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

By Ranson, Matthew; Stavins, Robert N. | Chicago Journal of International Law, Winter 2013 | Go to article overview

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


Ranson, Matthew, Stavins, Robert N., Chicago Journal of International Law


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 polig 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 a 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.

Table of Contents

I. Introduction ..........................................405

II. Theory of Linkage .........................................407

A. Types of Linkage .........................................407

1. Direct linkage .........................................407

2. Indirect linkages .........................................408

B. Implications of Linking .........................................408

1. Cost effectiveness .........................................409

2. Distribution of policy impacts .........................................409

3. National control .........................................410

4. Incentives for setting caps .........................................410

III. Characteristics of Existing and Proposed Linkages .........................................411

A. Linkage Among Existing Trading Systems .........................................411

1. Emissions trading under Article 17 of the Kyoto Protocol .............411

2. Clean Development Mechanism .........................................412

3. Joint Implementation .........................................414

4. European Union Emissions Trading System .........................................415

5. Norwegian Emissions Trading Scheme ......................................... 417

6. Swiss C02 Act .........................................418

7. New Zealand Emissions Trading Scheme .........................................418

8. Regional Greenhouse Gas Initiative .........................................420

B. Possible Linkage Among Future Trading Systems .........................................422

1. Australia's Clean Energy Act of 2011 .........................................422

2. California's Global Warming Solutions Act of 2006 ..................423

3. Quebec's cap-and-trade system .........................................424

4. China's emissions trading system pilots .........................................424

5. South Korea's cap-and-trade system .........................................425

6. Mexico's cap-and-trade system .........................................425

7. American Clean Energy and Security Act of 2009 ...................425

IV. The Durban Platform and Its Implications for Linkage ................426

A. The UNFCCC, the Berlin Mandate, and the Kyoto Protocol ................426

B. A New Approach Requiring Participation of All Parties ..................427

V. Linkage as a Climate Policy Architecture ...................428

A. Near-Term Role ..................... …

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