UK and EU ETS Linkage: What It Would Mean for Both CBAM Regimes

General Summary

UK and EU ETS linkage is a negotiation, not law: as of October 12, 2026 no linking agreement has been announced, signed or published by either side, and neither CBAM regime exempts the other side's goods. Two legal routes are already written for the day a link takes effect: Article 2(4) and (6) of Regulation (EU) 2023/956 on the EU side, and section 156 of the Finance Act 2026 on the UK side.

A concluded agreement is reported, not officially confirmed as of October 12, 2026: POLITICO reported on October 7, 2026 that negotiators had reached agreement, and neither the UK government, the European Commission nor the Council has confirmed it.

A link would connect the UK Emissions Trading Scheme and the EU Emissions Trading System so that allowances count in both. This page records the negotiation step by step, explains each exemption route, compares 3 scenarios for traders and lists the obligations that bind in every scenario. The UK CBAM itself, a tax charged from January 1, 2027, is explained in the UK CBAM guide.

What Is UK and EU ETS Linkage?

UK and EU ETS linkage is a proposed international agreement under which the UK Emissions Trading Scheme (UK ETS) and the EU Emissions Trading System (EU ETS) would recognise each other's allowances. The UK government's UK ETS policy overview describes linked allowances as "fungible between different schemes, though each scheme can retain its own cap and other policy features".

The two systems have been separate since January 1, 2021, apart from electricity generation in Northern Ireland, which stayed under the EU ETS. Article 392(6) of the UK-EU Trade and Cooperation Agreement commits both sides to "give serious consideration to linking their respective carbon pricing systems". The Common Understanding agreed at the UK-EU summit of May 19, 2025 turned that clause into a work programme.

The 6 parameters the Common Understanding sets for a linking agreement (paragraphs 34 to 45) are listed below.

• Legal form: a European Union-United Kingdom agreement linking the UK ETS and the EU ETS (paragraph 35).
• CBAM: the agreement "should create the conditions for goods originating in our jurisdictions to benefit from mutual exemptions" from both mechanisms (paragraph 37).
• Sectors: among others, electricity generation, industrial heat generation (excluding the individual heating of houses), industry, domestic and international maritime transport, and domestic and international aviation (paragraph 39).
• Alignment: dynamic alignment of the United Kingdom with the EU rules underpinning the link (paragraph 40).
• Ambition: a UK cap and reduction pathway "at least as ambitious as" the EU cap and pathway (paragraph 41).
• Disputes: an independent arbitration panel, with the Court of Justice of the European Union as the ultimate authority on questions of EU law (paragraph 43).

Each parameter is a statement of intent ("should"), not a treaty obligation. Paragraph 37 also makes the mutual exemption "subject to compliance with the relevant provisions of European Union and United Kingdom legislation".

The EU side of the carbon price that a link would join is explained on the EU ETS page, and the EU mechanism itself in the EU CBAM guide.

Where the Linkage Negotiation Stands

As of October 12, 2026 the negotiation is officially still open: neither the UK government nor the European Commission has announced a concluded agreement, and no agreement text has been published. A concluded agreement is reported, not officially confirmed as of October 12, 2026.

POLITICO reported on October 7, 2026, citing four people briefed on the talks, that negotiators had reached agreement on the ETS file. Carbon Pulse relayed the report the same day, writing that a deal was "expected to be unveiled at a bilateral summit next month", and ClearBlue Markets summarised it on October 9, 2026. No summit date has been officially announced.

A check on October 12, 2026 of gov.uk, the Commission press corner and the Council press release feed found no statement confirming an agreement.

The table below records the negotiation in 10 dated rows, with the source for each.

As of October 12, 2026, searches of gov.uk and the Commission press corner show no published date or outcome for any individual negotiating round. The UK ETS policy overview, last updated September 7, 2026, states: "We will not be providing a running commentary on the negotiations". HMRC's CBAM policy summary, updated September 9, 2026, states: "There are currently no jurisdictions exempt from CBAM."

A concluded negotiation would not be a link in force. Under Article 218 of the Treaty on the Functioning of the European Union, the Council authorises signature and then concludes the agreement, with the consent of the European Parliament where the agreement covers a field governed by the ordinary legislative procedure. The one precedent ran for more than two years: Switzerland signed its EU ETS linking agreement on November 23, 2017 and it entered into force on January 1, 2020.

