This week the EU Council announced (click here) that it has authorised the EU Commission to commence formal negotiations with the UK Government regarding, amongst other things, the linking of the EU and UK Emissions Trading Systems (ETS).
In May this year, the EU Commission and the UK Government held a summit where they agreed to a substantial package of post-Brexit areas of cooperation (click here and here). One of those areas related to the possible linking of the EU and UK ETS.
The linking of the two schemes will likely please most stakeholders as expressed in this joint letter to EU policymakers in July this year signed by several industry associations urging speedy post-summit action on the topic. Amongst the many economic and practical benefits, joining the schemes would permit the mutual exemption from one another’s Carbon Border Adjustment Mechanisms (CBAM) rules, a move which would significantly reduce friction between the two trading partners.
The ETS and CBAM topics link into the broader potential for the UK to recouple with the EU internal electricity market, a topic which was discussed at the May summit, but which was not included in this week’s announcement by the EU Commission. No timetable was outlined in the EU Commission’s announcement with regard to the ETS topic.
The announcement states that once negotiations are finalised, the agreements will have to be endorsed by the EU Council before they can enter into force. Approval for the changes will potentially require endorsement from the respective co-legislators depending on the legal basis for the final negotiated changes. Many UK and EU energy traders are likely to welcome this development and will be eager to see it implemented quickly, even though it is expected to miss the start of the so-called definitive phase of the EU CBAM on 1 January 2026 - potentially still preceding the UK CBAM, which is set to commence on 1 January 2027.