An emissions trading system (ETS) (also known as “cap and trade”) is a market instrument that puts a price on emissions. Emissions trading systems are currently operating across four continents, regulating about 15% of global GHG emissions, with more systems being considered across Latin America and Southeast Asia.
One major advantage of emissions trading is that systems can be linked to create a common carbon market. This allows for bigger markets which can provide better reduction options – the end result being a more cost effective approach to reducing one’s emissions. There are also caveats to consider, which can mostly be mitigated through strategic oversight of the linked systems and concurrent and coordinated regulatory measures. Additionally, linking can occur on a spectrum from partial linkage to full system linkage.
The ICAP Linking Guide provides comprehensive guiding principles for the processes and considerations needed to be taken into account when implementing system linkage. The guide covers benefits and risks, processes and pathways to linking, design alignment, consideration of stakeholder perspectives, form and content of an eventual agreement, and lastly management and future prospects.