Abstract:
This paper uses existing literature on economic, political, and legal issues
surrounding market linkages to analyze the possibility of linking two specific greenhouse
gas trading markets: the Regional Greenhouse Gas Initiative in the Northeastern United
States and the European Union Emissions Trading System. The opportunity to connect
trading systems between the European Union and the United States might be beneficial
for both programs because it could create a bigger market and lower costs, while at the
same time taking a large international step forward in the process of developing a global
greenhouse gas trading market. In order to allow trading from one program to another,
however, a link would need to pass constitutional muster. In general, the federal
government has the authority to address foreign policy. A link between RGGI and the
EU would need to be as informal and private as possible in order to avoid stepping into
federal territory.
Furthermore, there are practical considerations that would need to be addressed.
Although the cap-and-trade systems in the EU and the United States share many similar
features, there are some important differences between the two programs. Creating a
link that would be economically and politically salient might require negotiations
between RGGI and the EU. Negotiations could greatly implicate constitutional
principles, like the dormant foreign relations power, causing linkage to become legally
problematic. RGGI and the EU need to keep in mind important legal issues in designing
any connection between their trading programs.
