Leaders of the European Union and the United Kingdom have signed a series of agreements to ease the trading relationship between the two parties in the wake of Brexit, including an undertaking to “work towards linking their respective carbon markets.”

UK Allowance prices had already been rising as investors anticipated the outcome of an EU-UK summit held on May 19. In the wake of the meeting, in December 2025, UKA futures prices rose to a high of £55.05/tonne, the most since July 2023.

Neither the UK nor the EU offered any timeline for technical discussions on when or how to link the two markets, and analysts offered mixed views on the prospect of a quick process. Some suggested the linking could be completed by as early as 2028, while others said it was more likely that the link would be operational after 2030, when the two markets enter a new trading phase.

The length of time before linking takes effect is a source of much discussion in the market; traders are now wondering how long investment funds are prepared to hold on to their record net long futures and options positions (more than 18 million UKAs).

One key motivation for the market linking, in addition to lowering costs for compliance entities by creating a larger marketplace for emissions allowances, was to avoid the costs of the Carbon Border Adjustment Mechanisms (CBAM), which is a tariff that is applied to imported goods based on the greenhouse gas emissions produced during their manufacturing. Both Brussels and Westminster were preparing to implement prior to the market linking.

Indeed, Monday's release that “should create the conditions for goods originating in our jurisdictions to benefit from mutual exemptions from the respective European Union and United Kingdom Carbon Border Adjustment Mechanisms,” a European Commission statement said.

However, it’s unclear whether the agreement in principle to link markets will constitute sufficient evidence to allow both jurisdictions to exempt each other from CBAM costs, even before the linked markets begin operating.

Analysts at Vertis Environmental Finance pointed out that “this could prove pivotal for market pricing and compliance behavior in the near term.”

Numerous stakeholders expressed surprise at the degree to which the UK appeared to be willing to let its participation in a linked market be directed by the EU. For example, the agreement specified that the UK will need to dynamically align its regulations to EU rules, particularly when the parameters of the market are adjusted.

There has already been considerable political blowback from opposition lawmakers, who see the agreement as subjecting the UK to European regulation, and dynamic alignment of ETS rules could be held up as an example of this going forward.

Another, potentially more problematic agreement is that the linked markets “should be subject to a dispute resolution mechanism with an independent arbitration panel that ensures the Court of Justice of the European Union is the ultimate authority for all questions of European Union law.”

While this does not specifically point to European jurisdiction over the UK, it may call into question the independence of UK regulators in cases of dispute.

Carbon Market Roundup

The weighted global price of carbon is $53.67, down 0.56% week over week. EUAs are up 0.57% at €72.74. UKAs are up 17.39% at £54.82. CCAs ended down 4.06% at $27.19. RGGI was down 1.71% at $21.26. WCAs closed at $60.25, up 0.58% for the week.