The UK and EU have agreed to link their emissions trading systems, a move Prime Minister Keir Starmer says will save British businesses £800 million a year in avoided carbon taxes.
Unveiled at a summit in London on 19 May, the deal will connect the UK Emissions Trading Scheme (UK ETS) with the EU Emissions Trading System (EU ETS), allowing carbon allowances to be traded across both jurisdictions.
This long-anticipated move is aimed at boosting energy cooperation and reducing friction for British companies operating in European markets.
“By increasing our co-operation on emissions trading, we’re saving UK businesses from having to pay £800 million in EU carbon taxes,” Starmer said during the summit. “By increasing cooperation on energy, we’re bringing down bills over the long term and boosting our renewables industry in the North Sea.”
The deal also opens the door for future UK participation in the EU’s internal electricity market.
Closer integration with European energy networks is expected to cut costs, bolster grid resilience and support renewable energy deployment, particularly from the North Sea.
Business groups have broadly welcomed the announcement, citing reduced red tape and greater clarity for carbon-intensive sectors like steel, cement and chemicals.
Energy and climate policy experts say the agreement will help restore market stability and encourage low-carbon investment.
However, concerns persist around how much regulatory freedom the UK will retain.
Critics warn that alignment with EU carbon pricing could reduce policy flexibility and raise costs if market dynamics shift unfavourably.
Still, the UK government insists the deal is a win for both energy security and economic stability.
Officials say full implementation of the linked carbon markets is expected within months, pending technical adjustments and regulatory approvals.
The UK ETS was established after Brexit and applies to power, industrial and aviation sectors. Linking it to the EU ETS will create one of the largest carbon markets in the world, designed to drive down emissions by capping overall pollution and allowing companies to trade permits.
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