The European Union and the UK are in the final stages of a deal to link their emissions markets, a move that would boost liquidity and eventually save companies millions of euros in carbon border taxes.
The agreement, to be announced at a key summit later this month, would enable carbon permits to be traded across the two emissions systems, almost six years after Britain started its own cap-and-trade program in the wake of Brexit. Negotiators have already ironed out details on emissions caps, supply controls and free permits, according to people with knowledge of the matter. The treatment of financial derivatives is the only outstanding issue.
The EU’s carbon market is the region’s key way to meet its carbon reduction goals. Started in 2005, the market imposes gradually shrinking emissions limits on around 10,000 facilities in sectors from steel and cement to fertilizers, power production and aviation. Once linked, it will allow mutual recognition of permits from both markets for compliance, helpful for companies with operations in both regions.
The linkage deal is set to be one of the main deliverables at the Nov. 20 meeting of UK and EU leaders, alongside matching university tuition fees for students traveling between the two. Other areas of agreement include committing to minimizing the effect of their trade measures on vulnerable sectors like steel and electric cars, and deepening cooperation on cyber threats, Bloomberg reported last month.
The European Commission declined to comment on the agreement, in line with its long-standing policy of not commenting on draft documents.