On the Effects of Linking Voluntary Cap-and-Trade Systems for CO2 Emissions

16 Pages Posted: 31 Oct 2018

See all articles by Martin Weitzman

Martin Weitzman

Harvard University - Department of Economics

Bjart Holtsmark

Statistics Norway

Multiple version iconThere are 2 versions of this paper

Date Written: 2018

Abstract

Linkage of cap-and-trade systems is typically advocated by economists on a general analogy with the beneficial linking of free-trade areas and on the specific grounds that linkage will ensure cost effectiveness among the linked jurisdictions. An appropriate and widely accepted specification for the damages of carbon dioxide (CO2) emissions within a relatively short (say 5-10 year) period is that marginal damages for each jurisdiction are constant (although they can differ among jurisdictions). With this defensible assumption, the analysis is significantly clarified and yields simple closed-form expressions for all CO2 permit prices. Some implications for linked and unlinked voluntary CO2 cap-and-trade systems are derived and discussed.

Keywords: linkage, cap and trade, pollution, climate change

JEL Classification: Q500, Q510, Q520, Q540, Q580

Suggested Citation

Weitzman, Martin L. and Holtsmark, Bjart, On the Effects of Linking Voluntary Cap-and-Trade Systems for CO2 Emissions (2018). CESifo Working Paper No. 7225. Available at SSRN: https://ssrn.com/abstract=3275399

Martin L. Weitzman (Contact Author)

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States
617-495-5133 (Phone)

Bjart Holtsmark

Statistics Norway ( email )

N-0033 Oslo
Norway

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