Advancing Linked Carbon Pricing Instruments: Lessons on governing carbon pricing clubs from non-climate institutions

The implementation of the Paris Agreement is anchored in a wide variety of climate targets and domestic policies, captured in Parties’ Nationally Determined Contributions (NDCs) and intended to help countries meet the goals of the agreement. Economic instruments—and more specifically carbon pricing instruments (CPIs)—are increasingly considered as a key policy tool to reduce greenhouse gas (GHG) emissions.

In this report, IISD analyzes the possible development of innovative approaches to linking CPIs. If jurisdictions around the world are interested in enhancing cohesion between various CPIs, what kind of institution(s) might be designed—beyond or building on existing linked instruments like the Western Climate Initiative (WCI) and the Regional Greenhouse Gas Initiative (RGGI)—to aid their efforts? What cooperative arrangements would be best suited to develop common or reciprocal standards to ensure environmental integrity and robust accounting, share market infrastructure and allow members to share experiences? What governance models could help develop and oversee these types of cooperation?

This paper considers how carbon pricing club members could govern their interactions to ensure emissions reductions and raise their mitigation ambitions while keeping transaction costs low. However, unlike many studies conducted to date, we draw on examples from institutions that are not focused on carbon markets or climate change, the Organisation for Economic Co-operation and Development (OECD), the Asia-Pacific Economic Cooperation (APEC), the International Fuel Tax Agreement (IFTA) and the Missile Technology Control Regime (MTCR).