ZURICH (Reuters) - Switzerland and the European Union have moved closer to linking their carbon emissions trading systems (ETS) after the European Commission and Swiss government gave their backing for a deal.
An accord could be signed by the year's end and needs approval from EU leaders and ratification by the Swiss and EU parliaments, according to announcements in Brussels and Bern.
The Swiss ETS now includes 54 major carbon dioxide (CO2) emitters. Linking the Swiss and European systems will let these companies access a bigger and more liquid market.
Once the agreement takes effect, not expected before 2019, participants in the EU ETS will be able to use units from the Swiss system for compliance and vice versa, and emissions generated by aviation will also be included in the Swiss system.
"In line with the proposed regulation in the EU, it is expected that only flights from Switzerland to other countries in the European Economic Area and internal flights will be included," the Swiss government said after a cabinet meeting.
The Swiss ETS is based on the cap-and-trade principle. The cap was set at 5.63 million tonnes of CO2 for 2013 and is reduced by 1.74 percent every year. The cap will be 4.91 million tonnes in 2020.
The EU ETS is the world's largest carbon permit market and regulates around half of Europe's output of heat-trapping gases, forcing more than 11,000 power plants, factories and airlines surrender a carbon allowance for every tonne of carbon dioxide they emit.
The European Commission is keen to link its ETS with other carbon markets around the world and said linking schemes expands opportunities for emissions reductions, thereby cutting the cost of fighting climate change.
"This is also a model that can work, if and where applicable, with other trading nations,” a Commission spokeswoman said.
(Reporting by Michael Shields with additional reporting by Susanna Twidale in London and Alissa De Carbonnel in Brussels)