Linking emissions trading systems - Energy and Climate Change Committee Contents

6  Conclusion

39. Carbon pricing, and emissions trading in particular, is an established and well recognised policy instrument for controlling greenhouse gas emissions in a cost effective way because it provides flexibility to participants on how they want to reduce their emissions. A global carbon market would be the most favourable outcome in the long term because it is one of the most economically efficient ways to reduce emissions. However, attempting to achieve this benign outcome by means of a top-down process is extremely unlikely to succeed. Instead a bottom-up approach aimed at developing a network of regional, national and sub-national emissions trading systems, which gradually come together by linking, is much more likely. A global climate agreement that promotes carbon pricing and is favourable to linking represents the best chance of developing a global carbon market in the long term. The move towards a hybrid approach-which combines top-down elements for establishing and reviewing targets, with bottom-up elements of pledge-and-review tied to national policies and actions-in the international climate negotiations could significantly improve the prospects of linking carbon markets and is a welcome development. The world's largest economies, which have embraced emissions trading, China, the US and the EU will be the leading players in this process. As the first pioneering adopter of emissions trading and a strong advocate for market-based carbon pricing policies, the UK Government has an absolutely vital role to play in driving forward international linkage.

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Prepared 17 February 2015