Implications of Linking Emissions Trading Schemes On Market ParticipantsImplications of Linking Emissions Trading Schemes On Market Participants

There is broad consensus that climate change is real and that we need to act quickly to reduce greenhouse gas (GHG) emissions to curtail the negative impacts on our environment. In December 2007,180 countries at the United Nations Climate Change Conference in Bali, Indonesia agreed that tackling climate change requires coordinated international action. National governments are looking to replace the Kyoto agreement once it expires in 2012; however, it is unlikely that a truly global policy mechanism will emerge in the foreseeable future. Policy makers accept emission trading schemes as an effective policy tool that offer a lower cost, market-based approach to abatement. Emissions trading schemes that include offset projects in developing markets are considered a key tool for supporting wealth and technology transfers to developing countries - where GHG emissions are rapidly increasing although per capita emissions remaining low, and where governments lack the financial resources to develop comprehensive abatement programs. Driven by sovereign risk considerations, governments are designing national or regional trading schemes that satisfy local policy objectives. It is increasingly likely that, for the foreseeable future, instead of a single global emissions trading scheme, there will be a patchwork of schemes, as a number of mandatory and voluntary schemes are now operating or being developed around the world. Many governments involved in developing emissions trading schemes want to link their scheme with others, to achieve the benefits of a larger market. Companies are at different stages of capability with respect to dealing with emissions markets. Entities in Europe, for example, tend to have more developed capabilities as a result of their experience with the European Emissions Trading Scheme (EU ETS). However dealing with linked schemes will present increased challenges and opportunities for most entities as both strategic and operational implications must be addressed. This paper presents: an overview of emissions trading schemes and the ways in which they can be linked an overview of consequences of linking schemes the implications of linked emissions trading schemes for business