Theories and Practices of Cross-Border Carbon Market Linkages: Implications for Asia and the Pacific

Economies in Asia and the Pacific are increasingly implementing carbon markets to mitigate greenhouse gas emissions, creating an opportunity for cooperation through carbon market linkages. This report reviews the conceptual evolution of carbon market linkages and their potential economic and environmental benefits. It then examines the practical challenges and lessons learned from existing linkages, including those between the European Union and Switzerland, as well as between California and Québec. The report emphasizes the importance of careful design in the legal, procedural, and institutional frameworks necessary for successful linkage, while also addressing potential risks, such as sovereignty concerns and distributional effects. Drawing on empirical evidence and case studies, the report concludes with recommendations for the development of bilateral and multilateral carbon market linkages in Asia and the Pacific, highlighting the role of such mechanisms in fostering regional cooperation, enhancing climate finance, and achieving enhanced mitigation outcomes.