Linking permit markets multilaterally

Published on 19 March 2018

By Baran Doda, Simon Quemin and Luca Taschini

We formally study the determinants, magnitude and distribution of efficiency gains generated in multilateral linkages between permit markets. We provide two novel decomposition results for these gains, characterize individual preferences over linking groups and show that our results are largely unaltered with strategic domestic emissions cap selection or when banking and borrowing are allowed.

Using the Paris Agreement pledges and power sector emissions data of five countries which all use or considered using both emissions trading and linking, we find linking can generate annual efficiency gains of up to US$3.26 billion, split roughly equally between effort and risk sharing.

Download the article

You may find also the summary for policy makers on the London School of Economics and Political Science website