Up to £800m bill for UK firms unless EU carbon tax exemption agreed, report warns
The UK and EU should commit to reciprocal exemptions from each other’s Carbon Border Adjustment Mechanisms (CBAM) from the point at which the agreement is signed, to “reduce short-term trade friction” and avoid up to £800m in costs for UK businesses, a multi-party report has recommended.
The UK Trade and Business Commission (UKTBC), a cross-party, cross-industry expert body which advises on trade deals and policy, has recommended the UK and the EU seek a mutual exemption from each other’s new CBAMs between formally signing the UK-EU Emission Trading Systems (ETS) and the agreement coming into force.
This would shield both UK and EU businesses from over regulation and increased costs, in a new report published today (Monday 13 July 2026). The report recommends this common-sense approach to deliver affordable, clean, secure energy for both the UK and EU.
In January 2021, following its withdrawal from the EU, the UK launched an independent ETS: a ‘cap and trade’ scheme designed to accelerate decarbonisation by limiting overall emissions and placing a price on companies emitting carbon. The EU’s new CBAM – a carbon tax on imported goods – came into force in January 2026. Without any exemptions agreed ahead of January 2027, UK firms will be caught in the second year of the EU’s CBAM. The lack of an agreement could result in UK imports into the EU being charged up to £800m by 2030,
A UK-EU ETS agreement would be particularly beneficial to regions that produce energy-intensive industrial goods such as Yorkshire, the Midlands and the North East, demonstrating how closer UK-EU relations as a whole would help the Government achieve their own industrial strategy objectives. Moreover, independent research has shown that deeper UK-EU integration delivers particular benefits for key manufacturing regions who would see a huge regional economic upswing, with Yorkshire getting at least a £641m boost, the Midlands £1.38bn or higher and the North East at minimum £216m.
Titled, ‘UK-EU Energy Cooperation: Emissions Trading Systems and the Electricity Market’, the report also recommends that:
The UK Government and EU should continue to deepen energy cooperation to deliver affordable, clean, secure energy for businesses and consumers,
The UK and EU should jointly discuss and consult on any future expansion to ETS,
The UK and EU should agree a reciprocal exemption from each other’s CBAMs to cover the period between the ETS agreement being signed and entering into force,
The UK Government should develop a long-term clean energy workforce strategy, with significant investment into STEM education and technical training and support industry in their efforts to retrain and retain skilled workers.
Chaired by Virgin Group and Best for Britain chairman Peter Norris, the UKTBC has held evidence sessions with key stakeholders to determine what the best outcomes for a UK-EU agreement could look like. A UK-EU ETS agreement would reduce complex administrative burdens placed on businesses, improve competitiveness for UK firms which government figures forecast would give a boost of around £3bn to UK GDP by 2040.
With the UK-EU Summit postponed until after summer, campaigners are urging the UK and EU to agree to a mutual CBAM exemption and to finalise the ETS agreement quickly to shield UK operators from months of uncertainty and up to £800m in charges by 2030 on energy-intensive imports, damaging their bottom lines and competitiveness.
Ayesha Chaudhry, Senior Policy and External Affairs Officer, Best for Britain, said:
“A mutual exemption is a good start to shield UK businesses who already face far too many barriers being outside of the single market, while negotiations progress on an overall UK-EU energy agreement.
“We already know the best and most logical option to permanently rescue our plummeting goods exports: renewed EU membership, which would deliver at least a £92bn boost for Britain’s economy and generate significant growth for our manufacturing heartlands.”
Peter Norris, UKTBC Chair, and Chair of Virgin Group and Best for Britain, said:
“With far closer UK-EU cooperation on energy increasingly essential for businesses facing unpredictability, uncertainty and instability both domestically and internationally, negotiations are at a crucial juncture.
“This report recommends the common-sense approach and a clear path forward that will improve markets, strengthen energy security and support much-needed increased investment into Britain’s economy.”
Adam Berman, Director of Policy and Advocacy, Energy UK said:
“The energy sector has long called for a common-sense approach to cooperation with the EU that will deliver better outcomes for the UK economy, households, and businesses, and as this report shows, working together is the best way to ensure the UK and EU are investing in energy security and tackling carbon emissions quickly and at lower cost.
“Linking our emissions trading systems and avoiding unnecessary barriers like the CBAM will benefit both sides, strengthening our energy system and protecting businesses and the wider economy from higher costs.”
Nishma Patel, Policy Director, Chemicals Industries Association said:
“The UK chemical industry is at a critical juncture, and urgently needs a coherent strategy that not only addresses the cost of energy but also supports decarbonisation and long-term industrial resilience. Closer UK-EU cooperation on emissions trading and electricity market integration can help, but it must be matched by domestic action to ensure the long-term viability of strategically important sectors like chemicals.”
