Carbon Emissions Trading Systems
The EU and the UK plan to connect carbon emissions trading systems, aiming to strengthen cooperation between the two sides in carbon reductions.
In 2020, the UK withdrew from the EU and established the UK Emissions Trading System in 2021. This cooperation will address trade and fair competition between the two parties.
Related Post: Introduction to Global Compliance Carbon Market: EU Emissions Trading System
Introduction to the EU and UK Emissions Trading Systems
The EU Emissions Trading System was implemented in 2005 and is the oldest carbon emissions trading system in the world, aimed at reducing greenhouse gas emissions in accordance with the European Green Deal. In 2020, the European Union and Switzerland connected their carbon emissions trading systems, and some EU member states also have carbon emissions trading systems.
The UK Emissions Trading System was implemented in 2021, covering over 25% of its greenhouse gas emissions. The UK Emissions Trading System and the EU Emissions Trading System share many similarities, such as both allocating quotas through free allocation and auctions, and using Market Stability Reserves to enhance risk resistance. At present, the UK carbon emissions trading system is not connected to any jurisdiction’s carbon market.
Cooperations in Carbon Emission Trading Systems
At the summit in May 2025, the UK and the EU discuss how to strengthen bilateral cooperation and planned to exchange ideas in areas such as hydrogen energy, carbon capture, utilization, and storage, as well as biomethane. In the common understandings, the EU and the UK plan to connect the carbon emissions trading system and benefit from their respective exemption clauses. This cooperation will clearly define the industries involved in the carbon emissions trading system (such as the power industry, industry, shipping industry, and aviation industry) to avoid the risks of carbon leakage and competition distortion.
The EU and the UK believe that the UK’s carbon emissions trading system will be guided by its Climate Change Act and Nationally Determined Contributions and will at least comply with the EU’s carbon reduction pathway. The EU Carbon Border Adjustment Mechanism will officially come into effect in 2026, and the UK will establish a carbon border adjustment mechanism in 2027. This cooperation will exempt both parties from disclosing some of their carbon emissions.
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