Any linking is a step towards a global trading system, as it increases cost efficiency through access to further potential for abatement and counteracts distortions of competition through a uniform emissions price. For implementation, however, it is important that the systems to be linked are similar enough to each other for trading to be on a like-for-like basis. This requires a stringent setting of emission caps as well as comparable assessment bases, control mechanisms and sanctioning options.
Many developing countries do not yet have national emissions trading systems and therefore linking may not be a sufficient substitute for Kyoto Protocol-based international credits at this stage. However, the development of global emissions trading is an ambitious goal that should be pursued to mitigate climate change.
The EU emissions trading scheme
In the European Union, the EU ETS based on the Kyoto Protocol was introduced in 2005. It is the central political instrument for the reduction of greenhouse gases. The EU member states have committed themselves to national climate protection targets within the framework of the effort sharing regulation.
All major electricity and heat producers are obliged to participate in the EU ETS, as are certain sectors of industry and, since 2012, aircraft operators. From the beginning, the industrial sectors of iron and steelmaking, coking plants, refineries and crackers, cement and lime production, glass, ceramics and brick industries, as well as paper and cellulose production were obliged to participate. In 2013, the EU ETS was expanded to include the chemical industry, non-ferrous metals, other combustion and mineral processing industries. In total, according to the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety, "around 11,000 installations and several hundred aircraft operators across Europe are currently subject to emissions trading." This corresponds to about 40% of all European greenhouse gas emissions.
In contrast to international emissions trading in accordance with the Kyoto Protocol, the market participants in the EU ETS are not states, but companies operating certain emission-intensive industrial plants. Emission allowances are assigned to them in line with national allocation plans.
The EU sets an upper limit or cap for greenhouse gas emissions. The emissions of all obligated parties are limited to this total amount. A cap that is demanding in terms of climate policy ensures that the right to emit greenhouse gases becomes a scarce commodity. Companies belonging to the sectors covered by the EU ETS must hold a European Union Allowance (EUA) for each tonne of greenhouse gases emitted. The number of allowances issued is based on the emitter's historical emissions - related to a certain base year - minus a certain reduction commitment.