Linking the EU ETS with California’s Cap-and-Trade Program:A Law and Economics Assessment

This paper aims to evaluate the legal barriers and policy obstacles to linking the European Union Emissions Trading System (EU ETS) with California’s Cap-and-Trade Program in the United States, and to identify potential legal solutions to overcome them, by taking a law and economics perspective. An EU-California linkage of emissions trading systems (ETSs) is legally feasible on the basis of an informal agreement, through reciprocal amendments to the respective ETS regulations. Potential barriers could emerge, in particular from misaligned provisions regarding price containment measures and offsets. A gradual implementation of certain mutually beneficial ETS reforms, possibly in conjunction with initially restricted linkage, can provide momentum for transcending these barriers