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Developing the North American carbon market: prospects for sustainable linking

Carbon Taxes, Energy Subsidies and Smart Instrument Mixes

Sven Rudolph, Takeshi Kawakatsu and Achim Lerch

While the Paris agreement certainly gives hope for effective global climate protection, it has to be substantiated by concrete policy programs. Regional or local market-based mitigation measures provide a promising supplement to national policies. Some regions and municipalities have already successfully implemented carbon taxes and carbon cap-and-trade such as the US North East, British Columbia and Tokyo. While national carbon markets have remained politically deadlocked in the US and Canada, particularly promising regional schemes have appeared, an international linkage has been established between California and Québec, and more programs and linkages are under way. Despite of some criticism, ambitious carbon markets promise to minimize compliance costs and achieve pre-set targets accurately. In addition, linkages between sub-national schemes can increase the economic efficiency and environmental effectiveness, and help in developing national or even international carbon markets from the bottom-up. But, effectiveness and efficiency alone do not suffice. Social justice was one of the founding principles of sustainability; it has become an increasingly important issue in climate policy, and recent policy debates have been forced to reconsider questions such as electricity price effects and the use of carbon pricing revenues. As research on the sustainability of regional carbon market linkages in North America is virtually non-existent, in our chapter we ask if and how these linkages can foster efficient, effective and fair climate policy in the US and Canada. We do so by, first, reviewing the arguments on efficient and effective carbon market design and linking and then adding a social justice component. Second, we give an overview of established and upcoming carbon markets in Canada and the US and identify the chances and barriers of linking. Third, we evaluate the programs based on sustainability criteria and analyze the prospects for linking. We show that North America has a new historic chance to act as a role model for sustainable climate policy developed from the bottom-up by linking sub-national carbon markets.

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Sven Rudolph, Takeshi Kawakatsu and Achim Lerch