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Linking permit markets multilaterally

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  • Doda, Baran
  • Quemin, Simon
  • Taschini, Luca

Abstract

We formally study the determinants, magnitude and distribution of efficiency gains generated in multilateral linkages between permit markets. We provide two novel decomposition results for these gains, characterize individual preferences over linking groups and show that our results are largely unaltered with strategic domestic emissions cap selection or when banking and borrowing are allowed. Using the Paris Agreement pledges and power sector emissions data of five countries which all use or considered using both emissions trading and linking, we quantify the efficiency gains. We find that the computed gains can be sizable and are split roughly equally between effort and risk sharing.

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  • Doda, Baran & Quemin, Simon & Taschini, Luca, 2019. "Linking permit markets multilaterally," LSE Research Online Documents on Economics 101670, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:101670
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    Cited by:

    1. 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.

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    Keywords

    climate change policy; international emissions trading systems; multilateral linking; effort sharing; risk sharing; ES/K006576/1;

    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • F15 - International Economics - - Trade - - - Economic Integration

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