A theory of gains from trade in multilaterally linked ETSs

Baran Doda, Simon Quemin, Luca Taschini
Authors registered in the RePEc Author Service: Simon Quemin and Luca Taschini

No 275, GRI Working Papers from Grantham Research Institute on Climate Change and the Environment

Abstract: Linkages between emissions trading systems (ETSs) have an important role to play in the successful, cost-effective implementation of the Paris Agreement. While the theory of bilateral linkages is well established, we know relatively little about the gains from trade in a multilaterally linked system, and less still about how they are shared among jurisdictions participating in the system. We characterize these gains for an arbitrary linkage coalition, show how they can be decomposed into gains in the coalition’s internal bilateral linkages, and prove that linkage is superadditive. Our theoretical results imply the global market may not emerge endogenously and a quantitative exercise shows that this concern may have some validity in practice.

Date: 2017-09
New Economics Papers: this item is included in nep-des and nep-env
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Working Paper: A Theory of Gains from Trade in Multilaterally Linked ETSs (2017)
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