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What is peeling from the inside of my lid?

The inside surfaces of our grill lids are not painted. They are either baked on porcelain enamel, stainless steel, or unpainted cast aluminum. All of which cannot peel. What you are noticing is a build-up of smoke that collects over normal use. During use, smoke vapours slowly oxidize into carbon and collects. To prevent future build-up, when the grill is warm, but not hot, occasionally wipe the inside of the lid with a cloth or a sponge using a mild soap and water solution. This is part of the annual maintenance program.