Experience with linking greenhouse gas emissions trading systems

Abstract

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.191This article is categorized under: Energy and Climate > Economics and Policy Energy and Climate > Systems and Infrastructure Energy Policy and Planning > Climate and Environment