Cap Setting
The cap represents the upper limit of GHG emissions allowed in a scheme, or in other words the total number (emissions budget) of allowances that is available to covered entities. When defining a cap, regulators seek to reconcile environmental targets with their economic feasibility.
Source: ICAP ETS Brief #1 What is Emissions Trading |
A fixed sum of emissions or an absolute cap ensures that emissions will not exceed a given limit, and therefore delivers a specific environmental outcome. Allowance price levels are a function of how many allowances are available under the cap, how easy it is for installations to reduce emissions, and other factors such as the weather and economic growth. Together these variables need to be taken into consideration when defining a cap. Though the carbon price also depends on these other factors, a generous emissions budget will tend to lead to the market being long and a low allowance price, making it cheap for covered entities to comply. By contrast, a relatively strict emissions budget or ‘tight cap’ means a more limited supply of allowances, or the market being short, resulting in a higher allowance price and a greater fiscal incentive to reduce emissions.
Setting a cap also implies choosing a baseline against which emissions are to be reduced. The cap is usually set in relation to historical emissions, often referred to as a base year, or projected future emissions (e.g. against a business-as-usual scenario). Clear communication of the trajectory, or the path from the basis to the target, helps capped entities plan investment to reduce emissions.
Overall GHG emissions (excluding LULUCF) |
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Canada - Nova Scotia |
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Emissions: 16.9 MtCO2e MtC02e (2018)
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Canada - Québec Cap-and-Trade System |
Emissions: 80.6 MtC02e (2018)
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China - Beijing pilot ETS |
Emissions: 188.1 MtC02e (2012)
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China - Chongqing pilot ETS |
Emissions: ~156 MtCO2e MtC02e (2018)
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China - Fujian pilot ETS |
Emissions: 240.0 MtCO2e MtC02e (2014)
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China - Guangdong pilot ETS |
Emissions: 610.5 MtC02e (2012)
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China - Hubei pilot ETS |
Emissions: 463.1 MtC02e (2012)
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China - Shanghai pilot ETS |
Emissions: 297.7 MtC02e (2012)
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China - Shenzhen pilot ETS |
Emissions: 83.45 MtC02e (2010)
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China - Tianjin pilot ETS |
Emissions: 215 MtC02e (2012)
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China National ETS |
Emissions: 12,301 MtC02e (2014)
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EU Emissions Trading System (EU ETS) |
Emissions: 3,893.1 MtC02e (2018*)
*Overall GHG emissions for the EU-27 that comprises all European Member States, which as of 2021 no longer includes the United Kingdom. |
German National Emissions Trading System |
Emissions: 859 MtC02e (2018)
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Japan - Saitama Target Setting Emissions Trading System |
Emissions: 37.2* MtC02e (2017)
* The overall emissions figure for Saitama is higher than the total of the emissions by sector because the former includes all GHGs in Saitama, whereas the emissions by sector only measures CO2 emissions. |
Japan - Tokyo Cap-and-Trade Program |
Emissions: 63.9 MtC02e MtC02e (2018*)
*The overall emissions figure for Tokyo is higher than the total of the emissions by sector because the former includes all GHGs in Tokyo, whereas the emissions by sector only measures CO2 emissions. |
Kazakhstan Emissions Trading Scheme |
Emissions: 396.6 MtC02e (2018)
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Korea Emissions Trading Scheme |
Emissions: 727.7 MtC02e (2018)
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Mexico |
Emissions: 733.8 MtC02e (2017)
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New Zealand Emissions Trading Scheme |
Emissions: 78.9 MtC02e (2018)
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Swiss ETS |
Emissions: 46.4 MtC02e (2018)
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United Kingdom |
Emissions: 461.7 MtC02e (2018)
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USA - California Cap-and-Trade Program |
Emissions: 425.3 MtC02e (2018)
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USA - Massachusetts Limits on Emissions from Electricity Generators |
Emissions: 72.9 MtC02e (2017)
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USA - Regional Greenhouse Gas Initiative (RGGI) |
Emissions: 564.3 MtC02e (2017*)
*GHG emissions reported here are based on energy-related emissions data only and retrieved from the International Energy Agency (IEA). Energy-related CO2 emissions refer to emissions released at the location where fossil fuels are consumed. |
Colombia |
Emissions: 150.6 MtC02e (2014)
Colombia uses the sectors defined in the latest IPCC guidelines (2006 IPCC Guidelines for National Greenhouse Gas Inventories) for the preparation of its inventory, in which the Agriculture and the LULUCF sectors are integrated into “Agriculture, Forestry and Other Land Use.” In an effort to make the display of overall GHG emissions comparable with other jurisdictions, the figure shown here excludes the category “3B Land,” but includes the categories “3A Livestock” and “3C Aggregate sources and non-CO2 emissions sources on land. |
Indonesia |
Emissions: 1,457 MtC02e (2016)
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Montenegro |
Emissions: 3.5 MtCO2e MtC02e (2015)
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Russian Federation - Sakhalin |
Emissions: 2220.1 MtC02e (2018)
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Ukraine |
Emissions: 339.2 MtC02e (2018)
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USA - Pennsylvania |
Emissions: 262.7 MtC02e (2017)
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USA - Transportation and Climate Initiative Program (TCI-P) |
Emissions: 110 MtC02e (2017*)
*GHG emissions reported here are based on energy related emissions data only and retrieved from the IEA. Energy-related CO2 emissions refer to emissions released at the location where fossil fuels are consumed |
Vietnam |
Emissions: 321.5 MtC02e (2014)
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Brazil |
Emissions: 1,036.3 MtCO2e MtC02e (2015)
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Chile |
Emissions: 112.3 MtC02e (2018)
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Japan |
Emissions: 1,240.4 MtC02e (2018)
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Pakistan |
Emissions: 397.5 MtC02e (2015)
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Philippines |
Emissions: 229 MtC02e (2017)
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Taiwan, China |
Emissions: 293.1 MtC02e (2016)
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Thailand |
Emissions: 392.27 MtC02e (2016)
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Turkey |
Emissions: 520.9 MtC02e (2018)
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USA - New Mexico |
Emissions: 66.7 MtC02e (2018)
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USA - New York City |
Emissions: 55.1 MtC02e (2019)
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USA - North Carolina |
Emissions: 150.1 MtC02e (2017)
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USA - Oregon |
Emissions: 64 MtC02e (2018)
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USA - Washington |
Emissions: 99.6 MtC02e (2018)
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Studies
Gilbert, A., Blinde, P., Lam, L., Blyth, W. (2014): Cap-Setting, Price Uncertainty and Investment Decisions in Emissions Trading Systems. Ecofys and Oxford Energy Associates.
Wing, S., Ellerman, A.D., Song, J. (2009): Absolute vs. Intensity Limits for CO2 Emission Control: Performance under Uncertainty. Published in: H. Tulkens & R. Guesnerie (eds.) Design of Climate Policy. Cambridge, MA: MIT Press.
Diekman, J. (2013): EU Emissions Trading: The Need for Cap Adjustment in Response to External Shocks and Unexpected Developments? On behalf of the German Federal Environment Agency.
Official Websites and Presentations
Australia
Climate Change Authority - Cap and Targets Review Issues Paper (April 2013)
EU ETS
European Commission Website - Cap
California
Information on the cap-setting work
Québec
Determination of annual caps on greenhouse gas emissions relating to the cap-and-trade system for greenhouse gas emission allowances for the 2013-2020 period - Order of council (2012-12-12)
RGGI
Official website on the RGGI CO2 Cap
Switzerland
Website of the Federal Office for the Environment on ETS caps and reduction path