Linking National Cap-and-Trade Systems in North America

This paper examines the pros and cons of linking cap-and-trade systems and the prospects for "linking" in North America.

Linking" in this paper means allowing allowances to be traded between systems (not simply aligning systems' cap levels or carbon prices). The paper looks at arguments for and against linking, and the levels of interest in linking in North America. The importance of linking as a means of addressing competitiveness concerns is explored through an economic modeling analysis. Four possible outcomes for linking cap-and-trade systems in North America are considered. The paper concludes that the divergent interests, circumstances and ambitions of Canada, the United States and Mexico pose significant obstacles to linking.