The EU and UK have today announced as part of a ‘reset’ in trade and security relations between them, that their carbon emissions trading systems will be zipped back together. This follows a period of four and a half years post-Brexit in which the UK system has operated a parallel system, but with a significant delta in the price of allowances - with the UK's being significantly lower.

Reuters reported that by just after midday (GMT) the price of a UK emissions allowance had moved up 6% on news of the deal. Whilst this may be good news for some, it may make the cost of compliance higher for UK business who are required to participate in the scheme and need to buy allowances on the market at year end in order to cover their annual carbon emissions.

Re-linkage of the two systems is seen by many as the sensible course of action to bring more stability to the carbon markets. Although agreement was not reached as part of the Brexit ‘divorce’, both sides committed in Article 392 of the Trade and Co-operation Agreement to give it “serious consideration”. The new agreement closes that loop. 

In the intervening period, however, each side has made reforms to the scope of their systems meaning that they are no longer identical. Notably, the EU has already rolled emissions from international and intra-EU shipping into the EU side of the equation, whereas the UK has announced that it plans to include domestic shipping from 2026. Whether these differences pose any difficulties for linkage remains to be seen. 

One of the welcome effects of bringing the UK back into a unified system should be that there is no charge for UK exporters to the EU of products that are subject to the EU's CBAM (carbon border adjustment mechanism) - e.g. steel. It would seem though, that the UK will still need to plough ahead in introducing its own CBAM, in order to avoid dumping on the UK market of products that would otherwise have to pay a high costs under the EU CBAM.

We await publication of the text of the new deal for the detail. 

From the announcements so far, it doesn't appear that it includes progress on relinking with the EU on chemicals safety regulation and in particular on regaining access to the EU's ‘REACH’ data base - more unfinished business still to solve there! 

However, the new agreement does include a ‘roadmap’ for annual EU-UK summits, so there is perhaps room for future dialogue on that front too.