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Transitional Restricted Linkage between Emissions Trading Schemes

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  • Simon Quemin

    () (LEDa-CGEMP, Paris-Dauphine University ñ PSL Research University & Climate Economics Chair, Paris)

  • Christian de Perthuis

    () (LEDa-CGEMP, Paris-Dauphine University ñ PSL Research University & Climate Economics Chair, Paris)

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.

Suggested Citation

  • Simon Quemin & Christian de Perthuis, 2017. "Transitional Restricted Linkage between Emissions Trading Schemes," Policy Papers 2017.09, FAERE - French Association of Environmental and Resource Economists.
  • Handle: RePEc:fae:ppaper:2017.09
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    Cited by:

    1. 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.
    2. Baran Doda & Simon Quemin, 2018. "Linking Permit Markets Multilaterally," Working Papers 1804, Chaire Economie du climat.

    More about this item

    Keywords

    Climate change; Climate policy architecture; Emissions trading; Linkage; Permit trade restrictions;

    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

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