EU and UK close to deal linking carbon markets, with announcement expected at November 20 summit

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The European Union and the United Kingdom are in the final stages of a deal to link their carbon emissions markets, a step that would let permits trade across both systems almost six years after Britain set up its own cap-and-trade programme following Brexit.

Negotiators have already settled the shape of emissions caps, controls on permit supply and free allowances, according to people with knowledge of the talks, with the treatment of financial derivatives the only issue still open. The agreement is expected to be announced at the summit of UK and EU leaders in Brussels on 20 November, alongside matching university tuition fees for students travelling between the two.

The fine print matters for industry. The EU is set to recognise the emissions caps in the British system for 2028 to 2030, and from 2031 the UK's annual issuance of permits will be capped at 7.1 percent of the permits issued in the EU system. Britain will also create its own market stability reserve, starting with at least 29.5 million allowances, to steady supply in the way the EU's reserve has done for more than a decade.

None of this is signed yet, and the reporting rests on unnamed sources rather than published documents. The European Commission declined to comment, in line with its policy of not discussing draft texts. What gives the account weight is a second, independent line of evidence: Euronews reported on 6 November that it had seen a draft joint declaration in which the two sides welcome the conclusion of the negotiations on linking their emissions trading systems. Even so, the detailed figures on caps and reserves come from Bloomberg's sources alone and have not been independently confirmed, and the deal still needs ratification by the European Parliament and EU member states before it can take effect.

Linking the two markets would let companies with operations on both sides of the Channel use either side's permits for compliance, and it would open the way to waiving each side's carbon border tax on the other's goods, though that waiver is not automatic and depends on conditions written into domestic law. The EU's carbon border tax is already operating, with its first compliance deadline in September, while Britain's version starts in January 2027.

The price gap is already narrowing. The UK carbon contract for December closed at 64.81 pounds a tonne on Friday, against 86.55 euros for benchmark EU allowances, and ABN Amro's Moutaz Altaghlibi wrote on 5 November that the gap could shrink further over the next two years, meaning British firms would pay more for permits. "Linking the systems should also improve liquidity, make carbon prices more consistent across Europe, and reduce CBAM-related costs and paperwork for trade between the UK and EU," he said. The next test is the 20 November summit, where the leaders are due to confirm the deal, and where the parties may also choose to apply it provisionally before it formally enters into force.