EU link with China and US ETS vital - MPs

OREANDA-NEWS. The UK should engage with China and the US to try and link their nascent emissions trading schemes (ETS) with the EU as soon as possible, UK MPs have said.

While a global carbon market is the preferred way to reduce the world's emissions, such a scheme is unlikely to result from a top-down process, a report entitled Linking Emissions Trading Systems, published today by the UK Energy and Climate Change Committee, has found.

Instead, the bottom-up development of a network of regional, national and sub-national trading schemes, to gradually come together through linking, is a more likely way of achieving a global market, the report said.

China, the US and the EU — all of which have some form of ETS in place — must link their schemes as soon as possible in what will be a key stepping stone for the development of a global system.

A basic toolkit for countries to develop their own trading schemes should therefore be developed as part of the UN Framework Convention on Climate Change's (UNFCCC) framework for various approaches (FVA), with provisions for linking in any Paris climate deal only very brief, lest they be obstructive.

It is also vital that the UNFCCC ensure that parties can meet their Intended Nationally Determined Contributions (INDCs) by transferring parts of their contributions to other parties, and not just through domestic action, the report said.

China and the US only operate regional schemes at present but engaging with these nations at an early stage will help ensure that the design elements of any national schemes they develop are aligned with the EU ETS.

Key elements that need to be similar for later linkages to be effective are the integrity of monitoring, reporting and verification (MRV) systems, the existence of registries and bank provisions to carry over allowances between phases, and the strictness of caps, including the need for an absolute reduction target rather than a relative one such as a carbon-intensity target.

The covered sectors, the use of price floors and ceilings, and the use of offsets could also affect schemes' ability to link, although these are less important.

MPs travelled to China to compile the report, and found that some of the seven domestic pilot schemes established there are exploring how they can link with one another.

"Officials in China are already grappling with these issues, despite the short time the schemes have been operating," the report said, adding that they could therefore offer some guidance to regions on a wider level.