APPENDIX

ANNEX I to the Linking Agreement

ESSENTIAL CRITERIA

A. Essential Criteria for Stationary Installations

This section shall be reviewed in accordance with Article 13(7) of this Agreement with a view to maintaining the current compatibility of the EU ETS and the ETS of Switzerland for the new trading period 2021-2030, as proposed by the Swiss government. The Joint Committee shall ensure that the revision of this section as a minimum preserves the integrity of the respective domestic emission reductions commitments of the parties and the integrity and orderly functioning of their carbon markets. Carbon leakage and distortion of competition between linked systems shall be avoided.

as in force on the date of entry into force of this Agreement

as in force on the date of entry into force of this Agreement

-Commission Implementing Regulation (EU) 2018/2067 of 19 December 2018 on the verification of data and on the accreditation of verifiers pursuant to Directive 2003/87/EC of the European Parliament and of the Council.

-Commission Regulation (EU) No 600/2012 of 21 June 2012 on the verification of greenhouse gas emission reports and tonne-kilometre reports and the accreditation of verifiers pursuant to Directive 2003/87/EC of the European Parliament and of the Council

Verification and accreditation in the ETS shall at least be as stringent as in:

as in force on the date of entry into force of this Agreement

-Articles 50 to 53 and Annexes 16 and 17 of the CO2 Ordinance

as in force on the date of entry into force of this Agreement

-Commission Implementing Regulation (EU) 2018/2066 of 19 December 2018 on the monitoring and reporting of greenhouse gas emissions pursuant to Directive 2003/87/EC of the European Parliament and of the Council and amending Commission Regulation (EU) No 601/2012.

-Commission Regulation (EU) No 601/2012 of 21 June 2012 on the monitoring and reporting of greenhouse gas emissions pursuant to Directive 2003/87/EC of the European Parliament and of the Council

Monitoring and reporting in the ETS shall at least be as stringent as in:

as in force on the date of entry into force of this Agreement

as in force on the date of entry into force of this Agreement

The ETS shall provide for penalties in the same circumstances and of the same magnitude as set out in:

Free allocations do not exceed the levels of allocations given to installations in the EU ETS.

as in force on the date of entry into force of this Agreement

-Article 45, paragraph 2, Articles 46, 46a, 46b, 46c and 48 and Annex 9, of the CO2 Ordinance

-Article 18, paragraph3, and Article 19, paragraphs 2 to 6, of the CO2 Act

as in force on the date of entry into force of this Agreement

- any cross-sectoral correction factor in the EU ETS in 2021-25 or 2026-30

- Commission Delegated Decision concerning the determination of sectors and subsectors deemed at risk of carbon leakage for the period 2021 to 2030 (C(2019) 708; OJ L120 of 8.5.2019, p 20)

- Commission Delegated Regulation (EU) 2019/331 determining transitional Union -wide rules for harmonised free allocation of emission allowances pursuant to Article 10a of Directive 2003/87/EC

-Calculations for the determination of the cross-sectoral correction factor in the EU ETS in 2013 to 2020

-Commission Decision 2011/278/EU of 27 April 2011 determining transitional Union-wide rules for harmonised free allocation of emission allowances pursuant to Article 10a of Directive 2003/87/EC of the European Parliament and of the Council

Free allocation shall be calculated on the basis of benchmarks and adjustment factors. A maximum of five percent of the quantity of allowances over the period from 2013 to 2020 shall be set aside for new entrants. Allowances which are not allocated free of charge shall be auctioned or invalidated. To this end, the ETS shall meet at least:

These only provide for the use of international credits up to 2020.

as in force on the date of entry into force of this Agreement.

No entitlements to use international credits are foreseen in the EU legislation from 2021 onwards.

as in force on the date of entry into force of this Agreement.

