MARKET LINKAGE AGREEMENTS

A market linkage agreement makes units issued or recognised in one jurisdiction usable for compliance in another. This lever does not create a carbon market or determine whether removals are eligible within it; it connects jurisdictions after those underlying decisions have been made. It can connect two trading systems directly or establish mutual recognition of eligible units without fully integrating the markets. Linkage widens the buyer pool, deepens liquidity and pulls prices together. For removals, it is how a small market or certification pioneer avoids becoming a price island, provided both sides agree which removal units can cross the boundary and who carries liability.

Linkage imports the partner’s integrity standards, so recognition must be conditional on equivalent MRV, permanence and reversal rules; a link to a weaker system is a leak, not a bridge. Negotiators must settle registry connectivity, treatment of price-management tools such as floors and reserves, quantitative limits and exit provisions, since either side’s politics can sever the link. Article 6 authorisation and corresponding adjustments are required where removal units cross national borders as internationally transferred mitigation outcomes for use toward an NDC or another authorised international mitigation purpose, but not simply because two registries exchange compliance instruments.

Linkage delivers scale without requiring governments to create an entirely new demand instrument, allowing obligations in one market to support supply in another. It disciplines both partners against quality erosion because each imports the other’s scrutiny. For removals, early mutual recognition between certification and compliance frameworks could establish common eligibility rules before incompatible national systems harden. Future recognition of CRCF-certified units by partner schemes is one possible route, but CRCF certification does not currently make a unit eligible for the EU ETS or another compliance market.

Price convergence transmits shocks: a crash or intervention in one market quickly reaches the other. Political rupture is real, as Ontario’s 2018 withdrawal from its linkage with California and Québec demonstrated. Asymmetric ambition can also create a one-way flow of cheaper units toward the stricter market, importing integrity and reputational risks. Once linked, the smaller partner may have limited practical freedom to change its rules without jeopardising continued equivalence.

Success is not simply a signed agreement, but whether the link increases liquidity without weakening either market’s cap or integrity. Authorities should monitor price convergence, auction participation, market concentration, cross-border transfers and surrender, use of foreign units and differences in verification or reversal outcomes. The joint governing body should publish these results and maintain predefined powers to suspend particular unit types or the link itself when equivalence breaks down.

Finance and environment ministries negotiate, while market operators, registries, auction platforms and verifiers implement the link. Covered entities need sufficient notice of eligibility and registry changes. Project developers and certification bodies should be consulted where removal units are contemplated, while civil-society scrutiny of both systems forms part of the mutual-assurance architecture.

Linkage is implemented jointly by the authorities operating the participating markets. International agreements and their joint committees govern links across national borders. The EU operates one side of the EU-Swiss link at supranational level, while Switzerland acts nationally. California and Québec demonstrate linkage between regional or state-level systems. Tokyo’s limited linkage with neighbouring Saitama shows that a metropolitan government can also participate where it possesses sufficient regulatory authority. Tokyo has prefecture-like powers, so the precedent is not transferable to every municipality.