Calls to link the UK and EU Emissions Trading Schemes (ETS) have increased in recent months with major industry groups and UK businesses urging the British Government to consider a link.

In late January, the Financial Times raised the possibility of ETS linkage being established during Brexit reset discussions later in the year. This news created speculation in the UK ETS market, with carbon prices raising as a result. 

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Stakeholders across the UK have argued for regulatory alignment, particularly in light of the incoming UK and EU Carbon Border Adjustment Mechanisms (CBAM), to prevent disproportionate impacts on trade and competitiveness.

Following a joint post-Brexit summit statement—the Common Understanding (CU)—The UK and EU acknowledged that a link would help maintain a level playing field. In reality, linkage would harmonise policy, improve long-term carbon market liquidity, and create a unified carbon price signal for reducing emissions intensity across the UK and Europe.

Missing Timeline

As with any political commitment with no real detail or timeline, uncertainty remains. The stated ambition to link for now is certainly a major commitment that increases the likelihood, yet caution must be reserved on the linkage being completed, or rather – when it will be completed and operational. 

Timelines are unclear (see section “Dynamic Alignment” below). If negotiations around the technical elements proceed this year some estimates suggest a link could occur by 2028, while others point to a longer horizon, as late as 2034, based on previous precedent like the Swiss–EU ETS linkage.

In the short term there are no changes for operators in either jurisdiction and annual compliance deadlines remain in force - 30 April and 30 September in UK and EU respectively. The markets remain separate, and compliance strategies should continue as planned.

For now, the UK and EU will also continue to implement their separate CBAMs. Once linkage is established, however, mutual CBAM exemptions could apply. Depending on the pace of negotiations, a temporary CBAM exemption agreement may be introduced before full linkage is in place.

What This Means for Prices

Speculation of a link has been the subject of a lot of focus in recent months, helping to push the benchmark UK Allowance price up over 40% in the last few months, from lows near £31 at the end of January to current levels near £55 (20/05/25). The political will to link the two markets is expected to continue to support UKA prices at these higher levels but further upside could be limited unless a clear timeline to full linkage emerges. 

Market speculation and trader positioning continue to heavily influence both EUA and UKA prices. IAs the prospect of linkage becomes more tangible, traders could also look to profit from the EUA–UKA price spread, which has fallen from over £35 per tCO2e in January 2025 to a mere £6.50 currently. 
With this in mind, expect the correlation of UKA to EUAs increase again.

In the short term a link is expected to increase UKA prices to over £80 by 2026 (see forecast from Energy Aspects below) but longer term it could lead to lower prices for UK operators (vs the “no linkage” scenario) as the larger EU ETS presents more flexible targets and lower cost abatement opportunities.

Announcements confirming progress on the practical implementation will be closely watched, with the start of formal negotiations likely to push UKA prices higher but any delay in progress or discussions could see UKA prices drift lower. At the same time, existing structural forces and fundamentals—tightening emissions caps and the phase-out of free allocations—continue to support upward price pressure in both systems.

If you would like to discuss how we can help manage and reduce compliance costs under both the UK & EU ETS or discuss your carbon procurement strategy toward 2030, please contact our team.

Dynamic Alignment

Linking two emissions trading schemes is not without precedent. The Swiss ETS was formally linked to the EU ETS in 2019, but negotiations took nearly nine years, even with strong political commitment on both sides.

While UK–EU negotiations may progress faster, several technical and regulatory differences remain. These include:

A fully aligned framework would require reconciling these technical differences, alongside broader legal and political considerations—such as the UK’s acceptance of arbitration mechanisms like the European Court of Justice (ECJ) in dispute resolution, participation in EU-level decision-shaping without formal membership, and the need to amend domestic legislation in both jurisdictions to accommodate a shared governance structure for the linked market. These elements carry political sensitivity, particularly in the UK.

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