Emissions Trading System (ETS)

Emissions Trading at a Glance

An ETS – or cap-and-trade program – is managed by a governing jurisdiction that sets a limit or a cap on the total amount of allowed CO₂emissions. These allowances to emit are distributed to liable entities (direct emission sources or others) that must redeem them for every emitted ton of CO₂, with the possibility to buy additional allowances or sell unused ones. As liable entities consider the cost of their emissions within their production processes and the possibility to buy or sell allowances, a market for CO₂emerges, setting a price on CO₂ that acts as a reduction incentive for all liable entities. This price influences decisions both in the short-term management of existing assets and in the longer-term direction of investments. [1]

An ETS – as opposed to a tax – is a quantity-based policy, i.e., it offers certainty over the environmental outcome (i.e., “cap”) but leaves it to the market (i.e., “trade”) to set the price of carbon.

[1] Definition combined and adapted from OECD, 2013. “Climate and carbon - Aligning prices and policies”. OECD Environment Policy paper n°01, and Trotignon, Raphaël, 2012. “In search of the carbon price: “The European CO2 emission trading scheme: from ex ante and ex post analysis to the protection in 2020” Economic Thesis from University Paris Dauphine.

Technical Note(s) and Event Material(s)

Technical Note(s)

PMR Technical Note 2: Domestic Emissions Trading: Existing and Proposed Schemes

Event Material(s)

See materials from the PMR Workshop Presentation: Domestic Emissions Trading Schemes (ETS) Shenzhen, March 12-13, 2012

Program Designs and Country Case Studies

Existing and Proposed Program Designs

International Emissions Trading Association (IETA)/ Environmental Defense Fund (EDF), The World's Carbon Markets: A case study guide to emissions trading, 2013.
New Zealand: Emissions Trading Scheme
Western Climate Initiative (WCI): WCI

China

Centre for Climate Economics and Policy, Australian National University/ China Carbon Forum, China Carbon Pricing Survey 2013, 2013
International Emissions Trading Association (IETA), A User Guide To Emissions Trading in China, 2013
The World Bank: International Review of Trading Schemese for Energy Savings and Carbon Emissions Reductions, 2013 and presentation
The World Bank: White Certificates Trading, Green Certificates Trading, Emissions Trading: Which One to Choose? 2013
See Stockholm Environment Institute, China's Carbon Emissions Trading: An Overview of Current Development, 2012