Legal Issues On The Transnational Cooperation Of Emission Trading Schemes

With the global climate issue becoming more and more serious,and given the uncertainty of multi-lateral cooperation offered by United Nations Framework Convention on Climate Change(UNFCCC)and Kyoto Protocol(KP),more and more countries and regions begin to choose the voluntary reduction.In order to solve the external problem,environmental experts put forward some environmental policy tools,such as carbon tax,command-control mechanisms and emission trading schemes.After comparing them,it is not difficult to observe that carbon tax fails to control the total emission,and command-control mechanism is too rigid,so carbon emission trading scheme prevails because it can cap the overall emissions and ensure the environmental integrity.Moreover,combing with the market trading mechanism provide emitters with more flexibility,therefore it has been favored by many countries and regions,including China.The cooperation of carbon trading markets could offer a variety of benefits,including expanding the market scale,increasing liquidity,stabilizing the market expectation for participators,particularly it can decrease the abatement cost.As for the issues of unbalance with industrial competition and carbon leakage,linkage could solve these problems and promote the coordination and consistency in global emission mitigation,as well as provide ideas and implementation mechanism to address this global issue.In this paper,the logical chain is: "Analysis of Relative Theories"-“Case Study of Carbon Market"-"System Construction Analysis"-"China's Practice and Lessons".The thesis is composed of nine chapters,constituting six parts.Details are as following:The first part is the introduction,providing a brief background for the whole thesis.A wide range of scientific research show that the climate problem is very urgent,but the global climate cooperation does not go well.In economics,externality theory is an essential theory to address the environmental issues,which provides two solutions to the externality,tax and property rights.Based on its cap and market mechanism,more and more countries begin to employ the carbon market to reduce GHG emissions,which pave a way for the cooperation of carbon market in different countries.Based on reviewing the past research,both at home and abroad,this paper analyzes the necessity and feasibility for carbon market cooperation in different countries,as well as investigates the pros and cons of carbon market linkage.At the same time,Chinese carbon market is still in the initial stage,so domestic scholars focus more on Clean Development Mechanism(CDM),and research on cooperation of carbon market is very limited,let alone the research from legal perspective.Chapter 2 and chapter 3 compose the theoretical analysis section,researching on the basic theories related to carbon markets cooperation in different countries.Beginning with legal attributes of emission right,this thesis discusses it from perspectives of international law,common law and Chinese law.Meanwhile,this research also probes in the trading credits,offset,concept and types of carbon market cooperation,which shows that method employed most is one-way linkage.As for the international treaty,principle and agreement,this paper conduct its research from UNFCCC,concluding the problems and achievements under multilateral carbon market cooperation supported by KP.Then combing with characteristic and trends in post-Kyoto era,Bali Roadmap,Durban platform,Warsaw climate conference and other agreements indicate the climate change negotiation approach has changed from “two-tracks” to “one-track”,making all the parties to join the mitigation is the main trend.Different from the top-down approach in KP,Paris Agreement,an emission reduction agreement with legal binding force applicable to all parties,introduces intended nationally determined contributions(INDCs)and employs bottom-up pathway to facilitate global cooperation,marking a new era for international climate cooperation.Chapter 4 focuses on the cases around the world.Firstly,it elaborates on how major countries employ carbon market to reduce emissions,which provides foundation for carbon markets cooperation in different countries.Then,this paper analyzes the cases of carbon markets cooperation and linking in different countries.Besides CDM,it explores more on the umbrella linkage between EU and Norway,Iceland,Liechtenstein,as well as the parallel linkage between California and Quebec.Furthermore,it also discusses the failure reason for the cooperation betweenCalifornia and EU since the unstable policy in Australia,and concludes that the coordination and compatibility play important role in carbon markets linkage,which can be obtained from one party's market rules prevailing or coordination between two parities,such as WCI.Regarding EU's one-way interim period,this paper believes that it create phase of adjustment and adaptive for parties involved,contributing to the deeper and durable cooperation.Chapter 5 and Chapter 