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Carbon pricing is a necessary element in spurring climate change mitigation action. In this report we argue that emissions trading, as an established and well recognised policy instrument for controlling greenhouse gas emissions, is increasingly popular and spreading around the world.
As they develop, emissions trading systems should be designed so that they are compatible with each other. Aligning design elements early on will help improve the prospects of linking different systems in future and, therefore, maximise opportunities for cost-effective emissions reductions.
As the world's oldest and largest market, the EU Emission Trading System will play a critical role in facilitating linking between different markets. Before it can do this, however, it must be seen as a credible market. The issue of surplus allowances must be addressed urgently which is why we support moves to remove these allowances from the system as soon as possible.
It is vital that these developments are compatible with a new global climate agreement. The use of carbon markets will greatly improve the prospects of keeping global average temperatures below 2°C. Any agreement reached at the UNFCCC COP 21 in Paris at the end of 2015 should promote the use of carbon markets and facilitate the future linking of emissions trading systems.
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