UK considers linking its ETS to the EU carbon market

The United Kingdom is actively considering linking its emissions trading system (ETS) to the EU carbon market ahead of a bilateral summit in May, Reuters reports.

Britain seeks to strengthen cooperation with the EU in the field of security, law enforcement, improve trade and investment relations and eliminate unnecessary barriers to trade.

According to a statement by the British ETS Office, on the eve of the UK-EU summit on May 19, the government is actively considering the issue of combining emissions trading systems.

Currently, prices in the UK’s emissions trading system are about £45 ($58.30) lower than in the EU, where the equivalent basic contract is traded at €73 ($79.18) per ton.

British industry operated under the EU ETS until the country left the bloc and launched its own carbon market in 2021. Analysts suggest that the merger of the two markets is likely to lead to an increase in British emissions prices to the level of prices in the bloc.

As a reminder, the UK risks losing up to £8 billion ($10.2 billion) in revenue over the next five years (from 2025 to 2030) if it remains outside the EU carbon market. This is stated in a study supported by some key energy market players, published in August 2024.

As noted, combining the two emissions trading systems will increase the price of UK carbon allowances, which will increase government revenues, but it could also lead to higher electricity prices for UK consumers and higher revenues for generating companies.