Linking National Cap-and-Trade Systems in North America

The paper analyzes the technical and political requirements for linking cap-and-trade systems in North America, specifically focusing on the U.S., Canada, and Mexico. It argues that while linking reduces overall carbon costs and GDP impacts, it may not significantly mitigate production leakage. The authors identify critical design elements requiring harmonization—such as cap type, offset limits, and enforcement quality—and conclude that divergent national interests make a fully integrated system unlikely, with a minimal U.S.-Canada link and a more significant U.S.-Mexico link being the most probable outcome.

• Linking cap-and-trade systems can minimize overall costs by equalizing the marginal cost of emissions across jurisdictions, creating a more liquid carbon market, and reducing competitiveness concerns.
• Linking can introduce risks, including the importation of lower environmental integrity, unwanted changes in domestic policy stringency, and the potential for one jurisdiction to effectively subsidize a competitor's activities in another.
• The design elements most critical for harmonization to enable linking are cap type, limits on the use of offsets, borrowing, mechanisms to constrain carbon prices, and the quality of enforcement.
• There is a divergence in political interest regarding linking: the Government of Canada has expressed enthusiasm for full linkage with the U.S. to address competitiveness, whereas U.S. policymakers have shown very little interest.
• Canada's oil sands exports to the U.S. provide two potential motivations for Canada to seek linkage: to reduce its domestic carbon price or to justify weakening its 2020 national greenhouse gas target.
• Economic modelling suggests that only about 5% of industrial emissions are at risk of production leakage if Canadian carbon prices are significantly higher than U.S. prices, indicating that the competitiveness rationale for linking is weak.
• Linking is projected to significantly reduce overall GDP impacts for Canada; for example, the reduction in Canadian GDP relative to a no-policy case would drop from 0.46% to 0.2% in 2020 with linked trade.
• The most likely outcome for North American linking is a scenario with minimal U.S.-Canada linkage but a significant U.S.-Mexico link, which would likely prevent Canada from meeting its 2020 national GHG target.

APA

Bramley, M., Partington, P., & Sawyer, D. (2009). Linking National Cap-and-Trade Systems in North America. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/linking_nat_cap_north_america.pdf

Chicago

Bramley, Matthew, P.J. Partington, and Dave Sawyer. Linking National Cap-and-Trade Systems in North America. International Institute for Sustainable Development, 2009. https://www.iisd.org/system/files/publications/linking_nat_cap_north_america.pdf.

Wikipedia

{{cite report |last1=Bramley |first1=Matthew |last2=Partington |first2=P.J. |last3=Sawyer |first3=Dave |title=Linking National Cap-and-Trade Systems in North America |publisher=International Institute for Sustainable Development |date=December 2009 |url=https://www.iisd.org/system/files/publications/linking_nat_cap_north_america.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{bramley2009linking, author = {Bramley, Matthew and Partington, P.J. and Sawyer, Dave}, title = {{Linking National Cap-and-Trade Systems in North America}}, institution = {International Institute for Sustainable Development}, year = {2009}, month = dec, url = {https://www.iisd.org/system/files/publications/linking_nat_cap_north_america.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }