As ministers gather at the COP25 in Madrid to discuss the rules for international carbon markets, the EU and Switzerland finalised the process that allows for the link of their emissions trading systems to enter into force. As of 2020 allowances from both systems can be used for compliance to compensate for emissions occurring in either system. The Linking Agreement between the EU and Switzerland is the first of its kind, and demonstrates that emissions trading systems can pave the way to broader international carbon markets.
Executive Vice-President Frans Timmermans said: “The Linking Agreement between the EU and Switzerland, which also covers the aviation sector, sends a strong signal that we can create broader and more comprehensive carbon markets with benefits to our climate and environment.”
There are significant benefits to linking carbon markets. By expanding the market and increasing the availability of emission reduction opportunities, the cost-effectiveness of the linked systems can be increased and their liquidity enhanced, thus resulting in better burden sharing, more efficient emissions reductions, and decreased overall compliance costs. The European Green Deal will strongly support these principles, underlining that with linked carbon markets we can bring carbon prices in different countries closer together, which in turn may reduce carbon leakage risks. Linking also strengthens cooperation between parties with binding targets and encourages others to take action, as well as to support global cooperation on climate change and the development of a global carbon market.
The EU ETS Directive allows for linking, provided both systems are compatible, mandatory and have an absolute emission caps. These conditions for linking have been laid down in the Annexes to the Linking Agreement and will ensure that both parties meet these requirements.
Negotiations on the Linking Agreement between the EU and Switzerland started in 2011. The linking agreement was signed at the end of 2017 and will enter into force on 1 January 2020.