Earlier this month, EU member states agreed to begin negotiations with the UK on linking their emissions trading systems (ETS). The proposal follows the EU-UK Reset Summit in May, where both sides committed to strengthening cooperation on trade, decarbonisation, and climate policy.
A linked ETS would mark an important step towards closer climate alignment between the EU and the UK. It would also offer practical benefits for business, from reduced compliance costs to greater certainty on carbon pricing.
Specific dates regarding the negotiations are yet to be released, but this potential for collaboration highlights a significant step forward in the alignment of international carbon markets.
Marie Bjerre, Minister for European affairs of Denmark, said, “Last May we agreed with the UK to open a new chapter in our relationship. With [this] decision, we now set out to deliver concrete results… We therefore approach negotiations with a hope that they can be finalised swiftly.”
What is an Emissions Trading Scheme?
An ETS is a market-based system for reducing greenhouse gas emissions. It sets a cap on the total emissions allowed from certain sectors and requires businesses to hold allowances for every tonne of CO₂ they emit. These allowances can be bought, sold or traded.
Both the UK and EU have their own individual sets of Emission Trading Schemes, which apply to their domestic emissions. Aligning carbon markets aims to encourage lower carbon emissions and ensure fair competition. For more information on the UK ETS, read our in-depth UK ETS guide.
When trading internationally, both the EU and UK have their own Carbon Boarder Adjustment Mechanisms (CBAM), which is a levy on exported carbon-intensive goods to reduce carbon leakage. This includes the production of iron, cement, steel aluminum, electricity, and hydrogen. Countries with lower carbon emissions costs from their ETS will be taxed at a higher rate, giving more incentive for reduced carbon emissions in industrial processes.
What does this mean for business, and when?
For UK exporters, especially those sending goods to the UK, linking emissions trading systems could help improve financial savings by avoiding redundant CBAM charges and seeing more stable pricing certainty across markets. Plus, it will help to keep a more playing level field when trading with EU competitors.
While there is no set timeline for negotiations, the EU CBAM is expected to come into force from 1 January 2026, and the UK CBAM following a year later in January 2027. The Energy Advice Hub will continue to report updates on EU-UK carbon market linkages as they are released.
Wondering how the new CBAM enforcements or ETS linkages may impact your business? Get in touch with our experts at Sustainable Energy First for a no-obligation chat.
