Design, Experiences and Issues
- Critical Issues in Environmental Taxation series
Edited by Larry Kreiser, Mikael S. Andersen, Birgitte E. Olsen, Stefan Speck, Janet E. Milne and Hope Ashiabor
Chapter 3: Fault lines between fees and taxes: legal obstacles for linking
Over the last decades concerns about climate change have been intensifying yet international agreements on a global solution in the form of a second Kyoto Protocol are not forthcoming. In the absence of such a global solution, an increasing number of national and regional greenhouse gas emissions trading schemes address climate change. Currently such schemes are operating in the European Union, in Switzerland, in North America (the Regional Greenhouse Gas Initiative (RGGI) and the Western Climate Initiative (WCI)), New Zealand, Australia, Japan, Kazakhstan and China. Because least cost abatement options are spread all over the world, linking of emissions trading schemes reduces overall abatement costs and leads to a convergence of international emission allowances prices: consequently the same amount of global warming protection can be attained at lower costs. Moreover, linking by enlarging emissions trading markets and creating more opportunities for trading would lead to more market liquidity with a more stable price signal. Allowance prices that are the same across different emissions trading systems would also eliminate competitive distortions that might arise from differences in pre-link allowance prices. Without having to wait for a global solution to climate change, creating a link between existing and emerging emissions trading systems (ETSs) can help to reduce carbon emissions at low costs and thereby help to foster political acceptance for greenhouse gas reductions and perhaps even lead to further proliferation of ETSs that could help to overcome the current political stalemate.
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