The European Union and the United Kingdom are preparing to reconnect their carbon markets, with an agreement expected to be announced at the EU-UK summit in Brussels on 20 November, according to a draft document seen by Euronews. The draft says the deal would allow mutual recognition of carbon allowances and exempt EU and UK goods from their respective carbon border adjustment mechanisms, subject to respective laws and procedures, which could spare manufacturers additional charges.
The agreement to link the EU and UK Emissions Trading Systems (ETS) would represent a significant step in post-Brexit rapprochement. The draft document, which could still change, says the two sides welcome the conclusion of negotiations on linking their carbon markets. This would pave the way for EU and UK goods to be exempt from their respective Carbon Border Adjustment Mechanisms (CBAM), subject to respective laws and procedures, addressing a growing trade concern following the EU’s introduction of its carbon border mechanism in January 2026 and Britain’s plans to introduce its own in January 2027.
However, the proposed linkage has critics. British MP David Tufnell told Euronews the country's industry is at a "critical juncture," blaming high carbon costs for industrial decline. "Pursuing UK-EU ETS linkage threatens to push UK carbon prices up even further towards EU levels," Tufnell said. He argued that the UK gives its industries fewer free carbon allowances than the EU, potentially leaving British manufacturers facing higher emissions costs than their European competitors. "This matters greatly for industrial communities like mine in Pembrokeshire and for British industrial competitiveness and national resilience more broadly. If carbon costs rise faster in the UK than in competing jurisdiction then production, investment and employment move overseas while global emissions remain unchanged," Tufnell said.
The two carbon markets have different rules and sectoral coverage, including over transport and buildings. The second EU ETS, which will mandate oil and gas operators to pay for emissions linked to heating in buildings and road transport fuels, is due to kick in in 2029. If the markets are linked, Britain would be required to keep its carbon pricing sufficiently aligned with EU requirements.
Separately, five European leaders have called for closer ties with Britain ahead of the summit. The leaders of Germany, Belgium, the Netherlands, Luxembourg and Denmark said deeper cooperation on clean energy would benefit both sides in a letter to European Commission President Ursula von der Leyen and António Costa, who leads the European Council, seen by the Guardian. The five countries also want the two sides to speed up work on Britain’s return to the EU’s internal electricity market.
“We call on you and the UK to agree during the summit on a path towards the conclusion of these negotiations,” states the letter from Chancellor Friedrich Merz, Prime Minister Rob Jetten, Prime Minister Bart De Wever, Prime Minister Luc Frieden and Prime Minister Mette Frederiksen. Describing the UK as a “close partner in the energy transition,” the leaders said Britain’s integration into the EU’s internal electricity market was “necessary to unlock the full potential of the North Sea area and transform it into the largest clean energy hub in the world.”
Bringing Britain into the internal electricity market could be controversial, as the UK would be required to make a contribution to the EU budget, specifically to cohesion funds that promote economic development in poorer regions. British officials are wary of a deal in which taxpayers' money could be used to fund infrastructure in central and eastern Europe. Last year, negotiations on Britain's entry into a €150bn EU defence fund collapsed over a dispute about the size of the UK's contribution. A EU diplomat told the Guardian: "The UK would not simply be paying into EU cohesion funds. The UK would be investing in access to a more integrated, secure and competitive European energy market. This will lead to more efficient electricity trading, resulting in lower costs for UK consumers."
According to figures from Energy UK published in 2024, if the current energy relationship remains unchanged, Britain could pay extra costs of £10bn from 2024-29 through higher energy bills and lower Treasury revenues. The industry group argues that Brexit barriers will become more significant over time, frustrating the UK's potential to realise the full benefits of growth in offshore wind power.
Analysis
Why This Matters
- Carbon market linkage would directly affect the cost of manufacturing and trade for energy-intensive industries in both the EU and UK, particularly steel, aluminium, cement and fertilisers.
- The return to the EU's internal electricity market could lower and stabilise energy prices for British consumers, but requires a UK budget contribution to EU cohesion funds, a politically sensitive issue.
- The summit marks a significant step in post-Brexit relations; its outcomes will signal the direction of future cooperation on trade, energy and regulation.
Background
Carbon markets put a price on emissions to incentivise industry decarbonisation. The EU launched its Emissions Trading System in 2005; the UK established its own system after Brexit. The EU's Carbon Border Adjustment Mechanism, introduced in January 2026, requires importers to purchase certificates for embedded emissions, creating a new trade barrier. Britain plans a similar mechanism from January 2027. Linking the two markets would exempt each other's goods from these charges, avoiding double carbon costs. The EU-UK summit on 20 November in Brussels is the first of its kind under Prime Minister Andy Burnham, who has signalled openness to closer relationship with the EU.
