The EU and Britain are poised to agree a deal sparing British businesses from a carbon border tax being introduced in 2026, with officials targeting late spring for the next EU-UK summit.
The EU is introducing a carbon border adjustment mechanism (CBAM) on 1 January targeting imports produced using carbon-intensive methods, such as steel, glass and fertiliser.
Businesses have been concerned about the impact of the EU tax on UK consumer bills and the prospect of cheap goods originally destined for Europe, such as Chinese steel, flooding the British market.
The UK is introducing its own version of the tax but not until 2027. Ministers have been seeking a temporary exemption from the EU tax until the UK and EU align their carbon emission schemes.
The Guardian understands that the EU and UK are working on mechanisms that would shield British exporters from the levy’s impact and that a temporary deal is now viewed by both sides as likely.
An agreement would represent a boost to businesses that rely on trade with the EU. It comes ahead of the next UK-EU summit, which has been pencilled in for May or June.
At this year’s summit, in May, Keir Starmer and the European Commission president, Ursula von der Leyen, agreed to link the UK and EU emission schemes and unveiled a formal defence and security pact.
A deal is expected to conclude within weeks allowing British defence companies to participate in military projects funded by EU defence loans. The first round of applications is due by the end of November.
The EU and UK are also in negotiations over a deal to allow thousands of young Europeans to temporarily live and work in the UK and vice versa.
Rachel Reeves, the chancellor, said last week that ministers wanted to agree an “ambitious” youth mobility scheme that would be “good for the economy, good for growth and good for business”.
She told the Times that officials were in talks over the number of young people that could take part in the scheme annually, their age range and for how long they would be able to stay.
Addressing an EU reception at the Labour party conference in Liverpool on Monday, Stephen Doughty, a Foreign Office minister, said ministers were pursuing “a wider reset with all of Europe”. He said: “This is about Britain back on the world stage, back on the European stage, and a partner for peace, for prosperity and progress.”
A Cabinet Office source said: “We aren’t going to get ahead of negotiations, nor provide a running commentary.”
Naomi Smith, the chief executive of Best for Britain, which has campaigned for the move since May 2023, said: “Some of Britain’s biggest international investors have warned that divergence between the EU and UK on carbon taxes could cost jobs and investment.
“This common-sense move will reduce costs and admin for businesses in the EU and UK while helping to boost economic growth in Britain. The government must now work with our European allies to fully align Britain’s own carbon tax regime to secure these benefits for the long term.”
