The report, commissioned by leading energy companies EDF, EnBW, RWE, SSE and Uniper, also highlighted the reduced trade friction between the EU and the UK that would come from avoiding the impacts of the upcoming Carbon Border Adjustment Mechanisms (CBAMs) from 2026.
Vikram Balachandar, the lead author at Frontier Economics, said, "Despite the wider headwinds affecting global trade, there are still gains to be had from closer trading relationships between like-minded partners. Linking carbon pricing schemes is a great case study. It will bring cost savings to UK and EU industry from a more consistent carbon price signal and a much deeper market, meaning lower costs of managing risks related to the carbon price."
The report includes new analysis that quantifies the benefits that would arise from improved market liquidity, finding that reduced ‘bid-offer spreads’ would lower transaction costs for market participants by €770m between 2026-30 – with €420m of those benefits flowing to EU businesses and €340m [~£290m] to UK businesses. benefits could reach €1.25bn [~£1.05bn] if liquidity reduced from today’s levels, which may worsen as the respective ETSs decrease in size (as economies decarbonise).
Linking Emissions Trading Schemes (ETSs) is included within the EU-UK Trade and Cooperation Agreement (TCA) and could be concluded by the end of the year if linking negotiations are initiated at the EU-UK Summit on Monday 19th next week. Doing so would deliver the benefits outlined in the report, avoid the impacts of the EU CBAM in 2026 and exhibit shared climate cooperation at the milestone COP30. This is widely supported, with over 50 businesses and trade associations from both the EU and UK signing a joint letter that was shared at the end of April.
Kristian Ruby, Secretary General, Eurelectric, said, "We welcome the renewed political momentum to link the EU and UK Emissions Trading Systems and urge both sides to act swiftly. The time is now to pave the way for efficient electricity exchanges across the Channel. Closer integration between the EU’s Internal Energy Market and the UK market is not only technically feasible, but essential to unlock affordable energy for industry and households and to secure our decarbonisation goals”