even in a World Trade Organisation trading scenario.”24 We welcome that in the Circular Economy Action Plan EM you acknowledge that “manufacturers and suppliers will want to see a degree 18 Our Waste, Our A Strategy for England (2018): ces-waste-strategy-dec-2018.pdf 19 20 Written evidence from Aldersgate Group (EGD0001) 21 Written evidence from Green Alliance (EGD0002) 22 23 Written evidence from Aldersgate Group (EGD0001) 24 Written evidence from Green Alliance (EGD0002) 25

Both witnesses also said that for goods that are not traded, the UK should consider exceeding the EU’s approach. The Aldersgate Group highlighted construction, where the UK could “act as a hub for advanced resource efficiency trials (such as for resource efficien t modular buildings), leading to potential export opportunities for sectors like engineering design consultancies”.26 Green Alliance highlighted kettles and toasters, which are not common to Please clarify the nature and scope of the Government’s commitment to matching or exceeding the ambition of the EU’s Ecodesign standards, made in the Resources and Waste Strategy in 2018. For example, will it cover the expanded range of sustainability characteristics (beyond energy efficiency) and product groups in the EU’s new sustainable products policy? Please explain in which product groups and standards the Government is planning to exceed The EU’s Circular Economy Action Plan includes a target that packaging in the EU market is reusable or recyclable in an economically viable manner by 2030 .28 The UK’s Resources and Waste Strategy target is for plastic packaging to be “ recyclable, reusable or compostable by 2025”.29 Comparing the two, Green Alliance noted that “the EU’s target includes the idea that material must be reusable or recyclable in ‘an economically viable way’ by 2030”.30 Aldersgate Group also noted that “ most packaging can already technically be recycled bu t the real challenge ahead is to make this economically feasible”.31 Referring to the timeline for the UK’s target being 2025 compared to the EU’s for 2030, Green Alliance suggested that “ it makes sense for the extra time to allow for appropriate systems and infrastructure to be developed to actually reuse, recycle or compost plastic rather than simply only allowing material that technically meets the criteria onto the market ” and highlighted specific issues with compostable plastics.32 We welcome the Gov ernment’s ambition to ensure packaging is recyclable, reusable or compostable by 2025, but witnesses highlighted that requiring that the reuse or recycling of all packaging is not just technically possible, but economically viable, is an important consideration. Will the Government consider introducing an additional target that includes the economic viability of processing as a factor? 26 Written evidence from Aldersgate Group (EGD0001) 27 Written evidence from Green Alliance (EGD0002) 28 ces-waste-strategy-dec-2018.pdf 30 Written evidence from Green Alliance (EGD0002) 31 Written evidence from Aldersgate Group (EGD0001) 32 Written evidence from Green Alliance (EGD0002)

Mandatory recycled content and boosting markets for secondary raw materials The Aldersgate Group and Green Alliance both commented positively on the integrated nature of the Circular Economy Action Plan’s proposals to boost markets for secondary raw materials using targets for mandatory recycled content, with the Aldersgate Group noting the link with the sustainable product policy framework.
Green Alliance suggested that “ the UK adopts a similar approach to ensure that, alongside targets of recycled content, measures also address all stages of a product’s lifecycle ”.33 They also “The government’s plastics tax (a type of mandatory recycled content measure … ) has already led to increased investment in plastic recycling capacity, even before its official introduction.”34 Given the success of the Government’s plastics tax and the EU’s policy in this area, have you considered introducing targets for recycled content beyond those already in Both witnesses stressed the importance of compatibility between the UK and EU approaches in boosting markets f or secondary raw materials and linked measures, with the Aldersgate Group arguing “it is important given the regional and global nature of many product and material supply chains that UK policy in areas like product standards and secondary materials pulls in a similar direction to that outlined in the EU Action Plan and is sufficiently compatible.”35 We urge the Government to reflect on this view. Green Alliance suggested that “divergent policies may have implications in terms of where the infrastructure and systems to support secondary markets are established … the UK could run the risk of missing out on capturing valuable secondary materials”.36 They added that this could have a knock -on impact on investment decisions for manufacturers using those mat erials, giving the example of electric vehicle production. Does the Government recognise the risks of not moving quickly to promote markets for secondary raw materials, in light of the EU’s proposals? What steps are you taking to secure the UK’s role in those markets? Digital product passports and a European Circular Dataspace On digital product passports and a European Circular Dataspace, the Aldersgate Group said that it was important to monitor the EU’s development of these “Many businesses operate in both EU and UK markets, and it is therefore vital that the UK is aware of the forthcoming developments related to electric product passports and materials databases as they will hold implications for UK businesses and their supply chains.”37 Green Alliance suggested that “ cooperation in developing digital passports and materials databases could also help accelerate the development of the National Digital Twin and the UK’s National Materials Datahub”, adding that in the case of the Materials Datahub, “funds are yet to be committed to its development”.38 33 Written evidence from Green Alliance (EGD0002) 34 Written evidence from Green Alliance (EGD0002) 35 Written evidence from Aldersgate Group (EGD0001) 36 Written evidence from Green Alliance (EGD0002) 37 Written evidence from Aldersgate Group (EGD0001) 38 Written evidence from Green Alliance (EGD0002)

