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There is a particular kind of British political defeat which involves no battle, no debate, and barely a press notice. It happens slowly, in joint statements and technical annexes, while the country is looking the other way. The energy sector is in the middle of one now. On 19 May 2025, with little fanfare, the Government announced its intention to link the UK's emissions trading scheme to the European Union's. A technical fix, said the briefing notes. A sensible piece of cooperation. In practice, it is something rather grander: the formal abandonment of one of the few economic dividends Brexit actually delivered.
For four years the UK Allowance, the carbon permit British industry must buy in order to emit a tonne of CO2, has traded at a discount of around seventeen euros to its EU counterpart. That discount is not an accident of the market. It is the difference between a regime designed by Whitehall, with one eye on industrial competitiveness, and a regime designed by Brussels, where industrial competitiveness is at best a rounding error. Linkage will erase the discount. Carbon prices will converge upwards, as economic logic insists they must when allowances become fungible. Energy intensive manufacturers, already paying the highest industrial electricity prices in the developed world, will pay more still.
The numbers are by now familiar to anyone willing to look. UK industrial power costs roughly 25p per kilowatt hour, against an EU 14 median of 11p, an American 6p and a Chinese 7p. Steel, chemicals, ceramics, glass: the industries on which any serious nation rests are migrating somewhere cheaper. Whitehall responds with subsidy schemes funded by levies on the very firms it is trying to keep. It is a peculiar form of economic nationalism in which the state taxes British workers in order to underwrite the German clean tech supply chain.
The defenders of all this make a curious coalition. There are the green groups, for whom alignment with Brussels is a moral duty regardless of cost. There are the City lawyers, who quite reasonably prefer one regulatory regime to two. There are the diplomats, for whom convergence is its own reward. And there is, behind it all, a Treasury which has discovered that carbon prices make an excellent stealth tax and would rather not have its revenue base diluted by anything as awkward as competitiveness. Notice what is missing from this coalition. Industry. Workers. Consumers. The voters of those red wall constituencies whose factories are quietly closing. None of them feature.
Brexit did not have to be like this. The legal freedoms it conferred on UK energy policy were, by any historical standard, considerable. Outside the EU, Britain could have used state aid to back small modular reactors, gas peaking plants and energy intensive industries on terms Brussels would never permit. It could have torn up the Energy Performance of Buildings Directive and the heat pump targets which follow from it. It could have run a carbon market disciplined by, but not chained to, the EU's. It could have asked, for the first time in a generation, what an energy system designed for British circumstances might actually look like.
Instead the Government has chosen what officials politely call alignment by stealth. The Seventh Carbon Budget reads like a Brussels white paper with a Union Jack on the cover. The new UK Carbon Border Adjustment Mechanism is a slightly delayed copy of the EU original, leaving British exporters exposed to a twelve month overlap window during which they will pay both regimes. The Energy Profits Levy stays at 78 per cent until 2030, which is one reason why not a single new exploration well was drilled in the North Sea in 2025, the first such year since 1964.
The truly revealing fact is not that any of this is happening; it is that it is happening without argument. The Commons has not voted on ETS linkage. No party has put the question to the country. Britain is being quietly returned to the EU's energy regime without the inconvenience of a treaty. The Brexit referendum was, among other things, a vote about who decides. On energy, Britain is still deciding to let someone else decide. The bills, predictably, are coming home anyway.
