Free allowances and the cap: why UK-EU carbon linking is proving hard to agree

Since May 2025 the UK and EUhave been committed to linking their emissions trading systems. For CBAMwatchers this is the story that matters most, because a functioning link wouldtake UK goods out of the EU scheme and could take EU goods out of the UK's.Fourteen months on, a deal has not landed, and recent reporting explains why.

The sticking points

According to Bloomberg'sreporting in early July, the negotiations have run into two connected problems:free allocation and the shape of the UK's emissions cap. For the systems tolink, the EU wants confidence that the UK market is comparably tight, whichraises questions about how many free allowances UK industry receives and howthe UK cap is set over time. These are not small technical details. They decidethe carbon price UK industry pays, so both sides have strong reasons to holdtheir ground.

No relief in the meantime

The European Commission has beenconsistent that there is no CBAM exemption for the UK before a link is legallyin force. UK exporters of steel, aluminium, cement, fertilisers and hydrogenare therefore fully in scope of the EU scheme now, and their EU customers areaccruing liabilities on every consignment. Analysis for the UK Trade andBusiness Commission put the potential cost to UK firms at up to £800m a year iflinking is not agreed [re-check this figure at publication].

There is a mirror image on theother side of the Channel. If a link is in place in time, EU goods could beexempted from the UK CBAM when it starts in January 2027. If not, EU exportersface the UK charge too.

What UK exporters should do

Waiting for the diplomats is nota strategy. UK producers selling into the EU should be supplying verifiedemissions data to their EU customers now, because without it those customerspay default values with mark-ups, and that cost lands on the commercialrelationship. Verified actual data is the cheapest way to keep EU buyerscontent while the talks run on.

CBAM-Assured helps UK exportersproduce and verify the emissions data their EU customers need. Get in touch ifthat would help.

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