The EU’s ability to link its ETS to other cap and trade systems could be hampered by the MSR, according to an analyst at Bloomberg New Energy Finance (BNEF).

“The MSR makes it harder to link. A two-way link imposes MSR on the other scheme,” BNEF’s James Cooper told delegates at the Carbon Expo conference in Barcelona on Tuesday.

“It would be very hard to model one market with the MSR and one without and then link them.”

He said that the process for linking carbon markets so complex that “you almost need two of the same” for it to be possible technically, while political concerns would hamper connections between markets that had considerable price differences.

The EU is open to connecting its ETS to further the bloc’s ultimate aim of a global carbon market that can achieve emission reductions at lowest cost.

It is due to link with Switzerland’s tiny ETS in 2017 or 2018 after years of negotiations, but a planned connection with Australia’s market stalled after a change of government in Canberra led to the dismantling of its planned scheme.

EU lawmakers have agreed the MSR to automatically manage the supply of allowances based on the size of the surplus.

This puts it at odds with other markets such as North America’s WCI and RGGI schemes and Chinese pilot markets, all of which operate a de-facto price floor via an auction reserve price.

Trevor Sikorski, an analyst at Energy Aspects, said this deliberate choice by the EU ensures its own market can achieve emission reductions more efficiently.

“The EU went out of their way to say the MSR not price-related, (as) they don’t want to be seen to interfere on price,” he said.

By Ben Garside – ben@carbon-pulse.com