British consumers could face further price increases to their gas and electricity bills from next year as a new European Union energy tax comes into force.
The UK is trying to get an exemption from the EU’s new carbon border tax (CBAM) on energy used to produce goods which will come into force from January 1, 2026.
But if ministers fail in their negotiations, British businesses will face a new tax on exports to the continent which are made through carbon-intensive methods.
Industry experts fear such a levy would increase consumer bills and impact exporters who may have to give the EU up to £800million in carbon tax payments each year.
The plan – dubbed a ‘Brexit energy tax’ by the i newspaper, which revealed the news – could also damage jobs and derail Chancellor Rachel Reeves‘s plans for growth.
Billed as part of a ‘reset’ in relations after Britain left the EU in 2016, the two sides announced in May that they would link their carbon emissions trading systems.
But market experts believe Britain will struggle to link its carbon market to the EU’s in time to avoid UK companies facing the CBAM tariff, which will impose fees on the CO2 emissions associated with imports of steel, cement and other goods.
To make a link happen, the UK needs to adjust its national rules for issuing carbon trading permits; bring its emissions permit auctions in line with EU rules; and change its national cap on how much companies covered by the carbon market can emit.
Cabinet Office minister Nick Thomas-Symonds speaks about the future of the UK-EU relationship during an event at the Old Queen Street Cafe in Westminster yesterday
Workers in the rail and sections hot end rolling mill at British Steel’s site in Scunthorpe in April
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The EU and UK schemes are also not yet aligned on how many free CO2 permits they give industries, and the EU carbon market has a special ‘reserve’ which adds or removes permits from the market to help stabilise prices.
Britain’s scheme currently lacks a ‘reserve’, but it has a cost containment mechanism that can act as a ceiling on prices – something the EU scheme does not have.
Energy price cap per unit and standing charges: How the rates are changingÂ
ELECTRICITYÂ
July 1 to September 30, 2025
25.73 pence per kWh51.37 pence daily standing charge
October 1 to December 31, 2025
26.35 pence per kWh53.68 pence daily standing charge
GASÂ
July 1 to September 30, 2025
6.33 pence per kWh29.82 pence daily standing charge
October 1 to December 31, 2025
6.29 pence per kWh34.03 pence daily standing charge <!- – ad: https://mads.dailymail.co.uk/v8/us/news/none/article/other/mpu_factbox.html?id=mpu_factbox_1 – ->
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Industry group Energy UK has said linkage negotiations could conclude within a year – but that Britain should seek an exemption from the CBAM until the link is sealed, in case talks drag into 2026.
The UK plans to launch its own carbon border tariff a year later, in 2027.
Any exemption would only need to last for as long as the two sides to secure a deal on linking the EU’s emissions trading systems (ETS), which industry experts believe could take six months to a year.
EU relations minister Nick Thomas-Symonds is said to be trying for a temporary arrangement to avoid the impact of the CBAM until an ETS deal is agreed.
He was asked about CBAM at an event yesterday, after regulator Ofgem revealed the energy price cap would rise by 2 per cent from October 1 for a typical household in England, Wales and Scotland.
Mr Thomas-Symonds said: ‘I’m very conscious of that deadline, 1 January, 2026. As I am going to be negotiating, I am very conscious of that deadline and the potential impact of it in terms of not being able to get arrangements in place.’
He also denied that aligning with the EU emissions trading scheme would lead to higher prices – after the Conservatives previously raised concerns over the move.
He said energy-intensive carbon industries such as steel and chemicals, which have come under pressure from high costs, would avoid having to pay about £7million in carbon taxes that they would otherwise have paid.
He said: ‘I don’t accept that analysis because if you look at the linkage of our emissions trading systems, first of all it gives us access to a much larger decarbonisation market, which will have, I would suggest, much more efficient downward pressure over time (on bills).’
A Cabinet Office source later told the i: ‘We are not going to pre-empt our ongoing conversations with the EU regarding summit outcomes, including linking emissions trading systems.’
And a Government spokesperson told the Mail: ‘We are working to protect British businesses by seeking to agree an emissions trading systems link as soon as is feasible.’
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Simon Francis, co-ordinator of the End Fuel Poverty Coalition, told the Mail today: ‘UK–EU energy cooperation should focus on how it is able to help bring down bills and boost energy security.
