Brussels ties environment and state-aid rules to Brexit ‘backstop’

The EU is pushing Theresa May to accept far-reaching environmental targets and tough policing of state-aid rules as part of a Brexit “backstop” plan for the Irish border, making demands that are likely to create more problems for the UK prime minister in Westminster.

European Commission negotiators have told EU diplomats that Britain is resisting some detailed “level playing field” provisions being included in the backstop arrangement to avoid a hard border on the island of Ireland.

Some of the most sensitive are environmental targets that the EU has agreed on for 2030. These require member states to draw 32 per cent of their energy from renewable sources, and aim to slash energy consumption by 32.5 per cent compared with business-as-usual projections. Another is a demand that the European Court of Justice oversees how the UK applies the bloc’s restrictions on state subsidies to companies.

The moves are an example of the kinds of guarantees Brussels is seeking as part of plans for an all-UK customs union with the EU. The temporary customs union would be put in place if no better solution were found to preventing a hard border in Ireland after the UK’s post-Brexit transition period.

However, Brussels’ insistence on attaching such conditions to the UK’s withdrawal treaty is likely to further enrage Brexiters who warn that Mrs May’s deal risks leaving Britain tethered to EU rules.

One senior UK government aide said he was increasingly “pessimistic” about the chances of the deal given Brussels’ demands in recent days. “They are pushing and pushing on everything,” he said. “Having the ECJ as the arbiter on state-aid rules is something that is just not going to get through the cabinet.”

Any UK pledges would be significant, even if the backstop plan for Northern Ireland is never used.

Sabine Weyand, the EU’s deputy negotiator, told member states on Friday they would act as a starting point when detailed negotiations start on the future UK-EU economic relationship. “This is a baseline for the future relationship,” said one EU diplomat familiar with the discussions.

EU negotiators are open to such a customs union, which would allow London to avoid customs checks across the Irish Sea.

But, in return, Brussels insists on a clutch of “level playing field” provisions that restrain Britain’s ability to diverge on competition, taxation, labour and environmental rules. These would be written into the UK’s withdrawal treaty.

The most prescriptive relate to state aid and antitrust rules. The UK would be obliged to “dynamically” track the EU’s rule book in these areas as it evolves. Brussels wants the ECJ, the EU’s top court, to be the ultimate referee of whether Britain is applying the rules properly.

On taxation, the UK pledges to abide by various OECD standards and the EU’s code of conduct. The EU also wants the UK to uphold existing EU directives on information exchange between tax authorities and anti-avoidance.

The provisions on environmental standards would also be among the most difficult for the UK. They involve a “non-regression” clause to maintain standards in place at the time the UK exits. The EU wants quantitative targets to be binding on the UK as well, including the 2030 environmental goals.

The EU’s push to bind the UK to environmental targets stems partly from the fact that the bloc is increasing its level of environmental ambition just as Britain prepares to leave.

The European Parliament is set to confirm the 2030 targets this week, setting in motion a process whereby national governments will draw up strategies for meeting them that will then be discussed with Brussels.

The UK opposed parts of the commission’s original proposals for the targets when they were published in 2016, arguing that the draft legislation was too restrictive, leaving national governments with too little scope to choose the most effective approach for greener economies.

Overall, the withdrawal treaty text would tie Britain to a list of important regulations underpinning economic activity in the EU. Negotiators say the directives and regulations specifically listed in the Brexit agreement run to almost a dozen pages.

“If a customs union is triggered, we have to make sure we’re protected,” said the EU diplomat. “Of course they want to diverge, and in some areas they can. We’re just making sure they can’t undercut us.”

Even as Brussels pushes for environmental targets to be included in a Brexit deal, it is also taking precautions in case talks break down.

Brussels is poised to present proposals this week, to be activated in the event of a no-deal Brexit, that would adapt EU legislation on energy efficiency to remove the UK share of the bloc’s obligations.