From 1 January, the EU will introduce its Carbon Border Adjustment Mechanism (CBAM), charging for the carbon embedded in imported goods.
Without a UK–EU agreement to link their Emissions Trading Schemes (ETS), media reports suggest that this could mean higher costs for UK exporters and, indirectly, higher energy bills — as carbon prices feed into wholesale electricity costs.
Linking the ETS would create a larger, more stable carbon market, reduce price volatility, remove the need for a CBAM between the UK and EU, and help ensure a level playing field for industry.
Negotiations are under way, but there are fears a deal will not be reached in time, prompting calls for a temporary exemption or bridging mechanism.
A spokesperson for the End Fuel Poverty Coalition commented:
“UK–EU energy cooperation should focus on how it is able to help bring down bills and boost energy security.
“Linking our electricity systems means British households can benefit from the cheapest power available – such as surplus nuclear from France on cold, still winter days – helping to cut the cost of electricity.
“In addition, experts claim that over time, aligning our carbon pricing systems could help to bring greater stability to the wholesale market. But we need to make sure that household energy bills are not hit in the short term and that the benefits are felt now and not at some vague point in the future.”
Electricity pricing reform is also a key part of this debate. Under the current marginal pricing system, even if cheaper power flowed in from an EU interconnector, consumers could still be charged the higher price set by gas-fired generation running at the same time.