Transitional restricted linkage between Emissions Trading Schemes
by Simon Quemin and Christian de Perthuis
Linkages between Emissions Trading Systems are deemed an important element of the future climate policy landscape. They are, however, difficult to agree and remain few and far between. Temporary restrictions on permit trading have potential to facilitate and gradually approach unrestricted, full linkage. We compare the relative merits of several link restrictions in this respect, namely quantitative restrictions, border permit taxes, exchange and discount rates, and unilateral linkage. To this end, we develop a simple model to have a unifying, comparative framework which, in conjunction with lessons from real-world experiences, serves as a basis for a broader, policy-oriented discussion.
Keywords: Climate change; Climate policy; Emissions trading; Linkage; Restrictions on permit trading
JEL Classification codes: Q58; H23