Getting Married (and Divorced): A Critical Review of the Literature on (De)linking Emissions Trading Schemes

Carbon pricing in general and emissions trading in particular are gaining momentum at the world level. In recent years increasing attention has been devoted to the possibility of linking Emissions Trading Schemes (ETSs). The purpose of the present paper is to critically discuss the main findings emerging from the theoretical economic literature on linking and to draw lessons from the practical experiences of linking (and delinking). Both theoretical and empirical studies suggest that linking ETSs implies strategic interaction and requires substantial coordination between participants. Based on the theoretical literature and on the (un)successful attempts of linking existing ETSs, the present paper provides policy insights into the opportunity of linking in the real world, highlighting the similarity between linking/delinking and getting married/divorced.