The United Kingdom and European Union have unveiled a significant environmental collaboration: the formal linking of their respective Emissions Trading Schemes (ETS). The agreement, announced at the UK-EU Summit in London on 19 May, represents a renewed effort to coordinate decarbonisation strategies across both economies.
Satellite view showing parts of the United Kingdom and European Union, with visible natural landscapes and vegetation. AI generated picture.
This move reconnects the UK’s carbon market, established in 2021 following Brexit, with the EU’s long-standing ETS framework. By allowing companies across both jurisdictions to trade emissions allowances under a shared structure, the agreement aims to reduce compliance burdens and enable more cost-efficient emissions cuts.
The UK’s ETS will continue to evolve, notably with the inclusion of waste incineration from 2028. However, the broader alignment with the EU system brings immediate potential for cross-border benefits.
Julia Michalak, EU Policy Director at the International Emissions Trading Association (IETA), emphasised the strategic and economic value of this integration. ‘It’s a powerful move toward more efficient and cost-effective climate action’, she said.
The agreement also sets the stage for coordination between the two regions' Carbon Border Adjustment Mechanisms (CBAM). The EU’s CBAM will take effect in January 2026, with the UK planning to launch a similar scheme a year later. These mechanisms are designed to protect domestic industries by ensuring imported goods face equivalent carbon costs.
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According to UK government estimates, alignment with the EU’s CBAM could save domestic exporters up to approximately $1 billion (£800 million) in its first year alone.
Ellie Belton, Senior Policy Advisor at E3G, hailed the linkage as a meaningful milestone. ‘Swift action to secure mutual exemptions from respective CBAM schemes will be a vital next step to reduce trade frictions before the EU’s mechanism comes into force in 2026’, she noted.
While operational guidance is still being drafted, particularly for sectors such as oil, gas, and carbon capture, UK companies will continue to adhere to the UK ETS rules. The Offshore Petroleum Regulator for Environment and Decommissioning (OPRED) is expected to release detailed instructions in the near future.
Despite broad industry support, concerns remain. The Local Government Association warned that municipalities could face additional costs of up to $8.8 billion (£6.5 billion) by 2036, with $1.01 billion (£747 million) projected for 2028 alone due to the inclusion of waste incineration in the UK ETS.
Still, the agreement marks a notable step toward renewed UK-EU environmental alignment, reinforcing both parties’ shared commitment to reducing emissions while maintaining economic competitiveness.
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