Brussels moves one step closer to exempting UK imports from its carbon tariff

The EU has taken a major step toward exempting UK goods from the carbon border tax that will hit importers from 2026.

On 16 July, the European Commission recommended starting formal negotiations with the UK to link their Emissions Trading Systems (ETSs). The long-expected move confirms a path for mutual CBAM exemptions, meaning that UK goods would be excluded from border charges, and vice versa once the UK introduces its own CBAM in 2027.

The Commission's recommendation memo called for a future EU-UK ETS agreement to ensure that the UK shares the EU's climate ambition, aligns its regulatory frameworks and has a broadly similar scope. The aim is to maintain a level playing field between the two tightly connected markets and avoid trade distortions.

For the UK, this could require tightening free allocation rules and pushing its carbon price closer to the EU average of €70/t. UK Allowances currently trade at around £50/t, but prices are projected to rise in the second half of the year amid growing policy clarity.

While this marks a political green light, implementation will likely take time. All EU member states must first approve the launch of formal negotiations. Once approved, legal, technical, and administrative discussions are expected to continue well into 2026 or beyond, by which time the EU CBAM will already be in force.

Turkish climate law paves the way for new carbon pricing regime

Türkiye has officially laid the groundwork for a national carbon pricing system with its first-ever climate law.

The new law, adopted earlier this month, provides the legal backbone for launching a national emissions trading system (ETS). It introduces the possibility of a CBAM to support the country’s 2053 net zero goal. On 22 July, the Ministry of Environment released a draft for secondary legislation outlining the design of the national ETS.

The Ministry's proposal includes a pilot phase starting in 2026, offering reduced penalties and a three-year window for companies to obtain greenhouse gas permits. Full implementation is scheduled for 2028.

The Turkish ETS will cover sectors similar to those regulated under the EU ETS, helping domestic industries stay competitive as carbon pricing becomes more prominent in global trade.

Although the law provides the legal basis for a CBAM, it is not a certainty that Türkiye will introduce such a mechanism. Under the new law, a CBAM would only be introduced if rising domestic carbon prices make it a necessity.

Emerging carbon markets like Türkiye’s reflect a strategic response to the EU CBAM, one of the first real-world signs of a growing “climate club” dynamic. As the EU puts a price on the carbon content of imports, major trading partners are under pressure to adopt similar measures and internalise the carbon cost. Türkiye, which supplies nearly 30% of the EU’s imported cement and 9% of its iron and steel, ranks among the most exposed countries to the CBAM.

The draft is open for public consultation until 4 August.

The EU will use CBAM revenue for export relief

Up to €70 million of CBAM revenues will be used to compensate EU exporters for their carbon price payments from 2026, the European Commission has announced.

Exporters are at an increasing disadvantage on global markets as EU carbon prices rise and free allowances are phased out, leading for regular calls for an offsetting mechanism to be introduced. For steel alone, this puts €25 billion worth of EU products at a disadvantage each year.

Some industry voices have called for the system of free allowances to be retained for exporters.

However, in an announcement by Climate Commissioner Wopke Hoekstra, the Commission made clear that it does not intend to retain free allowances for exporters – a system considered by some to fall foul of WTO rules.

Instead, the incentive-based scheme will use some of the revenues from CBAM to compensate exporters at risk of carbon leakage, as long as they can demonstrate credible decarbonisation plans.

The European Commission will table a legal proposal by year-end which ensures "equal treatment for all goods, whether produced and sold in the EU, imported into the EU or exported".

The forecast €70 million of export compensation compares with a total of €2.1 billion revenues expected from CBAM in its first year.

Commission seeks industry feedback on the future of CBAM

The European Commission has launched a public consultation to shape the next phase of CBAM.

Following the 2025 comprehensive review, the Commission will propose expanding the scope of the policy to finished goods down the value chain. As part of the Steel and Metals Action Plan, steel and aluminium products such as automotive parts and cookware, have already been identified as key candidates.