The European Union and the United Kingdom are preparing to finalize a temporary Carbon Border Adjustment Mechanism (CBAM) exemption deal that would spare British exporters from paying the EU’s carbon border tax during 2026, according to the Guardian newspaper. Officials are targeting late spring of that year, the planned date for the next EU-UK summit, for formal signature of the agreement.
The EU’s CBAM is set to enter into force on January 1, 2026, covering carbon-intensive imports such as steel, glass and fertilizers. Its objective is to curb carbon leakage and ensure fair competition for EU producers.
The UK, meanwhile, plans to introduce its own carbon border tax in 2027, leaving a one-year regulatory gap that has raised concerns among businesses about unequal treatment and potential market distortions.
Regulatory certainty for industry
The planned exemption aims to temporarily shield British exporters from additional costs during the interim period until both carbon pricing systems are fully aligned. For sectors such as steel and manufacturing, which are deeply integrated with EU supply chains, the deal is expected to provide regulatory certainty and cost relief.
Industry representatives had warned that, without such an exemption, UK consumers could face higher prices, and the British market might see an influx of cheaper, carbon-intensive steel, particularly from China, redirected away from the EU.
Part of a broader EU-UK reset
The temporary CBAM deal is emerging in the context of a broader political rapprochement between London and Brussels. At the May 2025 EU-UK summit, Prime Minister Keir Starmer and European Commission President Ursula von der Leyen agreed to link the UK and EU emissions trading systems and signed a formal defense and security pact.
Positive business reactions
Business groups have broadly welcomed the CBAM exemption talks. Naomi Smith, CEO of Best for Britain, emphasized that divergence between EU and UK carbon pricing regimes could cost jobs and investment, making alignment a priority for both sides.