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Keywords:

  • European External Governance;
  • Climate Policy;
  • Emissions Trading;
  • Switzerland

This article analyses why Switzerland has so far remained outside the European Union's emissions trading system (EU ETS), the centerpiece of the EU's efforts to combat climate change. In doing so, it contributes three insights to the literature on the EU's external governance. First, it shows that interdependence is of limited explanatory power in predicting EU–Swiss interactions. Secondly, it identifies domestic interests in the non-member state, Switzerland, as the key factor in explaining the EU's external governance structures concerning emissions trading. Thirdly, it highlights the EU's limited flexibility in dealing with third countries in areas where its internal governance mode is hierarchical. The article presents a hypothesis about the future development of emissions trading in Switzerland and discusses implications for both the external governance literature and the development of global carbon markets.