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Tradable Climate Liabilities: A Thought Experiment

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  • Étienne Billette de Villemeur
  • Justin Leroux

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 ?nancial 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 e?ciency, fairness, exposure to risk, commitment, participation, as well as implementation challenges.

Suggested Citation

  • Étienne Billette de Villemeur & Justin Leroux, 2018. "Tradable Climate Liabilities: A Thought Experiment," CIRANO Working Papers 2018s-43, CIRANO.
    • Handle: RePEc:cir:cirwor:2018s-43
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    Cited by:

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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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