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.

Transparency is fundamental to environmental governance. It promotes public trust, goodwill, and credibility in environmental decision making. It also ensures that monitoring and enforcement of emissions reduction targets are efficient and effective. As the impacts of climate change increase, it is urgent that scholars and policy makers develop and test criteria for transparency in both the calculation of emissions reductions and the public reporting of emissions. This article highlights basic principles of transparency that should inform such criteria and that may be applied on a transnational basis. We also examine China’s recently implemented pilot emissions trading schemes and find that the approach in China does not yet comply with our suggested principles. Nevertheless, the positive direction of environmental governance in this region is encouraging.