-Commission Regulation (EU) No 1123/2013 of 8 November 2013 on determining international credit entitlements pursuant to Directive 2003/87/EC of the European Parliament and of the Council

-Commission Regulation (EU) No 389/2013 of 2 May 2013 establishing a Union Registry pursuant to Directive 2003/87/EC of the European Parliament and of the Council, Decisions No 280/2004/EC and No 406/2009/EC of the European Parliament and of the Council and repealing Commission Regulations (EU) No 920/2010 and No 1193/2011

The quantitative limits for international credits shall be at least as stringent as those set out in:

as in force on the date of entry into force of this Agreement

as in force on the date of entry into force of this Agreement

-Article 58 of Commission Regulation (EU) No 389/2013 of 2 May 2013 on establishing a Union Registry pursuant to Directive 2003/87/EC of the European Parliament and of the Council, Decisions No 280/2004/EC and No 406/2009/EC of the European Parliament and the Council and repealing Commission Regulations (EU) No 920/2010 and No 1193/2011

-Commission Regulation (EU) No 550/2011 of 7 June 2011 on determining, pursuant to Directive 2003/87/EC of the European Parliament and of the Council, certain restrictions applicable to the use of international credits from projects involving industrial gases

The qualitative limits for international credits shall be at least as stringent as those set out in:

The Parties shall establish appropriate cooperation arrangements regarding market oversight. Those cooperation arrangements shall concern the exchange of information and the enforcement of obligations arising under their respective market oversight regime. The Parties shall inform the Joint Committee about any such arrangements.

Derivative contracts qualify as securities according to the Financial Markets Infrastructure Act. This also includes derivatives that have emission allowances as their underlying instrument. OTC traded derivatives on emission allowances between non-financial as well as financial counterparties is covered by the provisions in the Financial Market Infrastructure Act.

Swiss financial market regulation does not define the legal nature of emission allowances. In particular, emission allowances are not qualified as securities in the Financial Markets Infrastructure Act and therefore are not tradeable on regulated trading venues. Because emission allowances do not qualify as securities, Swiss securities regulation does not apply to OTC emission allowances trading on secondary markets.

as in force on the date of the entry into force of this Agreement

-Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading of 19 June 2015

-Federal Act on the Swiss Financial Market Supervisory Authority of 22 June 2007

as in force on the date of the entry into force of this Agreement.

-Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Regulation (EU) No 648/2012 of the European Parliament and of the Council, and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive 2006/70/EC (AMLD)

-Directive 2014/57/EU of the European Parliament and of the Council of 16 April 2014 on criminal sanctions for market abuse (market abuse directive) (CS-MAD)

-Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC (MAR)

-Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Regulation (EU) No 648/2012 (MIFIR)

-Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (MIFID II)

The level of market oversight of the ETS shall be at least as stringent as the one in:

The Parties shall cooperate with a view to developing an appropriate contribution to market stability.

The Swiss legislation foresees the possibility to reduce auction volumes where there is a significant increase of allowances on the market for economic reasons.

as in force on the date of entry into force of this Agreement.

In 2015, the EU introduced the Market Stability Reserve (Decision (EU) 2015/1814), the operation of which was reinforced by the 2018 ETS revision (Directive (EU) 2018/410).

The linear reduction factor is 1.74% per year up to 2020.

as in force on the date of entry into force of this Agreement.

The linear reduction factor of 1.74% per year will increase to 2.2% per year as from 2021, and apply to all sectors, as in force on the date of entry into force of this Agreement.

as in force on the date of entry into force of this Agreement.

A cap shall be set for the ETS, which is at least as stringent as the one in:

as in force on the date of entry into force of this Agreement

as in force on the date of entry into force of this Agreement

The ETS shall cover at least the GHGs set out in:

as in force on the date of entry into force of this Agreement

as in force on the date of entry into force of this Agreement.

The ETS shall cover at least the activities set out in:

Participation in the ETS shall be mandatory for the installations carrying out the activities and emitting the GHG listed below.

Participation in the ETS shall be mandatory for the installations carrying out the activities and emitting the greenhouse gases (‘GHG’) listed below.

Mandatory nature of the participation in the ETS

B. Essential criteria for Aviation

Essential criteria For the EU For Switzerland

1 Mandatory nature of the participation in the ETS Participation in the ETS shall be mandatory for aviation activities in accordance with the criteria listed below. Participation in the ETS shall be mandatory for aviation activities in accordance with the criteria listed below.

