Linking Tradable Permit Systems: A Key Element of Emerging International Climate Policy Architecture

This Article analyzes the role that linkage between emission trading systems could play in a future international climate policy architecture. Cap-and-trade systems, regional, national, and international in scope, are emerging as a preferred instrument for addressing global climate change throughout the industrialized world, and the Clean Development Mechanism- an emission-reduction-credit system-has also developed a significant constituency. Because links between tradable permit systems can reduce compliance costs and improve market liquidity, the possibility of linking cap- and-trade systems to each other and to emission-reduction-credit systems such as the Clean Development Mechanism has generated considerable interest. We consider whether linkage could pave the way for a future international agreement, play a role as part of a future agreement, or substitute for an agreement. We argue that linkage could promote the near-term goals of participation and cost-effectiveness, while helping to build the foundation for a more comprehensive future agreement to address global climate change.