Linkage of Regional, National, and Sub-National Policies in a Future International Climate Agreement

As international negotiations proceed towards COP21 in Paris in December 2015, a hybrid policy architecture is emerging under the 2011 Durban Platform for Enhanced Action, in which all countries will participate under a common legal framework. This hybrid architecture for the Paris agreement will likely feature bottom-up elements in the form of a pledge-and-review system of Intended Nationally Determined Contributions (INDCs) plus top-down elements, such as for monitoring, reporting, and verification. The INDCs will feature a broad range of targets (in keeping with the UNFCCC principle of common but differentiated responsibilities and respective capabilities) and a diverse set of national policies and actions intended to achieve those targets. Cap-and-trade has emerged as one preferred policy instrument for reducing emissions of greenhouse gases (GHGs) in much of the industrialised world, as well as within key parts of the developing world. This includes Europe, the US, China, Canada, New Zealand, and Korea. Because linkage – unilateral or bilateral recognition of allowances – can reduce compliance costs and improve market liquidity, there is considerable interest in linking cap-and-trade systems. Beyond this, many jurisdictions will propose or adopt other types of climate policies, including carbon taxes, performance standards, and technology standards. With varying degrees of difficulty, such heterogeneous policy instruments can also be linked across borders. This chapter reviews the key benefits and concerns associated with various types of linkages, and examines the role that linkage may play in the 2015 Paris agreement.