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The European Union is exploring changes to its Carbon Border Adjustment Mechanism (CBAM) that could avoid pushing up electricity prices in the UK, according to Argus Media.
Before leaving the EU, the UK was part of Europe’s integrated electricity and gas markets and participated in the EU Emissions Trading Scheme (ETS), which sets a common carbon price. Today, the UK sits outside the EU’s Internal Electricity Market and runs its own carbon trading system.
CBAM is designed to protect EU industry by applying a carbon cost to imports from countries with weaker climate rules. Electricity is included because it is not always produced from renewable sources. This means power exported from Great Britain to the EU could face a carbon charge at the border.
Electricity flows constantly between Britain and neighbouring EU countries through undersea cables. While the UK is currently a net importer of power, it is expected to become a net exporter as new offshore wind capacity comes online in the North Sea.
Although most of this exported electricity will be renewable, EU rules currently do not allow the carbon content of individual electricity flows to be tracked. As a result, UK power sold into the EU would face a default CBAM charge based on historical emissions. That would raise its price and could make it uncompetitive.
If UK power cannot find buyers in the EU, excess wind generation would be curtailed, with British consumers paying the cost. At the same time, EU buyers would lose access to relatively cheap, green electricity — creating a strong incentive on both sides to find a solution.
According to Argus Media, the EU is now considering using actual emissions data rather than default assumptions when assessing electricity imports. The EU is also working on a new definition of “market coupling” that could allow the EU and UK carbon markets to be linked, reducing the impact of CBAM. However, progress is expected to be slow, potentially taking several years.
Brexit has already made cross-border electricity trading more expensive. Inside the EU market, interconnector capacity is automatically allocated when electricity is traded. Outside it, UK traders must book capacity separately, adding cost, delay and risk. EnergyUK estimates this has added around £10bn to UK energy bills during the current parliament.
Northern Ireland adds further complexity. While it has a separate electricity market from Great Britain, it is indirectly linked to the EU market through the all-island electricity system with the Republic of Ireland. Any CBAM exemption for Northern Ireland but not Great Britain could effectively create a new internal energy border within the UK, raising political sensitivities.
