EU, UK near post-Brexit carbon market linkage deal - Bloomberg

Investing.com -- The European Union and Britain are nearing an agreement to reconnect their carbon emissions trading markets, potentially reducing trade costs and improving liquidity, Bloomberg exclusively reported Sunday, citing people familiar with the negotiations.

The agreement could be announced at a November 20 summit, nearly six years after Britain established its own emissions trading system following Brexit.

Negotiators have settled provisions covering emissions limits, permit supply controls and free allowances. Rules governing financial derivatives remain the final unresolved issue.

Linking the markets would allow companies to use permits from either system to meet regulatory obligations, reducing compliance complexity for businesses operating across both jurisdictions.

The arrangement could eventually eliminate carbon border charges on qualifying trade, although exemptions would not take effect automatically.

Under EU legislation, Britain must establish full market linkage and maintain effective carbon pricing without preferential rebates before receiving an exemption from the bloc’s Carbon Border Adjustment Mechanism.

The EU’s border carbon rules became operational this year, with Britain’s equivalent scheduled to begin in January 2027.

Carbon prices have already converged as expectations of an agreement strengthened. British December allowances closed Friday at £64.81 per metric ton, compared with €86.55 for benchmark EU permits.

ABN Amro expects the price gap to narrow further over the next two years, potentially increasing compliance costs for British companies.

The proposed framework would recognize British emissions caps through 2030. From 2031, annual UK permit issuance would be limited to 7.1% of the EU system’s allowance supply.

Britain would also establish a market stability reserve containing at least 29.5 million allowances when the agreement takes effect.

The deal requires approval from British and EU authorities, including the European Parliament and EU member states.

Negotiators could provisionally apply the agreement before formal implementation, although its entry into force is linked to separate arrangements covering agricultural trade standards and youth mobility.