Linking of carbon markets
Also called: Market linkage, Linking emissions trading systems · Topic: Environment and Sustainable Development · NCERT: Beyond NCERT
Meaning
Linking of carbon markets is a deal under which one emissions trading system accepts the allowances or credits of another. An allowance is a permit to emit 1 tonne of CO2e. Once two systems are linked, a firm in one can buy permits from a firm in the other. This makes the market bigger, lets the cheapest emission cuts happen first, and moves the carbon price towards a single level. Linking only works when the two systems follow compatible rules: what they cover, how they measure and check emissions (MRV), and what kind of target they use. Otherwise a credit may not really stand for one tonne less in the air. That loss of environmental integrity is the main risk.
Example
Brazil's SBCE, set up by a 2024 law, puts an absolute cap on total emissions. India's Carbon Credit Trading Scheme (2023) sets emission-intensity targets, which limit emissions per tonne of output. If an Indian plant sold its surplus credits to a Brazilian firm, the Brazilian firm could emit more than its cap allows. India's total emissions could rise at the same time, because its targets do not limit total output. For this reason, none of the BRICS compliance markets is linked yet.
Don't confuse with
- ITMOs (Paris Agreement Article 6.2): these are transfers of mitigation results from one country to another. The units are counted only once through "corresponding adjustments". The two countries do not merge their trading systems.
- Carbon offset: a single buyer purchases credits to cancel out its own emissions. No second trading system is recognised.