UK-EU Energy Cooperation: Emissions Trading Systems and the Electricity Market

This report, from the cross-party, cross-industry UK Trade and Business Commission (UKTBC) delivers 8 substantive recommendations for the UK Government, and our EU partners on how we can strengthen energy cooperation.

 At the time of writing, the 2026 UK–EU Summit has been postponed following the resignation of Prime Minister Keir Starmer.  The European Union has indicated that discussion will resume once a new UK Government is in place. In the meantime, the postponement is likely to prolong uncertainty and the period of divergence between the UK and EU, potentially increasing compliance costs  for businesses.  A longer delay may also defer the economic and practical benefits that the agreements are intended to deliver.

Dynamic alignment

The extent to which the EU will require the UK to dynamically align with current and future EU ETS/CBAM policy, and how far the EU will demand that the UK align, is one of the central questions in the negotiations. While deep alignment improves market access and helps drive energy efficiency, it also imposes greater constraints over the UK’s own policy development.

Industrial Competitiveness 

The UK Government should consider how they can ensure that UK–EU energy cooperation and carbon pricing support decarbonisation while maintaining the competitiveness of UK industry and providing businesses with the certainty and stability needed to invest. It should be recognised that any carbon pricing scheme does impose cost to businesses, and should be delivered in the context of wider domestic industrial reforms to ensure UK companies can remain competitive (balance competitiveness with providing businesses certainty and stability).

Delivering the benefits

An ETS agreement and deeper UK–EU energy cooperation would support the UK Government’s objectives of improving energy security and reducing cost-of-living pressures. Deeper UK–EU energy cooperation brings benefits for businesses and consumers by reducing trade barriers, supporting investment, and improving market efficiency. However, the extent to which these benefits are realised will depend on whether such agreements act as a foundation for wider industrial growth and avoid the introduction of additional barriers that could undermine competitiveness or investment.