Linking Emissions Trading Systems: A Summary of Current Research

The ICAP Work Program 2014-2015 identifies linking of emissions trading systems (ETS) as the overarching theme for the technical dialog issue among ICAP members. In order to provide a common basis for the first discussion on this issue at the ICAP Meeting in Québec and to help develop an agenda for further work to come, the ICAP Secretariat compiled an input paper summarizing the key insights from the academic and grey literature on linking ETS to date.

The paper largely focuses on the technical dimension of linking ETS, to some extent leaving aside reflections on the political challenges and opportunities related to it, which a forum like ICAP may be well placed to discuss. Likewise, the discussion is kept at an abstract level, without reference to specific schemes or experiences with linking (negotiations).

The paper first briefly reviews the rationale for linking and examines the existing work on various ETS design elements and their significance for linking. Further, the paper traces the emerging discussion on alternative models including proposed instruments to address barriers without full harmonization, the governance of linking, and several potential research gaps so as to serve as input as to where further work can be done.