Key Perspectives
EU and UK officials: Argue the carbon market link will protect industrial competitiveness, reduce administrative trade burdens, and create a larger, more efficient carbon market.
David Tufnell (British MP): Criticises the linkage, saying it threatens to drive UK carbon prices up to EU levels, harming British industry, competitiveness and jobs.
Five European leaders (Germany, Belgium, Netherlands, Luxembourg, Denmark): Call for deeper EU-UK ties, particularly on clean energy, urging a path toward UK reintegration into the EU's internal electricity market.
EU diplomat: Says the UK would be investing in access to a more secure and competitive energy market, leading to lower costs for consumers, not merely paying into cohesion funds.
Energy UK (industry body): Argues if the energy relationship remains unchanged, Britain will face £10bn in extra costs from 2024-29, and Brexit barriers will increasingly hinder offshore wind growth.
Stella Creasy (Labour MP): Says there are "plenty of sensible changes" that could be made, noting exports are down and the UK economy has been substantially hit by leaving the EU.
What to Watch
- The final text of the summit declaration on 20 November, particularly any details on the carbon market link's start date and UK budget contribution terms.
- Negotiations on UK re-entry to the EU internal electricity market: whether a path is agreed and what contribution level Britain accepts.
- Domestic political reaction in the UK, especially from MPs wary of regulatory alignment and budget contributions to the EU.
Checked
12 claims in this story checked against 1 source: 11 supported.
Show each claim
- SupportedThe EU and UK are expected to announce a deal linking their carbon markets as part of a post-Brexit agreement.Euronews: “The agreement to link EU and UK carbon markets, expected to be announced at the 20 November summit”
- SupportedCritics warn that closer alignment could drive up costs for British industry.Euronews: “critics warn that closer alignment could drive up costs for British industry.”
- SupportedThe announcement is expected at a summit in Brussels on 20 November.Euronews: “The agreement, set to be announced at the EU-UK summit in Brussels on 20 November”
- SupportedLinkage would allow mutual recognition of EU and UK allowances and pave the way for goods to be exempt from their respective carbon border mechanisms, subject to laws and procedures.Euronews: “allowing EU and British carbon allowances to be mutually recognised. The agreement ... would also pave the way for goods originating in the EU and UK to be exempted from their respective Carbon Border Adjustment Mechanisms (CBAM).”
- SupportedThe draft says: “We welcome the conclusion of the negotiations on linking the EU's and the UK's ETS agreement. This would allow mutual recognition of EU and UK allowances and exempt EU and UK goods from respective CBAM subject to respective laws and procedures that we plan to launch without delays.”Euronews: “"We welcome the conclusion of the negotiations on linking the EU’s and the UK's ETS agreement. This would allow mutual recognition of EU and UK allowances and exempt EU and UK goods from respective CBAM subject to respective laws and procedures that we plan to launch without delays,"”
- SupportedThe EU mechanism was introduced in January 2026, and Britain plans to introduce its own system in January 2027.Euronews: “following the introduction of the EU's carbon border mechanism in January 2026 and Britain's plans to introduce its own system in January 2027.”
- SupportedSome EU and UK officials say energy-intensive industries, including steel, aluminium, cement and fertilisers, could avoid additional charges.Euronews: “Some EU and UK officials have argued that energy-intensive industries such as steel, aluminum, cement and fertilisers could avoid additional charges”
- SupportedTufnell said the country's industry was at a “critical juncture” and blamed high carbon costs for industrial decline.Euronews: “British MP David Tufnell said the country's industry is at a "critical juncture," blaming high carbon costs for the industrial decline.”
- SupportedTufnell said: “Pursuing UK-EU ETS linkage threatens to push UK carbon prices up even further towards EU levels.”Euronews: “"Pursuing UK-EU ETS linkage threatens to push UK carbon prices up even further towards EU levels," Tufnell told Euronews.”
- SupportedTufnell argued that the UK gives its industries fewer free carbon allowances than the EU.Euronews: “Tufnell also argued that the UK gives its industries fewer free carbon allowances than the EU”
- SupportedTufnell said that if UK carbon costs rise faster than in competing jurisdictions, production, investment and employment will move overseas while global emissions remain unchanged.Euronews: “If carbon costs rise faster in the UK than in competing jurisdiction then production, investment and employment move overseas while global emissions remain unchanged,” Tufnell said.”
- Partly supportedThe story says the two markets have different sectoral coverage, including differences over transport and buildings.Euronews: “The two carbon markets have different rules and sectoral coverage, including differences over the treatment of transport and buildings.”