The UK and EU have today (19 May) signed a trade agreement which links the emissions trading systems (ETS).

The statement from the UK government says: 

• Emissions trading is one of our most powerful tools to decarbonise industry and achieve our net zero goals. Following Brexit the UK left the EU emissions trading scheme and had to establish a separate market.
• Our market is smaller and less liquid. This can make prices less stable and feed through to investment. Our separate system also means that UK industry stands to be hit by the EU Carbon Border Adjustment Mechanism on around £7bn of trade.

Therefore, they outline the plans to link the UK trading scheme with the EU scheme which will lead to:

• a cheaper path to net zero as part of a larger more stable market;
• more stable prices that will support industry to invest in new technologies and jobs and decarbonise faster;
• saving UK industry from paying EU Carbon Border Adjustment Mechanism - this could have led to UK exporters paying up to £800m into the EU budget by 2030; and
• streamlined regulatory barriers: CO2 storage is a growth industry in the UK with enormous potential for investment and jobs. Linking systems removes disincentives for EU emitters to store CO2 in the UK, making our industry more competitive.

Rachel Solomon Williams, Executive Director at the Aldersgate Group, welcomed the link, however immediately called for more clarity, stating: 

Enhanced cooperation on carbon pricing will deliver clear benefits for businesses, reducing administrative burdens, lowering costs, easing trade friction, and supporting both the UK and EU in meeting their decarbonisation goals.

"This Agreement signals the beginning of formal negotiations on ETS linkage, and it is essential that the UK Government maintains momentum. Timely progress is vital to provide the policy certainty that businesses and investors need. In particular, we call for urgent clarity on how these negotiations will intersect with compliance requirements under the EU Carbon Border Adjustment Mechanisms (CBAM). With the EU CBAM entering full implementation in 2026 and the UK’s expected in 2027, businesses on both sides of the Channel need a stable policy framework to inform strategic investment decisions.