EU Rejects UK Exemption from Carbon Border Levy Until Carbon Markets are Linked
Brussels says Britain must complete emissions trading system alignment before gaining relief from the Carbon Border Adjustment Mechanism
The European Union has formally ruled out granting the United Kingdom an exemption from its carbon border levy, affirming that such relief will only be possible once UK and EU carbon markets are fully linked.
EU Climate Commissioner Wopke Hoekstra said that despite UK hopes for a temporary reprieve, Brussels’ priority remains achieving a comprehensive linkage of the respective emissions trading systems before any exemption from the Carbon Border Adjustment Mechanism is considered.
The levy, known as CBAM, is designed to ensure imports such as steel, cement and other carbon-intensive goods face carbon costs equivalent to those faced by EU producers under its Emissions Trading System.
The mechanism begins charging fees from January 2026, although companies will have until September 2027 to purchase certificates covering 2026 emissions.
The British government has warned that the levy could impose costs of around £800 million annually on UK industry, reflecting the urgency with which officials are pursuing market linkage talks.
Negotiations to align the EU’s and UK’s ETS frameworks are underway, with both sides agreeing to work towards linking their carbon markets — an outcome that would allow mutual exemptions from respective border adjustment mechanisms once implemented.
However, EU officials have indicated that completing the technical and legal steps required for full market linkage is likely to take more than a year, meaning UK exporters will face the levy in the interim.
Hoekstra acknowledged the UK’s preference for a different sequencing of events but reiterated that neither a partial nor temporary exemption will be granted until linkage is achieved.
The EU has stressed its willingness to work constructively with London toward integration, but both markets must meet the necessary regulatory and procedural criteria before exemption relief can be applied.
The decision underscores ongoing challenges in post-Brexit regulatory alignment on climate and trade policy while highlighting the strategic importance the EU places on coherent carbon pricing across major economies.
EU Climate Commissioner Wopke Hoekstra said that despite UK hopes for a temporary reprieve, Brussels’ priority remains achieving a comprehensive linkage of the respective emissions trading systems before any exemption from the Carbon Border Adjustment Mechanism is considered.
The levy, known as CBAM, is designed to ensure imports such as steel, cement and other carbon-intensive goods face carbon costs equivalent to those faced by EU producers under its Emissions Trading System.
The mechanism begins charging fees from January 2026, although companies will have until September 2027 to purchase certificates covering 2026 emissions.
The British government has warned that the levy could impose costs of around £800 million annually on UK industry, reflecting the urgency with which officials are pursuing market linkage talks.
Negotiations to align the EU’s and UK’s ETS frameworks are underway, with both sides agreeing to work towards linking their carbon markets — an outcome that would allow mutual exemptions from respective border adjustment mechanisms once implemented.
However, EU officials have indicated that completing the technical and legal steps required for full market linkage is likely to take more than a year, meaning UK exporters will face the levy in the interim.
Hoekstra acknowledged the UK’s preference for a different sequencing of events but reiterated that neither a partial nor temporary exemption will be granted until linkage is achieved.
The EU has stressed its willingness to work constructively with London toward integration, but both markets must meet the necessary regulatory and procedural criteria before exemption relief can be applied.
The decision underscores ongoing challenges in post-Brexit regulatory alignment on climate and trade policy while highlighting the strategic importance the EU places on coherent carbon pricing across major economies.
