Emissions trading

An industrial chimney emitting smoke.
Switzerland has committed itself to reducing greenhouse gas emissions. One of the key tools for this is emissions trading. © Veeterzy Unsplash

Switzerland and the European Union have linked their trading systems for C02-equivalent emission allowances. This helps reduce greenhouse gas emissions in the most cost-effective way. The EU aims to link up with other emissions trading systems in order to create a global carbon market. Its own system is the largest market for emission allowances worldwide, which makes it key to the fight against climate change. 

Emissions trading is about trading in certificates that entitle the holder to emit a certain amount of CO2. They can be allocated or traded, which effectively puts a price on emissions. The goal is to give carbon-intensive factories, power plants and the aviation sector an incentive to reduce their emissions.

The EU's emissions trading system (EU ETS) was set up in 2005. It covers the stationary energy sector such as carbon-intensive factories and fossil fuel power plants and, since 2012, the aviation sector. In 2013 Switzerland started its own ETS, which was only compulsory for the stationary energy sector. Now that it has been linked to the EU's system, the Swiss ETS also includes the aviation sector and fossil fuel power plants. 

Swiss companies gain access to the European market

Negotiations on linking the Swiss and EU ETS began in 2011. The resulting agreement strengthens emissions trading as a key climate policy instrument as well as Switzerland's carbon market. It means that Swiss and European emission allowances are mutually recognised, and it gives Swiss companies access to the much larger EU emissions trading market. Linking the two ETS is also expected to align the price of emission allowances, which will level the playing field for Swiss and European companies. The EU ETS is seeking to expand and link up with carbon trading systems in other countries as well. Its aim is to contribute to a liquid market for emissions trading worldwide, stabilise the price of carbon allowances, and lead to a global reduction of greenhouse gases in a cost-effective manner. 

Emissions trading: combating climate change 

Emission allowances entitle the holder to emit the equivalent of one tonne of CO2. This applies to both the Swiss and the EU ETS. ETS work on the cap and trade principle. Companies or aircraft operators taking part in the Swiss ETS are allocated a certain number of carbon allowances free of charge. If they emit more CO2 equivalents than their annual entitlement, they have to buy additional emission allowances on the market to make up the shortfall. If they emit less however, they can sell (trade) these unused allowances. The total stock of allowances (cap) goes down each year.

These carbon credits are recorded in an emissions trading registry. The registry serves as the basis for emissions trading under the ETS and for the purchase of emission reduction certificates (credits earned by reducing emissions in other countries) under the Kyoto Protocol's flexible mechanisms. Climate-friendly projects abroad are a cost-effective way of reducing greenhouse gases. For companies that take part in the Swiss ETS, a limited number of international credits are available, similar to participants in the EU ETS.

Chronology

  • 01.01.2020: Entry into force of the agreement
  • 22.03.2019: Approval by Parliament
  • 23.11.2017: Signing of the agreement