With billions in trade exposed to the EU’s Carbon Border Adjustment Mechanism, Britain wants clarity and convergence – but Brussels may be about to change the rules, writes Tim Moxham1
One of the main objectives behind the UK Government’s push to link its Emissions Trading Scheme (ETS) with the EU’s is economic.
Without linkage, an estimated £7bn of UK trade could fall within scope of the EU’s CBAM, potentially resulting in upwards of £800m in additional costs over the coming years.
From a purely commercial perspective, the logic is straightforward: linkage reduces red-tape costs.
Brussels is equally keen, recognising that the EU would also feel the impact of divergence between the two systems. A cooperative solution therefore appears mutually beneficial.
However, there is growing unrest about the scheme and its impact on businesses in the EU.
Recent weeks have seen speculation – and partial backtracking – from senior European figures about the direction of the EU’s carbon market. Comments from leaders across the bloc have raised fresh questions about the design and cost of the EU ETS itself, with suggestions that elements of the framework need to be revised.
The EU system is cap-and-trade based. Allowances are bought and sold, and tightening caps combined with market dynamics have driven prices upward. As a result, it has become the most expensive carbon market in the world. UK carbon pricing currently sits at roughly £40 per tonne. The EU price is closer to £65 and has traded significantly higher in recent months.
That differential matters.
German Chancellor Friedrich Merz – previously seen as supportive of the ETS framework – has suggested the scheme may need to be “revised or postponed”. Polish Prime Minister Donald Tusk has gone further, arguing for sectoral exemptions and even a cap on carbon prices. Meanwhile, Ursula von der Leyen has reportedly met with representatives of the carbon-intensive chemical industry, who argue that high allowance prices are eroding competitiveness.
Taken together, this looks less like routine political noise and more like the early stages of substantive recalibration.
Across the Channel, however, the UK is moving in the opposite direction; it is accelerating efforts to align its ETS with the EU’s in order to facilitate linkage. This includes widening the scheme’s scope to cover additional sectors such as shipping and maritime emissions – a move that has already drawn domestic criticism.
So, what does the European chatter mean for the UK? Put bluntly, the UK is trying to align itself with a moving target.
In the short term, this creates vulnerability. If the EU pauses, amends, or restructures elements of its system, the UK may find itself adjusting in real time – potentially delaying linkage and prolonging exposure to EU CBAM-related costs. There are also practical implications: regulatory amendments, legislative time, and administrative burden. None of this is insignificant.
There is also political risk. A Labour Government that appears overly submissive to developments in Brussels risks criticism that it is operating at the EU’s behest – something figures such as Nigel Farage would undoubtedly seek to exploit. At the same time, if EU reforms result in a softer carbon pricing regime or a tightening of its remit, the Government would need to defend any perceived dilution of its net-zero positioning.
And yet there may be a silver lining – at least for those businesses impacted by the EU CBAM.
The stated objective of leaders such as Merz and Tusk is to reduce the cost burden of carbon pricing. Yet as it stands, the EU carbon price materially exceeds the UK’s..
If no reforms occur and linkage proceeds, economic logic suggests UK carbon prices would converge upwards toward EU levels, effectively causing the UK price to “snap up” and increasing costs for British industry.
However, if political pressure within the EU results in structural changes – particularly around trading dynamics or price containment mechanisms – the eventual convergence point could be lower than currently anticipated.
In that scenario, UK businesses might avoid the worst of the pricing differential.
Of course, there is a broader question. If the EU does decide to dampen the trading element of its system or impose stronger price controls, the implications extend beyond short-term cost relief.
Emissions trading has become a central instrument in global climate policy. A recalibration in Europe could have knock-on effects for market confidence, investment signals, and the credibility of carbon pricing more broadly. It could also reduce overall confidence in emerging nature-based and environmentally linked carbon credits.
For the UK, the challenge is strategic as much as technical. Linkage still makes economic sense – but it assumes stability and like-mindedness on the other side of the table. If the EU carbon market is entering a period of redesign, the real question is no longer simply whether to link, but on what terms, at what price, and in whose favour.
Notes
[1] Tim Moxham is an Account Director at Whitehouse Communications, where he leads complex public affairs campaigns for international clients across the environmental and energy sectors.
