Towards a Global CO2 Market?

International linking of emissions trading systems represents an important option for climate protection. The European Emissions Trading Scheme, center pillar of the EU climate strategy, could serve as a starting point for a global permit trading scheme. This is the finding of a report by the Potsdam Institute for Climate Impact Research (PIK), that was commissioned by the German Federal Foreign Office and presented at a joint press conference in Berlin on July 6th, 2007.

A dynamic trade model developed at the PIK shows that an integration of emission trading systems reduces the overall costs of climate protection. This prevails even if emission caps implemented by the partner regions differ in their level of ambition. In addition, the report points out that the resulting uniform permit price eliminates competition distortions among connected regions.

Linking emissions trading systems enables pioneers in the field of climate protection to achieve their reduction targets at maximal efficiency, the report shows. Partner systems should be compatible to yield these advantages. Therefore, early talks on the technical and juridical level would be required.

According to the report, the European Emissions Trading System could be linked to regional schemes – such as those currently emerging in the United States – in the medium term. “Transatlantic talks on a cooperation on emissions trading between the German Foreign Minister Frank-Walter Steinmeier and Californian Governor Arnold Schwarzenegger would be a big step towards a global climate policy”, says Ottmar Edenhofer, chief economist at the PIK and main author of the report. He is convinced that “these talks could have a strong signalling effect on the US federal legislation”.


Ottmar Edenhofer, Potsdam Institute for Climate Impact Research (PIK), Germany
phone: +49 (0)331 288 25 65, e-mail:

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