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Linking Permit Markets Multilaterally

Baran Doda and Simon Quemin

Working Papers from Chaire Economie du climat

Abstract: Linkages between emissions trading systems (ETSs) are crucial for the cost-effective implementation of the Paris Agreement. Yet we know little about the determinants of economic gains in a multilaterally linked system, how they are shared among participating jurisdictions and less still about their magnitude. We characterize these gains for an arbitrary linkage group, decompose them into gains in the group's internal bilateral linkages and prove linkage is superadditive. Relative to autarky linkage reduces permit price volatility on average but not necessarily for individual linkage group members. In a quantitative application calibrated to five hypothetical ETSs covering the power sectors in Canada, continental Europe, South Korea, the UK and the USA, linking generates gains of up to $370 million (constant 2005US$) per year relative to autarky. Focusing on linkage groups with two and three members which are themselves not linked, we find that maximum aggregate gains decline by $43-178 million.

Keywords: Climate change policy; International emissions trading systems; Multilateral linking; Effort and risk sharing (search for similar items in EconPapers)
JEL-codes: F15 H23 Q58 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2018
New Economics Papers: this item is included in nep-ene and nep-env
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http://www.chaireeconomieduclimat.org/RePEc/cec/wp ... -Quemin-Taschini.pdf First version, 2018 (application/pdf)

Related works:
Journal Article: Linking permit markets multilaterally (2019) Downloads
Working Paper: Linking permit markets multilaterally (2019) Downloads
Working Paper: Linking Permit Markets Multilaterally (2019) Downloads
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