Two key elements of market design that may affect the potential for linkage are approaches to the management of price levels and volatility, and the provisions for offsetting through reductions in sectors and countries not covered by the cap-and-trade system. A step-wise approach is a realistic course of action in order to arrive at full linkage. Such an approach should include the following three steps:
1 Dialogue
2 Pilot linking
3 Full linking
The problem of carbon ‘leakage’ – whereby production of emissions relocates from a more strict regime to a less strict regime – has become a key concern for policy makers and for certain industries that are perceived as particularly vulnerable. The global framework can contribute meaningfully by establishing which kinds of compensatory measures all parties can accept as legitimate.
For more information, please contact Gabriella Larsson.
ECON
