Britain and the European Union announced plans to work towards linking their carbon markets, signalling a renewed phase of cooperation and prompting a 6% rise in UK carbon prices.
Both jurisdictions operate Emissions Trading Systems (ETS) requiring power plants and heavy industry to pay for each metric ton of carbon dioxide emitted, as part of broader climate targets. A joint statement said closer alignment of the two systems would enhance the UK’s energy security and help businesses avoid penalties under the EU’s incoming Carbon Border Adjustment Mechanism (CBAM), which takes effect in 2026.
The UK intends to launch its own CBAM in 2027.
“If negotiations are prioritised on both sides, the timeline for a functional link could move quickly,” analysts at Veyt noted, though they cautioned that aligning systems by 2027 may be “ambitious.”
The UK benchmark carbon allowance rose to £51.22 ($68.52) per ton by midday Monday, narrowing the gap with the EU benchmark, which is trading around €70 ($78.86) per ton. Analysts said linking the markets would likely push UK prices closer to EU levels, raising short-term costs for British businesses but sparing them future border carbon levies. A study by Frontier Economics, commissioned by energy companies, estimates that aligning the markets could reduce trade frictions, improve liquidity, and generate £770 million in savings between 2026 and 2030.
