The UK energy industry is calling on the government to establish an agreement with the European Union for linking their carbon trading schemes. Without action, UK businesses could face a future of high operational costs.
In a letter sent to Prime Minister Rishi Sunak, trade body Energy UK said aligning the UK Emissions Trading Scheme (ETS) with the EU would offer businesses more stability and protect exporters from upcoming charges under Europe new carbon border rules. These rules, part of the EU Carbon Border Adjustment Mechanism (CBAM), are set to begin in January 2026. Without a linked system, UK manufacturers could face tariffs on goods sent to the EU, potentially costing British businesses up to £800 million a year.
Leading organisations such as the CBI, UK Steel, and Make UK are advocating for the proposal. They argue that linking the schemes would lead to more predictable carbon pricing, lower costs, and fewer trade headaches, particularly for industries like steel, chemicals, and glass. Linking would also offer greater protection for UK businesses from the looming CBAM, which could add significant costs to exports to the EU.
Linking the UK and EU, ETS provides benefits to businesses. First, it would reduce the price of carbon allowances. At present, the UK standalone carbon market leads to fluctuating prices, creating uncertainty for industries. With a linked system, UK businesses would enjoy a more predictable carbon price, making long-term planning and investment in sustainable practices more reliable.
The alignment would also shield UK manufacturers from the additional financial burden of CBAM. Starting in 2026, these tariffs will impose extra costs on UK exports to the EU unless carbon pricing systems are aligned. This would significantly impact UK manufacturers competition in the EU market, an important trading partner. By linking carbon markets, UK businesses would continue to have smooth access to EU markets without facing new tariffs.
The proposal also addresses challenges specific to Northern Ireland, where post-Brexit arrangements could complicate trade. A linked ETS would simplify processes for Northern Irish companies, removing some of the risks associated with the introduction of CBAM.
Energy UK has made it clear that the proposed solution would not require the UK to rejoin broader EU agreements. Adam Berman, Director of Policy and Advocacy at Energy UK, emphasized that a separate ETS creates uncertainty. He said, “Linking the schemes will protect UK businesses from the looming costs of CBAM and simplify trade for those facing the challenges of Northern Ireland's unique status.”
In addition to carbon pricing, Energy UK highlighted opportunities for collaboration in clean energy, offshore wind, and North Sea power grid links, all of which could benefit businesses and boost investment.