2 Coverage of aviation activities and GHG and attribution of flights and their respective emissions according to the departing flight principle as set out in: -Directive 2003/87/EC, as amended by Regulation (EU) 2017/2392 to temporarily derogate enforcement in respect of flights to and from countries with whom an agreement pursuant to Article 25 has not been reached. -Articles 17, 29, 35 and 56, and Annex VII of Commission Regulation (EU) No 389/2013 of 2 May 2013 establishing a Union Registry pursuant to Directive 2003/87/EC of the European Parliament and of the Council, Decisions No 280/2004/EC and No 406/2009/EC of the European Parliament and of the Council and repealing Commission Regulations (EU) No 920/2010 and No 1193/2011 as in force on the date of the entry into force of this Agreement. As from 1 January 2020, flights from an aerodrome situated in the European Economic Area (‘EEA’) to aerodromes situated in the territory of Switzerland shall be covered while flights from aerodromes situated in the territory of Switzerland to aerodromes situated in the European Economic Area (‘EEA’) shall be excluded from the EU ETS as from 1 January 2020, pursuant to Article 25a of Directive 2003/87/EC 1. Scope of coverage Flights which arrive at or depart from an aerodrome situated in the territory of Switzerland, except flights which depart from an aerodrome situated in the EEA. Any temporary derogations as regards the scope of the ETS, such as derogations in the sense of Article 28a of Directive 2003/87/EC, may apply in the ETS of Switzerland in accordance with those introduced in the EU ETS. Only CO2 emissions shall be covered for aviation activities. 2. Limitations of coverage General coverage mentioned in point 1 shall not include: 1. Flights performed exclusively for the transport on official mission of a reigning Monarch and his/her immediate family, Heads of State, Heads of Government and Government Ministers, where this is substantiated by an appropriate status indicator in the flight plan. 2. Military, customs and police flights. 3. Flights related to search and rescue, fire-fighting flights, humanitarian flights and emergency medical service flights. 4. Flights performed exclusively under visual flight rules as defined in Annex 2 to the Convention of 7 December 1944 on International Civil Aviation. 5. Flights terminating at the aerodrome from which the aircraft has taken off and during which no planned intermediate landing has been made. 6. Training flights performed exclusively in order to acquire or maintain a licence, or a rating in the case of cockpit flight crew where this is substantiated by an appropriate remark in the flight plan provided that the flight does not serve for the transport of passengers and/or cargo or for the positioning or ferrying of the aircraft. 7. Flights performed exclusively for the purpose of scientific research. 8. Flights performed exclusively for the purpose of checking, testing or certifying aircraft or airborne or ground-based equipment. 9. Flights performed by aircraft with a certified maximum take-off mass of less than 5 700 kilograms. 10. Flights of commercial aircraft operators with total annual emissions lower than 10 000 tonnes per year on flights covered by the ETS of Switzerland or fewer than 243 flights per period for three consecutive four-month periods within the scope of the ETS of Switzerland, if the operators are not covered by the EU ETS. 11. Flights of non-commercial aircraft operators covered by the ETS of Switzerland with a total of annual emissions lower than 1 000 tonnes per year in accordance with the respective derogation applied in the EU ETS, if the operators are not covered by the EU ETS. This is provided for in the relevant Swiss legislation, the CO2 Act and the CO2 Ordinance, as referred to in -Article 16a of the CO2 Act -Article 46d, Article 55, paragraph 2, and Annex 13 of the CO2 Ordinance as in force on the date of entry into force of this Agreement.

3 Exchange of relevant data regarding the application of the limitations of coverage of aviation activities The two parties shall cooperate regarding the application of the limitations of coverage in the ETS of Switzerland and the EU ETS for commercial and non-commercial operators according to this Annex. In particular, both parties shall ensure the timely transfer of all relevant data to enable correct identification of the flights and aircraft operators that are covered by the ETS of Switzerland and the EU ETS.

