Terminating Links between Emission Trading Programs

Resources for the Future Discussion Paper 14-28

43 Pages Posted: 14 Dec 2014

See all articles by William A. Pizer

William A. Pizer

Duke University

Andrew Yates

University of North Carolina (UNC) at Chapel Hill - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: August 25, 2014

Abstract

Links between emission trading programs are not immutable, as highlighted by New Jersey's exit from the Regional Greenhouse Gas Initiative. 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 permit differently generally leads to higher costs, and may lead to price divergence, even with only speculation about delinking.

Suggested Citation

Pizer, William A. and Yates, Andrew, Terminating Links between Emission Trading Programs (August 25, 2014). Resources for the Future Discussion Paper 14-28. Available at SSRN: https://ssrn.com/abstract=2537873 or http://dx.doi.org/10.2139/ssrn.2537873

William A. Pizer (Contact Author)

Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

Andrew Yates

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

Chapel Hill, NC 27599
United States

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