UK and EU ETS linking: what has been agreed, what is reported and what it means

Where things stand on 21 October 2026

What was agreed at the May 2025 summit

The Common Understanding, published on 19 May 2025, the day of the first UK-EU summit, is a political commitment, not a treaty. Paragraphs 34 to 45 set the terms for an ETS link.

• Both sides should work towards an EU-UK agreement linking the UK ETS and the EU ETS.
• The link should create the conditions for mutual exemptions from each other's carbon border adjustment mechanisms.
• Covered sectors should include electricity generation, industrial heat, industry, and domestic and international maritime transport and aviation.
• The UK should dynamically align with the relevant EU ETS rules, with due regard to its constitutional and parliamentary procedures.
• The UK cap and reduction pathway should be at least as ambitious as the EU's.
• The UK should make an appropriate financial contribution to related EU costs.
• Disputes should go to an independent arbitration panel, with the Court of Justice of the EU as the ultimate authority on all questions of EU law.

The UK government's summit explainer said its separate system left UK industry exposed to the EU CBAM on around £7bn of trade. It said exporters could otherwise have paid up to £800m into the EU budget by 2030.

What has happened since

The European Commission recommended opening talks on 16 July 2025. Its recommendation says that once an agreement is in force, the EU CBAM would not apply to UK-origin goods. Equally, the UK would not apply its CBAM to EU goods.

The Council of the EU adopted Decision (EU) 2025/2468 on 13 November 2025, published on 4 December 2025. It authorises the Commission to negotiate an agreement linking the two emissions trading systems.

The UK ETS policy overview, updated on 7 September 2026, confirms that negotiations have begun. A joint statement in December 2025 set the aim of concluding the talks by the next UK-EU summit. The Partnership Council repeated it on 2 February 2026.

The King's Speech briefing notes of 13 May 2026 announced a European Partnership Bill. It would give ministers powers to implement new EU deals, including on emissions trading.

A Downing Street readout published on 23 September 2026 referred to the next EU-UK summit as taking place later in the year. In a Commons statement on 12 October 2026, the Prime Minister confirmed it will take place in Brussels on 20 November 2026. The statement listed as on the table a trade deal on food and drink products, a deal on emissions trading, progress towards linking energy systems, a new youth experience scheme and deeper cooperation on immigration.

The October 2026 reports of a deal

On 7 October 2026 POLITICO reported that the UK and EU had agreed to link their emissions trading systems. It cited four people briefed on the talks. We could not access the original article, so we rely on a summary by ClearBlue Markets published on 9 October 2026.

According to ClearBlue, the deal is expected to be unveiled at the next UK-EU summit. The summit date, 20 November 2026, has since been confirmed by the Prime Minister.

ClearBlue also noted that both sides have said three agreements come as a package: emissions trading, food and drink, and youth mobility. It said youth mobility remained unresolved, which could delay the whole package.

The market reacted. ClearBlue said the UKA December 2026 contract reached £62.90 on the afternoon of 7 October, 4% above the previous day's settlement. At that high, it put the gap between EU and UK futures at about €10.6 per tonne, down from €13.5.

What linking would mean for UK and EU carbon prices

Linking lets participants in one system use the other system's allowances for compliance. The EU-Switzerland link, in force since 1 January 2020, is the precedent: it gives mutual recognition of allowances while Switzerland keeps its own system.

A European Parliament research briefing from July 2025 said that once fully linked, prices in the two systems should converge on a common carbon price. It noted EU prices were more than 60% above UK prices in early 2025 and still over 30% higher in mid-2025.

UK prices have risen since. The UK ETS Authority's monthly average UKA price climbed from £39.46 in March 2026 to £60.17 in September 2026. The EU's CBAM certificate price, an average of EU ETS auction prices, was €82.32 for Q3 2026.

Those two figures are in different currencies and use different methods, so they are not a direct measure of the gap. Market traders track the spread between UKA and EUA futures instead.

What linking would mean for CBAM

Both sides have said a link should lead to mutual CBAM exemptions. The King's Speech notes say this would save £7 billion of UK exports from exposure to the EU CBAM.

The UK already has the legal power. Section 156 of the Finance Act 2026 lets the Treasury exempt goods from a country whose emissions trading scheme is linked to the UK's. HMRC says no jurisdiction is exempt yet.

Until a link is in force, both CBAMs apply in full:

• EU CBAM has applied to UK goods since 1 January 2026. EU importers can claim a reduction for carbon prices effectively paid in the UK.
• UK CBAM applies to EU goods from 1 January 2027. UK importers can claim Carbon Price Relief, as the EU ETS is on HMRC's provisional list of qualifying schemes.

When could a link take effect?

No official date has been set for a link to take effect. Even if a deal is announced at a summit, several steps would follow.

1. The final legal text is agreed and signed.
2. On the EU side, the Council adopts the agreement after the European Parliament gives consent, without the power to amend it, under Article 218 TFEU.
3. On the UK side, ministers would use powers such as those planned in the European Partnership Bill, with the UK ETS rules aligned as agreed.
4. Exemptions from each CBAM would follow once the agreement is in force.

The European Parliament briefing said no formal deadline or timeframe had been announced. We will update this page when either government publishes an official text or date.

Sources

1. Prime Minister's Office: PM statement to the House of Commons, 12 October 2026 (checked 21 October 2026)
2. GOV.UK: UK-EU Summit Common Understanding (19 May 2025) (checked 10 October 2026)
3. GOV.UK: UK-EU Summit explainer (checked 10 October 2026)
4. GOV.UK: UK-EU Joint Statement (December 2025) (checked 10 October 2026)
5. Council of the EU: ST 11663/25, Commission recommendation COM(2025) 408 (checked 10 October 2026)
6. EUR-Lex: Council Decision (EU) 2025/2468 of 13 November 2025 (checked 10 October 2026)
7. European Commission: Joint statement, Partnership Council, 2 February 2026 (checked 10 October 2026)
8. Prime Minister's Office: The King's Speech 2026 background briefing notes (checked 10 October 2026)
9. UK ETS Authority: UK ETS policy overview (updated 7 September 2026) (checked 10 October 2026)
10. Prime Minister's Office: PM meeting with President of the European Commission (published 23 September 2026) (checked 10 October 2026)
11. European Commission: International carbon market and the EU-Switzerland link (checked 10 October 2026)
12. European Parliamentary Research Service: Linking the EU and UK emissions trading systems (PE 775.873, July 2025) (checked 10 October 2026)
13. ClearBlue Markets (press): UKAs rally 4% on reports of a UK-EU ETS linkage deal, 9 October 2026 (checked 10 October 2026)