Submission to the inquiry by the House of Commons Select Committee on Energy and Climate Change on ‘Linking Emissions Trading Systems’
There are now a number of different emissions trading systems in operation around the world and more planned. Linking these systems together would make economic sense, since larger markets mean more buyers with access to more low-cost abatement opportunities in different geographical locations. It would also be good news for companies threatened by the high compliance costs of multiple emissions trading schemes. However, linking systems faces a number of practical challenges, including whether it is possible to successfully link systems with differing levels of ambition or a significantly different permit prices, differences in sector coverage and differences in the eligibility of offsets.
- Linking emissions trading systems is a good idea with a number of potential economic and non-economic benefits. However, successful linkage is likely to be difficult to achieve in practice.
- Linking is only likely to be successful if schemes under undergo a ‘linking partner match selection process’ to assess in detail whether schemes are compatible in a number of key aspects, including their ambition/cap, the price of permits, sector coverage, and the eligibility of offsets.
- To facilitate future linkages the United Kingdom government should work with partners in Europe to reform the European Union Emissions Trading System (EU ETS) as quickly as possible and actively engage with countries and regions that are developing emissions trading systems to ensure that the option to link with the EU ETS is not closed.
- The design of the future Chinese emissions trading system, though not public, is likely to be well advanced. It is unlikely that it has been designed to harmonise with the EU ETS to any great extent. The long-term challenges of linking Chinese emissions trading system and the EU ETS make an ongoing dialogue between the UK and China particularly important.
Corina Comendant and Luca Taschini, submitted to the Committee on April 2014.