What Linkage Would Change for CBAM

A fully implemented link would take goods originating in the UK out of the EU CBAM, and Treasury regulations could then take goods originating in the EU out of the UK CBAM; a signed agreement alone would remove neither charge. Each exemption depends on a separate legal act after the agreement itself.

The table below compares 3 scenarios: no linkage, partial linkage (agreement signed, exemption acts not yet in force) and full linkage (agreement in force, the UK listed in Annex III, section 156 regulations made).

Effect on EU CBAM for UK Exporters

EU importers would stop owing CBAM certificates on UK-origin goods only once the UK is listed in point 1 of Annex III to Regulation (EU) 2023/956. Article 2(4) disapplies the Regulation for goods originating in the countries and territories listed there. The 4 countries are Iceland, Liechtenstein, Norway and Switzerland; the 5 territories are Büsingen, Heligoland, Livigno, Ceuta and Melilla.

Switzerland is the only entry that rests on a linking agreement. Iceland, Liechtenstein and Norway apply the EU ETS itself.

Article 2(6) sets 2 conditions for a listing. Either the EU ETS applies to the country, or an agreement has been concluded "fully linking the EU ETS and the emission trading system of that third country or territory". The carbon price must also be "effectively charged on the greenhouse gas emissions embedded in those goods without any rebates beyond those also applied in accordance with the EU ETS".

The listing itself is a Commission delegated act under Article 2(11). Article 28(7) lets that act enter into force only if neither the European Parliament nor the Council objects within two months of notification, a period either institution can extend by two months. The Commission's own recommendation, COM(2025) 408, puts the sequence plainly: "once the agreement is in force, the CBAM regulation would not apply to goods originating in the United Kingdom."

Origin decides the exemption, not the port of dispatch. Article 2(5) applies the non-preferential origin rules of Article 59 of Regulation (EU) No 952/2013, so steel made in a third country and shipped through the UK would stay within the EU CBAM.

Effect on UK CBAM for EU Exporters

UK importers of EU-origin goods are within the UK CBAM as enacted. Section 143 of the Finance Act 2026 charges the tax on emissions embodied in aluminium goods, cement, fertilisers, hydrogen, and iron and steel goods imported into the United Kingdom. The section draws no distinction between countries of origin outside the UK.

The linkage route is section 156. It lets the Treasury amend Part 5 by regulations for the purpose of "excluding emissions embodied in goods that originate from a country or territory with a linked emissions trading scheme from the charge to CBAM". The same regulations could disregard those goods when import value is tested for registration.

The power covers a territory that "has entered into arrangements with the United Kingdom for the purpose of linking" its scheme with the UK ETS, and a territory linked to such a territory. Section 157(4) and (9) require a draft of the regulations to be approved by a resolution of the House of Commons. As of October 12, 2026 legislation.gov.uk lists no draft statutory instrument on CBAM.

Until such regulations exist, the route for EU goods is carbon price relief under section 150, with the qualifying criteria set by the Carbon Border Adjustment Mechanism (Calculation of CBAM Rate and Determination of Carbon Price Relief) Regulations 2026 (SI 2026/809).

HMRC's provisional list of qualifying carbon pricing schemes, published August 27, 2026, names the "EU Emissions Trading System (EU ETS)" among 16 schemes. The list is based on information available as of June 19, 2026, and the document calls it a draft list that the government will keep under review.

The same document states: "Emissions covered by free allowances do not qualify for relief because no effective carbon price has been paid on them."

Effect on the Double-Payment Problem

Double payment arises when one tonne of emissions is priced under the producer's emissions trading system and priced again at the other side's border. Full linkage would end that for trade between the UK and the EU in goods originating in either territory, because both border charges would fall away while the producer kept paying its own ETS price. The present exposure, with worked cost examples, is set out in the guide to UK CBAM double-payment risk.

Linkage would leave 2 exposures in place. A producer in Turkey or India selling into both markets would still meet both regimes on separate shipments. A UK processor of third-country inputs would escape the EU CBAM only where the finished good acquires UK origin under the non-preferential rules.

