Striving to Keep ETS Simple – Current practices to manage complexity in emissions trading

Striving to Keep ETS Simple Current practices to manage complexity in emissions trading - International Carbon Action Partnership ICAP.png
Eden, Alexander; Mariza Montes de Oca and Constanze Haug 2019: Striving to Keep ETS Simple. Current practices to manage complexity in emissions trading. Berlin: ICAP.

Setting up and operating an emissions trading system (ETS) involves both technical and administrative complexity. Policymakers need to navigate trade-offs between the procedures and requirements needed to ensure the environmentally sound operation of the system, and the resulting administrative burden both for the regulator and for covered entities.  

The question of how to keep ETS simple yet robust has therefore attracted significant interest among policymakers, experts and stakeholders. The present paper identifies general and transferable lessons for simplification in ETS design and operation, based on a review of experiences and best practices from existing ETS around the world. It finds that most opportunities for simplification lie in ETS operations, particularly around thresholds for smaller emitters; tiered approaches to monitoring, reporting, and verification (MRV); data management techniques; and secure but simple registry operation.

The insights of the paper are relevant to existing systems, which may consider options for ETS simplification as part of a review process. Yet they are perhaps even more crucial for the next generation of ETS, many of which will be implemented in emerging economies facing additional challenges in terms of institutional capacity.