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Climate mitigation policy as a system solution: addressing the risk cost of carbon

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  • Delton B. Chen
  • Joel van der Beek
  • Jonathan Cloud

Abstract

Global 4C is a new international climate mitigation policy that adopts a risk management framework. Global 4C offers a financial reward for mitigation and aims to internalise a Risk Cost of Carbon (RCC) into the economy. Carbon taxes (i.e. carbon prices) are essential for internalising the Social Cost of Carbon (SCC), however a SCC-RCC duality is inferred with an epistemological method and is supported with a new hypothesis, called the Holistic Market Hypothesis. Based on the inferred SCC-RCC duality, a system of complementary market pricing is proposed as an effective response to emerging climate systemic risk and fat-tailed probability distributions for the Earth's climate sensitivity.The recommended policy instrument is a currency, called Complementary Currencies for Climate Change (4C). 4C should be priced in foreign exchange currency markets (Forex) to mirror the RCC and to incentivise a spectrum of mitigation services, including clean renewable energy and carbon sequestration. A public broadcast message for climate systemic risk should be made each year, in the form of a ‘100-year advance 4C price alert’, which is an assurance of reward prices for carbon mitigation (i.e. the 4C exchange rate) under a Carbon Exchange Standard (CES). The CES is a macro-prudential protocol for central banks to provide collective insurability against climate catastrophe and incentives for socio-ecological co-benefits.

Suggested Citation

  • Delton B. Chen & Joel van der Beek & Jonathan Cloud, 2017. "Climate mitigation policy as a system solution: addressing the risk cost of carbon," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 7(3), pages 233-274, July.
    • Handle: RePEc:taf:jsustf:v:7:y:2017:i:3:p:233-274
    DOI: 10.1080/20430795.2017.1314814
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    1. In Hwang & Frédéric Reynès & Richard Tol, 2013. "Climate Policy Under Fat-Tailed Risk: An Application of Dice," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 56(3), pages 415-436, November.
    2. World Bank & Ecofys & Vivid Economics, "undated". "State and Trends of Carbon Pricing 2016," World Bank Publications - Reports 25160, The World Bank Group.
    3. William D. Nordhaus, 2009. "An Analysis of the Dismal Theorem," Cowles Foundation Discussion Papers 1686, Cowles Foundation for Research in Economics, Yale University.
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    Cited by:

    1. Sovacool, Benjamin K., 2022. "A perspective on treaties, maximum wages, and carbon currencies: Innovative policy instruments for global decarbonization," Energy Policy, Elsevier, vol. 160(C).
    2. Millard, Joe, 2023. "Coining one currency for nature," OSF Preprints j7phu, Center for Open Science.

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