Carbon Market Watch

For fair and effective climate protection.

Media Statement: New report shows risks of linking carbon markets may outweigh benefits

05 May 2015

5 May 2015, Brussels. As the EU and Switzerland are about to conclude negotiations to link the EU and the Swiss carbon markets, a new report shows that benefits of linking carbon markets may be outweighed by the risks, such as reduced overall emissions abatement, lower domestic investments and co-benefits as well as a loss of public funds. The report also finds concerns about public participation and transparency provisions and provides recommendations for the EU ETS revision.

By the first half of 2015, the first non-binding negotiation stage of linking the EU Emissions Trading System (EU ETS) with the Swiss carbon market is expected to be concluded. Such a link would be the first between the EU ETS and a carbon market outside the EU’s jurisdiction.

The main benefits of linking are cost-efficiency as a result of increasing the pool of available emissions reductions. However, the EU decided in October 2014 to achieve at least 40% emissions reductions without contribution from international credits by 2030 (relative to 1990) and confirmed this in the latest submission of its climate pledge towards the Paris climate treaty.

“Foreign allowances from the Swiss carbon market would dilute the EU’s domestic target and therefore such a link should be accompanied by an increased emission reduction target. Given that the main objective of linking is to reduce costs for companies, this should be possible at no additional cost” commented Femke de Jong, policy officer at Carbon Market Watch.

Moreover, the report analyses key design features of carbon markets and concludes that lower costs as a result of linking may come at the price of reduced overall emissions abatement, lower domestic investments and co-benefits as well as a loss of public funds.

“Although the impact of a potential link to the Swiss ETS is relatively small, future links between the EU ETS and the South Korean or Chinese ETS could have far reaching implications for EU’s climate standards. Without appropriate safeguards embedded in the EU ETS, the benefits may be outweighed by associated risks” added de Jong.

Finally, the report finds concerns about public participation and transparency in the ongoing EU-Swiss linking negotiations.

“European policymakers and the general public have so far been kept in the dark about the linking negotiations between the EU and Switzerland. Regulatory interventions to revise EU’s carbon market will become more difficult to achieve once jurisdictions outside the EU have a stake in EU’s climate policies. It is therefore critical that the EU ETS revision introduces public review of linking proposals and rules” commented de Jong.

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Reading:

  • Policy Brief: Towards a global carbon market – Risks of linking the EU ETS to other carbon markets here
  • Report: Towards a global carbon market – Prospect for linking the EU ETS to other carbon markets here