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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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    References listed on IDEAS

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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. repec:wbk:wboper:25160 is not listed on IDEAS
    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. Zhang, Miao & Dong, Xiaoni & Yin, Xiaoyan & Wang, Chonghong, 2025. "Research on the game of green finance driving corporate digital transformation under the carbon trading mechanism," Finance Research Letters, Elsevier, vol. 85(PE).
    2. 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).
    3. Millard, Joe, 2023. "Coining one currency for nature," OSF Preprints j7phu, Center for Open Science.
    4. repec:osf:osfxxx:j7phu_v1 is not listed on IDEAS

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