4 Cap (total quantity of allowances to be allocated to aircraft operators) Directive 2003/87/EC initially allocated allowances as follows: -15% auctioned -3 % set aside in a special reserve -82% allocated free of charge (Article 3c). Allocations were amended by Regulation (EU) No 421/2014 whereby the allocation of free allowances was reduced in proportion to the reduction of the surrender obligation (Article 28a(2)). Regulation (EU) 2017/2392, extended this approach until 2023, and applies the 2.2% linear reduction factor from 1 January 2021 as in force on the date of the entry into force of this Agreement. The cap shall reflect a similar level of stringency as the one in the EU ETS, in particular with regard to the reduction percentage rate between years and trading periods. The allowances in the cap shall be allocated as follows: -15 % shall be auctioned. -3% shall be set aside in a special reserve, -82% shall be allocated free of charge This distribution may be reviewed in accordance with Articles 6 and 7 of this Agreement. Up to 2020, the quantity of allowances within the cap shall be calculated bottom-up on the basis of the allowances to be allocated free of charge in accordance with the cap distribution as mentioned above. Any temporary derogations as regards the scope of the ETS shall require the corresponding proportional adjustments to the amounts to be allocated. As of 2021, the quantity of allowances within the cap shall be determined by the cap in 2020, taking into account a possible reduction percentage rate in accordance with the EU ETS. This is provided for in the relevant Swiss legislation, the CO2 Act and the CO2 Ordinance, as referred to in -Article 18 of the CO2 Act -Article 46e and Annex 15 of the CO2 Ordinance as in force on the date of entry into force of this Agreement.

5 Allocation of allowances for aviation through auctioning of allowances -Article 3d of Directive 2003/87/EC. Regulation (EU) No 421/2014 provides that the amounts auctioned shall be reduced in proportion to the reduction of free allocations (Article 28a(3)). Regulation (EU) 2017/2392, extended this approach until 2023, as in force on the date of the entry into force of this Agreement. Swiss emission allowances to be auctioned shall be auctioned by the Swiss competent authority. Switzerland is entitled to the revenues generated from the auctioning of Swiss allowances. This is provided for in the relevant Swiss legislation, the CO2 Act and the CO2 Ordinance, as referred to in -Article 19a paragraphs 2 and 4, of the CO2 Act -Article 48 and Annex 15 of the CO2 Ordinance as in force of the date of the entry into force of this Agreement.

6 Special reserve for certain aircraft operators -Article 3f of Directive 2003/87/EC as in force on the date of the entry into force of this Agreement. Allowances shall be set aside in a special reserve for new entrants and fast growers, except that up to 2020, given that the reference year for the acquisition of data for Swiss aviation activities shall be 2018, Switzerland will not have a special reserve. This is provided for in the relevant Swiss legislation, the CO2 Act and the CO2 Ordinance, as referred to in -Article 18, paragraph 3 of the CO2 Act -Article 46e, paragraph 2, and Annex 15 of the CO2 Ordinance as in force of the date of the entry into force of this Agreement.

7 Benchmark for free allocation of allowances to aircraft operators -Article 3e of Directive 2003/87/EC. The annual benchmark is 0,000642186914222035 allowances per tonne-kilometre as in force on the date of the entry into force of this Agreement. The benchmark shall be no higher than the one in the EU ETS. Up to 2020, the annual benchmark shall be 0,000642186914222035 allowances per tonne-kilometre. This is provided for in the relevant Swiss legislation, the CO2 Act and the CO2 Ordinance, as referred to in -Article 46f, paragraphs 1 and 2 and Annex 15 of the CO2 Ordinance as in force of the date of the entry into force of this Agreement.

8 Free allocation of emission allowances for aircraft operators -Article 3e of Directive 2003/87/EC. Adjustments shall be made pursuant to Article 25a of Directive 2003/87/EC, to the issuance of allowances in proportion to the corresponding reporting and surrendering obligations resulting from the actual coverage under the EU ETS of flights between the EEA and Switzerland, as in force on the date of the entry into force of this Agreement. The number of emission allowances allocated free of charge to aircraft operators is calculated by multiplying its reported tonne-kilometre data performed in the reference year with the applicable benchmark. This is provided for in the relevant Swiss legislation, the CO2 Act and the CO2 Ordinance, as referred to in -Article 19a, paragraphs 3 and 4, of the CO2 Act -Article 46f, paragraphs 1 and 2, and Annex 15 of the CO2 Ordinance as in force on the date of entry into force of this Agreement.

