For exporters moving goods between the United Kingdom and the European Union, a carbon-market link under negotiation would not itself remove border charges, because each side’s laws set separate conditions for exemptions.
Under the EU’s Carbon Border Adjustment Mechanism (CBAM), an exemption requires a fully linked emissions trading system and an effectively charged carbon price, with no rebates beyond those also applied under the EU Emissions Trading System (ETS). The European Commission can add a qualifying country to its exemption list by delegated act; a link alone does not grant an exemption.
The UK’s own CBAM is due to begin Jan. 1, 2027, and provides for exemptions on goods from countries whose emissions trading systems are linked to the UK system. A May 2025 EU-UK framework envisages exemptions under both sides’ laws and calls for relevant UK rules to align with changes to EU rules.
Bloomberg, citing people familiar with the talks, reported that negotiators had resolved issues involving emissions caps, allowance supply and free permits, while derivatives treatment remained unsettled. The outlet said a draft would have the EU recognize UK emissions caps for 2028 through 2030. From 2031, the draft would limit annual UK allowance output to 7.1% of the EU ETS’s annual issuance. It also proposes a UK market stability reserve with at least 29.5 million allowances when the agreement begins. The two governments have yet to release a completed text or identify when a link would begin.
Euronews reported Nov. 6 that draft summit language would characterize the negotiations as finished, while cautioning that the wording could change. That draft language does not confirm a published agreement.
The May framework identifies trade and competition concerns as reasons to pursue a link, which could reduce friction for companies operating across both markets. But closer carbon prices could raise permit costs for some UK firms: Bloomberg said Moutaz Altaghlibi, a senior energy economist at ABN Amro, warned of that possibility in a Nov. 5 analysis.
The UK began operating its own ETS on Jan. 1, 2021, when its participation in the EU system ended. The governments set their next summit in Brussels for Nov. 20, 2026, where leaders are expected to assess progress and issue a joint declaration.
