CBAM and Electricity: Why the EU-UK Negotiations Are Also Relevant for Importers
CBAM Weekly – Issue 88
EU Council Authorises Negotiations on the Internal Electricity Market
The EU Council has authorised negotiations on the participation of the United Kingdom in the European internal electricity market. This is primarily relevant for the energy market, but also affects companies subject to CBAM. Electricity falls under CBAM, and since 1 January 2026 this also applies to imports from Great Britain.
The Problem with Electricity Trading in Practice
The application of CBAM to electricity is considerably more complex than for other goods. Unlike steel or aluminium, electricity lacks a direct link between production and import. Due to this complexity, several energy companies and industry associations had previously urged the European Commission to temporarily exempt UK electricity trade from CBAM, as the current rules could raise wholesale prices in northwest Europe and undermine market efficiency. The CBAM deduction for carbon charges already paid would in practice be almost impossible to claim for electricity.
What the Planned Agreement Provides For
The internal electricity market agreement would provide for a dynamic alignment of UK legislation with EU rules. It is intended to cover both the wholesale and retail markets and to create a level playing field between both sides. The aim is to improve the efficiency of electricity trading and to facilitate investment in renewable energy. The impact of CBAM on electricity trading is likely to increase in the coming years as UK wind capacity grows and electricity exports rise. The EU needs access to British wind energy, the United Kingdom needs a functioning trading framework, and CBAM has acted as a catalyst here. Without the carbon border levy on electricity imports, the urgency to renegotiate the framework conditions for cross-border electricity trading would likely have been absent. EU Climate Commissioner Wopke Hoekstra made clear in December that there would be no exemption for the United Kingdom before the start of the definitive CBAM phase. As long as the negotiations have not been concluded, the CBAM treatment of UK electricity therefore remains an open question for practical implementation. Alongside the internal electricity market negotiations, talks on linking the emissions trading systems have also been underway since January 2026, which could lead to mutual CBAM exemptions in the long term.
Outlook
CBAM has from the outset been designed as a cross-sectoral mechanism. There are, however, considerable differences between individual industries. The negotiations on the internal electricity market show that some of the most complex application questions in the electricity sector have been recognised politically and are being actively addressed. Companies with UK electricity imports should monitor this development and examine whether their CBAM processes are prepared for various scenarios.
Support
If you would like to know how current developments affect your CBAM obligations or how you can prepare your processes for regulatory changes, please feel free to write to me at helge@kolum.earth.