Establishing Emissions Trading Systems with Success

Implementing the climate targets agreed in Paris requires an urgent ramping up of climate change mitigation activities. "Carbon Pricing" has been identified as an effective and efficient climate policy approach that facilitates least cost compliance with climate targets. One possibility to put a price on carbon are so called emissions trading systems (ETS) that provide certainty regarding the future level of emissions by establishing a cap on emissions.
Several countries, including China, the Ukraine, Mexico and Colombia are planning to introduce such an emissions trading system. Many of these countries already have other policy instruments in place, which, in addition to other impacts such as increasing energy efficiency, reduce GHG emissions.
"This raises the question whether elements of such policy instruments may serve as a basis for establishing an emissions trading system," says Wolfgang Obergassel, Co-Head of the Global Climate Governance Research Unit in the Energy, Transport and Climate Policy Division at the Wuppertal Institute.

To explore this question, the Federal Environmental Agency (UBA) commissioned the Wuppertal Institute to conduct the research project "Perspectives of Linking Emission Trading Systems – Possibilities to Transition National Climate Policy Programmes into an ETS" which is being implemented together with Perspectives Climate Change und SQ Consult. The final report of the project that has now been published shows how existing policy instruments may contribute to the ETS development process and how they can coexist in order to achieve an effective policy mix.
The researchers proceeded in two steps: first, a generic assessment of prototypical policy instruments was made. In a second step, case studies of real-world implementation in India and Mexico were conducted. The findings indicate that there are significant differences regarding how non-ETS instruments can contribute to the ETS development process. "Instruments combining mandatory obligations with a trading component (green and white certificate trading schemes) have generally been found to have the greatest overall potential for being used as a basis for ETS development," explains Nicolas Kreibich, Research Fellow in the Global Climate Governance Research Unit in the Energy, Transport and Climate Policy Division at the Wuppertal Institute.

Subsequently, the research team conducted case studies of real-world implementation in India and Mexico. The case studies confirmed the findings from the generic analysis showing that several of the policy instruments analysed could in principle provide strong contributions to an ETS development process.
The analysis further made clear that using existing instruments as stepping stones towards an ETS does not automatically mean that existing policy instruments should be abolished. An ETS cannot address all the different causes that lead to a GHG emissions intense economy and tackling these causes requires more than one instrument to be in place. Combining the existing non-ETS instrument with an ETS may therefore be considered a more promising way of addressing the different barriers to low-carbon development,