A reported draft declaration envisages linking the European Union and United Kingdom carbon markets and exempting qualifying British exports from the EU’s Carbon Border Adjustment Mechanism (CBAM) from 1 January 2026. The proposed backdating would coincide with the start of CBAM’s definitive phase and could remove regulatory costs and compliance requirements for eligible UK goods sold into the EU.
The proposed linkage would connect the EU and UK emissions trading systems and provide a basis for removing CBAM obligations on qualifying British goods. However, importers have already begun accumulating emissions-related obligations on covered British goods under the definitive phase.
The legal treatment of those earlier imports, including any refunds or corrections, remains unresolved. No final agreement or binding retrospective exemption has been adopted; the draft still requires negotiations and the relevant European and British legal procedures.
Importers and competing exporters await clarity
An EU–UK summit was planned for 20 November. Successful linkage could improve British steelmakers’ and aluminium producers’ access to EU customers by removing a regulatory cost and associated compliance requirements.
Exporters in Serbia, Montenegro, Bosnia and Herzegovina, Türkiye and Ukraine would continue to face CBAM unless their countries qualified for exemptions under applicable legislation. A preferential EU–UK arrangement could widen differences in effective market-access costs between competing suppliers.
The outcome could also influence negotiations over electricity trade, where carbon-market linkage affects cross-border generation and industrial supply arrangements. European importers were advised to continue calculating existing CBAM obligations while preserving contractual flexibility for a possible future change.
Banks financing British exporters or European industrial buyers were advised not to treat a reported agreement as an established exemption when assessing costs and working-capital requirements. The proposed arrangement concerns the EU and United Kingdom; its effect would depend on the negotiations and legal procedures still to come.
