Scope Expansion of ETS: Design and Policy Challenges

Emissions trading systems (ETSs) are increasingly recognized as a central instrument in jurisdictions' efforts to meet more ambitious climate targets. As the coverage of existing ETSs continues to grow and new systems are established, policy makers, researchers, and industry experts are turning their attention to the opportunities and challenges of expanding ETS scope, whether by broadening coverage to new sectors, fuels, or gases, or by deepening it within existing boundaries.

Scope expansion holds considerable promise: it can unlock efficiency gains, enhance market liquidity, reduce emissions across a wider spectrum, and foster greater coherence within the overall climate policy mix. At the same time, it introduces significant design and political challenges, from recalibrating caps and market stability mechanisms to managing price dynamics and navigating stakeholder opposition.

This report aims to support jurisdictions in navigating these complexities as they consider extending the reach of their ETSs. Drawing on real-world case studies and expert interviews, it presents a structured analysis of the types of scope expansion, the key design challenges that arise, and practical strategies to help policy makers overcome them.