(Adds further comments from a Swiss official)

The EU must deepen its 2030 emission reduction target or risk diluting its climate ambition via its upcoming connection to Switzerland’s carbon market, Carbon Market Watch warned on Tuesday.

The EU has agreed to cut its domestic emissions 40% under 1990 levels, but its plans to finalise a link between the bloc’s carbon market and the much smaller Switzerland scheme this summer risk diluting the EU goal indirectly due to the Alpine nation’s intended reliance on outsourced carbon credits.

“Foreign allowances from the Swiss carbon market would dilute the EU’s domestic target and therefore such a link should be accompanied by an increased emission reduction target. Given that the main objective of linking is to reduce costs for companies, this should be possible at no additional cost,” said Femke de Jong of Carbon Market Watch, which published a report warning of the risks associated with linking carbon markets.

The concerns were played down by Swiss climate policy official Sophie Wenger during a webstreamed debate on the issue at the European Parliament in Brussels hosted by Carbon Market Watch.

“I’m not sure if there is a problem, in my view if the linked systems have the same emisson reduction pathway it just means a larger boundary and the same relative reductions,” she said, adding that there would therefore be no need to deepen the EU target due to the Swiss link.

WIDER LINKING CONCERNS

The Carbon Market Watch report found that while linking carbon markets may reduce the overall cost of emission reductions, without proper safeguards it could reduce overall emissions abatement, as well as domestic investments, government revenues and many of the co-benefits that would come from that climate finance.

“Although the impact of a potential link to the Swiss ETS is relatively small, future links between the EU ETS and the South Korean or Chinese ETS could have far reaching implications for the EU’s climate standards. Without appropriate safeguards embedded in the EU ETS, the benefits may be outweighed by associated risks” de Jong said.

The NGO is seeking wider debate on the issue of linking carbon markets, with the aim of agreeing firmer rules under the upcoming EU ETS Directive revisions, for which the European Commission is expected to publish a proposal before August.

LINK ROLL-OUT

During the debate, officials from both the EU and Switzerland said the two parties hoped to complete the linking negotiations by the end of the year. Both sides had previously said in March that they planned to finish the talks by July.

A further 18 months would then be required to sign off the measure in the Swiss parliament before the market tie-up could occur, according to Switzerland’s Wenger.

“Differences can and will be harmonised when the link occurs,” Wenger said. She pointed out that the Swiss scheme currently excludes emissions from the power sector and domestic flights, sectors which are included in the EU ETS.

“I can confirm the linked system will include aviation,” she said in response to a later question.

With 55 installations, Switzerland’s ETS currently covers a tenth of Swiss emissions amounting to 6 million tonnes of emissions a year, which is just 0.3% of the almost 2 billion EU ETS cap, which covers over 12,000 installations and around half of EU emissions.

“We will have no significant influence on the EU ETS market should it be linked,” Wenger said.

By Ben Garside – ben@carbon-pulse.com