UK and EU Reunite Carbon Markets in Major Post-Brexit Deal

The UK and EU have taken a big step toward joint environmental action by agreeing to link their carbon trading systems—potentially unlocking billions in savings and reshaping emissions policy across Europe.

Aerial satellite capture of UK and EU regions, highlighting terrain and green cover. AI generated picture.

Announced during the UK-EU Summit in London on 19 May, the agreement will formally connect the UK’s Emissions Trading Scheme (ETS), established after Brexit in 2021, with the EU’s long-standing carbon market. The goal: streamline emissions cuts, reduce trade frictions, and improve cost-efficiency for companies operating across borders.

Both ETS frameworks work by capping total emissions and allowing businesses to buy and trade allowances. Linking the systems is expected to benefit high-emission sectors while improving regulatory clarity and cross-border cooperation.

The UK’s system is also expanding. From 2028, it will include waste incinerators—a move that brings it closer in structure to the EU model.

‘This is a powerful move toward more efficient and cost-effective climate action’, said Julia Michalak, EU Policy Director at the International Emissions Trading Association (IETA).

The deal also sets the groundwork for cooperation on Carbon Border Adjustment Mechanisms (CBAMs). These mechanisms impose fees on imported goods based on their carbon footprint—leveling the playing field for local industries. The EU’s CBAM launches in 2026; the UK version follows in 2027.

Estimates suggest the UK’s exporters could save around £800 million (about $1 billion) in the first year of alignment with the EU’s CBAM.

Ellie Belton, Senior Policy Advisor at climate think tank E3G, described the link-up as ‘a major milestone’, adding that swift action is needed to ensure mutual exemptions and minimise trade barriers. ‘It will be a vital next step to reduce trade frictions before the EU’s mechanism comes into force in 2026’, she said.

Sectors like oil, gas, and carbon capture are still awaiting detailed guidance from the UK’s Offshore Petroleum Regulator, which is expected to release sector-specific rules soon.

Not everyone is on board. The Local Government Association has flagged major financial concerns, projecting local councils could face costs of up to $8.8 billion (£6.5 billion) by 2036, with $1.01 billion (£747 million) of that as early as 2028 due to waste sector inclusion.

Even so, this cross-border deal marks a renewed partnership in environmental strategy—one that could shape the carbon market across Europe for years to come.