Emissions Trading in Pursuit of Electricity Decarbonisation – Market Structures and Regulations Matter

The transition towards a net-zero economy will require a rapid reduction in electricity sector emissions around the world. Emissions Trading Systems (ETSs) have proven a cost-effective tool to trigger the sector’s large emissions reduction potential but require that carbon and electricity market regulations align. This report is the culmination of a three-year research project commissioned by the German Environment Agency. It assesses interactions between ETSs and the electricity sector. Furthermore, the report distils major project findings by building on a conceptual study published in 2019 and case studies in Germany, Poland, Korea, China (Hubei, Shenzhen), the United States (California) and Mexico published over the course of 2020-2021. The report contributes to a more thorough understanding of how interactions impact mitigation choices and how ETSs can be leveraged to accelerate decarbonisation pathways.