Linking by Degrees: Incremental Alignment of Cap-and-Trade Markets

Resources for the Future DP 13-04

52 Pages Posted: 17 Apr 2013

See all articles by Dallas Burtraw

Dallas Burtraw

Resources for the Future

Karen L. Palmer

Resources for the Future

Clayton Munnings

Resources for the Future

Paige Weber

Yale University

Matt Woerman

University of California, Berkeley

Date Written: April 4, 2013

Abstract

National 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.

Keywords: greenhouse gas, climate change, climate policy, policy coordination

JEL Classification: Q58, H77

Suggested Citation

Burtraw, Dallas and Palmer, Karen and Munnings, Clayton and Weber, Paige and Woerman, Matt, Linking by Degrees: Incremental Alignment of Cap-and-Trade Markets (April 4, 2013). Resources for the Future DP 13-04. Available at SSRN: https://ssrn.com/abstract=2249955 or http://dx.doi.org/10.2139/ssrn.2249955

Dallas Burtraw (Contact Author)

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States
202-328-5087 (Phone)

Karen Palmer

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States

Clayton Munnings

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States

Paige Weber

Yale University ( email )

New Haven, CT 06520
United States

Matt Woerman

University of California, Berkeley ( email )

HOME PAGE: http://sites.google.com/site/mattwoerman/

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