9 The qualitative limits for international credits shall be at least as stringent as those set out in: Articles 11a and 11b of Directive 2003/87/EC, and Commission Regulation (EU) No 389/2013 of 2 May 2013 establishing a Union Registry pursuant to Directive 2003/87/EC of the European Parliament and of the Council, Decisions No 280/2004/EC and No 406/2009/EC of the European Parliament and of the Council and repealing Commission Regulations (EU) No 920/2010 and No 1193/2011 as in force on the date of entry into force of this Agreement. -Articles 5 and 6 of the CO2 Act -Article 4, Article 4a, paragraph 1, and Annex 2 of the CO2 Ordinance as in force on the date of entry into force of this Agreement.

10 Quantitative limits for the use of international credits Article 11a of Directive 2003/87/EC, as in force on the date of entry into force of this Agreement. The use shall be 1,5 % of verified emissions up to 2020. This is provided for in the relevant Swiss legislation, the CO2 Act and the CO2 Ordinance, as referred to in -Article 55d of the CO2 Ordinance as in force on the date of entry into force of this Agreement.

11 Acquisition of tonne-kilometre data for reference year Article 3e of Directive 2003/87/EC, as in force on the date of entry into force of this Agreement. Without prejudice to the provision below, the acquisition of tonne-kilometre data shall be done at the same time and using the same approach as the acquisition of tonne-kilometre data for the EU ETS. Up to 2020 and in accordance with the Ordinance on the Acquisition of Tonne-Kilometre Data and the Preparation of Monitoring Plans relating to Distances covered by Aircraft as in force on the date of entry into force of this Agreement, the reference year for the acquisition of data for Swiss aviation activities shall be 2018. This is provided for in the relevant Swiss legislation, the CO2 Act and the CO2 Ordinance, as referred to in -Article 19a, paragraphs 3 and 4, of the CO2 Act -Ordinance on the Acquisition of Tonne-Kilometre Data and the Preparation of Monitoring Plans relating to Distances covered by Aircraft as in force on the date of entry into force of this Agreement.

12 Monitoring and reporting -Article 14 and Annex IV of Directive 2003/87/EC -Commission Regulation (EU) 601/2012 of 21 June 2012 on the monitoring and reporting of greenhouse gas emissions pursuant to Directive 2003/87/EC of the European Parliament and of the Council -Commission Implementing Regulation (EU) 2018/2066 of 19 December 2018 on the monitoring and reporting of greenhouse gas emissions pursuant to Directive 2003/87/EC of the European Parliament and of the Council and amending Commission Regulation (EU) No 601/2012. -Commission Delegated Regulation (EU) supplementing Directive 2003/87/EC of the European Parliament and of the Council as regards measures adopted by the International Civil Aviation Organisation for the monitoring, reporting and verification of aviation emissions for the purpose of implementing a global market-based measure (C(2019)1644 final) as in force on the date of the entry into force of this Agreement Monitoring and reporting provisions shall reflect the same level of stringency as in the EU ETS. This is provided for in the relevant Swiss legislation, the CO2 Act and the CO2 Ordinance, as referred to in -Article 20 of the CO2 Act -Articles 50 to 52 and Annexes 16 and 17 of the CO2 Ordinance as in force on the date of entry into force of this Agreement.

13 Verification and accreditation -Article 15 and Annex V of Directive 2003/87/EC -Commission Regulation (EU) No 600/2012 of 21 June 2012 on the verification of greenhouse gas emission reports and tonne-kilometre reports and the accreditation of verifiers pursuant to Directive 2003/87/EC of the European Parliament and of the Council -Commission Implementing Regulation (EU) 2018/2067 of 19 December 2018 on the verification of data and on the accreditation of verifiers pursuant to Directive 2003/87/EC of the European Parliament and of the Council. as in force on the date of the entry into force of this Agreement Verification and accreditation provisions shall reflect the same level of stringency as in the EU ETS. This is provided for in the relevant Swiss legislation, the CO2 Act and the CO2 Ordinance, as referred to in -Article 52, paragraphs 4 and 5, and -Annex 18 of the CO2 Ordinance as in force on the date of entry into force of this Agreement.

