Ahead of the Prime Minister’s summit meeting with EU President Ursula von der Leyen on May 19th, Energy UK is urging both sides to commit to linking their carbon pricing schemes and enhancing cooperation over energy as part of the planned reset.
The call, made in a letter sent today to the Prime Minister, to link the respective EU and UK Emission Trading Schemes (ETS) is supported by business groups like the CBI, UK Steel and Make UK – as well as the TUC – in addition to companies in sectors like glass, chemicals, paper, mineral products and ceramics. This is because a larger, unified carbon market would mean greater predictability and less volatility for UK industries covered by the ETS, in addition to lower carbon prices over the next few years – as this new Energy UK briefing, also published today, explains.
Crucially, it would also exempt UK exporters from looming Carbon Border Adjustment (CBAM) payments that could total £800 million a year by the end of the decade. With the CBAM starting to come into force on 1st January 2026, linkage would also prevent the huge complications and extra costs it will otherwise cause for businesses and customers in Northern Ireland.
Linkage could be achieved through a standalone treaty arrangement – similar to the one that links Switzerland’s ETS with the EU ETS – without requiring the UK to sign up to any wider agreements.
The letter also calls for mutually beneficial and much closer cooperation in the North Seas and neighbouring countries through the North Seas Energy Cooperation (NSEC) on issues such as security of supply and development of clean technologies; and to make progress on delivering more efficient electricity trading arrangements to attract investment in the next generation of cross-border infrastructure and North Sea renewables.
Adam Berman, Energy UK’s Director of Policy and Advocacy said:
“The UK and EU energy relationship has inevitably continued after Brexit given the long-standing links in the energy market, areas of common interest like the North Seas and our shared goals. So it is in everyone’s interests – governments, businesses and ultimately customers in all countries – that we maximise the potential mutual benefits that this relationship can bring.
“While emission trading schemes are a proven way of incentivising investment in clean energy and reducing pollution, having separate ones is causing problems for UK businesses, which will only increase with the introduction of the CBAM.
“A smaller scheme is more prone to volatile pricing, causing uncertainty for UK businesses. Analysis suggests that a linked ETS price would be lower for UK businesses than a standalone scheme over the next few years. UK businesses are very clear that the biggest threat to them comes from continuing with divergent schemes.
“Linking the schemes will protect UK businesses from looming costs and remove the huge problem of how the CBAM would impact Northern Ireland. Our common goals and shared interests all underline the mutual benefits of closer working – not just with the ETS but also in relation to security of supply, developments in the North Sea developments and more efficient energy trading. We hope the forthcoming summit will a big step in the right direction.”
Notes to editors
- An Emissions Trading Scheme (ETS) is designed to reduce emissions over time. It works by placing an overall cap on emissions and auctioning allowances (permits that allow a certain amount of pollution) to companies that emit. Over time, this cap shrinks in size and fewer allowances are auctioned annually. This pushes up prices, making it more cost-effective to decarbonise than continue to pollute. The combination of a legally binding cap on emissions and strong market incentives means an ETS is the most efficient and effective way of pricing carbon emissions in an economy.
- A Carbon Border Adjustment Mechanism (CBAM) is a policy tool aimed at maintaining the competitiveness of domestic production and preventing carbon leakage – where efforts to reduce greenhouse gas emissions in one country cause an increase in emissions elsewhere. A CBAM works by ensuring that imported goods pay an equivalent carbon price to what would be paid had that product been produced domestically.
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