- Cap and Trade Systems
- Cap and Trade Definition
- Linking Cap-and-Trade Schemes to Broaden Regional Climate Policy Initiatives
However, except for California, all other US states revoked the collaboration in and only California and the four Canadian provinces continued to work together WCI, Except for Manitoba and British Columbia, the remaining members introduced emission trading systems which are linked WCI, a.
California operates the largest cap-and-trade system in North America. As in Europe, the trading schemes are very similar in their structure. Using the same auction platform, joint auctions are held. Allowance transactions may be undertaken in U. Compared to the European case, there is a higher degree of administrative integration between the linked systems. Soon after the latest link entered into force, the partners held their first joint auction California Air Resources Board, a. Unlike in the European case, a comprehensive harmonization process of the three systems was not required prior to linking, because all systems were developed collaboratively following the guidelines of the WCI WCI, b.
This is also in contrast to the European case, where the larger system served as the benchmark, while the smaller system, the CH ETS, adjusted to it. Unlike with the European carbon market, further linking opportunities may be available in North America in the short term. However, the North American market is also more dynamic than the European one with respect to de-linking. Thus, the North American market is potentially more volatile in terms of the composition of its members than the European one. Due to the early stages of linking in Europe, it is only possible to evaluate the workings of the link in terms of expectations.
Furthermore, especially Swiss entities will also benefit from greater market liquidity Oberauner and Krysiak, In the current unlinked state, Switzerland has the smallest trade volume relatively to its size of all implemented cap and trade systems worldwide EFK, In exchange, Switzerland loses autonomy in its climate policy and had to adjust the structure of its cap-and-trade scheme to the EU ETS. As in the European case, there is a lack of ex-post assessments of cost effectiveness effects of linking in North America.
We may also assume that marginal abatement cost curves differ somewhat, so that gains in cost effectiveness may be expected. Given the existence of common auctions, more information about price convergence is available for the North American market. The linked system is characterized by a common auction price. As the supply of allowances is currently generous, the common allowance price is determined by the highest floor price of the three systems. Currently, this is the reserve price of California with USD The joint price has behaved as outlined in Figure 1. Prior to linking, the auction price was close to the floor price in each component system.
The three jurisdiction increased their interdependency, raising their exposure to policy and economic risks. However, these risks appear limited, as even prior to linking they all followed the guidelines developed under the WCI. To our knowledge, there is currently no evidence on the transmission of price volatility or on major negative economic effects due to the link.
The two linked schemes currently implemented show that linking may be a feasible approach to the bottom-up extension of the climate regime beyond a collection of autarkic local approaches. However, considering these policy initiatives closely also reveals that linking is a complex undertaking in practice. In North America and in Europe, as well as in other parts of the world, decision-makers will benefit from the experience gained from creating and operating linked carbon markets.
Observing the linked systems over time will provide evidence on whether the links will remain stable and will allow us to draw firmer conclusions on whether entities belonging to the linked systems are able to reap the predicted benefits from linking. The experience operating linked systems in Europe and North America will also help clarify the prospects for including further cap-and-trade schemes to the linked systems or for creating further clusters of linked systems.
It will help the global policy community better understand the prospects for building a global climate policy architecture through linking. If the current more limited initiatives prove to be successful, they may pave the path toward ambitious large-scale linking projects in the more distant future, e. Anger, N. Energy Economics, 30 4 , pp. California Air Resources Board : Linkage.
Cap and Trade Systems
Carbone, J. Journal of Environmental Economics and Management, 58 3 , pp. Cramton, P. Doda, B. Journal of the Association of Environmental and Resource Economists, 4 3 , pp. European Commission b : EU and Switzerland sign agreement to sign emission trading systems. European Union : Agreement between the European Union and the Swiss Confederation on the linking of their greenhouse gas emissions trading systems. Flachsland, C. Benefits and disadvantages of linking cap-and-trade systems. Climate Policy, 9 4 , pp. Green, J. Hahn, R. The Quarterly Journal of Economics, 99 4 , pp. Kalaitzoglou, I.
International Review of Financial Analysis, 37, pp. Liski, M. Journal of Environmental Economics and Management, 41 3 , pp. McKibbin, W. Oberauner, I. WWZ Forschungsbericht. Purdon, M. Houle, D. Research Report. State of California : California, Quebec and Ontario sign agreement to link carbon markets. Sterk, W. Mitigation and Adaption Strategies for Global Change, 14 5 , pp.
Cap and Trade Definition
Stern, N. Cambridge: Cambridge University Press. Tuerk, A. United Nations : Treaty Collection. Weitzman, M. Wiener, J. The Yale Law Journal, , pp. For example, on 19 June , the exchange rate was 0. Expressed in U. Topics: Resource markets , Climate policy , Europe , Energy economics. Diese Webseite verwendet Cookies. Forschungsgruppen Gender Economics Entrepreneurship. Projekte und Daten Forschungsprojekte Datenangebote. Alle Publikationen. Kalendarium Veranstaltungsarchiv. Sprache: en de.
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- Linking Cap-and-Trade Systems!
Das Institut Netzwerke Graduate Center. DIW Roundup , 9 S. July 3, Linking cap-and-trade systems promises gains in cost effectiveness and signals a strong commitment to carbon policy. Linking Cap-and-Trade Schemes to Broaden Regional Climate Policy Initiatives There is conclusive evidence that anthropogenic greenhouse gas GHG emissions cause harmful climate change by increasing global temperatures e.
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Advantages of Linking: Greater Cost Effectiveness and Policy Commitment Linking two cap and trade systems with different marginal abatement costs — the costs to reduce an additional unit of GHG emissions — leads to larger potential gains from trade for regulated entities. Equations 13 — 15 together with the definition in 16 determine the equilibrium solution of the commitment policy. The expression in 15 states that the expected price is the sum of the expected non-binding and binding allowance prices, adjusted with probability weights.
The equation 15 also highlights the hybrid nature of the policy. This is the endogenous price floor created by the speculative banking demand Lintunen and Kuusela We illustrate this feature in Sect. This results in a Markov perfect solution which is time consistent by construction. The market will also anticipate such a consistent policy. In the Markov perfect solution, the price expectations are determined in the equilibrium, and the regulator takes the expected price as given.
Furthermore, since the shock process is assumed to be IID, there are no explicit linkages between subsequent periods. Hence, the conditioning can be removed from the expectation operator. Under the IID shock assumption, the first-order condition of 17 can be formally written as:. Hence, the approach to refining the condition in 18 is the same as in the commitment case. We formally state it in the following proposition. Suppose the shock process is IID.
The above proposition is the same as in Lintunen and Kuusela , but here we have derived it using the IID assumption.
Linking Cap-and-Trade Schemes to Broaden Regional Climate Policy Initiatives
As can be seen from Proposition 2 , the regulator chooses the Markov perfect cap to equate the marginal damages from emissions with the expected marginal benefits from emission, conditional on the cap being binding, and simply ignores the contingencies when the cap is not binding. Such a restricted attention to binding contingencies only is the key difference between the Markov and the commitment policies. Recall that in the commitment case the regulator consideres all contingencies Eq. The equilibrium Markov policy is determined by the same system of Eqs. Since the optimal policy differs between the commitment solution and the Markov perfect solution, the level of the price floor will also differ in general.
We show in Sect.