New Zealand’s Emissions Trading Scheme (NZ ETS) is an output-based system that covers specific segments of forestry, energy, industry, and waste, with other sectors able to opt-in. NZ ETS has several approved mechanisms for producing tradable carbon offsets.
The EU uses a cap-and-trade system with an annual cap reduction, which reduces the number of emissions allocations being granted. Additional allowances are auctioned by member states, and aviation has a separate set of allowances. The EU’s system is linked with Switzerland and is phasing in a carbon border adjustment mechanism on imported products to prevent “carbon leakage”.
Québec’s cap-and-trade system is like California’s. It provides tightening emissions allowances over 3-year compliance periods for regulated facilities (emitting >25kt CO2e/year). Entities that exceed their allowances can acquire more at quarterly government auctions, which are joint with California, or use a very restricted number of carbon offsets.
Ontario’s Emissions Performance Standards requires facilities with emissions > 50kt CO2e/year to register, and allows those with emissions > 10kt CO2e/year to opt in. Registered facilities can seek exemption from the federal fuel charge and must reduce their emissions annually or pay the federally benchmarked carbon tax.
Canada has a carbon pricing backstop that is in effect in Nunavut, Yukon, PEI, and Manitoba, and requires facilities with emissions >50kt CO2e/year to register. There is also a federal fuel charge backstop in effect in Alberta, Saskatchewan, and Ontario; Canada is implementing a federal clean fuels standard, like the one in British Columbia.
California has a cap-and-trade system, which has the same structure as Québec’s. In addition, California also has a low carbon fuel standard (LCFS) that regulates the carbon intensity (CI) of over the lifecycle of gasoline or diesel fuels. Fuels produced with a CI greater than the benchmark create deficits, while those below create credits, which can be traded.
The US currently implements a renewable fuel standard, and has several voluntary carbon market standards organizations, including the Gold Standard, the American Carbon Registry, the Verified Carbon Standard (by Verra), and the Climate Action Reserve. These regulate the production of carbon credits that companies may use for their net-zero ambitions. The SEC has recently proposed new emissions reporting obligations for US companies.
China’s emissions trading scheme (ETS) only covered the power sector in 2021 but will expand in coming years. China’s ETS grants emissions allowances based on tightening carbon intensity benchmarks, which change for different types of facilities. In 2021, allowances could be traded in spot transactions, but not to speculators or other financial institutions.
The UK Emissions Trading Scheme (UK ETS) follows a structure similar to the EU’s, which it disconnected from in 2021. Unlike the EU system, the UK ETS has an auction reserve price and cost containment mechanism, and also has more stringent emissions tightening.
Australia’s Emission Reduction Fund is a national, voluntary system run by Australia’s Clean Energy Regulator that auctions credits produced by approved projects. As of writing, the system is being converted into an exchange.
Singapore is becoming a carbon trading hub. It also applies a carbon pricing scheme to facilities with emissions >25kT CO2e/year, which allows 5% of an entity’s compliance obligation to be submitted through international carbon credits, in lieu of paying the country’s carbon tax.
South Korea’s Emissions Trading Scheme (KETS) encompasses companies with emissions >125kT CO2e/year and facilities with emissions >25kT CO2e/year. KETS grants tradable emissions allocations based on sector-specific benchmarks that tighten over time, and auctions additional allocations. It also permits a limited number of approved offsets to be used for compliance.
British Columbia, Canada
British Columbia’s low carbon fuel standard (LCFS) reduces the carbon intensity (CI) over the lifecycle of fuels by awarding suppliers that produce fuels with a lower CI tradable credits, which must be acquired by those producing fuels with a greater CI.
Alberta’s TIER system requires facilities with emissions >100kt CO2e/year to reduce their emissions intensities (EI) annually, and awards facilities with reductions tradable credits. Facilities that are unable to reduce their EI must pay the carbon tax on excess emissions but may retire eligible carbon offsets or carbon credits to reduce this amount.