And the momentum is growing, further emissions trading systems are currently being developed or prepared. Emissions trading forms the core of the climate protection strategy for decarbonisation in an increasing number of countries.
Worldwide Emissions Trading Systems
Since the introduction of the European Emissions Trading Scheme (EU ETS 1) as one of the most important climate protection instruments, numerous countries, regions and even cities have followed this example and established emissions trading systems. Around 30 emissions trading systems are now operational worldwide, from North America to Europe, Asia and Oceania. Around 20 other countries are considering or preparing the introduction of an emissions trading system with particular momentum in Latin America and on the Asian continent. With the launch of the national emissions trading system in China in 2020 and the Indonesian system launched in 2023, some of the region's largest emitters are relying on this market-based climate protection instrument to decarbonise various sectors and there are indications that other countries will follow suit. In this context, a study commissioned by the German Emissions Trading Authority (DEHSt) analysed the potential for introducing emissions trading systems in various countries in the Asian region and the results were published in three publications (see below under ‘Carbon Pricing Potential in East and South Asia’).
Further developments have also taken place in Europe in recent years: In Germany and Austria, national emissions trading systems were set up in 2021 and 2022 for the buildings and transport sectors, which were not previously subject to emissions trading. In the future, these national systems will be merged into a second European Emissions Trading System (EU ETS 2), which is currently being set up (see below under ‘Emissions Trading and Electricity Design’).
Linking: Advantages, Requirements and International Trends
Linking emissions trading systems creates larger and more liquid markets and can help to achieve emissions reduction targets in a cost-effective manner. Each linking is therefore a step towards a global carbon market. This increases cost efficiency through access to a further abatement potential and reduces distortions of competition through a standardised carbon price. These bilateral or multilateral co-operations can have a positive influence on international climate negotiations through their role model function.
The successful linking of two emissions trading systems requires that both systems are designed to be equally ambitious. This needs a rigorous setting of emission caps to create the necessary scarcity in the system. The assessment bases, control mechanisms and sanctioning options must be the same or comparable. It is not absolutely necessary for linking partners to make the same reduction effort. However, there must be an agreement on the common reduction target and the respective contribution (effort sharing).
Linking has so far been carried out between California and Quebec for example. The two jurisdictions successfully linked their systems under a common umbrella of the ‘Western Climate Initiative’. The first linking of emissions trading systems has also taken place in Europe where the Swiss emissions trading system (CH ETS) has been linked to the EU ETS 1 since January 2020.
Some of the following publications are only available in English.
Market mechanisms and the Paris Agreement
The Paris Agreement was adopted in December 2015 as a successor to the Kyoto Protocol. Since 2021, the Article 6 mechanisms of the Paris Agreement have replaced the project-based mechanisms for transboundary offsetting of greenhouse gas reductions. These mechanisms are to be open to all signatory states on a voluntary basis. After several years of negotiations, the Parties agreed on a set of rules for Article 6 at the Climate Change Conference in Glasgow (COP26). Detailed specifications are now available for all three different approaches to international cooperation:
- intergovernmental cooperation (Article 6.2) with transfer of mitigation results,
- sustainability mechanism (Article 6.4) which generates credits for the results of climate protection projects under the supervision of an international monitoring body,
- non-market-based approaches (Article 6.8), which serve as a framework for international cooperation without the transfer of mitigation results.
Our experts support the Federal Ministry for Economic Affairs and Climate Action (BMWK) in the design of these instruments and in the drafting of implementing regulations within the framework of the climate negotiations under the United Nations’ umbrella (UNFCCC).
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International Activities of Our Staff
Our staff take on numerous and varied tasks in the field of emissions trading internationally. We promote and support the establishment of national emissions trading systems in non-EU countries through targeted knowledge transfer and exchange of experience. We work closely together with the Federal Ministry for Economic Affairs and Climate Action (BMWK) and the Federal Ministry for the Environment, Nature Conservation, Nuclear Safety and Consumer Protection (BMUV).
We play a key role in shaping knowledge transfer in the form of ‘study visits’, expert training and workshops as well as in-house events. Speakers from almost all specialist units offer customised presentations and discussion rounds, taking into account specific content-related issues, the situation in the respective country and the technical and political background. In addition, we provide experts for consulting assignments, assist in developing comprehensive training documents and create topic-specific papers that support the exchange of knowledge and experience. An example of this is the experience report on Continuous Emission Measurement Systems (KEMS).
Expert assignments and training courses often take place as part of the EU's Twinning Programme or GIZ projects on behalf of the Federal Government, for example in China, South Korea, Mexico, Chile, Serbia, Turkey and Ukraine. We also support scholarship holders from the Alexander von Humboldt Foundation as well as internships and visitor groups.
One example of the exchange and transfer of knowledge and experience in the design and implementation of emissions trading systems is the BMWK's Capacity Building Programme, which is offered in cooperation with the German Emissions Trading Authority (DEHSt) and leading German experts of adelphi, Ecologic Institute, FutureCamp Climate and Institute for Applied Ecology. To date, the programme has offered a wide range of activities to more than 600 trained experts and political decision-makers as well as representatives of companies and business associations from 16 countries around the globe.
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