Free allowances and the cap: why UK-EU carbon linking is proving hard to agree
Since May 2025 the UK and EU have been committed to linking their emissions trading systems. For CBAM watchers this is the story that matters most, because a functioning link would take 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's reporting 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 to link, the EU wants confidence that the UK market is comparably tight, which raises questions about how many free allowances UK industry receives and how the UK cap is set over time. These are not small technical details. They decide the carbon price UK industry pays, so both sides have strong reasons to hold their ground.
No relief in the meantime
The European Commission has been consistent that there is no CBAM exemption for the UK before a link is legally in force. UK exporters of steel, aluminium, cement, fertilisers and hydrogen are therefore fully in scope of the EU scheme now, and their EU customers are accruing liabilities on every consignment. A report from the UK Trade and Business Commission put the potential cost to UK firms at up to £800m by 2030 if no agreement is reached.
There is a mirror image on the other side of the Channel. If a link is in place in time, EU goods could be exempted from the UK CBAM when it starts in January 2027. If not, EU exporters face the UK charge too.
What UK exporters should do
Waiting for the diplomats is not a strategy. UK producers selling into the EU should be supplying verified emissions data to their EU customers now, because without it those customers pay default values with mark-ups, and that cost lands on the commercial relationship. Verified actual data is the cheapest way to keep EU buyers content while the talks run on.
CBAM-Assured helps UK exporters produce and verify the emissions data their EU customers need. Get in touch if that would help.