UK businesses could face an £800 million EU carbon tax bill by 2030 unless the government secures an exemption as part of a wider emissions trading agreement, a new report has warned.
The UK Trade and Business Commission is calling on Britain and the EU to grant businesses reciprocal exemptions from their respective Carbon Border Adjustment Mechanisms while negotiations continue.
The cross-party body says the temporary arrangement should begin as soon as a UK-EU Emissions Trading Systems agreement is signed and remain in place until it takes effect. This would reduce trade friction and prevent businesses being charged during the implementation period.
The UK established its own Emissions Trading System in January 2021 after leaving the EU. The cap and trade scheme limits overall emissions and requires companies to pay for the carbon they release.
The EU’s CBAM places a carbon charge on imported energy-intensive goods to ensure overseas producers face costs comparable with companies operating under the bloc’s ETS. It entered into force in January 2026 with UK exporters set to be caught by its second year unless an exemption is agreed before January 2027.
The commission says the absence of a deal could leave UK businesses facing charges of up to £800 million by 2030.
A reciprocal exemption could also protect around £7 billion of UK exports from EU carbon taxes.
Linking the two emissions trading systems could reduce administrative burdens and improve the competitiveness of British firms. Government figures cited by the report suggest an agreement could add around £3 billion to UK GDP by 2040.
Energy-intensive manufacturing regions could benefit most. The report points to potential economic gains of at least £641 million for Yorkshire, £1.38 billion for the Midlands and £216 million for the North East from deeper UK-EU integration.
It also calls for closer cooperation on affordable and secure clean energy with joint consultation before either side expands its ETS. The government is urged to develop a long-term clean energy workforce strategy supported by investment in STEM education, technical training and retraining existing workers.
Ayesha Chaudhry, Senior Policy and External Affairs Officer at Best for Britain, said: “A mutual exemption is a good start to shield UK businesses who already face far too many barriers being outside of the single market while negotiations progress on an overall UK-EU energy agreement.
“We already know the best and most logical option to permanently rescue our plummeting goods exports: renewed EU membership which would deliver at least a £92bn boost for Britain’s economy and generate significant growth for our manufacturing heartlands.”
The commission published its recommendations as campaigners urged both sides to complete negotiations quickly following ponement of the UK-EU Summit until after the summer.
UKTBC Chair Peter Norris said: “With far closer UK-EU cooperation on energy increasingly essential for businesses facing unpredictability, uncertainty and instability both domestically and internationally negotiations are at a crucial juncture.
“This report recommends the common-sense approach and a clear path forward that will improve markets, strengthen energy security and support much-needed increased investment into Britain’s economy.”
Copyright © 2026 Energy Live News LtdELN