‘Linking our electricity systems means British households can benefit from the cheapest power available – such as surplus nuclear from France on cold, still winter days – helping to cut the cost of electricity.
Four top tips for saving money on your energy bills this autumnÂ
By GREG MARSHÂ
Take a meter reading on September 30:Â Ofgem’s energy price cap increases on October 1. If you don’t have a smart meter, make sure you take a manual reading just before then so you aren’t charged for extra energy under the new higher rates.
Make sure your smart meter isn’t in dumb mode: Millions of smart meters in Britain aren’t working, meaning people are being charged based on estimated usage. This can lead to overpaying by hundreds. If readings on your bill are marked ‘e’, they’re estimates and could be wrong. You should submit regular manual readings if this is the case.
Don’t ditch your direct debit: If you discover your direct debit is too low or too high, don’t ditch it entirely ¿ it’s the cheapest method of paying for energy. Customers who pay by standard credit currently pay around £100 per year more than direct debit customers.
Save £100s if you’re on a variable tariff: The majority of households are on a variable deal and can save by switching to a good-value fix.
GREG MARSH is chief executive of AI money-saving tool Nous.coÂ
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‘In addition, experts claim that over time, aligning our carbon pricing systems could help to bring greater stability to the wholesale market. But we need to make sure that household energy bills are not hit in the short term and that the benefits are felt now and not at some vague point in the future.’
Market experts told Reuters in June that Britain would struggle to link its carbon market to the EU’s before the 2026 deadline.
Ben Lee, senior emissions analyst at Energy Aspects, said at the time: ‘It’s probably still likely to take many years before linkage takes effect. The earliest is 2028, but it’s more likely to be 2029 or even 2030.’
ClearBlue carbon market analyst Yan Qin added: ‘Full linkage will take several years given the complexity of the process, purely from a technical perspective.’
Household bills could rise further due to CBAM because the price of carbon allowances is passed on to electricity suppliers via the wholesale market price – which contributes to the price cap, according to the ‘UK in a Changing Europe’ think tank.
It comes after Ed Miliband’s Net Zero ‘lunacy’ was last night blamed for a shock rise in energy bills that will see millions of households pay more this winter.Â
Ofgem said ‘policy costs’ imposed by the Energy Secretary have contributed to the price cap rising at double the rate forecast by industry analysts.
Households will pay more to switch off wind turbines at times when they are generating too much power – as well as funding gas plants to step in when the wind is not blowing.
Millions of ordinary families will also face higher costs to subsidise bills for those on benefits as part of a scheme that has been expanded by Mr Miliband.
At last year’s election, Labour pledged to slash energy bills by £300. But the latest rise means that the energy price cap will be £187 a year higher than when the party entered office.
The rise in typical annual bills by about £35 to £1,755 a year from October 1 comes despite the cost of buying energy on global wholesale markets falling. It will pile more pressure on to already strained household budgets.
Tory energy spokesman Claire Coutinho said the latest increases were directly linked to Mr Miliband’s controversial dash to decarbonise Britain’s entire electricity supply by 2030.
Shadow energy secretary Claire Coutinho (left) blamed the latest price cap rise on balancing costs and Labour policies as she accused Ed Miliband of being ‘not interested’ in cutting bills
She told the Daily Mail: ‘Labour promised to cut energy bills by £300 but bills will soon be almost £200 higher than when they took office.
‘Ed Miliband tried to blame gas for today’s bill rises – but the truth is clear. Gas prices are falling, but bills are soaring to pay for wind farms and for Ed’s decision to increase energy levies on ordinary households.’
Why are energy bills rising again?
Households across Britain are facing another energy bill increase from October 1 after the regulator raised its price cap by 2%.
Ofgem’s price cap – which sets a maximum rate per unit and standing charge that can be billed to customers for their energy use – will rise to £1,755 from the current £1,720 for an average household per year, around an extra £2.93 a month, over the three-month period of the price cap.
– What is Ofgem’s price cap?
The energy price cap sets a maximum price that energy suppliers can charge consumers in England, Scotland and Wales for each kilowatt hour (kWh) of energy they use.
The figures provided by Ofgem indicate what a household using gas and electricity, and paying by direct debit, can expect to pay if their energy consumption is typical.
