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Track-and-Trade: A liability approach to climate policy

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  • Etienne Billette de Villemeur
  • Justin Leroux

Abstract

We observe that a Pigovian climate policy need not exact full payment of the social cost of carbon upon emission to yield optimal incentives. Following this insight, we propose the creation of a carbon liabilities market to address climate change. Each period, countries would be made liable for their share of responsibility in current climate damage. This yields first-best emissions patterns. Because liabilities could be traded like financial debt, it also decentralizes the choice a discount rate as well as beliefs about the severity of the climate problem. From an informational standpoint, implementation relies only on realized damage and on the well-documented emission history of countries, unlike a carbon tax or tradable permits scheme, which are based on a sum of discounted expected future marginal damage.

Suggested Citation

  • Etienne Billette de Villemeur & Justin Leroux, 2015. "Track-and-Trade: A liability approach to climate policy," CIRANO Working Papers 2015s-18, CIRANO.
  • Handle: RePEc:cir:cirwor:2015s-18
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    References listed on IDEAS

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    Cited by:

    1. Billette de Villemeur, Etienne & Leroux, Justin, 2016. "Plaidoyer pour une autre approche des politiques climatiques : De la poursuite de l’intérêt propre à l’introduction du principe de responsabilité [For another approach to climate policy: From the p," MPRA Paper 74998, University Library of Munich, Germany.

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    More about this item

    Keywords

    Carbon liabilities; climate policy; market instruments; Pigovian tax;
    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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