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Tradable climate liabilities: A thought experiment

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  • Etienne Billette de Villemeur

    (LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - Université de Lille - CNRS - Centre National de la Recherche Scientifique, Université de Lille)

  • Justin Leroux

    (HEC Montréal - HEC Montréal)

Abstract

We envision the creation of a climate liability market to address climate change. Each period, countries are issued liability commensurate to their emissions of the period. Liability bearers are required to pay over time, as climate harm materializes. Revenues are used to compensate participating countries in proportion of climate harm. Because liabilities are traded like financial debt among participants, the mechanism achieves a unique carbon price through decentralization of the choice of a discount rate as well as beliefs about the severity of the climate problem. We discuss properties of such a mechanism along the dimensions of efficiency, fairness, exposure to risk, commitment, participation, as well as implementation challenges.

Suggested Citation

  • Etienne Billette de Villemeur & Justin Leroux, 2019. "Tradable climate liabilities: A thought experiment," Post-Print hal-02504760, HAL.
    • Handle: RePEc:hal:journl:hal-02504760
    DOI: 10.1016/j.ecolecon.2019.106355
    Note: View the original document on HAL open archive server: https://hal.science/hal-02504760v1
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    2. Tovar Reaños, Miguel A., 2021. "Floods, flood policies and changes in welfare and inequality: Evidence from Germany," Ecological Economics, Elsevier, vol. 180(C).

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    More about this item

    Keywords

    Climate liability; Market instruments; Pigovian tax; Risk sharing;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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