Mechanisms for linking emissions trading schemes

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■ synthesis article


Mechanisms for linking emissions trading schemes
MICHAEL MEHLING1*, ERIK HAITES2

1
    Ecologic Institute, 1630 Connecticut Avenue NW, Suite 300, Washington, DC 20009, USA
2
    Margaree Consultants Inc, 120 Adelaide Street West, Suite 2500, Toronto, Ontario M5H 1T1, Canada



Linking emissions trading schemes has attracted interest as a means of reducing costs and expanding market size and
liquidity. A number of studies have explored the compatibility of schemes, although little attention has been devoted to
the implementation of links. Most trading schemes provide for unilateral recognition of certified emission reductions
(CERs) and occasionally other units. Restrictions on the types of units and the quantity that can be used are common.
Unilateral links can be implemented through adoption of a schedule that lists the units accepted together with limits on,
and adjustments to, imported units. Only a bilateral link yields the full benefits of linking trading schemes. No bilateral
links have been established yet, but the number of schemes interested in such links is growing. Implementing such a
link through a binding agreement affords participants considerable certainty. However, it entails cumbersome adoption
procedures as well as legal and procedural constraints. Reciprocal unilateral links, possibly accompanied by an
informal agreement, are easier to implement and offer more flexibility. Economic benefits will not differ significantly from
a bilateral linking agreement.
Keywords: carbon market; emissions trading; EU ETS; Kyoto Protocol; linking

L’idée de lier les systèmes d’échange de quotas présente un intérêt en tant que moyen de réduire les coûts et d’élargir
la taille du marché et sa liquidité. Nombre d’études ont analysé la compatibilité des systèmes, bien que peu d’attention
n’ait été portée sur la mise en place des liens. La plupart des systèmes d’échange prévoient une reconnaissance
unilatérale des URCEs et, occasionnellement, d’autres unités. Les limitations sur le type d’unités et la quantité utilisable
sont communes. Des liens unilatéraux peuvent être établis par l’adoption d’un registre listant les unités autorisées ainsi
que les limites et rajustements applicables aux unités importées. Seul un lien bilatéral apporterait tous les avantages
d’une correspondance entre les systèmes d’échange. Aucun lien bilateral n’a été mis en place à ce jour, mais le
nombre de systèmes s’y intéressant s’accroît. L’établissement de ces liens à travers un accord contraignant donne une
grande confiance aux participants. Mais ceci implique de lourds processus d’adoption ainsi que des contraintes légales
et procédurales. Des liens unilatéraux réciproques, accompagnés peut-être d’un accord informel, sont plus faciles à
mettre en place et offrent davantage de flexibilité. Les avantages économiques ne différeront pas considérablement
d’un accord de liaison bilatérale.
Mots clés: échange de quotas; lier; marché du carbone; Protocole de Kyoto; système européen d’échange de quotas
d’émissions




1. Introduction

This article discusses mechanisms for linking greenhouse gas emissions trading schemes. Such
mechanisms are understood here as legal and institutional arrangements to create an operational
link between different emissions trading schemes and sustain their integrity over time.
   The advantages of a link between trading schemes have been widely discussed (Edenhofer et al.,
2007; Anger et al., 2009). Linking offers the potential to achieve the aggregate emissions cap of

■ *Corresponding author. E-mail: michael.mehling@ecologic-institute.us

CLIMATE POLICY 9 (2009) 169–184
doi:10.3763/cpol.2008.0524 © 2009 Earthscan ISSN: 1469-3062 (print), 1752-7457 (online) www.climatepolicy.com   CLIMATE POLICY
170 Mehling and Haites




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DOCUMENT INFO
Description: Linking emissions trading schemes has attracted interest as a means of reducing costs and expanding market size and liquidity. A number of studies have explored the compatibility of schemes, although little attention has been devoted to the implementation of links. Most trading schemes provide for unilateral recognition of certified emission reductions (CERs) and occasionally other units. Restrictions on the types of units and the quantity that can be used are common. Unilateral links can be implemented through adoption of a schedule that lists the units accepted together with limits on, and adjustments to, imported units. Only a bilateral link yields the full benefits of linking trading schemes. No bilateral links have been established yet, but the number of schemes interested in such links is growing. Implementing such a link through a binding agreement affords participants considerable certainty. However, it entails cumbersome adoption procedures as well as legal and procedural constraints. Reciprocal unilateral links, possibly accompanied by an informal agreement, are easier to implement and offer more flexibility. Economic benefits will not differ significantly from a bilateral linking agreement. [PUBLICATION ABSTRACT]
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