Linking by Degrees: Incremental Alignment of Cap-and-Trade Markets
AbstractNational and subnational economies have started implementing carbon pricing systems unilaterally, from the bottom up. Therefore, the potential linking of individual cap-and-trade programs to capture efficiency gains and other benefits is of keen interest. This paper introduces a two-tiered framework to guide policymakers, with an interest in North American policy outcomes. One tier discusses program elements that need to be aligned before trading of allowances across programs can occur. The second identifies benefits of incremental alignment of program elements even prior to trading between programs—which we call “linking by degrees.” We apply this framework to California’s cap-and-trade program and the Regional Greenhouse Gas Initiative. These programs are already linking through cooperation and sharing of information. Many aspects of the program designs are ready for the exchange of allowances within a common market; however, the difference in allowance prices remains an issue to be considered before formal linking could occur.
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Bibliographic InfoPaper provided by Resources For the Future in its series Discussion Papers with number dp-13-04.
Date of creation: 05 Apr 2013
Date of revision:
greenhouse gas; climate change; climate policy; policy coordination;
Find related papers by JEL classification:
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
- H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-05-11 (All new papers)
- NEP-ENE-2013-05-11 (Energy Economics)
- NEP-ENV-2013-05-11 (Environmental Economics)
- NEP-RES-2013-05-11 (Resource Economics)
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