6 contribute to the system construction.Based on the cases discussed above,this thesis analyzes the legal nature of the transnational cooperation of ETS.After further discussion,it believes that unilateral cooperation relies on domestic laws in one country or region,so this belongs to domestic laws.Bilateral and multilateral agreements,however,could be treaties,political cooperation arrangement or reciprocal commitments.Then,this paper proposes some legal principles which should be employed in the process of linkage.Originating from property rights theory,carbon market relies more on rules and regulations.From emitters' perspective,the principle of justice means the regulators should design equal and impartial rules,which means a lot to the establishment of carbon markets and carbon markets cooperation in different countries.Moreover,linkage should focus more on environmental integrity and economic benefits,since carbon trading schemes are designed to protect environment and reducing mitigation cost is the economic drive for the linkage.Furthermore,it also explores the general legal issues in the linkage of carbon markets in different countries,including resolving the credits related to transition through commercial transition mechanism,and intensifies its “weak property rights attributes” to promote efficiency of mitigation.And this thesis analyzes the contractual and tax issues,and proposes that employing contractual terms to reduce risk due to absence of international treaty.For the tax issue,the market should focus on the mitigation.Following,this paper analyzes the attributes of agreement,including domestic law of unilateral agreement.At the same time,regarding the rules related to projects and credits in carbon market,as well as independent of party under the linkage system,this thesis demonstrates that legal rules play an important role in cooperation of carbon markets.At last,this paper discusses the framework,contract,offset,as well as supervision,and proposes to coordinate the rules to promote cooperation as the international co operational mechanism is not so clear.Chapter 7 and Chapter 8 discuss the practice and learning in China.Paris Agreement indicates new era for global climate change,and it employs “INDCs + periodical review” model to provide autonomy in mitigation,which also maintains the global climate cooperation.Employing periodical review and ratchet system in order to drive parties to increase their mitigation targets,and then contribute to promoting global climate cooperation.In accordance with Paris Agreement,this paper provides some advices and polices.As to the trade problems originated from unilateral emission reduction measures under Paris Agreement,such as EU added aviation into its carbon market and carbon tariff proposed by US,China should develop its carbon market positively.Adopting coordination and cooperation mechanism in mitigation area will not only help China reduce its mitigation cost and carry out its obligation under Paris Agreement,but will also address the issuesoriginating from industry competition,trade barrier and carbon leakage.In order to achieve its mitigation goal to increase the percentage of non-fossil energy to 20% by 2030,China should reform its domestic energy policies and support clean and renewable energy to promote economic structure optimization.As to the cooperation road and model of carbon markets cooperation,combing with cases analysis and legal issues,China,as a developing country,is still on the way to increasing its emission,so China should adopt pilot and national market to reduce emissions.After evaluating polices and trade rules in pilot markets,this paper argues that Shenzhen having most potential to be the pilot platform for international cooperation.Based on the INDC submitted by China to UN,this paper argues that China should invite developing countries' CER into China's pilot carbon markets to promote national mitigation strategy of “One Belt and One Road”.For a long run,China should employ mutual reciprocal agreement with other countries or regions from 2030 to 2035;and establish two-way parallel international treaty to build higher level cooperation system.For Chapter 9,it concludes the whole thesis and puts forward some ideas for the future.Whether from the perspective of addressing climate change or reducing mitigation cost and promote trade,as well as the article 6 in Paris Agreement to facilitate cooperation,the cooperation of carbon markets will become a main trend in the future.Based on the commitments,China should facilitate carbon markets cooperation and linkage from loose framework,political arrangement to international treaty,and get reference from the cooperation between California and Quebec,and weak property rights in the US and so on.With the INDCs carrying out and enrichment of autonomous cooperation under Paris Agreement,more and more legal issues in this filed will come out and the research on these problems will become increasingly perfect,and gradually establish the legal channel to address this issue.