The European Union may be preparing a major change to its Carbon Border Adjustment Mechanism. A leaked draft EU–UK summit declaration reportedly proposes exempting British goods from the levy, with the exemption running retrospectively from 1 January 2026.
The proposal is tied to an agreement to connect the EU emissions trading system and the UK emissions trading system, which could remove carbon-related trade costs between the two markets. The exemption is still unconfirmed and would need the necessary legal steps before companies could rely on it.
Rapporteur first reported the development after obtaining a draft declaration prepared for the 20 November EU–UK summit in Brussels. The document reportedly indicates that linking the two carbon markets could let British goods avoid the EU carbon levy, including from the start of 2026. The proposed exemption has not yet become law.
The arrangement builds on commitments from the May 2025 EU–UK summit. In their Common Understanding, both sides agreed to pursue a formal link between their emissions trading systems so that each could exempt the other from its carbon border regime. The European Council authorised negotiations on that link in November 2025 and identified reciprocal exemptions as a possible benefit. The UK government has confirmed that talks are under way.
For business, the stakes could be large. EU importers of British steel, aluminium, cement, fertilisers and other covered products could potentially avoid carbon-border obligations on qualifying UK-origin goods. British manufacturers could face lighter administration and potentially easier access to European customers.
The proposal would still require changes to EU legislation, with approval from both the European Parliament and the Council. Article 2(6) of the EU CBAM Regulation requires a fully linked emissions trading agreement and an effective carbon price before a third country can qualify, and that country must also be listed in Annex III. A January 2026 start date raises further questions because the EU’s definitive regime only began operating on that date, and no public legal mechanism has been set out for applying an exemption retrospectively.
The UK is preparing its own carbon border mechanism for January 2027. The Finance Act 2026 gives powers to exclude goods from jurisdictions with linked emissions trading systems, which could open reciprocal treatment for EU exporters.
The 20 November summit may bring more political clarity. Reuters and the Financial Times have reported that some parts of the wider EU–UK package may still need further talks after the meeting. Until a linking agreement is concluded and the legislation takes effect, companies are expected to keep meeting existing reporting and compliance rules. The reported proposal nevertheless points to a faster pace of EU–UK carbon-market integration, with effects that reach beyond the border levy itself.