[Summary] 10 practical steps to create an Emissions Trading System

“Currently, ETSs are operating across four continents in 35 countries, 13 states or provinces, and seven cities, covering 40 percent of global GDP with additional systems under development.”

“This week, the WB launched “Emissions Trading in Practice: Handbook on Design and Implementation”, a new guide for policymakers that distills best practices and key lessons from more than a decade of practical experience with emissions trading worldwide.”

  1. Set the scope: i.e. geographic area, sectors, emissions sources, and GHGs to be regulated
  2. Set the cap: collect robust emissions data, and determine the level of the cap and its long-term trajectory
  3. Distribute the emissions allowances to regulated entities: potential leakage issues should be addressed)
  4. Consider allowing the use of offset credits: generated from uncovered sources and sectors in the ETS
  5. Set timeframes for the reporting and compliance period: consider flexibility from banking/borrowing
  6. Consider market stability design features: such as a price floor, ceiling, or allowances reserves
  7. Define enforcement of participants’ obligations and
  8. government oversight: monitoring, reporting, and independent verification of emissions, penalties for noncompliance, and oversight of the market to address risks of fraud and manipulation.
  9. Assure continuous engagement with stakeholders 
  10. Allow regular reviews of ETS performance

Terms: PMR (World Bank’s Partnership for Market Readiness), B-PMR (Business Partnership for Market Readiness), IETA (International Emissions Trading Association)

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