UK-EU carbon market link could cut costs and boost clean tech trade

More to net zero news: Aligning EU and UK ETS; Climate Change Committee publishes advice for the Scottish Government; Project VOLT launched

Chief Technology Officer at NZTC, Luca Corradi, and his team closely monitor the global net zero landscape. They follow the trends, policies, investments, and technological innovations that, together, bring the world closer to its shared climate goals. Learn more about our horizon scanning service. This week, Luca and his team look at the new agreement linking EU and UK Emissions Trading Schemes, Scotland’s Carbon Budgets and Project VOLT.

An agreement has been made to align UK and EU ETS at the UK-EU Summit

The UK Government has confirmed a new agreement with the EU that includes linking the EU and UK Emissions Trading Schemes (ETS). The ETS is a cap-and-trade system which caps the total level of greenhouse gas emissions, and creates a carbon market to incentivise decarbonisation. The talks also saw commitment to continued regulatory exchanges on nascent technologies such as hydrogen, CCUS and biomethane.

Following Brexit the UK left the EU ETS and had to establish a separate market. Our market is smaller and less liquid which can make prices less stable. Having a separate system would mean the EU’s Carbon Border Adjustment Mechanisms (CBAM) – a tax on exports of electricity and goods from countries into the EU – applies to UK industry.

Linking the EU and UK trading scheme could drive down the cost of UK electricity by stabilising prices and reducing trade friction and itcould save UK industry from paying the EU CBAM. Estimates suggest the CBAM could have resulted in UK exporters paying up to £800m to the EU by 2030.

It will also remove disincentives for EU emitters to store CO₂ in the UK, making the UK CCUS industry more competitive. The CCSA says a Europe-wide CO₂ storage market could bring down CO₂ transport and storage costs by 28%, as well as reduce emissions.

The Climate Change Committee (CCC) has published its advice for the Scottish Government to achieve Scotland’s target for net zero by 2045

The Climate Change (Scotland) Act 2009 (‘the Act’) sets an ambitious target to reach Net Zero greenhouse gas emissions in Scotland by 2045. Getting to Net Zero by 2045 is achievable but will require immediate action, at pace and scale. The CCC recommends the Scottish Government sets its carbon budgets, including Scotland’s share of international aviation and shipping emissions, at annual average levels of emissions that are:

• 57% lower than 1990 levels for the First Carbon Budget (2026 to 2030)
• 69% lower than 1990 levels for the Second Carbon Budget (2031 to 2035)
• 80% lower than 1990 levels for the Third Carbon Budget (2036 to 2040)
• 94% lower than 1990 levels for the Fourth Carbon Budget (2041 to 2045)

Making electricity cheaper through removing policy levies from electricity bills will be essential. In the CCC pathway, emission reductions in the First and Second Carbon Budgets are predominantly met from electrification and measures to reduce demand for high-carbon activities, with EVs and heat pumps particularly important. There are also important contributions from low-carbon farming, low-carbon fuels, and carbon capture and storage (CCS). For the Third and Fourth Carbon Budgets, nature and engineered removals play more of a role in offsetting emissions where electrification isn’t possible.

Distribution of emissions reductions during each carbon budget in the Balanced Pathway in Scotland

Source: Climate Change Committee

Read the report

Project VOLT, smart microgrid study, has launched to help industries in North East England decarbonise

VOLT (Vector-Optimised Microgrid Operations for Industrial Low-carbon Transition), a discovery-phase project led by Northern Powergrid, LCP Delta and Newcastle University, has received funding from Ofgem’s Strategic Innovation Fund (SIF) to help industrial and commercial sites in North East England decarbonise and boost energy resilience. The discovery phase will run over three months.

Project VOLT will explore how microgrids – local energy systems that can operate independently or alongside the main grid – can combine renewable energy, storage, hydrogen, and smart technologies to deliver cleaner, more reliable energy to high-emission sites such as ports, airports, and manufacturing hubs. The project will also look into any regulatory or infrastructure challenges that could slow progress, helping to develop a framework that could be applied across other industrial regions in the UK.

The study will assess how microgrids can deliver benefits such as reducing peak energy demand and lowering network running costs. Early estimates by LCP Delta suggest that industrial and commercial sites could save 10–15% on energy bills while reducing emissions by up to 10,000 tonnes of CO₂ per year. Sites using microgrids could also benefit from lower network charges and generate new income through participation in flexibility and grid-balancing services.

Image Source: Northern Powergrid

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