After the adoption of the Paris Agreement and the preparation of countries’ first nationally determined contributions (NDCs), policy-makers around the world are planning and implementing climate change mitigation policies to achieve their NDCs. Emission trading systems (ETSs) are increasingly embraced as a policy to reduce emissions in a cost-effective manner. Several jurisdictions are also considering, or have already established, links between their systems.
When linking ETSs internationally, allowances can flow across international borders. This, in turn, can change the level of emissions in the participating countries. As such, an important question arises as to whether and how linking affects the achievement of
NDCs, and whether and how countries should account for such links under the Paris Agreement. Article 6.2 of the Paris Agreement establishes a framework that allows countries to engage in international carbon market mechanisms and to account for their use towards their NDCs. International linking of ETSs is seen as one important application of Article 6.2. The European Union (EU) and Switzerland, for example, have declared that they intend to account for their ETS link through Article 6.2.
This discussion paper explores how countries could account for the international linking of ETSs under the Paris Agreement, and how linking could be accounted for in the context of (sub-national) jurisdictional mitigation targets.