Abstract
In discussing a new intentional framework on climate policy for the post-Kyoto period, the European Commission and other organizations consider the possibility of linking domestic emissions trading schemes (ETS). There are a number of potential reasons to promote such linking. First, it can increase the efficiency of ETS by equalizing marginal abatement cost across countries. Second, it can mitigate the burden which energy-intensive sectors would face under a domestic ETS. By focusing on these two aspects, this paper discusses the prospects for ETS linking and considers economic analyses thereof. First, the paper introduces types of linking. Second, it surveys the literature describing quantitative examination of the economic impacts of direct and indirect linking of ETS. Then, it introduces recent developments on new mechanisms which can promote indirect linking of ETS. These new developments include the Joint Crediting Mechanism, sectoral crediting mechanisms and REDD plus. Finally, I conclude the paper by discussing the future direction of research on linking.