It is important to note that it does not limit a home’s total bills because people still pay for the amount of energy they use – so if it is above the average they will pay more, and if it is below they will pay less.
Energy is regulated separately in Northern Ireland.
– Why is the price cap rising?
The price cap is usually largely driven up or down based on the wholesale costs of energy, but it is different this time.
Ofgem says this price cap increase is driven by an increase in electricity ‘balancing costs’ – incurred by network operators to ensure a stable electricity supply, for when there is both too much power and too little power in the system, with the level set by the National Electricity System Operator. This is adding around £1.23 a month to the average household bill.
Other factors include costs associated with the extension of the Warm Home Discount scheme, adding another £1.42 a month.
Regardless, however, Ofgem warned that ‘we will continue to see fluctuations in our energy prices until we are insulated from volatile international gas markets’.
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Ms Coutinho warned further rises were likely following Mr Miliband’s ‘botched’ decision to guarantee even higher prices for new wind farm developers, adding: ‘If we want to address the cost of living, and have a strong and economy we need to stop Ed’s ideological lunacy and put cheap energy first.’
The rise came as Donald Trump warned that Mr Miliband’s obsession with Net Zero was driving up UK electricity prices. The US President said: ‘If you look at what’s happening in the UK, their energy costs have gone through the roof – it’s because of wind.
‘They want to close up [the North Sea] where they have oil… and they are building windmills all over the place. I tell them, ‘You’re my friends but, man, you are going to have a bad awakening very soon’.’
Former Tory business secretary Jacob Rees-Mogg said the latest rise in bills showed how ‘the Net Zero obsession is impoverishing the nation’.
He added: ‘Paying wind farms not to supply energy is a particularly silly part of this nonsense.’
The energy bill increase adds to the gloom facing households already being squeezed by the rising cost of living, with inflation at an 18-month high and expected to climb higher still later this year.
Ofgem’s price cap announcement affects around 34million customer accounts paying their gas and electricity bills on standard variable tariffs.
The 2 per cent rise was double the 1 per cent forecast by analysts at consultancy Cornwall Insight. It currently predicts the cap will fall back to £1,712 in January.
Ofgem assesses the cap every three months – allowing suppliers to charge more when costs rise but forcing them to cut prices when costs fall.
It revealed that around £15 of the latest £35 increase is accounted for by ‘electricity balancing costs’.
They include switching off wind farms when they are producing too much to be able to be transmitted to where it is needed. They also include the cost of firing up gas power stations when not enough power is available.
Another factor is Mr Miliband’s warm homes discount, which will knock £150 off energy costs this winter for six million low-income families but add £17 to overall bills.
The policies mean that bills are due to go up within weeks, even though the wholesale cost of energy is falling – by a typical £15 a year.
Ofgem’s latest announcement is likely to provoke further scrutiny of Labour’s drive to discard North Sea oil and gas supplies and rely on renewable sources as well as nuclear power.
And the sharp rise in the cost of keeping wind generators turned off is likely to fuel further anger.
According to the National Energy System Operator, which runs the network, balancing costs climbed to £2.7billion in the 2024/25 financial year including £1.7billion in constraint costs – the part that covers turning off wind farms.
There are concerns the carbon border tax could derail Chancellor Rachel Reeves’s growth plan
It has predicted this to rise further during the 2020s as new turbines are put up at a rate that outstrips the expansion of the network to transmit the power they generate. The figure climbs to more than £7billion under one scenario.
Energy minister Michael Shanks claimed higher prices were the result of a ‘fossil fuel penalty being paid by families, businesses and our economy’.
He said: ‘The only answer for Britain is this Government’s mission to get us off the rollercoaster of fossil fuel prices and on to clean, homegrown power we control, to bring down bills for good.’
Gillian Cooper, of Citizens Advice, said: ‘The price cap will remain drastically higher than before the energy crisis.
‘With millions of households already in debt as the colder months draw in, this news offers no comfort. Our advisers are bracing for more calls as people struggle to pay.’
The energy price cap was introduced in January 2019 and sets a maximum price that energy suppliers can charge consumers in England, Scotland and Wales for each kilowatt hour (kWh) of energy they use.
It does not limit total bills because householders still pay for the amount of energy they consume.