Linkage and Multilevel Governance

Economic models of emissions trading implicitly assume a simple unitary governance structure, where a single regulator designs and enforces an emissions trading program. The Kyoto Protocol, however, employs a multilevel governance structure in which international, regional, national, sub-national, and even private actors have significant roles in designing and enforcing the trading program. Under this structure, international trading of credits requires complex linking of disparate regional, national, and subnational trading program. This paper describes the multilevel governance model employed in the Kyoto Protocol and then analyzes some of the problems this complexity creates for the project of creating an international market in environmental benefit credits to realize technology transfer benefits. This paper shows that multilevel governance creates costs that can interfere with technology transfer and free trade in credits. It concludes that rules sufficiently stringent to encourage technology transfer in the face of significant additionality problems will likely burden free trade in credits. Unfortunately, rules sufficiently relaxed to make international transactions simple and problem free will lack integrity and spawn non-additional credits greatly limiting the Kyoto Protocol\u27s potential as a technology transfer mechanism. The paper suggests that these governance complexities counsel against automatic embrace of linkage