Impakter
  • FINANCE
    • ESG News
    • Sustainable Finance
    • Business
  • TECH
    • Start-up
    • AI & Machine Learning
    • Green Tech
  • Environment
    • Biodiversity
    • Climate Change
    • Circular Economy
    • Energy
  • Industry News
    • Entertainment
    • Fashion & Lifestyle
    • Food and Agriculture
    • Health
    • Politics & Foreign Affairs
    • Philanthropy
    • Science
    • Sport
  • Editorial Series
    • SDGs Series
    • Shape Your Future
    • Sustainable Cities
      • Copenhagen
      • San Francisco
      • Seattle
      • Sydney
  • About us
    • Company
    • Team
    • Global Leaders
    • Partners
    • Write for Impakter
    • Contact Us
    • Privacy Policy
No Result
View All Result
  • FINANCE
    • ESG News
    • Sustainable Finance
    • Business
  • TECH
    • Start-up
    • AI & Machine Learning
    • Green Tech
  • Environment
    • Biodiversity
    • Climate Change
    • Circular Economy
    • Energy
  • Industry News
    • Entertainment
    • Fashion & Lifestyle
    • Food and Agriculture
    • Health
    • Politics & Foreign Affairs
    • Philanthropy
    • Science
    • Sport
  • Editorial Series
    • SDGs Series
    • Shape Your Future
    • Sustainable Cities
      • Copenhagen
      • San Francisco
      • Seattle
      • Sydney
  • About us
    • Company
    • Team
    • Global Leaders
    • Partners
    • Write for Impakter
    • Contact Us
    • Privacy Policy
No Result
View All Result
Impakter
No Result
View All Result
Home Environment Climate Change

Why Linking EU and UK Emissions Trading Systems Is a Win-Win for the Economy and the Environment

byInternational Institute for Sustainable Development (IISD)
June 4, 2025
in Climate Change, Environment, ESG News, Politics & Foreign Affairs
EU UK emissions trading
Share on FacebookShare on Twitter

The launch of negotiations between the European Union (EU) and the United Kingdom to link their emissions trading systems (ETSs) marks a dual victory for both the economy and the environment. As part of a broader set of agreements announced on May 19, this move will ease bilateral trade, reduce the economic cost of decarbonization, and reinforce ambitious emissions reduction pathways

What does the agreement cover?

The linking would mean, in concrete terms, that companies in each jurisdiction could trade emissions allowances with companies in the other jurisdiction, resulting in a single market price. The UK’s emissions cap and reduction pathway will be based on its own climate laws and Paris Agreement commitments but must be at least as ambitious as the EU’s. The UK will be consulted early in the development of EU legal acts related to the ETS and will provide a financial contribution to cover relevant EU policy costs.

What are ETSs, and what does linking them mean?

ETSs place a cap on emissions from specific economic activities. To emit greenhouse gases (GHGs), regulated operators must obtain credits — called allowances — for every tonne they emit. These allowances are either auctioned by the government or given to operators for free, effectively placing a price on emissions, as those allowances can then be traded between operators.

Carbon pricing is a highly effective approach to climate change mitigation, and ETSs are the most common form of pricing (covering ~18% of world emissions), followed by carbon taxes. After leaving the EU, the United Kingdom exited the EU ETS and set up its own system. Together, they cover 2.6% of world emissions.

When multiple ETSs are linked, operators can trade allowances across the systems. This also means that all participants face the same carbon price for emitting an additional tonne of carbon. Linking is complex, as it requires coordination on how each system operates, especially on how quickly their caps (the total amount of GHG emissions allowed) decline. Still, successful linkage examples exist, such as the EU and Swiss ETSs and the systems in California and Quebec.

Why is linking good for trade?

The EU and the United Kingdom both have carbon border adjustment mechanisms (CBAMs) set for full implementation in January 2026 and 2027, respectively. This means imports to both countries will soon face carbon-related charges to match domestic carbon prices.

Beyond the financial cost, compliance involves complex product-level emissions reporting. Because the UK ETS currently has a lower carbon price than the EU ETS, introducing carbon border fees would have probably meant CBAM payments for British goods at the EU border. Both CBAM frameworks include provisions to exempt jurisdictions linked through ETSs.

Under a linkage, no carbon fees would be paid for products traded between the two, which is particularly relevant for British exports to the EU — and, importantly, no emissions reporting would be required. Keir Starmer highlighted that linking would prevent British firms from paying GBP 800 million to the EU’s carbon tax.

While technically accurate, this does not mean that the British firms would be off the hook for their emissions: this carbon price would need to be paid to the British government. The real benefit lies in removing the heavy administrative burden related to emissions reporting at the product level, a key criticism of CBAMs.


Related Articles: The European Union’s New Climate Plan: Why It’s an Uphill Fight | Cutting Emissions: Can The Rich Pay the Poor To Do it On Their Behalf?

Why does linking reduce the cost of decarbonization?

If, for example, the United Kingdom and the EU both aim for a 5% cut in emissions, unlinked systems require each to achieve that reduction domestically. With linked systems, there is a more cost-efficient route: the jurisdiction with lower emission reduction costs reduces more emissions, while operators in the other jurisdiction buy additional allowances.

This system allows the same overall reduction at a lower total cost. His Majesty’s Treasury estimates that the United Kingdom would decarbonize less and buy more allowances from the EU, leading to mutual gains — specifically, a 0.1% GDP boost for the United Kingdom. This framework mirrors the classic Economics 101 principle of “gains from trade.” A further benefit is that a larger, linked market is more liquid, and its carbon price is more stable in the face of shocks.

Why is linking good for climate action?

