Domestic Emission Trading Systems

Domestic Emission Trading Systems in Developing Countries – State of Play and Future Prospects

Wolfgang Sterk and Florian Mersmann (2011)

As plans for the establishment of emissions trading systems (ETS) emerge in various developing countries, prospects for creating a global carbon market seem to finally get in reach. This paper analyses the state of discussion in six developing countries: Brazil, China, India, Kazakhstan, Mexico, and South Korea. The paper concludes that even though South Korea seems to be firmly on track and Chinese announcements also give reason for optimism, developing countries’ schemes are at the moment not far enough evolved to come to definite conclusions if links with e.g. the EU ETS are possible. It can also be assumed that for the time being climate policy in most developing countries will mainly revolve around non-ETS policies and measures. Therefore, while the moves towards emission trading should be supported, international climate cooperation should not neglect improving the CDM and supporting transformational policies and measures through fund-based instruments.

Prospects for a Transatlantic Carbon Market: What Next After the US Midterm Elections?

Michael Mehling, Andreas Tuerk und Wolfgang Sterk (2011)

Linking emissions trading systems throughout the Organisation for Economic Co-­operation and Development (OECD) by 2015 is a declared objective of the European Union (EU). Yet for the foreseeable future, the main partner of such a linked market, the United States (US), has seen emissions trading become politically unfeasible at the national level. Attention has therefore shifted to the regional level, where emissions trading initiatives are slowly progressing. This paper analyses the prospects for a transatlantic carbon market against the background of recent developments at the federal and state level. While the paper affirms that a transatlantic carbon market link between the EU ETS and a federal trading system in the United States has become unrealistic for the foreseeable future, it sees potential for an earlier link to regional US trading systems, including a Californian trading system. An integrated OECD-­wide carbon market, however, is unlikely to emerge in the short and medium term. Initially, therefore, an international bottom-­up climate architecture – which is the more likely scenario after the climate summits of Copenhagen and Cancún – will not be centred around a global carbon market. Emissions trading and linked carbon markets may be one of the more important strands of a new regulatory landscape, but probably not serve as the backbone of international efforts.

Establishing a transatlantic carbon market

Wolfgang Sterk and Joseph Kruger (2009) in: Climate Policy, Vol. 9, No. 4, pp. 389-401

The current emissions trading debates in the EU and the USA are examined and the prospects for creating a transatlantic carbon market are analysed. A future US Emissions Trading Scheme (US ETS) may be designed very differently from the EU ETS, raising questions of compatibility. Crucial differences relate to the stringency of targets, the recognition of offsets, and price control mechanisms. These differences flow directly from the different policy and economic perspectives on emissions trading and climate policy in the USA and the EU. The two sides should therefore seek a way forward that reconciles potentially different climate policies.

Linking carbon markets: concepts, case studies and pathways

Andreas Tuerk, Michael Mehling, Christian Flachsland and Wolfgang Sterk (2009) in: Climate Policy, Vol. 9, No. 4, pp. 341-357

The barriers to linking greenhouse gas cap-and-trade schemes are assessed, based on an analysis of existing and emerging trading schemes, including those in the USA, Japan, Australia, New Zealand and the EU. The feasibility of different forms of linking and the time frames for their implementation are examined. In particular, the barriers to direct bilateral linking are considered. It is found that only a few direct bilateral links will be viable in the short term, due to the divergent policy priorities of different nations and regions, reflected in critical design features, such as costcontainment measures. However, in the short term, cap-and-trade markets will very likely be indirectly linked via unilateral links to the CDM or new crediting mechanisms, which may be adopted within a successor treaty to the Kyoto Protocol. In order to ensure a harmonization of critical design elements in the mid to long term, early institutional cooperation may become necessary.

Advancing the climate regime through linking domestic emission trading systems?

Wolfgang Sterk and Ralf Schüle (2009) in: Mitigation and Adaptation Strategies for Global Change, Vol. 14, No. 5, pp. 409-431

More and more countries are incorporating the instrument of emissions trading into their national climate policies. This emerging mosaic of emissions trading schemes (ETS) raises the question of whether they should be linked with each other. From an economic point of view, linking of domestic schemes is supposed to increase the economic efficiency of carbon markets. In addition, linking is also expected by some to yield substantial political benefits in terms of the evolution of the UNFCCC/Kyoto regime. However, these optimistic prospects are based on a best-case scenario where all major countries establish establish environmentally effective emissions trading systems and then link them with each other. Real-life politics might develop rather diferently. This paper therefore aims to examine to what extent the current status of emissions trading in industrialised countries provides a basis for reinforcing and moving forward the international climate regime through linking domestic ETS.

Prospects of Linking EU and US Emission Trading Schemes. Comparing the Western Climate Initiative, the Waxman-Markey and the Lieberman-Warner Proposals

Wolfgang Sterk, Michael Mehling and Andreas Tuerk (2009)

A global carbon market is often advocated as the most cost-effective means to reach emission reduction targets. Given their status as the two largest integrated economies in the world, a transatlantic link between the EU ETS and a future federal US system would not only be a strong political signal for the creation of a global carbon market, but would eliminate competitive concerns between these two players caused by different carbon prices. However, the environmental and economic benefits of emissions trading and by extension of linking crucially depend on the design of the trading systems. This paper therefore analyses the designs of the EU ETS, the US Waxman-Markey and Lieberman-Warner proposals for a federal US ETS, and the US Western Climate Initiative (WCI) to assess whether these (proposed) systems have design features that would lead to negative environmental or economic impacts in the case of linking.

Options and Implications of Linking the EU ETS with other Emissions Trading Schemes. Note for the European Parliament

Ralf Schüle, Wolfgang Sterk and Niels Anger (2008)

Since the EU has established a downstream cap-and-trade emissions trading scheme (ETS), the question of linking the EU ETS with other emerging domestic emissions trading schemes has come on the political agenda. This briefing note assesses different options of linking the EU ETS with other emissions trading schemes quantitatively and qualitatively, as well as the economic and environmental impacts and the design implications of these options.

Ready to Link Up? Implications of Design Differences for Linking Domestic Emissions Trading Schemes

Wolfgang Sterk, Marcel Braun, Constanze Haug, Katharina Korytarova and Anja Scholten (2006)

While the EU took the lead with establishing a greenhouse gas (GHG) emissions trading scheme (ETS), many other industrialised countries that have ratified the Kyoto Protocol are also discussing domestic schemes. According to economic theory, the efficiency of these trading systems would increase if they were linked with each other. Moreover, from a political point of view linking ETSs would complement the top-down Kyoto regime with a bottom-up process that might serve to bolster the climate regime as a whole. However, differences in the designs of the schemes may impair, rather than enhance, their efficiency and the environmental effectiveness. This paper therefore examines the designs of the emerging non-EU systems in Australia, Canada, Japan, Norway, Switzerland and the USA with a view to identifying potential incompatibilities and proposing means for addressing them where this seems possible.

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