14 Administration The criteria laid down in Article 18a of Directive 2003/87/EC shall apply. To this effect and pursuant to Article 25a of Directive 2003/87/EC, Switzerland shall be considered as an Administering Member State as regards the attribution of the administration of aircraft operators to Switzerland and EU (EEA) Member States. Pursuant to Article 25a of Directive 2003/87/EC, the competent authorities of the EU (EEA) Member States shall be responsible for all the tasks related to the administration of aircraft operators attributed to them, including the tasks relating to the ETS of Switzerland (e.g. the reception of verified emission reports covering both EU and Swiss aviation activities, the allocation and issuance and transfer of allowances, compliance and enforcement, etc.). The European Commission shall agree bilaterally with the Swiss competent authorities on handing over the relevant documentation and information. In particular, the European Commission shall ensure the transfer to aircraft operators administered by Switzerland the amount of free allocation of EU allowances. In case of a bilateral agreement regarding the administration of flights operating in relation to the EuroAirport Basel-Mulhouse-Freiburg not involving any amendment to Directive 2003/87/EU, the European Commission shall, as appropriate, facilitate the implementation of this agreement, provided that this does not result in double counting. In accordance with the CO2 Ordinance as in force on the date of entry into force of this Agreement, Switzerland shall be responsible for the administration of aircraft operators: -with a valid operating licence granted by Switzerland, or -with the greatest estimated attributed aviation emissions in Switzerland under the linked ETS. Swiss competent authorities shall be responsible for all the tasks related to the administration of aircraft operators attributed to Switzerland, including the tasks relating to the EU ETS (e.g. the reception of verified emission reports covering both EU and Swiss aviation activities, the allocation and issuance and transfer of allowances, compliance and enforcement, etc.). The Swiss competent authorities shall agree bilaterally with the European Commission on handing over the relevant documentation and information. In particular, the Swiss competent authorities shall transfer to aircraft operators administered by the EU (EEA) Member States the amount of free allocation of Swiss allowances. This is provided for in the relevant Swiss legislation, the CO2 Act and the CO2 Ordinance, as referred to in -Article 39, paragraph 1bis, of the CO2 Act -Article 46d and Annex 14 of the CO2 Ordinance as in force on the date of entry into force of this Agreement.

15 Surrendering When assessing compliance of aircraft operators on the basis of the amount of surrendered allowances, competent authorities of Member States shall first account towards emissions covered by the ETS of Switzerland and use the remaining amount of surrendered allowances to account towards emissions covered by the EU ETS. When assessing compliance of aircraft operators on the basis of the amount of surrendered allowances, competent authorities of Switzerland shall first account towards emissions covered by the EU ETS and use the remaining amount of surrendered allowances to account towards emissions covered by the ETS of Switzerland.

16 Legal enforcement Parties shall enforce the provisions of their respective ETS in relation to aircraft operators that do not fulfil the obligations in the respective ETS, regardless of whether the operator is administered by an EU (EEA) competent authority or a Swiss competent authority, in case enforcement by the authority administering the operator requires additional action.

17 Administrative attribution of aircraft operators Pursuant to Article 25a of Directive 2003/87/EC, the aircraft operator's list published by the European Commission in accordance with Article 18a(3) of Directive 2003/87/EC shall specify the administering State, including Switzerland, for each aircraft operator. Aircraft operators attributed to Switzerland for the first time after the entry into force of this Agreement shall be administered by Switzerland after 30 April of the year of attribution and before 1 August of the year of attribution. The two parties shall cooperate on sharing relevant documentation and information. The attribution of an aircraft operator shall not affect the coverage of that aircraft operator by the respective ETS (i.e., an operator covered by the EU ETS that is administered by the Swiss competent authority shall have the same level of obligations under the EU ETS alongside its coverage under the ETS of Switzerland, and vice versa).

18 Modalities for implementation Any further modalities needed for the organization of the work and cooperation within the one-stop-shop for aviation account holders shall be developed and adopted by the Joint Committee after signature of this Agreement, in accordance with Articles 12, 13 and 22 of this Agreement. These modalities shall start applying at the same time as this Agreement.