UK and EU to link carbon markets, saving on tax and trade for British business.

Following extensive negotiations taking place 19 May 2025, the UK and EU have reached a new wave of agreements. One of which was an agreement that the UK and EU would link their carbon markets. It is expected that, by doing this, the UK will save £800 million in taxes and defend British steel from EU tariffs.   

Established in 2005, the EU emissions trading scheme puts a price on carbon emissions for greenhouse gas-intensive industries and products. You can read about the system here.  
 
Following on from Brexit, the UK launched its own emissions trading scheme in 2021 to replace the EU jurisdiction. This has fed into plans for the UK to introduce its own Carbon Border Adjustment Mechanism in 2027, a year after the EU’s CBAM is set to come into full effect.  

Why link the markets?  

By linking the EU and UK’s carbon markets, the UK and EU will benefit from mutual exemptions of products being traded between the two jurisdictions. The UK and EU CBAMs target slightly different industries and products, meaning taxes are hitting different parts of each region’s markets. With the combination of the two, the UK and EU will be more aligned on trade and have a clearer policy in place defining “carbon-intensive” products and services.  
 
The combined markets will also align net zero ambition. The UK will be stepping up its emissions reduction goals to align with stringent, ambitious EU targets, and the two zones will be collaborating to deliver significant emissions reduction targets that don’t negatively impact industry.