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The European Union and the United Kingdom have had a long and healthy energy and climate policy relationship. The EU's flagship climate policy — its emissions trading system — was modelled after the UK system which was introduced in 2002. Ideas for the EU's liberalised electricity market design were also borrowed from north of the Channel.  

But Brexit and the consequent political turbulence have strained this relationship. Resuming cooperation would help in meeting a plethora of similar policy goals. The challenge is to make political progress while skirting bilateral red lines: the UK cannot be seen to blindly adopt regulation from Brussels, while Brussels cannot be perceived as being too lenient in allowing the UK to 'cherry pick' policy alignment. 

However, dialogue should accelerate in three areas.

The first no-brainer is ensuring efficient trade of electricity. The post-Brexit temporary trading arrangements leave much wanting. They reduce the efficiency of trade and create regulatory uncertainty over what comes next. The consequence is a weakened investment case for renewable assets, especially concerning offshore wind deployment in the North Sea. 

Secondly, despite both operating carbon pricing schemes, the two are set to levy carbon border tariffs on each other. Although their cap-and-trade schemes are essentially identical, prices fluctuate with domestic market conditions. UK prices were higher in 2022, while EU prices were higher in 2023.

Carbon border tariffs will be especially damaging for the trade of electricity. The EU plans to assign a default carbon intensity to electricity imports, determined by average grid emissions of the exporting country over the past five years. Therefore, electricity exports from the UK in 2026 — which will typically occur during times of high renewable generation —  will be unfairly taxed based on coal plant emissions from 2022. 

Finally, on the international stage, the two should leverage shared climate policy and ambition, cooperating closely at international fora such as the UNFCCC process. 

For more about the EU and UK’s energy relationship, read the Analysis: ‘’

The Why Axis is a weekly newsletter distributed by Bruegel, bringing you the latest research on European economic policy.