Linking the Swiss and EU emissions trading schemes

Linking the Swiss emissions trading scheme with that of the EU would be beneficial for both environmental policy and the economy. An Agreement to this end was signed in Bern on 23 November 2017. It was approved by the Swiss Parliament on 22 March 2019 and must now be ratified by Switzerland and the EU before it can enter into force on 1 January 2020.

Switzerland and the European Union (EU) operate separate emissions trading schemes (ETSs). The EU ETS includes just under 11,000 installation operators, representing emissions of around 2 billion tonnes of CO2 equivalent (CO2eq), as well as over 500 aircraft operators, which account for emissions of around 65 million tonnes of CO2. Some 50 installation operators participate in the Swiss ETS, with emissions totalling approximately 5 million tonnes of CO2eq. However, because of the small number of participants, Swiss emissions trading only has limited scope for development.

Switzerland is therefore seeking to link its ETS with the much larger EU ETS, so that Swiss ETS participants can benefit from the liquid and transparent European emissions trading market and thus enjoy greater flexibility in meeting their CO2 targets. Switzerland and the EU began negotiations to link their ETSs in 2011. The technical negotiations were concluded in January 2016 with the initialling of an Agreement. The Agreement was signed in Bern on 23 November 2017. The EU approved the Agreement in early 2018, and the Swiss Parliament approved it on 22 March 2019. It must now be ratified by Switzerland and the EU before it can enter into force on 1 January 2020. It is the first international treaty linking emissions trading schemes anywhere in the world.

Overview of the content of the Agreement

The Agreement regulates the mutual recognition of emission allowances from the two ETSs, each of which has its own legal basis. Switzerland will therefore not adopt EU law. Anyone obliged to participate in the Swiss or EU ETS can use emission allowances from both their own scheme and that of the other party to cover the relevant greenhouse gas emissions. In addition, as a result of the linking, aviation and fossil-thermal power plants will be integrated into the Swiss ETS, in line with the system in the EU. Participants in one ETS will be entitled to apply for admission to the auctions of emission allowances in the other ETS. Compatibility between the ETSs, the equal treatment of participants and system security are ensured by, among other things, 'essential criteria' laid down in the Annexes to the Agreement.

As with other agreements with the EU, a Joint Committee will be established to manage the Agreement. The Joint Committee may, in particular, decide on amendments to the Annexes. The Agreement is geared towards long-term cooperation and is therefore not time-limited. However, it may be terminated at any time subject to a six-month notice period. Since the Agreement is not intended to provide access to the internal market through the direct adoption of EU law, it will not fall within the scope of a future institutional agreement between Switzerland and the EU.

Implementation of the linking in Switzerland

To enable the obligations under the Agreement to be met, amendments to the CO2 Act and the CO2 Ordinance are required, in particular concerning the inclusion of aviation and fossil-thermal power plants in the Swiss ETS. These come into force on 1 January 2020. Most of the provisions shall continue to apply after 2020 and shall be carried over into the total revision of the CO2 Act and the CO2 Ordinance after 2020, in a form compatible with the continued linking of the ETSs.

When the Agreement comes into force, domestic and foreign aircraft operators that carry out domestic flights in Switzerland or flights from Switzerland to the European Economic Area (EEA) will be obliged to participate in the Swiss ETS for the first time. Under the Agreement, flights from the EEA to Switzerland are covered by the EU ETS.

Until now, Swiss emission allowances could only be held in the Swiss Emissions Trading Registry and European emission allowances only in the European registry (Union Registry). An electronic link will allow emission allowances to be transferred between the registries. As previously, anyone entitled to apply for admission to a Swiss auction and wishing to participate in such an auction will need to have an account in the Swiss Emissions Trading Registry.

Provided that the Agreement with the EU comes into force on 1 January 2020, it will be possible to cover emissions within the Swiss ETS that are produced on or after 1 January 2020 with European (as well as Swiss) emission allowances. However, emissions under the Swiss ETS from years prior to the ETS linking cannot be covered with European emission allowances.

ETS participants for whom it is not economically viable to meet their obligations under the ETS, whether for the above reason or because recognition of European emission allowances in the Swiss ETS has been temporarily suspended in accordance with the

Agreement, may submit an application for assessment as a case of hardship.
With the Agreement scheduled to come into force on 1 January 2020, further information for market participants will be published in early December 2019.

Further information

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Last modification 13.11.2019

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