UK–EU Energy Deal Links Carbon Markets, Boosts Clean Tech & Steel Trade
A newly finalised UK–EU agreement is set to deepen cooperation on carbon pricing and emissions trading — delivering major benefits to British industry and enhancing energy security. The announcement comes just as the EU prepares sweeping reviews of its own climate frameworks — changes that could shape carbon costs and industrial competitiveness across the continent and beyond.
A Stronger Energy Partnership with Net Zero at its Core
A key pillar of the new UK–EU energy partnership is the plan to link their Emissions Trading Systems (ETS), creating a more stable and liquid carbon market. The UK’s post-Brexit ETS has faced price volatility and limited liquidity, making it harder for businesses to plan and invest. Integration with the larger EU system is expected to reduce costs, stabilise prices, and accelerate industrial decarbonisation.
The link will also spare UK exporters from the EU’s Carbon Border Adjustment Mechanism (CBAM), which could have added up to £800 million a year in costs on around £7 billion worth of trade. It removes barriers that previously discouraged EU companies from storing captured CO₂ in the UK — a growth area with major investment and competitiveness potential.
The steel sector sees direct gains. UK exports will be exempt from new EU tariffs, saving around £25 million annually. From 2026, the UK’s historic country-specific steel quota will also be restored, preserving broader tariff-free access.
Electricity and Clean Tech: Unlocking Future Potential
The deal also puts the UK–EU energy chapter on a permanent footing, giving long-term certainty to investors and industry. It includes a commitment to explore UK participation in EU electricity trading platforms — a step that would reduce friction, cut costs, and better support renewable integration across borders.
Streamlined trading is especially important for developing offshore wind and clean power projects in the North Sea. Lower bills, stronger energy security, and improved net zero delivery all depend on more efficient cross-border electricity flows.
Finally, the agreement boosts cooperation on clean energy technologies, including hydrogen, carbon capture, and low-carbon gases. These areas are seen as key to both job creation and a more sustainable, secure energy system. By aligning carbon pricing, electricity markets, and clean tech strategies, the UK and EU are laying the foundations for a more integrated energy future — one that balances climate ambition with economic resilience.
EU Policy Reviews: Bigger Shifts Still to Come
While the UK and EU move closer through carbon market cooperation, the European Union is preparing for a significant overhaul of its own climate frameworks. The European Commission has launched a wide-ranging review of the EU Emissions Trading System (ETS), with a public consultation open until July 2025. This process is expected to explore reforms to carbon pricing structures, the Market Stability Reserve, and the allocation of emissions allowances — all of which could have substantial implications for industrial competitiveness, investment decisions, and energy planning across Europe.
Alongside the ETS review, the EU is also reassessing its Carbon Border Adjustment Mechanism (CBAM), which will eventually apply carbon pricing to imported goods. Proposed revisions aim to reduce the administrative burden, particularly for small importers, with exemptions likely for companies bringing in under 50 tonnes of emissions-intensive goods annually. The full permit-trading phase of CBAM has also been delayed until 2027, offering exporters — including UK firms — more time to adapt.
Further measures are on the way. The Commission has announced a forthcoming Industrial Decarbonisation Accelerator Act, due in the final quarter of 2025. This legislation is expected to promote cleaner industrial production across the EU, with new product labelling standards and public procurement rules designed to support low-carbon goods. Together, these policy shifts reflect the EU’s drive to maintain climate leadership while supporting its industrial base through the energy transition.
