REPORT: Towards a global carbon market – Prospect for linking the EU ETS to other carbon markets
Jurisdictions with carbon markets currently account for about 40% of global economic activity (GDP). Linking these different carbon markets with the ultimate goal of establishing a global carbon market is seen as an integral part of the future climate regime, since it can increase the pool of mitigation options available, thereby reducing costs and allowing countries to increase their climate ambition. These benefits however only materialize if the linked carbon markets have a similar level of ambition and a similar design of a number of key features, such as price controls, quantitative and qualitative restrictions on carbon offsets, and the type of allocation method used. Paradoxically, while lower abatement costs are an important economic motive for linking two emission trading systems, they can also constitute a significant political barrier, since citizens of the higher cost system might be reluctant to pay for emission reductions in the other jurisdiction.