Accounting for the Linking of Emissions Trading Systems under Article 6.2 of the Paris Agreement

By allowing allowances from one jurisdiction to be used for compliance in another jurisdiction, linking of ETSs enables mitigation to take place wherever it is cheapest. Emissions can thus shift across jurisdictions and over time. An important question arises as to whether and how linking affects the achievement of countries’ nationally determined contributions under the Paris Agreement, and how such links should be accounted for.

The paper examines four approaches to account for the flow of allowances across international borders under the Paris Agreement. It also explores how countries may formulate future NDCs in order to facilitate linking of ETSs and the robust accounting thereof. The findings can inform the ongoing negotiations on the Paris Rulebook, as well as bilateral agreements between jurisdictions.