Experience with linking greenhouse gas emissions trading systems

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