Abstract:In light of recent developments in climate change policy, it appears likely that for the foreseeable future efforts by industrialized countries will proceed on two tracks: most countries will ratify the Kyoto Protocol and begin implementing domestic measures aimed at meeting their binding emission targets; meanwhile, the United States will pursue a separate climate change strategy that has no links to the international regime.
Compatibility with the international regime should, therefore, be a key consideration in the design of a domestic U.S. climate strategy. In the short term, linkage may be important because U.S. and other multinational firms subject to the Kyoto emission targets may wish to take advantage of low-cost emission reduction opportunities in their U.S. operations. Linkage is most critical, however, in the long term. Environmentally, the long-term emission reductions needed to achieve a stable climate can be ensured only through some form of agreement among major emitting countries. And economically, these reductions can be achieved most cost-effectively through an integrated, global greenhouse gas market. This paper identifies potential scenarios for the linkage of U.S. and international climate strategies; describes how emerging national and international emissions trading regimes will shape the context within which such linkages could take place; and examines issues that must be considered in the design of a U.S. climate strategy to ensure its compatibility with an international regime.