Cap-and-trade systems have emerged as the preferred national and regional instrument for reducing emissions of greenhouse gases throughout the industrialized world, and the Clean Development Mechanism — an international emission-reduction-credit system — has developed a substantial constituency, despite some concerns about its performance. Because linkage between tradable permit systems can reduce compliance costs and improve market liquidity, there is great interest in linking cap-and-trade systems to each other, as well as to the CDM and other credit systems. We examine the benefits and concerns associated with various types of linkages, and analyze the near-term and long-term role that linkage may play in a future international climate policy architecture.
Tradable permit systems are emerging as a preferred policy tool for reducing greenhouse gas emissions. Because linking tradable permit systems can reduce compliance costs and improve market liquidity, there is great interest in doing so. This paper examines the benefits and concerns associated with linkage, and analyzes the near-term and long-term role that linkage may play in a future international climate policy architecture.
December 10, 2007
Project Co-Director Robert Stavins and Analysis Group Inc.'s Judson Jaffe spoke at an International Emissions Trading Association (IETA)–sponsored side event at the United Nations Climate Change Conference in Bali, Indonesia. They presented their new report on linking greenhouse gas emissions trading systems, which was also sponsored by IETA.
Linking Tradable Permit Systems for Greenhouse Gas Emissions: Opportunities, Implications, and Challenges
"With tradable permit systems for greenhouse gas (GHG) emissions in place in some parts of the world and actively being considered in others, increasing attention has been given to the opportunity to link these systems. Linking occurs when the government that maintains one system allows regulated entities to use allowances or credits from another system to meet domestic compliance obligations."