Multilateral Linking of Emissions Trading Systems

Michael Mehling and Benjamin Görlach

May 2016

All things being equal, integration of emissions trading systems though linking increases their economic efficiency. With several greenhouse gas emissions trading systems already in operation and additional markets emerging at the subnational, national and regional level, their linkage has attracted considerable attention among researchers and decision makers. A provision in the recently adopted Paris Agreement facilitates voluntary cooperation between parties, including linking of emissions trading systems. To date, however, research has largely focused on bilateral links and linking between aligned trading systems. As linking expands beyond such default scenarios, it gives rise to numerous challenges that differ from those encountered at more limited scale and lower levels or complexity. This paper seeks to identify such challenges and describe different options for their successful management.

Keywords: Emissions Trading, Carbon Pricing, Linking, Carbon Clubs, Paris Agreement

JEL classification: Q54