The greater use of data and digital technologies in this area is a significant area of new policy development. Has the Government considered the implications of the EU’s digital product passports and the European Circular Dataspace for the UK’s policy and businesses? Please provide an update on the funding and development of the National Materials Datahub in this The Farm to Fork Strategy itself was published on 20 May,39 after the Committee had finished gathering evidence. As such, the evidence we refer to here is based on Farm to Fork policies mentioned in the main European Green Deal Communication and trailed elsewhere. The Strategy published on 20 May includes proposals – in addition to the areas focused on below – to promote farming practices that sequester carbon, reduce nutrient losses, reduce the use of fertilisers, revise animal welfare legislation, clarify competition rules to support primary producers, and revise food contact materials legislation. Will the Government be assessing how these proposals may impact on UK farmers who are exporters, and their relevance to the UK-EU future relationship negotiations? Reducing the use and risk of pesticides The Commission’s Green Deal Communication refers to a need to reduce significantly the use and risk of chemical pesticides,40 and the Farm to Fork Strategy includes a target relating to pesticides. Will the Government be assessing the impact of t he EU’s pesticides measures on UK farmers exporting to the EU, including if they result in different requirements to those The Association of Independent Crop Consultants (AICC), told the Committee that “unnecessary or extraneous PPP [plant protection products] applications not only potentially cause more collateral damage than is desirable, but they can and do lead to increased expenditure across a wide range of crops”.41 However they suggested that a different approach to the EU’s could be more “ The move by the EU to introduce mandatory targets for the reduction in use of these inputs, could be achieved more quickly by separating pesticide and fertiliser advice from sales, implementing and enhancing the uptake of IPM protocols and by providing support to growers adhering to In February 2019, the Government said that it would undertake a broader review of pesticides policy.43 What is the status of this review? Will the Government be considering if measures to reduce the use or risk of pesticides are necessary, in light of the EU’s policy announcement? 39 Available 40 Page 12, 41 Written evidence from AICC (EGD0003) 42 Written evidence from AICC (EGD0003) 43 question/Commons/2019-02-06/217534/

Innovation – new genomic techniques, innovative food and feeds The Farm to Fork Strategy notes that the Commission is studying the potential of new genomic techniques. There is currently controversy over how new genomic techniques should be regulated. Advocates argue that new genomic techniques are a tool that should be pursued and viewed as distinct from those techniques used to create genetically -modified organisms (GMOs), and consequently should not be regulated so tightly. Others disagree.
The AICC told the Committee that “ the manipulation of plant and crop traits along with improving plant breeding using such technologies as CRISPR 44 is the way we will manage and reduce our reliance upon PPP and synthetic nutrition to even more minimal levels in the future ”.45 They also argued that “there are pros and cons, we should decide our own fate”.46 On a different area of innovation, the Commission’s Green Deal Communication proposes to “launch a process to identify new innovative food and feed products, such as seafood based on algae” and the Strategy provides further detail on measures in this area .47 The AICC told the Committee that “we should be open to all types of innovation in UK food production and in our diets, but not at the cost of damaging or restricting the domestic product ion of our basic food supplies, to overall UK food security or to public health”.48 We recommend that the Government closely monitor the EU’s policy discussions on these two areas and considers carefully the implications of different policy options. Please update us on your initial view of the EU’s proposals and on the UK’s policy intentions in these areas. Farm to Fork and the UK-EU future relationship negotiations The AICC also emphasised that “w ith regard to access to the EU single market, it is crucia l that both imports and exports of agricultural produce, whether crop or livestock derived, remain tariff free – particularly once direct support payments have been removed as is the national plan ”.49 They “ UK farmers and growers will be placed at an untenable disadvantage if any form of tariffs are imposed”.50 The Committee shares the view that tariff -free trade in agricultural products with the EU is vital for the UK farming sector. We urge the Government to keep in mind the consequences of failing to secure this through an agreement as it conducts the negotiations with the EU. In your view, is the EU’s Farm to Fork strategy compatible with tariff -free agricultural trade 44 CRISPR is a technology that can be used to edit genes. 45 Written evidence from AICC (EGD0003) 46 Written evidence from AICC (EGD0003) 47 Page 12, 48 Written evidence from AICC (EGD0003) 49 Written evidence from AICC (EGD0003) 50 Written evidence from AICC (EGD0003)

The Committee continues to take an active interest in these matters and we would therefore welcome being kept updated on developments. The Committee looks forward to a response I am copying this letter to Sir William Cash MP, Chair of the Commons European Scrutiny Committee, Jessica Mulley, Clerk of the Commons European Scrutiny Committee, Les Saunders, Chair of the European Union Committee

Questions and recommendations requiring a response 1. How will the Government seek to cooperate with the EU on climate diplomacy in the lead- 2. Has the Government assessed the implications of the EU's increased ambition for the level playing field in the UK-EU future relationship, both in how it might affect the EU’s negotiating position and how the measures proposed would impact on UK industry? 3. Do you have plans to assess the impact on the UK of the new state aid guidelines when 4. How will the Government take into consideration the European Green Deal when drafting regulations under the Environment and Agriculture Bills? 5. How will the Government be engaging with the devolved administrations as it monitors the European Green Deal’s detailed proposals and legislation that emerges? 6. Is the Government monitoring the development of the policy package as part of the EU’s wider COVID response? What measures are the Government considering to ensure that the UK’s economic recovery is similarly compatible with achieving net zero? Carbon Border Adjustment Mechanism 7. In light of the evidence highlighted above [on carbon leakage] , is the Government considering new policies to mitigate the risk of carbon leakage in a net zero context? 8. Have your officials engaged with the European Commission on the proposed carbon border adjustment mechanism and if not, when will they do so? 9. Have your officials begun assessing the possible impacts of a carbon border adjust ment mechanism on the UK, including engaging with industry and specialists to gather the necessary 10. Given the relevance of this proposal to future domestic carbon pricing policy and the ongoing negotiations with the EU, have the Government begun assessing the costs and benefits of different ways of interacting with the EU’s mechanism and of developing a UK mechanism? 11. Are there any aspects of the EU’s Circular Economy Action Plan that the Government is monitoring parti cularly closely with a view to adopting similar policies or maintaining 12. When do you expect the consultation to develop the revised Waste Prevention

13. Please clarify the nature and scope of the Government’s commitment to matching or exceeding the ambition of the EU’s Ecodesign standards, made in the Resources and Waste Strategy in 2018. For example, will it cover the expanded range of sustainability characteristics (beyond energy efficiency) and product groups in the EU’s new sustainable products policy? Please explain in which product groups and standards the Government is planning to exceed 14. Will the Government consider introducing an additional target that includes the economic viability of processing as a factor? 15. Given the success of the Government’s plastics tax and the EU’s policy in this area, have you considered introducing targets for recycled content, beyond those already in pl ace or 16. Does the Government recognise the risks of not moving quickly to promote markets for secondary raw materials, in light of the EU’s proposals? What steps are you taking to secure the UK’s role in those markets? 17. Has the Government considered the implications of the EU’s digital product passports and the European Circular Dataspace for the UK’s policy and businesses? Please provide an update on the funding and development of the National Materials Datahub in this context. 18.
Will the Government be assessing how these proposals [specified in the letter] may impact on UK farmers who are exporters, and their relevance to the UK -EU future relationship 19. The Commission’s Green Deal Communication refers to a need to reduce significantly the use and risk of chemical pesticides, and the Farm to Fork Strategy includes a target relating to pesticides. Will the Government be assessing the impact of the EU’s pesticides measures on UK farmers exporting to the EU, including if they result in different requirements to those in 20. In February 2019, the Government said that it would undertake a broader review of pesticides policy. What is the status of this review? Will the Government be considering if measures to reduce the use or risk of pesticides are necessary, in light of the EU’s policy 21. We recommend that the Government closely monitor the EU’s policy discussions on these two areas [new genomic techniques, innovative food and feeds] and considers carefully the implications of different policy options. Please update us on your initial view of the EU’s proposals and on the UK’s policy intentions in these areas. 22. The Committee shares the view that tariff-free trade in agricultural products with the EU is vital for the UK farming sector. We urge the Government to keep in mind the consequences of failing to secure this through an agreement as it conducts the negotiations with the EU. In your view, is the EU’s Farm to Fork strategy compatible with tariff-free agricultural trade