International Emissions Trading Scheme and European Emissions Trading Scheme: What Linkages?

ED EPSSimultaneity between commitment periods (2008-2012) of the International Emissions Trading scheme and the European Emissions Trading Scheme is likely to generate distortions in terms of burden distribution among sectors. There will be two levels of trading (a country and an entity level), which both need to be consistent with one another. Besides, features of these two schemes are different. Thus, to reach international targets, each European government will have to adopt an additional policy. It may consist in implementing a tax on emissions of sectors non-covered by EU-ETS. The level of this tax depends on the effort realized within the European market. We propose a modeling of this two-level environmental policy, focusing on the additional tax rates and introducing several cases of linkages. We obtain empirical estimations of the efforts that could be demanded to non-covered sectors, and of the price(s) of carbon. We show that the opportunities of trading provided by the international market alleviate the burden supported by non-covered sectors