The UK and the European Union are close to reaching a temporary deal that would shield British exporters from the EU’s carbon border tax, with charges due to come into force on 1 January 2026. Officials from both sides are aiming to finalise the agreement by late spring, ahead of the next UK–EU summit, expected in May or June 2026.
The EU’s Carbon Border Adjustment Mechanism (CBAM) is designed to prevent carbon leakage by ensuring that imported goods face the same carbon costs as those produced within the bloc. It will apply to carbon-intensive imports such as steel, glass and fertiliser.
The UK plans to introduce its own version of the tax in 2027, a year later than the EU. Ministers have therefore been seeking a temporary exemption to prevent UK exporters from being unfairly penalised during the interim period.
Supporting Trade and Preventing Market Distortion
A temporary deal would help avoid potential disruption for UK industries that rely heavily on EU trade, including manufacturing and construction. Businesses have warned that, without an exemption, higher costs could affect consumer prices and lead to an influx of cheaper, carbon-intensive imports from non-EU countries.
“Some of Britain’s biggest international investors have warned that divergence between the EU and UK on carbon taxes could cost jobs and investment. This common-sense move will reduce costs and admin for businesses in the EU and UK while helping to boost economic growth in Britain.”
Naomi Smith, Chief Executive of Best for Britain
Strengthening UK-EU Cooperation
The anticipated CBAM arrangement reflects a wider effort to reset relations between the UK and the EU. At the May 2024 summit, Prime Minister Keir Starmer and European Commission President Ursula von der Leyen agreed to link the two sides’ emissions trading schemes and unveiled a new defence and security pact.
A separate deal is also expected within weeks, allowing UK defence companies to take part in EU-funded projects. Meanwhile, discussions are progressing on a youth mobility scheme that would enable young people from the UK and EU to live and work temporarily in each other’s countries.
A Broader Reset in Relations
“This is about putting Britain back on the world stage, back on the European stage, and a partner for peace, for prosperity and progress.”
Stephen Doughty, Foreign Office Minister
While no formal announcement has yet been made, officials on both sides remain confident that a CBAM agreement will be reached soon — offering much-needed stability for UK exporters and a pragmatic step towards closer cooperation on climate and trade policy.
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