NEW MARKET HYPOTHESISCENTRAL BANK DIGITAL CURRENCYSILVER GUN HYPOTHESISBOOK PUBLICATION

NEW MARKET HYPOTHESIS

The problem of climate systemic risk

Read More

CENTRAL BANK DIGITAL CURRENCY

The case for a positive carbon price

Read More

SILVER GUN HYPOTHESIS

New Biophysical Theory for Carbon

Read More

BOOK PUBLICATION

Hypothesis for a Risk Cost of Carbon

Read More

Hypothesis for a Risk Cost of Carbon: Revising the Externalities and Ethics of Climate Change

Abstract

Standard market-based policies for addressing climate change mostly aim to internalize the Social Cost of Carbon (SCC) into the economy with either carbon taxes or cap-and-trade schemes. Standard policies are failing to manage the systemic risk of dangerous-to-catastrophic climate change for a variety of reasons. In this chapter we clarify and expand on a market hypothesis that argues for a second externalized cost of carbon, called the Risk Cost of Carbon (RCC), as the appropriate solution to this risk problem.

The combination of the SCC and RCC creates a new paradigm of complementary market pricing for the dual objectives of improving market efficiency and managing systemic risk, respectively. Introducing the RCC addresses the problem of how to decouple gross world product (GWP) from carbon emissions and how to solve the paradox of time discounting under systemic risk. Subsequently the RCC could have major implications for climate change economics, public policy, and sustainability theory. The hypothesis is novel by taking into consideration both the entropy and the mass of the carbon budget.

The RCC is technically defined as the cost of imposing risk tolerances (%) on climate mitigation objectives, and it has units of USD per tonne of carbon dioxide equivalent (CO2e) mitigated. The RCC is internalized with a “global carbon reward” that manages a trade-off between market efficiency and climate certainty. The carbon reward is issued as a parallel currency and with an exchange rate that is managed by central banks over a rolling 100-year planning horizon. A key recommendation is to test the hypothesis with experiments.

Keywords

Climate change Systemic risk Risk management Carbon price Biophysical Thermodynamics Entropy Central bank Monetary policy Parallel currency Macroprudential 

SpringerLink

https://link.springer.com/chapter/10.1007/978-3-030-03152-7_8

Citation: Chen D.B., van der Beek J., Cloud J. (2019) Hypothesis for a Risk Cost of Carbon: Revising the Externalities and Ethics of Climate Change. In: Doukas H., Flamos A., Lieu J. (eds) Understanding Risks and Uncertainties in Energy and Climate Policy. Springer, Cham

Show Buttons
Hide Buttons