BRUSSELS — Talks between the European Union and the United Kingdom on linking their carbon markets remain divided over the future of free emissions permits and the design of the British emissions cap, highlighting key obstacles as both sides seek closer post-Brexit cooperation on climate policy.
Negotiators are working toward an agreement to connect the EU Emissions Trading System (ETS) with the UK's separate carbon market, a move that would allow emissions allowances to be traded across both systems, improve market liquidity and help align carbon prices. However, discussions have exposed differences over how industries should be treated under each scheme, according to people familiar with the negotiations.
The EU has been revising its own carbon market to address concerns that energy-intensive industries face rising costs while competing with manufacturers in regions with less stringent climate policies. The European Commission has already proposed increasing free emissions permits for industry during 2026-2030 through changes to the methodology used to calculate allocations, a move it says uses existing flexibility within the ETS framework.
Those reforms have become a point of discussion in the negotiations with Britain, where officials are pursuing their own emissions trading policies. According to people familiar with the talks, differences remain over the scale and duration of free permit allocations and over features of the UK's emissions cap, issues viewed as important for ensuring the two systems operate compatibly if linked.
The proposed market linkage forms part of broader efforts by London and Brussels to reset relations following Brexit. Although a summit originally expected in July was postponed, both sides have continued technical negotiations and have said they remain committed to pursuing an agreement. EU Climate Commissioner Wopke Hoekstra said last month that political developments in Britain had affected the timetable but expressed confidence that a mutually beneficial outcome remained achievable.
The EU's carbon market is the bloc's primary mechanism for reducing greenhouse gas emissions by requiring major industrial facilities and power producers to surrender permits covering their carbon output. Brussels is also preparing a broader review of the ETS this year as it seeks to balance tougher climate targets with concerns over industrial competitiveness. Industry groups have urged the Commission to retain or expand free permit allocations, while climate advocates argue the system should preserve strong incentives to cut emissions.
No final agreement on linking the EU and UK carbon markets has been announced, and officials continue negotiations on the outstanding technical and policy differences.
