Experience with linking greenhouse gas emissions trading systems

Advanced Review

Erik Haites

Published Online: Dec 22 2015

DOI: 10.1002/wene.191

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Two emissions trading systems (ETS) are linked if a participant in one system can use an allowance or a credit issued by either system for compliance. Linking ETS offers a number of potential benefits including, lower overall compliance cost, price protection, greater liquidity in the allowance market, and reduced emissions leakage. It is useful to distinguish: (a) A unilateral link—one ETS accepts the allowances of another ETS for compliance purposes, but not vice versa. Any link to an offset system, such as the Clean Development Mechanism (CDM), is a unilateral link for the ETS that accepts those credits. (b) A bilateral link—each ETS accepts the allowances of the other ETS for compliance purposes. Another way to implement a bilateral link is to adopt a common compliance instrument. The European Union ETS (EU ETS) has a single compliance instrument—the EU allowance—that is used in all 31 participating countries. Several national and subnational jurisdictions have established an ETS for one or more greenhouse gases (GHGs). Some of these ETS also issue offset credits for GHG emission reductions achieved by specified sources. In addition, the international CDM and Joint Implementation (JI) mechanisms issue offset credits for GHG emission reductions. Most ETS have established unilateral links, mainly to the CDM and JI, but also to other ETS. Apart from the systems that are part of the EU ETS and Regional Greenhouse Gas Initiative (RGGI) only one bilateral link, between the California and Quebec ETS, has been established. This study summarizes the experience with linking GHG ETS. WIREs Energy Environ 2016, 5:246–260. doi: 10.1002/wene.191 This article is categorized under: Energy and Climate > Economics and Policy Energy and Climate > Systems and Infrastructure Energy Policy and Planning > Climate and Environment

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Resources

The International Carbon Action Partnership ICAP) is a partnership of public authorities and governments that have established or are actively pursuing a mandatory cap and trade system with an absolute cap. The partnership provides a forum to exchange knowledge and experiences. https://icapcarbonaction.com/

The International Emissions Trading Association (IETA) is a nonprofit organization with over 150 corporate members that seeks to establish a functional international regime for greenhouse gas emissions trading that balances economic efficiency with environmental integrity and social equity. http://www.ieta.org/

The Partnership for Market Readiness (PMR), established by the World Bank, provides funding and technical assistance for the design and piloting of ETS and carbon taxes for GHG emissions reduction. It also provides a platform for technical discussions of such instruments to spur innovation and support implementation. https://www.thepmr.org/

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