Analysis of Risks and Opportunities of Linking Emissions Trading Systems

Linking regional, national, and subnational emissions trading systems offers the opportunity to build a global carbon market from the bottom-up while potentially reducing emissions at lower cost and reducing competitive distortions.

Within the frame of the project ‘Analysis of Risks and Opportunities of Linking the EU-ETS with other Emissions Trading Systems – further development of criteria and methods’, a structured system for evaluating the risks and opportunities of linking emissions trading systems was developed to assist decision-makers in identifying potential linking partners and prepare for any future linking prospects. A key focus of the project was to quantify the economic impact of linking as far as possible and develop additional qualitative assessment approaches to linking.

To this end, seven economic, ecological and political objectives for linking and related assessment criteria were developed. The framework contains both quantitative and qualitative assessment methods.

The final report of the project includes an overview of economic models and a qualitative assessment of the design elements of an emissions trading system that may have to be adjusted to ensure the linked market functions properly.

The main findings of the report have already been summarised and presented in a separate publication ‘Considering the Effects of Linking Emissions Trading Schemes – A manual on Bilateral Linking of ETS‘. It provides decision-makers with a three-step process to assess the effects of linking with a specific partner.