Negotiations to Link UK and EU Carbon Markets Began After November 2025 Mandate

Key Facts

The United Kingdom and the European Union have begun negotiations to link their carbon pricing systems after the EU approved a negotiating mandate in November 2025, according to the British government. The process aims to link the UK Emissions Trading System with its EU counterpart, while the government says talks began following the issuance of the EU mandate. The move sets a framework for negotiating how the two markets will operate together, but does not mean a final agreement has been reached or entered into force. The negotiations cover aspects of linking the two systems and related arrangements for emissions pricing. Leaders from both sides are due to discuss their relationship at a summit in Brussels on 20 November 2026.

In the memorandum of understanding issued at the 2025 summit, the two sides agreed that a linking agreement would create the conditions for goods originating in the UK or EU to benefit from mutual exemptions from carbon border adjustment mechanisms. The document tied those exemptions to compliance with relevant legal provisions in both the European Union and the United Kingdom. This means any preferential treatment for goods will remain subject to legislative conditions, rather than arising simply from a link between the emissions trading systems. The document did not specify in the quoted passage which goods would qualify, but made eligibility and compliance with the rules part of the proposed agreement's framework. These conditions place trade-border arrangements at the center of the negotiations alongside management of the carbon market itself.

The British government links the importance of addressing the systems' separation to the impact of the EU's carbon border adjustment mechanism on British industry. According to its published explanation of the summit, trade worth around £7 billion could be exposed to the mechanism if the systems remain separate. The document also said British exports could face payments of up to £800 million to the EU budget by 2030 if the mechanism's impact is not addressed. These are government estimates describing the scale of trade at risk and potential payments; they do not represent confirmed charges or payments already made. The figures give trade and financial considerations weight in efforts to establish shared arrangements for the two markets.

The framework set out in the memorandum of understanding also covers the agreement's level of climate ambition: it said the UK emissions reduction pathway and cap should be at least as ambitious as their EU counterparts. This condition links market arrangements to the reduction pathway and emissions cap, rather than limiting the agreement to facilitating the trading of allowances. The document did not provide figures for the reduction levels or the cap in the quoted passage, but clearly set out the standard for comparison between the two sides. Negotiations will therefore need to address alignment of the relevant climate policies within the agreement. The wording also leaves the details of the condition to be determined through the understanding reached by the two sides in negotiations.

The UK Emissions Trading System Authority says linking could create a broader, deeper and more liquid market, and enable access to it. These are benefits the British government describes for a linked market; they do not mean that liquidity or access has already been achieved before negotiations and implementation arrangements are completed. At the same time, according to the authority, any link requires an effective and coordinated approach to managing the stability of both markets. It added that market policy in the linked system would be determined through negotiations between the UK and the European Union. This makes stability rules and market policies issues that must be settled before a shared system can operate.

The second UK-EU summit, to be held in Brussels on 20 November 2026, is among the next milestones in relations between the two sides. The British government said the prime minister would meet European Council President António Costa and European Commission President Ursula von der Leyen at the summit. The government did not specify an expected outcome from the carbon market negotiations in its statement on the summit date. Linking remains dependent on what the two sides agree in their talks, including arrangements for market stability and the policies governing the linked system. The summit provides an announced date for following the next stage of UK-EU relations.