The UK is introducing its own CBAM in 2027.

Given both have carbon markets of equivalent ambition, CBAM’ing each other will just cause mutual pain.

If the carbon markets were ‘linked’, then they wouldn’t need to apply their CBAMs on EU-UK trade.

The EU and Swiss already have linked markets

Whether the EU and the UK can agree on how to avoid the application of the EU CBAM to the UK over the next year is such a massive test for the future EU-UK cooperation and climate politics.

Have political decision makers on either side of the Channel worked that out yet?

Fingers crossed 🤞🏻

And while it’s good news there’s scope for improvements in the EU-UK TCA, there’s a risk ETS linking gets swept up in a broader negotiation.

With the EU Carbon Border Adjustment Mechanism (CBAM) coming in 2026, thats a problem just 12 months away.

And if fishing gets brought into the discussion…😬

As a comparison, the existing EU-Swiss ETS link doesn’t include a requirement for dynamic alignment or financial contributions.

And consideration of ETS linking is already in the EU-UK Trade and Cooperation Agreement (TCA).

But, the TCA is reviewed in 2026….

Similarly, if UK ETS revenues need to be transferred to fund investments in EU Member States - then no chance.

If it’s to contribute to innovation funds, then why not?

If it’s to cover admin costs, yeah, for sure.

But, as always the devil is in the detail…

If dynamic alignment means EU policy changes have to be automatically applied in the UK (eg ETS2), then ETS linking is isn’t happening

If it’s agreed automatic operational changes (eg Market Stability Reserve (MSR)) then obviously that needs to be dynamic

Thanks to @iain-staffell.bsky.social and the team at @imperialcollegeldn.bsky.social for all the work

And this letter from DECC at the end of 2015 doesn’t make for pretty reading:

assets.publishing.service.gov.uk/media/5a7586...

And disbanding the Electricity Networks Strategy Group (ENSG) in 2017 probably wasn’t the best idea in hindsight.

www.gov.uk/government/g...

One from the history books:

assets.publishing.service.gov.uk/media/5a7586...

The answer?

Easy, link carbon markets. But it will take time? So, get started then!

(Carbon market linking is actually in the EU-UK Trade and Cooperation Agreement)

And that’s before you consider the political optics of UK exporters paying into the EU Budget rather than the UK Treasury, or the implications for trade between GB and the island of Ireland.

So lots to consider on CBAM/carbon pricing for the agenda of the upcoming EU-UK Summit in Q1 2025….

And to add to that the methodology for electricity has yet to confirmed, and won’t be until Summer 2025.

The applied emission intensity is expected to be ~5x higher than actual imports, and there’s no clarity about carbon prices paid elsewhere will be accounted for…

Whilst industrials will be gradually phased in as free allocations of allowances are phased out. Electricity imports will be 100% from day 1.