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Terminating links between emission trading programs

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  • Pizer, William A.
  • Yates, Andrew J.

Abstract

Links between emission trading programs are not immutable, as highlighted by New Jersey׳s exit from the Regional Greenhouse Gas Initiative in 2011. This raises the question of what to do with existing permits that are banked for future use—choices that have consequences for market behavior in advance of, or upon speculation about, delinking. We consider two delinking policies. One differentiates banked permits by origin, the other treats banked permits the same. We describe the price behavior and relative cost-effectiveness of each policy. Treating permits differently generally leads to higher costs, and may lead to price divergence, even with only speculation about delinking.

Suggested Citation

  • Pizer, William A. & Yates, Andrew J., 2015. "Terminating links between emission trading programs," Journal of Environmental Economics and Management, Elsevier, vol. 71(C), pages 142-159.
  • Handle: RePEc:eee:jeeman:v:71:y:2015:i:c:p:142-159
    DOI: 10.1016/j.jeem.2015.03.003
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Bodansky, Daniel M. & Hoedl, Seth A. & Metcalf, Gilbert E. & Stavins, Robert N., "undated". "Facilitating Linkage of Heterogeneous Regional, National, and Sub-National Climate Policies Through a Future International Agreement," Climate Change and Sustainable Development 202114, Fondazione Eni Enrico Mattei (FEEM).
    2. Doda, Baran & Quemin, Simon & Taschini, Luca, 2019. "Linking permit markets multilaterally," Journal of Environmental Economics and Management, Elsevier, vol. 98(C).
    3. Peter Zaman & Adam Hedley, 2016. "Networked Carbon Markets," World Bank Other Operational Studies 26430, The World Bank.
    4. Mehling, Michael A. & Metcalf, Gilbert E. & Stavins, Robert N., 2017. "Linking Heterogeneous Climate Policies (Consistent with the Paris Agreement)," Working Paper Series rwp17-042, Harvard University, John F. Kennedy School of Government.
    5. Koch, Nicolas & Grosjean, Godefroy & Fuss, Sabine & Edenhofer, Ottmar, 2016. "Politics matters: Regulatory events as catalysts for price formation under cap-and-trade," Journal of Environmental Economics and Management, Elsevier, vol. 78(C), pages 121-139.
    6. Baran Doda & Luca Taschini, 2017. "Carbon Dating: When Is It Beneficial to Link ETSs?," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 4(3), pages 701-730.
    7. Simon Quemin & Christian Perthuis, 2019. "Transitional Restricted Linkage Between Emissions Trading Schemes," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(1), pages 1-32, September.
    8. Richard S.J. Tol, 2017. "Leaving an emissions trading scheme – insights from the United Kingdom," Working Paper Series 1017, Department of Economics, University of Sussex Business School.
    9. Lambert Schneider & Michael Lazarus & Carrie Lee & Harro van Asselt, 2017. "Restricted linking of emissions trading systems: options, benefits, and challenges," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 17(6), pages 883-898, December.
    10. N. Keohane & A. Petsonk & A. Hanafi, 2017. "Toward a club of carbon markets," Climatic Change, Springer, vol. 144(1), pages 81-95, September.
    11. Diniz Oliveira, Thais & Costa Gurgel, Angelo & Tonry, Steve, 2019. "International market mechanisms under the Paris Agreement: A cooperation between Brazil and Europe," Energy Policy, Elsevier, vol. 129(C), pages 397-409.
    12. Richard S J Tol, 2018. "Policy Brief—Leaving an Emissions Trading Scheme: Implications for the United Kingdom and the European Union," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 12(1), pages 183-189.
    13. Baran Doda, Simon Quemin, Luca Taschini, 2017. "A theory of gains from trade in multilaterally linked ETSs," GRI Working Papers 275, Grantham Research Institute on Climate Change and the Environment.

    More about this item

    Keywords

    Emissions trading; Linking; Delinking; Speculation;

    JEL classification:

    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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