UK and EU steel carbon markets link and improved trade: better access to UK’s biggest steel export market

19 May 2025

As part of the UK-EU reset, the EU and UK governments have today announced the decision to work towards formally linking their Emissions Trading Schemes (ETS), and improved EU steel quotas - a move that will enable better access to the UK’s biggest export market.

UK Steel has advocated for linking the carbon markets since 2019, as the UK carbon market has been too small and illiquid. The announcement posits the mutual recognition of carbon allowances with the EU, a step that will create a single carbon price across both markets and exempt UK steel exports to the EU from Carbon Border Adjustment Mechanism (CBAM) costs and administrative burdens.

Around 75% of UK steel exports are destined for the EU, a market worth nearly £3 billion. We understand that the improved EU steel quotas will relate to arrangements in relation to the EU’s steel safeguards, which will ease export restrictions for steel angles and heavy sections.

Without linkage or the improved market access in place, UK producers faced the prospect of increased trade friction. EU importers would have had to pay CBAM levies and face tight safeguard quotas on UK steel products – costs that would likely be passed back to UK exporters or result in lost market share.

Gareth Stace, Director General at UK Steel, said:

“UK Steel welcomes the formalised plan to link the UK and EU Emissions Trading Schemes and new, improved market access. This will be a significant step in reducing trade frictions in steel with the EU, our biggest export market, by ensuring equivalent carbon costs and easier exports. It also eliminates the risk of costs from the EU Carbon Border Adjustment Mechanism, where the burden particularly falls on SMEs.

“Crucially, linking the schemes lowers costs for the sector and provides long-term security, particularly if UK ETS prices were to exceed those in the EU in the years ahead, making linkage all the more important for competitiveness.”

Contact details  

Louise Young, Campaigns and Engagement Manager, UK Steel 
07388 370176 | Lyoung@makeuk.org

Notes to editors 

• The Government stated that: “The Commission has confirmed that they will restore the UK’s country-specific steel quota to historic levels and that this will be reflected in a post-2026 regime. This agreement will support the British steel sector by protecting more tariff-free exports to the EU.” We understand this to relate to arrangements in relation to the EU’s steel safeguards, which will ease export restrictions for steel angles and heavy sections.
• The UK steel sector exports 2.4 million tonnes of steel to the EU, worth nearly £3bn. Currently, 75% of UK steel exports are sent to the EU.
• The UK and EU have agreed to formally work towards linking their Emissions Trading Schemes (ETS), enabling mutual recognition of carbon allowances. This allows participants in both systems to use allowances interchangeably for compliance, effectively creating a single carbon price across both markets.
• Government stated that: “By creating a larger carbon market and securing an exemption from the EU Carbon Border Adjustment Mechanism, linking would support investment, growth and a more efficient transition to net zero.”
• The UK Government has previously stated that linking carbon markets can improve emissions reduction efficiency by expanding trading opportunities, increasing market liquidity, lowering transaction costs, and reducing the risk of market abuse.
• The arrangement could mirror the existing linkage between the Swiss ETS and the EU ETS, whereby each retains its own legal framework but allows cross-recognition of allowances. Participants in both systems may take part in allowance auctions across either market.
• Key governance elements of the linkage are subject to negotiation and may include:
• A shared cap on emissions allowances.
• Coordination of supply and cost containment mechanisms.
• A joint oversight and administrative framework.
• A linked ETS would exempt UK steel exports from the EU’s Carbon Border Adjustment Mechanism (CBAM), avoiding the risk of double carbon pricing, and vice versa for the UK CBAM.
• Without linkage, UK exports face CBAM-related costs or reporting burdens, depending on the relative carbon price. These costs are likely to be passed back to UK producers, reducing competitiveness and creating trade barriers.

The UK steel sector: 

• Produced 4Mt of crude steel in 2024 and supplied 35% of the UK’s annual demand of 8.1Mt
• Employs 36,800 people directly in the UK and supports a further 46,000 in supply chains
• The median steel sector salary is £39,245, 24% higher than the UK national median and 33% higher than the regional median in Wales, and Yorkshire & Humberside where its jobs are concentrated
• Directly contributes £1.7 billion to UK GVA and supports a further £2.2 billion
• Directly contributes £3.1 billion to the UK’s balance of trade
• 96% of steel used in construction and infrastructure in the UK is recovered and recycled to be used again and again

 For further information about the steel industry, please see the 2025 press pack, Why the UK needs a strong steel sector or the 2024 UK Steel Key Statistics report.