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Terminating Links between Emission Trading Programs
William A. Pizer, Andrew J. Yates
RFF Discussion Paper 14-28 | August 2014
RESEARCH TOPICS:
Abstract
Links between emission trading programs are not immutable, as highlighted by New Jersey's exit from the Regional Greenhouse Gas Initiative. This raises the question of what to do with existing permits that are banked for future use—choices that have consequences for market behavior in advance of, or upon speculation about, delinking. We consider two delinking policies. One differentiates banked permits by origin, the other treats banked permits the same. We describe the price behavior and relative cost-effectiveness of each policy. Treating permits differently generally leads to higher costs, and may lead to price divergence, even with only speculation about delinking.
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