QUEMIN Simon

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Emissions Trading Systems (ETSs) are an important instsrument in regulating pollution and have a key role to play in reducing greenhouse gas emissions to mitigate climate change. This dissertation has a twin focus: spatial linkages between ETSs at a point in time and intertemporal trading within an ETS.Linkages between ETSs are crucial for cost-effectiveness of the future climate policy architecture. Complete linkages, however, are difficult to agree and to date, few and far between. Here, our contribution is twofold. First, using a simple and unified model and drawing on experiences with real-world ETSs, we compare alternative trade restrictions on bilateral linkages in facilitating the transition to an unrestricted link. Second, we provide a general model to describe and analytically characterize the effects and gains from multilateral linkages under uncertainty. The model is then calibrated to historical emissions of real-world jurisdictions to illustrate the determinants of linkage preferences.ETSs are subject to regulatory uncertainty, which can disrupt dynamic cost-effectiveness and undermine their long-term price signal. The prevalence of regulatory uncertainty can be assimilated to a situation of ambiguity. Here, our contribution is to analyze regulated entities’ intertemporal decisions under ambiguity aversion, characterize the induced distortions in market functioning, and discuss how these can help explain observations from existing ETSs.

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