Linking permit markets multilaterally


We formally study the determinants, magnitude and distribution of efficiency gains generated in multilateral linkages between permit markets. We provide two novel decomposition results for these gains, characterize individual preferences over linking groups and show that our results are largely unaltered with strategic domestic emissions cap selection or when banking and borrowing are allowed. Using the Paris Agreement pledges and power sector emissions data of five countries which all use or considered using both emissions trading and linking, we quantify the efficiency gains. We find that the computed gains can be sizable and are split roughly equally between effort and risk sharing.

Baran Doda, Simon Quemin, Luca Taschini. In: Journal of Environmental Economics and Management, Volume 98, 2019, 102259, ISSN 0095-0696,
https://doi.org/10.1016/j.jeem.2019.102259.