Special Series
Inside WCI
In a Series
Inside WCI: Linking
This is the fourth in a short series of posts that explain some important but often overlooked policy issues in the Western Climate Initiative -- the West's regional cap-and-trade system.
In cap and trade, bigger is better -- or at least cheaper. That's because of the flexibility that is built into the program: the "cap" sets the overall level of emissions while the "trade" harnesses the profit motive to seek out the cheapest and easiest reductions wherever they occur in the economy. So it's good news when the Western Climate Initiative expands to add new member states and provinces.
Cap and trade gets even better (and cheaper) when different cap and trade programs "link" with one another. Linking means that two different programs honor one another's carbon permits. So the members of WCI could, in theory, trade carbon permits with the members of the European cap and trade program (the ETS), or with the carbon market in the northeast United States (RGGI). By linking, we can create huge economies of scale where all the participants can benefit because the emissions reductions will come at the lowest possible price across a very large economic area. Basically, linking is free trade for reducing climate pollution.
But linking can only happen if cap and trade programs are designed correctly.
