NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Bjart Holtsmark

Statistics Norway
Oslo Center
Oslo, Norway
Norway

E-Mail: bjart.holtsmark@ssb.no
Institutional Affiliation: Statistics Norway

NBER Working Papers and Publications

September 2018On the Effects of Linking Voluntary Cap-and-Trade Systems for CO2 Emissions
with Martin L. Weitzman: w25001
Linkage of cap-and-trade systems is typically advocated by economists on a general analogy with the beneficial linking of free-trade areas and on the specific grounds that linkage will ensure cost effectiveness among the linked jurisdictions. An appropriate and widely accepted specification for the damages of carbon dioxide (CO2) emissions within a relatively short (say 5-10 year) period is that marginal damages for each jurisdiction are constant (although they can differ among jurisdictions). With this defensible assumption, the analysis is significantly clarified and yields simple closed-form expressions for all CO2 permit prices. Some implications for linked and unlinked voluntary CO2 cap-and-trade systems are derived and discussed.
 
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