The European Union will not grant the UK an exemption from its Carbon Border Adjustment Mechanism (CBAM) unless the two sides formally link their emissions trading systems, according to media reports. The decision means that UK producers are set to face a significant increase in administrative requirements from January 2026.
£800 million annual cost and administrative burden
According to estimates from the UK government, CBAM could cost British industry around £800 million per year. In addition to the carbon cost itself, exporters will face extensive new administrative requirements, including emissions reporting, verification and certification, drawing comparisons with the surge in paperwork following Brexit.
The UK-based trade association UK Steel indicated that an exemption is unlikely to be secured before Easter at the earliest, meaning companies must prepare to comply fully with CBAM rules from the start of 2026.
EU position: linkage first, exemption later
Wopke Hoekstra, European commissioner for climate action, stated that the EU’s position is clear. “We’re not exempting anyone, but the moment we will be fully linking those two, it is likely that there will be an exemption at that point in time,” he said.
Hoekstra acknowledged that the UK government would have preferred a different sequencing but stressed that the EU would not alter its approach. He added that discussions would continue with the UK to achieve a formal linkage between the two carbon markets.
Potential relief for UK electricity exports
Some limited relief may be available for UK electricity exports. Electricity, alongside steel, cement, fertilizers, aluminum and hydrogen, falls within CBAM’s scope. However, the Commission has indicated that UK electricity exports should not, in principle, be subject to CBAM charges, as UK power generators already face higher carbon costs than their EU counterparts. This position has been welcomed by the UK government.
Industry warns of competitiveness risks
Industry groups continue to warn that CBAM will undermine the competitiveness of UK exports. Frank Aaskov, director for energy and climate change policy at UK Steel, said CBAM creates an additional barrier to UK steel exports at a time of heightened global trade uncertainty.
He noted that while the direct carbon cost may appear modest, around €13/mt for products such as hot rolled wire, the steel market is extremely price-sensitive. With prices near €650/mt, cost differences of just €5/mt can determine whether a producer secures or loses a contract, particularly when competing against low-cost imports from China. The impact is expected to be especially severe for small and medium-sized producers.
UK seeks carbon market linkage
A UK government spokesperson reiterated that securing a UK-EU carbon market linkage remains a priority, noting that such an agreement would spare UK industry from paying CBAM charges on exports valued at approximately £7 billion. “Our priority remains securing a carbon-linking agreement as soon as possible,” the spokesperson said.