The EU and UK are close to a deal that would link their carbon markets, almost six years after the UK set up its own ETS following Brexit. A formal announcement could come at a summit on Nov. 20. Once linked, companies would be able to use permits from either system for compliance, which should improve liquidity and reduce the price gap between UK and EU allowances.
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Linking UK and EU ETS has been talked about for years. Good to see it close. The CBAM waiver part is the real prize for companies trading both sides. Still need the derivative treatment resolved, which can get messy.
UK permits trading at 64.81 pounds vs EU at 86.55 euros. A link should pull those closer. That means UK firms paying more for allowances, but also more liquidity. Worth watching how the UK Market Stability Reserve gets calibrated.
The 7.1% issuance cap from 2031 is a concrete number. That ties UK supply to EU ETS, not to actual domestic emissions. Curious how they handle sectors where UK decarbonization outpaces the EU baseline.
The CBAM waiver is conditional, not automatic. EU law requires full linkage and effective carbon pricing without preferential rebates. So the deal is step one. A delegated act later determines whether UK actually gets exempted.
Almost six years after Brexit, they are back to linking carbon markets. Main effect is price convergence and less paperwork for CBAM. The UK still needs to pass EU rules into domestic law over time, which is politically interesting.
Good summary of where the linkage stands. The outstanding derivatives issue is worth watching because it affects hedging and market depth. Also note the deal enters into force a month after SPS and youth mobility are finalized.
