Amidst changing geopolitical realities, the summit’s outcomes reflect a determination to build upon the existing Withdrawal Agreement and Trade and Cooperation Agreement to strengthen Europe’s—i.e. the U.K.’s and EU’s joint—position in the world. The success of the new Strategic Partnership now depends on the next steps to be taken to make good the commitments, with further negotiations and legal analysis being necessary to pin down concrete policy and regulatory changes.
This briefing provides a high-level look at the summit’s outcomes which are of greatest relevance to defense, energy, and the climate transition, and highlights potential opportunities and implications for businesses and financiers. Details of the wider outcomes of the summit can be found at U.K./EU Summit - Key documentation - GOV.UK or EU-U.K. summit 2025: outcome documents - Consilium.
The SDP paves the way for scaling U.K.-EU defense industries via EU SAFE
In a significant move to formalize U.K.-EU cooperation on defense, the parties adopted the SDP to frame their partnership across wide-ranging priorities in a “comprehensive, balanced and mutually beneficial” way. The general framework is based on dialogue and consultation mechanisms, ensuring regular information exchange and representation at the highest level as well as closer institutional cooperation.
The EU and the U.K. are united in their common aims to accelerate delivery on their military capability targets more economically, increase interoperability of their armed forces and reinforce their joint contribution to NATO. The SDP has therefore committed the parties to “swiftly explore any possibilities for mutually beneficial enhanced cooperation” created by the EUR150 billion Security Action for Europe (“SAFE”) instrument, which is designed to boost defense investment through common procurement in priority areas.1
An important next step will be for the EU and the U.K. to speedily establish a framework for joint investment in the European defense industrial base. Notably, U.K. firms’ participation in the SAFE initiative is expected to hinge upon the applicable eligibility conditions (e.g. requirements around contractors’ and subcontractors’ management structures, control and place of establishment) and U.K. financial contributions which are yet to be disclosed.
Businesses should keep a lookout for legislative and policy changes (including the upcoming EU Defense Omnibus Simplification regulation) as Europe steps up on strengthening its security internally and externally. To that end, it is worth bearing in mind other key areas where the U.K. and EU have committed to maintain “flexible and scalable engagement” under the SDP, including:
- Conducting exchanges on security issues of common interest and continued cooperation in the area of sanctions.
- Promoting a free and rules-based maritime security environment.
- Possible mutual involvement in the parties’ respective security and defense initiatives.
- Conducting exchanges on space security and promoting norms, rules and principles of responsible behavior in outer space.
- Conducting exchanges on security and resilience of emerging disruptive technologies e.g. international governance efforts on the responsible use of artificial intelligence in security and defense.
- Conducting exchanges on cyber threat-related policy frameworks and practical cooperation in multilateral forums to further cooperate on cyber issues.
- Strengthening joint efforts to counter foreign information manipulation and interference, illicit finance and corruption in third countries, terrorism and violent extremism.
In the endeavor to scale up U.K.-EU defense capabilities, commentators have suggested that public-private partnerships could play a role in financing investments in defense equipment, critical infrastructure and advanced technologies, building on previous examples, but views are divided as to the commercial viability of certain defense needs.
Spotlight on the climate and security nexus ignites hope of stronger U.K.-EU leadership in multilateral forums
Climate priorities notably featured in the SDP and the Joint Statement issued at the summit. The parties committed to “explore the possibilities of a regular exchange on the climate change and peace, security and defense nexus, exchanging views on policy approaches and promoting joint action, including on data and analytics”. They also committed to enhancing exchanges on climate and security in multilateral forums in which they are jointly active.
The affirmation in the Joint Statement that “the climate and nature crises are existential threats to global prosperity and security” underscores the need for urgent action, including exponential investment in the right places. In the wake of the U.S.’s broad retreat from the arena of multilateral climate action, the parties also reiterated their commitment to the goals of the Paris Agreement and the Kunming-Montreal Global Biodiversity Framework, and emphasized the importance of delivering the Sustainable Development Goals worldwide.
Through implementing these commitments, a stronger and more unified European stance should galvanize efforts required globally to address climate change mitigation and adaptation needs. It remains to be seen whether (if at all) the outcomes of the summit will create renewed impetus for attaining greater interoperability of EU-U.K. sustainability regulations.
Relink of EU and U.K. Emissions Trading Schemes (ETS) to drive decarbonization of carbon-intensive industries
At the summit, the U.K. and EU confirmed that they will work towards relinking their ETSs, subject to a joint governance mechanism. This confirmation builds upon the U.K.-EU Trade and Cooperation Agreement, in which the parties agreed to cooperate on carbon pricing and “give serious consideration to linking their respective carbon pricing systems in a way that preserves the integrity of these systems and provides for the possibility to increase their effectiveness.”
