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Post-Durban Climate Policy Architecture Based on Linkage of Cap-and-Trade Systems

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  • Matthew Ranson
  • Robert N. Stavins

Abstract

The outcome of the December 2011 United Nations climate negotiations in Durban, South Africa, provides an important new opportunity to move toward an international climate policy architecture that is capable of delivering broad international participation and significant global CO2 emissions reductions at reasonable cost. We evaluate one important component of potential climate policy architecture for the post-Durban era: links among independent tradable permit systems for greenhouse gases. Because linkage reduces the cost of achieving given targets, there is tremendous pressure to link existing and planned cap-and-trade systems, and in fact, a number of links already or will soon exist. We draw on recent political and economic experience with linkage to evaluate potential roles that linkage may play in post-Durban international climate policy, both in a near-term, de facto architecture of indirect links between regional, national, and sub-national cap-and-trade systems, and in longer-term, more comprehensive bottom-up architecture of direct links. Although linkage will certainly help to reduce long-term abatement costs, it may also serve as an effective mechanism for building institutional and political structure to support a future climate agreement.

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  • Matthew Ranson & Robert N. Stavins, 2012. "Post-Durban Climate Policy Architecture Based on Linkage of Cap-and-Trade Systems," NBER Working Papers 18140, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:18140
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    1. Bodansky, Daniel M. & Hoedl, Seth A. & Metcalf, Gilbert E. & Stavins, Robert N., "undated". "Facilitating Linkage of Heterogeneous Regional, National, and Sub-National Climate Policies Through a Future International Agreement," Climate Change and Sustainable Development 202114, Fondazione Eni Enrico Mattei (FEEM).
    2. Matthew Ranson & Robert N. Stavins, 2016. "Linkage of greenhouse gas emissions trading systems: learning from experience," Climate Policy, Taylor & Francis Journals, vol. 16(3), pages 284-300, April.
    3. Mehling, Michael A. & Metcalf, Gilbert E. & Stavins, Robert N., 2017. "Linking Heterogeneous Climate Policies (Consistent with the Paris Agreement)," MITP: Mitigation, Innovation and Transformation Pathways 266282, Fondazione Eni Enrico Mattei (FEEM).
    4. Bernard Caillaud & Gabrielle Demange, 2017. "Joint Design of Emission Tax and Trading Systems," Annals of Economics and Statistics, GENES, issue 127, pages 163-201.
    5. Sabine Aresin, 2015. "Monitoring Abatement in the Presence of an Import Quota on CERs," Working Papers tax-mpg-rps-2015-11, Max Planck Institute for Tax Law and Public Finance.
    6. Richard Schmalensee & Robert N. Stavins, 2017. "Lessons Learned from Three Decades of Experience with Cap and Trade," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 11(1), pages 59-79.
    7. Bosello, Francesco & Parrado, Ramiro, 2014. "Climate Change Impacts and Market Driven Adaptation: the Costs of Inaction Including Market Rigidities," Climate Change and Sustainable Development 183634, Fondazione Eni Enrico Mattei (FEEM).
    8. Holtsmark, Katinka & Midttømme, Kristoffer, 2021. "The dynamics of linking permit markets," Journal of Public Economics, Elsevier, vol. 198(C).
    9. Ibikunle, Gbenga & Gregoriou, Andros & Hoepner, Andreas G.F. & Rhodes, Mark, 2016. "Liquidity and market efficiency in the world's largest carbon market," The British Accounting Review, Elsevier, vol. 48(4), pages 431-447.
    10. Kamleshan Pillay & Jorge E. Viñuales, 2016. "“Monetary” rules for a linked system of offset credits," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 16(6), pages 933-951, December.
    11. Eva-Maria Mauer, 2016. "Linking von Emissionshandelssystemen: Die EU als Vorreiter für einen globalen CO2-Markt?," Discussion Paper Series RECAP15 25, RECAP15, European University Viadrina, Frankfurt (Oder).
    12. Susan Spierre Clark & Thomas P. Seager & Evan Selinger, 2015. "A development-based approach to global climate policy," Environment Systems and Decisions, Springer, vol. 35(1), pages 1-10, March.
    13. Aurélie Méjean & Franck Lecocq & Yacob Mulugetta, 2015. "Equity, burden sharing and development pathways: reframing international climate negotiations," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 15(4), pages 387-402, November.
    14. Manikas, Andrew S. & Kroes, James R., 2015. "A newsvendor approach to compliance and production under cap and trade emissions regulation," International Journal of Production Economics, Elsevier, vol. 159(C), pages 274-284.

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    JEL classification:

    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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