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UK and EU extend post-Brexit collaboration on energy
28/5/2025
News
The UK and European Union reached a political agreement last week to extend their post-Brexit collaboration on energy. Among the announcements at the UK-EU Summit was an agreement to explore the participation of the UK in the EU’s internal electricity market and a commitment to link their respective emissions trading schemes (ETS).
Announced at a UK-EU Summit in London on 19 May, the new level of climate cooperation is expected to cut costs, improve grid resilience and support renewable energy deployment, in particular from the North Sea.
‘By increasing our cooperation on emissions trading, we’re saving UK businesses from having to pay £800mn in EU carbon taxes,’ UK Prime Minister Keir Starmer said at the Summit. ‘By increasing cooperation on energy, we’re bringing down bills over the long term and boosting our renewables industry in the North Sea.’
The energy sector and business groups welcomed the news, which they saw as improving market stability, encouraging low-carbon investment and providing greater clarity for carbon-intensive industries such as steel, cement and chemicals.
Energy UK’s Chief Executive, Dhara Vyas said: ‘Working together is the best way to ensure the UK and EU are investing in energy security and tackling carbon emissions quickly and at lower cost. This agreement will remove barriers to growth, lowering energy prices and clearing the way for a shared future powered by clean energy.’
WindEurope CEO Giles Dickson echoed Vyas’ sentiments. ‘UK participation in the EU electricity market will make it easier to trade electricity and reduce electricity prices in both the UK and EU. It’ll help with the top political priority of reducing energy costs for European industry.’
He added: ‘Crucially, the EU-UK agreement would lead to mutual exemptions from the respective carbon border adjustment mechanisms (CBAM), removing disruptions on trading of electricity, as well as steel, cement, and aluminium which are critical to the wind supply chains.’
RenewableUK’s Executive Director for Policy and Engagement Ana Musat said: ‘This is potentially great news for billpayers in the UK and across the rest of Europe, as it could drive down the cost of electricity in the years ahead by stabilising prices and reducing trade friction – including trading in clean electricity generated in the North Sea via interconnectors between countries.’
Jess Ralston, Analyst at the Energy & Climate Intelligence Unit (ECIU) cited Energy UK’s estimates that linkage would reduce carbon prices over the next few years and avoid costs for products going into the EU. She said: ‘Reducing costs and helping British businesses stay competitive is the reason why this linkage is strongly supported by business groups from the CBI, to UK Steel and the TUC.’
Meanwhile, Ellie Belton, Senior Policy Advisor, Trade & Climate, at climate change think tank E3G noted: ‘The agreement to link emissions trading schemes is a major achievement for decarbonisation in Europe, creating a more stable environment for low-carbon investment and promoting more efficient trade. Swift action to secure mutual exemptions from respective CBAM schemes will be a vital next step to reduce trade frictions before the EU’s mechanism comes into force in 2026. Today’s announcement marks a step change in energy cooperation between the UK and EU and demonstrates that both sides are committed to international leadership on carbon pricing.’
UK carbon prices surged more than 8% after the Summit announcement. Bloomberg reported they rose to £52.40/t, while the equivalent EU contract declined 1% to €70.06.
The difference between carbon prices in the UK and the EU diverged post-Brexit after the bloc put in place rules to meet its goal of cutting emissions by 55% by the end of the decade from 1990 levels. According to Bloomberg, earlier this year the gap between the two widened to over €40/t of CO2 ($44.74), before shrinking to a two-year low of less than €10, as UK permits rallied on speculation of linking markets with the EU.