A relink would create conditions for goods originating in the U.K. or the EU to benefit from mutual exemptions from the respective carbon border adjustment mechanisms (CBAMs) which would result in savings for in-scope businesses in terms of costs and administrative burdens.2
However, the linking agreement is expected to require financial contributions from the U.K. to support relevant costs associated with the EU’s work in this policy area, without the U.K. having the right to participate in the legislative work of the European Council or its preparatory bodies. The U.K. can, at least, expect to be involved “at an early stage” of the decision-shaping process of relevant EU rules underpinning the ETS link.
Positively, the link would create a larger carbon market with more stable prices for industry to invest in new technologies and accelerate the transition to net zero. The EU ETS is among the largest carbon markets globally (and has been linked to the Swiss ETS since 2020). Commentators have suggested that a linkage with the EU ETS would reduce volatility in the U.K.’s carbon market and make investment in decarbonization technologies more predictable and commercially attractive, eventually pushing down the prices of those technologies. However, in anticipation of the link, prices under the U.K. ETS will likely continue on an upward trend to converge with those under the EU ETS.
Businesses should look out for details of a linking agreement and possible interim provisions for mutual CBAM exemptions in due course. Based on the Swiss ETS experience, negotiations for a linking agreement may be long-drawn-out. As a result, there are calls for interim arrangements to be introduced ahead of the EU CBAM’s post-transitional phase commencing on January 1, 2026 and the U.K. CBAM commencing on January 1, 2027 (see our recent bulletin on the U.K. CBAM). Differences between the EU and U.K.'s respective emissions reduction pathways, ETSs and CBAMs will need to be addressed (e.g. sector/product scope and methodologies).
Enhanced energy cooperation to accelerate electrification and support new technologies
The U.K. and EU have agreed on “extending energy cooperation on a continuous basis” which involves continuing to apply current electricity trading arrangements and making the Trade and Cooperation Agreement’s energy chapter permanent pending further agreement. In addition, they will:
- Explore in detail the necessary parameters of the U.K.’s participation in the EU’s electricity trading platforms to streamline electricity trading.
- Maximize cooperation and technical/regulatory exchanges on new energy technologies, including hydrogen, CCUS, decarbonized gases and biomethane.
Streamlining electricity trading is an aim for future agreement rather than an agreement in itself, but is a positive step given the U.K. leaving the EU introduced some barriers to electricity trading which have contributed to inefficiencies and an increase in electricity costs.
The aim is also timely for the U.K. as it continues efforts to become a net exporter of electricity, and for both the U.K. and EU as they support development of North Sea offshore wind projects and Offshore Hybrid Assets (OHAs) (previously referred to as Multipurpose Interconnectors in the U.K.), being subsea technology designed to connect clusters of offshore wind farms to multiple countries. OHAs promise significant benefits, including providing more flexible capacity between the U.K. and neighboring EU member states, increasing security of electricity supply and minimizing necessary connections infrastructure. Enhanced collaboration by the U.K.-EU could conceivably improve the investment case for these projects.
While the tangible outcomes of the summit for U.K.-EU cooperation on clean energy technologies are currently less clear, the goal is positive since both share similar clean energy objectives to move towards net zero. One potential future benefit would be facilitating shipping of captured carbon dioxide between countries for storage. The transportation of carbon dioxide across national borders necessitates treaties and agreements between the U.K. and EU member states. This process could be facilitated by overarching agreement at the U.K.-EU level.
Reducing barriers to trade impacting steel
The European Commission has confirmed that it will restore the U.K.’s country-specific steel quota to historical levels and that this will be reflected in a post-2026 regime. This is a boost to the U.K. steel sector by protecting more tariff-free exports to the EU (as is exempting U.K. steel exports to the EU from the EU CBAM, if and when the exemption is finalized, as discussed above).
The implementation of the renewed agenda under the Strategic Partnership will be keenly watched by corporates and financiers alike for potential opportunities and implications. We are continuing to monitor progress. Should you wish to discuss the implications of the EU-U.K. reset for your business, please get in touch with the contacts listed below or your usual contact at A&O Shearman.
Footnote
1. Air and missile defense, artillery systems, missiles and ammunition, drones and anti-drone systems, strategic enablers and critical infrastructure protection, including in relation to space, cyber, artificial intelligence and electronic warfare, and military mobility.
2. The sectors covered in the EU CBAM and U.K. CBAM are aluminum, cement, fertilizers, hydrogen and iron and steel, and the EU CBAM additionally covers the electricity sector.
Authors and contributors
Authors: Matt Townsend (partner), Udo Olgemöller (partner), Ying-Peng Chin (senior knowledge lawyer), Fleur Clegg (global head - ENRI knowledge), Dan Edwards (knowledge specialist). With thanks to contributors/key contacts: Tom d’Ardenne (counsel), Jochem Spaans (partner), Gauthier van Thuyne (partner), Chris Andrew (partner), Stéphanie Dalleur (continental Europe head of knowledge).