On Monday 19th May 2025, the UK Government announced a new agreement with the European Union that could have far-reaching implications for the future of British industry – including aluminium. The agreement, described by the Prime Minister as a “landmark in rebuilding strategic economic cooperation”, aims to ease carbon-related trade tensions and unlock new pathways for energy access and industrial participation.
While many of the initial headlines have rightly focused on the benefits to steel and the automotive sector, ALFED has reviewed the details of the agreement and identified several areas of direct and potential relevance for the UK aluminium value chain.
Carbon Market Linkage and CBAM Risk Mitigation
The most immediate implication lies in the decision to begin linking the UK and EU carbon markets. This move is being positioned as a way to eliminate or avoid the duplication of carbon taxes on goods such as steel, cement, and, eventually, aluminium, travelling between the UK and the EU.
This is highly significant. Aluminium is set to be brought fully into scope under the EU’s Carbon Border Adjustment Mechanism (CBAM) from 2026. Without equivalency or market alignment, UK aluminium exports to the EU could have been subject to additional carbon pricing on top of UK Emissions Trading Scheme (ETS) obligations. Monday’s announcement creates a route to avoid this outcome, if properly structured and extended to include aluminium.
ALFED continues to press the Government to confirm whether aluminium will benefit from this new pathway. It also reaffirms our call for a full aluminium-specific impact assessment of the UK CBAM, something which is still lacking despite the policy’s progression through draft legislation.
A Step Toward EU Electricity Market Access
The agreement also opens negotiations for the UK to participate directly in the EU’s shared electricity market. If successful, this could improve the efficiency of cross-border electricity trading, with long-term implications for grid stability and pricing.
For aluminium processors, particularly remelters, recyclers, and those with high energy loads, this could be a game-changer. Access to a more liquid, competitive electricity market across the continent could help to ease price volatility and, over time, contribute to improved energy affordability – a longstanding concern across our membership.
However, any access to the EU’s power market would come with conditions, likely including regulatory alignment on carbon pricing and market transparency. ALFED will closely monitor the progress of these talks and continue to represent the interests of energy-intensive aluminium businesses in all relevant forums.
New Strategic Opportunity: The €150 Billion SAFE Defence Fund
Another notable inclusion in the deal is the UK’s potential access to the EU’s new Security Action for Europe (SAFE) fund – a €150 billion investment instrument designed to support cross-border defence projects through loans and financing.
This may not immediately appear to relate to aluminium, but the potential opportunity is clear. ALFED members working in extrusion, forging, or advanced component manufacturing for aerospace and defence could now have access to a major new stream of industrial funding, provided they are able to meet the project criteria set under EU frameworks.
We will be engaging with relevant government departments to better understand what this access could look like in practice and will share further guidance with members who may wish to explore SAFE-funded workstreams.
Towards a More Coherent Trade and Industrial Framework
The wider tone of the agreement signals a welcome shift towards strategic alignment between the UK and EU on issues such as net zero, industrial competitiveness, and defence capability. For too long, aluminium has been left in a policy blind spot, often caught between carbon regulation on the one hand, and international trade barriers on the other.
This agreement shows that change is possible, but it must now be followed through with detailed engagement on how aluminium will be treated within these new frameworks.
ALFED is already requesting clarification on:
- Whether aluminium is included in the carbon market linkage provisions,
- The role of indirect emissions in both EU and UK CBAM systems, and
- How any CBAM revenue collected in the UK will be reinvested into decarbonising domestic industry.
We are also exploring whether joint UK-EU industry engagement is now possible to avoid fragmentation between the two markets and reduce regulatory uncertainty.
Looking Ahead
As this agreement moves from headline to implementation, ALFED will continue to work with government and industry partners to ensure that the interests of the UK aluminium sector are clearly heard.
In the meantime, we encourage members who are active in export, defence supply chains, or energy-intensive operations to review how this evolving landscape may affect their operations and opportunities.
If you would like to discuss any of the points raised or feed into our next submission to Treasury and DBT, please contact us directly via alfed@alfed.org.uk
For more information, please visit:
https://www.gov.uk/government/news/pm-secures-new-agreement-with-eu-to-benefit-british-people
https://www.gov.uk/government/publications/ukeu-summit-key-documentation
