UK and EU ETS to be linked in new deal

The announcement comes alongside a host of other legislative “link-ups” to foster deep collaboration between the UK and EU. 

The trading schemes cap total emissions from high-polluting industries and allow companies to buy, sell, or trade emission allowances to incentivise reductions to support the net zero goals.  

The UK Emissions Trading Scheme (UK ETS) is set to include waste incinerators in 2028.

The agreement was made during the UK-EU “Reset” Summit in London today (19 May 2025).  

Key guidance is still needed to inform industries on how the schemes will be linked.  

The link-up will include the EU’s Carbon Border Adjustment Mechanism (CBAM) which will come into effect on 1 January 2026, with a UK CBAM launching a year later.

The mechanism is designed to protect companies facing competition from foreign markets.

The Department for Business and Trade estimated that UK exporters will avoid approximately £800 million in taxes to the EU in the first year of the CBAM being active.

Regulator Offshore Petroleum Regulator for Environment and Decommissioning (OPRED) is currently in the process of developing drafting the specific guidance for carbon capture and storage, oil, gas and gas storages sectors. 

Operators will be expected to continue to comply to the UK ETS guidance.  

Both the EU ETS and UK ETS require regulators to put in place a system of penalties to dissuade non-compliance. 

The UK ETS was established by the UK ETS Authority on 1 January 2021 – which includes the UK Government and devolved governments – after Brexit meant the UK left the EU’s ETS.  

It was established under the Climate Change Act 2008 by The Greenhouse Gas Emissions Trading Scheme Order 2020 (as amended), also known as “The Order”.   

In April 2025, the Local Government Association (LGA) warned that councils could face billions of pounds of “unavoidable costs” over the next decade.   

The association estimated that councils could be taxed up to £747 million in 2028, rising to £1.1 billion in 2036 – with a total cost over this period as high as £6.5 billion.