The EU and UK could be nearing an agreement to link their respective carbon markets, according to a draft summit declaration reported by Rapporteur on 2 November. Linking could also enable mutual exemptions from their respective CBAMs. As of 4 November, the UK remains outside the EU’s list of exempt origins, so the reported progress has yet to translate into a country exemption.
For British production, an exemption would remove the relevant EU carbon border adjustment obligation while leaving domestic emissions trading in place. The proposed arrangement depends on the mutual recognition of allowances under the two markets’ ETSs and on maintaining compatible carbon-pricing rules.
What linking would change in the allowance market
The EU ETS and UK ETS currently operate as separate markets. A link would make allowances usable across both systems, giving participants access to a wider pool of allowances to meet those obligations. The UK Government’s policy overview explains that linked schemes can retain their own emissions caps and other features.
Allowing participants to use either market’s allowances would connect supply and demand across the Channel. If UK allowance supply tightened, British demand could draw on EU allowances; EU participants could likewise use UK supply. This would create a channel through which policy changes in one system could affect the other market, without requiring the two jurisdictions to adopt a single emissions cap.
Which goods could receive a CBAM exemption
The EU’s current CBAM rules already provide a route to exemption for countries whose emissions trading systems are fully linked to the EU’s. They also require a carbon price to be effectively applied to the emissions embedded in the goods, with no rebates beyond those allowed under the EU ETS. The European Commission must then include the qualifying country on the exempt-origin list.
Separately, a carbon price paid abroad can reduce the number of CBAM certificates an importer must surrender when it meets the requirements under EU rules. A country exemption goes further: qualifying goods fall outside CBAM’s scope. The UK’s existing carbon market therefore does not, by itself, give British goods the treatment envisaged under a linking agreement.
The May 2025 EU–UK framework refers to goods originating in each jurisdiction, while EU CBAM uses non-preferential customs origin.
Reciprocal treatment, however, involves different timetables. The EU’s definitive CBAM regime began in January 2026; the UK’s mechanism is due to start in January 2027. The agreement’s effective date and the legislation implementing the exemptions would determine which imports would benefit. The reported draft does not introduce an operative exemption for imports already made.
The continuing commitment behind the link
The Council authorised negotiations in November 2025, and the UK’s October 2026 policy update confirms that talks are under way. The May framework envisages UK alignment with the EU rules relevant to the link, alongside a UK emissions cap and reduction pathway at least as ambitious as the EU’s.
The May framework would give the UK an early role in shaping relevant EU rules through consultation with the Commission. It would leave the UK outside the Council’s decision-making process, while requiring alignment with the rules underpinning the link.
