Linking emissions trading schemes is the bottom-up approach to creating a global carbon market. It entails political compromise and a careful assessment of the trade-off between its advantages and disadvantage.
This article points out that the main benefits of linking are the reduction of the aggregate compliance and transactions costs, the reduction of the competitive distortions and the increase of market liquidity. On the other hand, the article identifies also drawbacks in this process: differences in certain design elements can challenge the environmental policy objectives through free-riding and emissions leakage. For all these reasons, a linking project requires solutions to harmonize those design elements which pose barriers to an effective linkage.