Linking a U.S. Cap-and-Trade System for Greenhouse Gas Emissions: Opportunities, Implications, and Challenges.

The long-run cost of a U.S. cap-and-trade system for greenhouse gas (GHG) emissions could be significantly reduced by linking that system with other existing and emerging tradable permit systems for GHG emissions. However, along with the cost savings that it offers, linking has distributional consequences and, under some circumstances, linked systems collectively will not achieve the same level of emission reductions as they would absent linking. Also, linking can reduce a government's control over the impacts of its tradable permit system. Thus, in considering linkages, the United States and potential linking partners may have to weigh linking's implications for potentially competing policy objectives, much as will be required in developing other elements of their respective domestic climate policies.

Jaffe, Judson L. and Stavins, Robert N. "Linking a U.S. Cap-and-Trade System for Greenhouse Gas Emissions: Opportunities, Implications, and Challenges" Reg-Markets Center Working Paper No. 08-01, Jan 2008.