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Transitional Restricted Linkage between Emissions Trading Schemes

Simon Quemin and Christian de Perthuis ()
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Christian de Perthuis: LEDa-CGEMP, Paris-Dauphine University – PSL Research University & Climate Economics Chair, Paris

No 2017.31, Working Papers from FAERE - French Association of Environmental and Resource Economists

Abstract: Linkages between Emissions Trading Systems can be an important element in forging the future global climate change architecture, but remain few and far between. This article develops a deterministic partial equilibrium model of bilateral linkage to compare various link restrictions in facilitating linkage negotiations, namely quantitative restrictions, border permit taxes, exchange and discount rates, and unilateral linkage. Because restrictions undermine cost-efficiency and generate rents, they should be used as transitory mechanisms to full linkage. Trial restricted-link periods may allow to test the effects of the link while containing its reach, spur cooperation and provide more time and flexibility in circumventing impediments to full linkage. While quantitative restrictions seem to be the natural route to a full link, they can lead to uncertain distributional effects and weakened price signals. These aspects are mitigated under a border tax on permits, but this policy seems harder to implement. Exchange rates have potential to adjust for programmes' stringencies and increase overall ambition, but are challenging to select. As experience corroborates, unilateral linkage may constitute a practical and promising approach.

Keywords: Climate change; Climate policy architecture; Emissions trading; Linkage; Permit trade restrictions (search for similar items in EconPapers)
JEL-codes: Q58 H23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene and nep-env
Date: 2017-12
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http://faere.fr/pub/WorkingPapers/Quemin_de%20Perthuis_FAERE_WP2017.31.pdf First version, 2017 (application/pdf)

Related works:
Working Paper: Transitional restricted linkage between emissions trading schemes (2018) 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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