Linkage of Tradable Permit Systems in International Climate Policy Architecture

32 Pages Posted: 20 Oct 2008

See all articles by Judson L. Jaffe

Judson L. Jaffe

Analysis Group, Inc.

Robert N. Stavins

Harvard University - Harvard Kennedy School (HKS); Resources for the Future; National Bureau of Economic Research (NBER)

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Date Written: October 16, 2008

Abstract

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. In particular, we evaluate linkage in three potential roles: as an independent bottom-up architecture, as a step in the evolution of a top-down architecture, and as an ongoing element of a larger climate policy agreement. We also assess how the policy elements of climate negotiations can facilitate or impede linkages. Our analysis throughout is both positive and normative

Keywords: linkage, cap-and-trade, tradable permits, global climate change, Business and Government Policy, International Economics, Environment and Natural Resources, Intergovernmental Relations, International Affairs,Globalization, International Trade and Finance, Regulation, Science, Technology

JEL Classification: F500, Q200, Q400, Q500

Suggested Citation

Jaffe, Judson L. and Stavins, Robert N., Linkage of Tradable Permit Systems in International Climate Policy Architecture (October 16, 2008). FEEM Working Paper No. 90.2008, HKS Working Paper No. RWP08-053, Available at SSRN: https://ssrn.com/abstract=1285606 or http://dx.doi.org/10.2139/ssrn.1285606

Judson L. Jaffe

Analysis Group, Inc. ( email )

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Robert N. Stavins (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

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Resources for the Future

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