EU’s Emissions Trading Scheme expands its reach

Although the EU’s Emissions Trading Scheme (ETS) has only set caps for member states, other countries within the European Economic Area have chosen to run their own schemes in parallel.

This week the European Commission has announced that its scheme will link with those of Norway, Iceland and Liechtenstein, allowing member states to trade credits freely with the new members.

The agreement means there are now 30 European countries working together on a cap-and-trade basis and effectively makes the merged scheme the first truly international carbon trading system.

The agreement follows an EU investigation into the possibility of linking with other credible ETS beyond its borders, reflecting the global nature of carbon emissions.

All three of the states involved have a close relationship with the EU and while they are not members of the club, they can best be described as frequent visitors, regularly having a say if not a vote in EU business.

Nevertheless, the move does demonstrate that it is possible, and practical, to link existing trading schemes and potentially paves the way for an agreement with established schemes in parts of the USA and Canada.

The EC’s Environment Commissioner Stavros Dimas said: “Today marks another significant step in the evolution of the EU ETS.

“It is a major step towards a global carbon market and sends an important message in view of the negotiations in Bali later this year.”

Given the global nature of climate change and the urgent need for significant action to reduce emissions, the Commission is working towards establishing a global carbon market from which all countries would benefit.

However, the EU will only consider linking up with those systems which are mandatory and set absolute limits on emissions, as well as have robust registry systems and stringent monitoring and compliance provisions in place.

While the link has been agreed in principle, Norway, Iceland and Liechtenstein will have to adopt the relevant directives as domestic laws before trading can begin – a process that could take several months to complete.

Sam Bond