Economic arguments in support of linking emissions trading schemes suggest that such linking could provide access to lower cost abatement options and increase market stability. The decisions of whether and how to link emissions trading schemes often focus on the design features of the relevant schemes, but an additional factor which has the potential to undermine the efficiency of linked schemes is taxation. This article systematically tests two alternative approaches to the direct (income) taxation of cross-border transfers of emission allowances for differential tax outcomes. Four hypothetical transactions are considered under three different linking mechanisms and on the assumption that a tax treaty based on the OECD Model Tax Convention on Income and on Capital is in force. This analysis evidences that, in some cases – and especially if the relevant jurisdictions adopt different approaches to the taxation of allowance transactions under domestic law – there is the potential for timing differences or double taxation that could impact on the efficiency of the linked trading schemes. It is therefore important for tax implications to be considered as part of any linking proposal.

This commentary is an update to an article in an earlier issue of Transnational Environmental Law (E. Couzens, ‘Size Matters, Although It Shouldn’t: The IWC and Small Cetaceans. A Reply to Stephenson, Mooers and Attaran’ (2014) 3(2) Transnational Environmental Law, pp. 265–78) on the treatment of small cetaceans by the International Whaling Commission (IWC). That article discussed an unsuccessful proposal submitted by Monaco, at the 64th meeting of the IWC in 2012, for a resolution on highly migratory cetaceans. Monaco renewed its proposal in 2014 and, on that occasion, did generate sufficient support for a resolution to give contracting parties to the International Convention for the Regulation of Whaling a mandate to initiate debate over small cetaceans in other fora. Following this IWC Resolution, in December 2015, the United Nations General Assembly included a clause proposed by Monaco in its Resolution on Oceans and the Law of the Sea. The nature of international law is such that it is difficult to force change without upsetting a delicate equilibrium. Monaco’s initiative, however, may provide significant momentum towards a solution for what remains the real and under-acknowledged problem that there is virtually no international law applicable to small and/or highly migratory cetaceans.

One question left unanswered by the 2015 Paris Agreement is exactly how the world will meet the daunting technological challenges that lie ahead. This article proposes a global strategy to build up human capital oriented towards two bodies of knowledge: alternative, non-fossil systems of energy generation, delivery and consumption; and a deeper understanding of climate systems that might be geoengineered to reduce atmospheric concentrations of greenhouse gases. Simply committing funding to climate technology is insufficient; a global climate technology policy must take into account the unique growth properties of human capital, and the conditions under which it can grow.

Human capital should be the focus of an international climate agreement for three reasons. Firstly, the wrong kind of human capital (attached to fossil fuel-related methods of energy generation and consumption) has helped to create an unfavourable political economy for climate policy. Secondly, the right kind of human capital (broader, and building on fundamental understandings of energy systems and climate systems) can create a more favourable political economy for climate policy. Thirdly, the technological changes needed for both mitigation and geoengineering technologies are so profound that a human capital stock must be developed with a conscious focus on radical technological change that can be delivered quickly. While individual countries may pursue an enlightened human capital policy on their own, cooperation at the international level would maximize the scale economies of inventive effort.