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Transitional restricted linkage between emissions trading schemes

Simon Quemin and Christian de Perthius

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Linkages between Emissions Trading Systems are deemed an important element of the future climate policy landscape. They are, however, difficult to agree and remain few and far between. Temporary restrictions on permit trading have potential to facilitate and gradually approach unrestricted, full linkage. We compare the relative merits of several link restrictions in this respect, namely quantitative transfer limits, border taxes on transfers, exchange and discount rates, and unilateral linkage. To this end, we develop a simple model to have a unifying framework which, in conjunction with lessons we draw from realworld experiences, serves as a basis for a broader, policy-oriented discussion. While quantitative restrictions seem to be the natural route to full linkage, they can lead to uncertain distributional effects and weaken price signals. These aspects are mitigated under a border permit tax, but this policy seems harder to implement. Exchange rates have potential to adjust for programmes’ stringencies and raise ambition over time, but can be challenging to select. As experience corroborates, unilateral linkage can be a convenient approach.

Keywords: climate change policy; emissions trading; linkage; restrictions on permit trading (search for similar items in EconPapers)
JEL-codes: F15 H23 Q58 (search for similar items in EconPapers)
Date: 2018-12-09
New Economics Papers: this item is included in nep-ene, nep-env and nep-reg
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Published in Environmental and Resource Economics, 9, December, 2018. ISSN: 0924-6460

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http://eprints.lse.ac.uk/91522/ Open access version. (application/pdf)

Related works:
Journal Article: Transitional Restricted Linkage Between Emissions Trading Schemes (2019) Downloads
Working Paper: Transitional restricted linkage between Emissions Trading Schemes (2017) Downloads
Working Paper: Transitional Restricted Linkage between Emissions Trading Schemes (2017) Downloads
Working Paper: Transitional Restricted Linkage between Emissions Trading Schemes (2017) Downloads
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