Both the EU and the United Kingdom aim for net-zero by 2050, but political pressure risks undermining ambition along the way. In July 2023, the UK ETS Authority unexpectedly announced the release of 53.5 million unallocated allowances for 2024–2027 — about half a year’s emissions — while in September, several net-zero policies were rolled back, including the delay of the petrol and diesel car phase-out.

These moves weakened industry confidence in the government’s ambition and lowered Britain’s carbon price. Similar pressures could hit the EU.

Linking ETSs typically requires agreement on coordinated emissions cap trajectories since one side loosening its cap would flood the other’s market with cheap allowances. This mutual constraint helps safeguard long-term climate ambition.

In its statement, the European Commission stressed that the United Kingdom’s cap trajectory will need to be at least as ambitious. It will be crucial for the final agreement to incorporate such mutual reassurances. While nothing will ever prevent the EU and the United Kingdom from jointly bowing to political pressure, at least such mechanisms should prevent them from doing so unilaterally.

All these reasons point to one conclusion: linking ETSs is a good move for both the economy and the environment. Policies that deliver benefits on multiple fronts deserve strong support.

** **

This article was originally published by the International Institute for Sustainable Development (IISD) and is republished here as part of an editorial collaboration with the IISD. It was authored by Antoine Bonnet.


Editor’s Note: The opinions expressed here by Impakter.com columnists are their own, not those of Impakter.com — Cover Photo Credit: Wikimedia Commons.
Tags: Climate ActionDecarbonizationEconomyEmissions TradingEmissions trading systemsEnvironmentETSEUEuropean UnionGHGstradeukUnited Kingdom
Previous Post

TAE Secures $150M Funding from Google, Chevron for Fusion System

Next Post

Trump Administration Ready to ‘Drill, Baby, Drill’ in Alaska

International Institute for Sustainable Development (IISD)

International Institute for Sustainable Development (IISD)

The International Institute for Sustainable Development (IISD) is an award-winning, independent think tank championing research-driven solutions to the world's greatest challenges. Our vision is a balanced world where both people and the planet thrive; our mission is to accelerate the global transition to clean water, fair economies and a stable climate. With offices in Winnipeg, Geneva, Ottawa and Toronto, our work impacts lives in nearly 100 countries.

Related Posts

fossil fuel phase-out
Business

Legally Sound Oil and Gas Phase-Outs

June 19, 2025
Biofuel Prices Spike as Israel-Iran Conflict Demands Oil Alternatives
Energy

Biofuel Prices Spike as Israel-Iran Conflict Demands Oil Alternatives

June 19, 2025
ESG news regarding Musk’s xai air pollution lawsuit, australia’s new sustainable finance taxonomy, brazil’s research into offshore drilling, and investment coalition with $9.5 trillion in assets calling for an end to deforestation
Business

Musk’s xAI Could Face Lawsuit Over Air Pollution

June 18, 2025
Next Post
ESG news regarding oil drilling in Alaska, saltwater dissolving plastic, colombia wind energy setbacks, and britain faces carbon border tax

Trump Administration Ready to ‘Drill, Baby, Drill’ in Alaska

Recent News

fossil fuel phase-out

Legally Sound Oil and Gas Phase-Outs

June 19, 2025
Biofuel Prices Spike as Israel-Iran Conflict Demands Oil Alternatives

Biofuel Prices Spike as Israel-Iran Conflict Demands Oil Alternatives

June 19, 2025
Shein sees a giant increase in carbon emissions in 2024

Shein’s Carbon Emissions Skyrocket in 2024: What’s Behind the Surge?

June 18, 2025

Impakter informs you through the ESG news site and empowers your business CSRD compliance and ESG compliance with its Klimado SaaS ESG assessment tool marketplace that can be found on: www.klimado.com

Registered Office Address

Klimado GmbH
Niddastrasse 63,

60329, Frankfurt am Main, Germany


IMPAKTER is a Klimado GmbH website

Impakter is a publication that is identified by the following International Standard Serial Number (ISSN) is the following 2515-9569 (Printed) and 2515-9577 (online – Website).


Office Hours - Monday to Friday

9.30am - 5.00pm CEST


Email

stories [at] impakter.com

By Audience

  • TECH
    • Start-up
    • AI & MACHINE LEARNING
    • Green Tech
  • ENVIRONMENT
    • Biodiversity
    • Energy
    • Circular Economy
    • Climate Change
  • INDUSTRY NEWS
    • Entertainment
    • Fashion & Lifestyle
    • Food and Agriculture
    • Health
    • Politics & Foreign Affairs
    • Philanthropy
    • Science
    • Sport
    • Editorial Series

ESG/Finance Daily

  • ESG News
  • Sustainable Finance
  • Business

Klimado Platform

  • Klimado ESG Tool
  • Impakter News

About Us

  • Team
  • Global Leaders
  • Partners
  • Write for Impakter
  • Contact Us
  • Privacy Policy

© 2025 IMPAKTER. All rights reserved.

No Result
View All Result
  • FINANCE
    • ESG News
    • Sustainable Finance
    • Business
  • TECH
    • Start-up
    • AI & Machine Learning
    • Green Tech
  • Environment
    • Biodiversity
    • Climate Change
    • Circular Economy
    • Energy
  • Industry News
    • Entertainment
    • Fashion & Lifestyle
    • Food and Agriculture
    • Health
    • Politics & Foreign Affairs
    • Philanthropy
    • Science
    • Sport
  • Editorial Series
    • SDGs Series
    • Shape Your Future
    • Sustainable Cities
      • Copenhagen
      • San Francisco
      • Seattle
      • Sydney
  • About us
    • Company
    • Team
    • Global Leaders
    • Partners
    • Write for Impakter
    • Contact Us
    • Privacy Policy

© 2024 IMPAKTER. All rights reserved.