What Linkage Would Not Change

Linkage would not change any obligation that exists today, and it would not reach goods originating outside the UK and the EU. The 4 fixed points are listed below.

• Third-country goods: imports from every origin outside the linked territories would stay within both CBAM regimes.
• The producer's carbon price: installations in a linked system would still cover their emissions with allowances; an exemption removes the border charge, not the ETS cost.
• Imports already made: nothing published by either side provides for an exemption to reach goods imported before a link takes effect.
• The UK start date: the UK CBAM applies to goods imported on or after January 1, 2027.

A link would change the carbon prices that feed both regimes. CBAM Brief, this site's EUR 199 a month email service, alerts subscribers when a CBAM certificate price, default value, CN code or deadline changes.

Obligations That Survive Linkage

EU importers keep every obligation of the definitive phase. Authorised CBAM declarant status, the first CBAM declaration due September 30, 2027 for 2026 imports, and certificate purchases from February 1, 2027 all continue for goods from non-exempt origins. UK-origin goods remain declarable until the UK appears in Annex III.

UK importers keep the full structure of the tax. Registration with HMRC at the £50,000 threshold, records of embodied emissions and the evidence behind any carbon price relief claim are required for every in-scope origin, EU origin included.

Proof of origin would become the document that decides whether a consignment is exempt. The instruments behind each of these duties are mapped on the page covering UK CBAM legislation.

Should Importers Delay Compliance Work Pending Linkage?

No: importers should not delay compliance work pending linkage, because every EU and UK CBAM obligation binds on its statutory date whether or not a link is agreed. An unconfirmed media report changes no liability, and neither exemption act exists.

The 4 actions that hold in every scenario are listed below.

1. Collect verified embedded emissions data from UK and EU suppliers for every shipment.
2. Budget EU CBAM on UK-origin goods at the official quarterly certificate price, EUR 82.32/tCO2e for Q3 2026, published October 5, 2026.
3. Register with HMRC when the £50,000 threshold is met.
4. Record the non-preferential origin of every consignment, since origin would decide any future exemption.

Every statutory date on the UK side is listed with its trigger on the UK CBAM deadlines page.

Frequently Asked Questions About UK and EU ETS Linkage

Is the UK and EU ETS Linkage Agreed?

Not officially. An agreement is reported, not officially confirmed as of October 12, 2026: the only claim that negotiators have reached agreement is a POLITICO report of October 7, 2026 based on unnamed sources. No official announcement, signature or agreement text has been published.

When Would UK and EU ETS Linkage Take Effect?

No date has been published. The Downing Street readout of the September 22, 2026 meeting places the next UK-EU summit "later in the year" without naming a day. After any signature, the agreement would still need to be concluded and enter into force before the EU Annex III listing could follow, and the UK exemption would need section 156 regulations approved by the House of Commons.

Will UK CBAM Be Scrapped if the Systems Are Linked?

No. Section 156 of the Finance Act 2026 would only exclude emissions embodied in goods originating from a territory with a linked scheme. The tax would continue for every other origin. The structural differences that remain are compared in UK CBAM vs EU CBAM.

Would Linkage Change the UK CBAM Rate?

Linkage would not change the formula. Section 149(3) of the Finance Act 2026 builds the rate from UK ETS auction clearing prices in the preceding quarter, less a free-allocation adjustment. No UK CBAM rate has been published yet.

The input price could move. ClearBlue Markets reported on October 9, 2026 that the December 2026 UK allowance contract reached GBP 62.90 intraday on October 7, 2026, 4.0% above the previous day's settlement of GBP 60.46, after the POLITICO report. That is a traded contract price, not an auction clearing price; a higher UK ETS auction price would feed into the rate one quarter later.

Does the UK ETS Earn a CBAM Carbon Price Deduction Today?

No. Article 9 of Regulation (EU) 2023/956 allows a reduction for a carbon price effectively paid in a third country, but the implementing act provided for in Article 9(5) is still a draft: it was published on May 13, 2026 and consultation closed on June 10, 2026. As of October 12, 2026 the Commission's CBAM legislation page lists no adopted act, and no country's carbon price has been recognised. The mechanics are covered in the guide to the CBAM carbon price deduction.