The UK and the European Union (EU) have announced plans to link their Emissions Trading Schemes (ETS) as part of a broader push for deeper cooperation.
The deal, revealed at the UK-EU Summit in London on May 19, aims to align efforts to reduce emissions across high-polluting industries and support net zero goals.
Both ETS systems place a cap on total emissions and allow companies to buy, sell, or trade emission allowances to encourage reductions.
The UK ETS, launched in 2021 after Brexit, will expand to include waste incinerators from 2028.
Julia Michalak, EU Policy Director at the International Emissions Trading Association (IETA), welcomed the EU-UK agreement, highlighting that a unified carbon market could bring major economic benefits, lower compliance costs, and reduce trade barriers.
“It’s a powerful move toward more efficient and cost-effective climate action,” she said.
Relevant: UK Weighs ETS Link With EU Ahead Of May Summit
The new agreement will also connect with the EU’s Carbon Border Adjustment Mechanism (CBAM), which begins on 1 January 2026. The UK will implement its own CBAM a year later.
This mechanism is intended to level the playing field for domestic companies facing international competition.
The UK government estimates that aligning with the EU CBAM could save UK exporters around $1 billion (£800 million) in its first year.
Ellie Belton, Senior Policy Advisor at E3G, called the ETS link-up a major step for European decarbonization, saying it will boost low-carbon investment and streamline trade.
“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 added.
While further guidance is needed, especially for industries such as oil, gas, and carbon capture, UK operators are expected to continue following UK ETS regulations.
The UK’s Offshore Petroleum Regulator for Environment and Decommissioning (OPRED) is currently drafting detailed sector-specific guidance.
Both schemes include strict penalties for non-compliance, reinforcing their commitment to emissions control.
However, the Local Government Association (LGA) has raised concerns about financial impacts on councils, warning they could face up to $8.7 billion (£6.5 billion) in added costs by 2036.
This includes an estimated $998 million (£747 million) in 2028 alone, tied to the inclusion of waste incineration in the ETS.
The move signals a renewed climate partnership between the UK and EU, focused on aligning environmental and economic priorities across borders.
Read more: Is UK-EU ETS Linking a Viable Path to Decarbonization?
