On linking the UK and EU carbon markets

Adopting climate-neutral and net-zero emissions targets is central to many nations' climate strategies aimed at mitigating climate change effects and promoting sustainable low-carbon transitions. Emissions trading schemes (ETSs) serve as a key policy mechanism, with linked systems enabling international cooperation. With the intention to establish a UK-EU ETS link announced in Spring 2025, this paper examines institutional factors facilitating or constraining implementation, alongside its potential contribution to UK net-zero objectives. It contributes to discussions surrounding UK-ETS linkage by evaluating ETS compatibility literature alongside post-Brexit climate policy. We identify and assess the feasibility of linking ETSs based on four dimensions: market design, political economy, economic, and environmental considerations. Our analysis reveals strong institutional compatibility between the UK and EU ETS. Linkage offers significant benefits including enhanced market liquidity, more efficient emissions abatement, greater carbon price credibility, and improved cooperation on emerging areas like engineered greenhouse gas removals and carbon capture and storage markets. A linked ETS could strengthen policy alignment between UK-EU climate policies, particularly regarding carbon capture and storage, greenhouse gas removals, and broader decarbonisation investments. However, governance and regulatory autonomy concerns, coupled with evolving market design ambitions, pose barriers requiring sustained cross-jurisdictional policy coordination for long-term success.