On Linking the UK and EU Carbon Markets

Adopting climate-neutral and net-zero emissions targets is central to climate strategies of many nations, aiming to mitigate the effects of climate change and promote a sustainable transition to low-carbon economies. This paper examines the potential for linking the newly established UK Emissions Trading Scheme (UK ETS) with the EU ETS as a means to achieve these objectives. We identify and assess the viability of linking tradeable permit markets based on (i) market design, (ii) political economy, (iii) economic, and (iv) environmental considerations. Uniting these four components, linking the UK and EU carbon markets could potentially be a viable strategy for fostering closer cooperation on developing key technologies such as engineered greenhouse gas removals, and for supporting a market for carbon capture and storage. A linked ETS could also align UK and EU climate policies, unlocking economic opportunities through increased innovative investment in developing clean energy technologies and infrastructure more widely across both regions.