Linking carbon tax systems under the Paris Agreement: potentials and risks

With the adoption of the Paris Agreement in December 2015, a new framework for international climate policy was created. Article 6 of this global agreement provides the basis for transferring mitigation outcomes across national borders, inter alia, by linking carbon pricing instruments. While linking of Emissions Trading Schemes (ETS) has already been studied to a wide extent, linking carbon taxes to other systems has until now received little attention in the literature. In light of the fact that a growing number of countries are introducing carbon taxes, this can be considered a serious knowledge gap. This chapter aims to fill this void by highlighting the potentials and risks of linking carbon tax systems with other carbon pricing instruments across national borders. The authors show that the linking of carbon tax systems can lead to significant climate integrity risks, potentially resulting in a net increase of greenhouse gas (GHG) emissions. The authors highlight different options as to how these risks can be addressed by making use of the new structure that has been established with the Paris Agreement. They conclude that the potentials and risks of linking carbon taxes with other carbon pricing instruments should be carefully analysed before such a link is established, as environmental integrity risks in particular can be considerably high.