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

Chen, Delton B.; Beek, Joel van der; Cloud, Jonathan

doi:10.1080/20430795.2017.1314814

Cited by 11 publications

(23 citation statements)

References 70 publications

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“…What is the economic objective of a global carbon reward? Chen et al (2017) claim that-based on their Holistic Market Hypothesis (HMH)-a global reward for carbon mitigation can (1) be provided with monetary policy and (2) can be used to manage climate systemic risk. Aglietta and Espagne (2016) originally coined the term "climate systemic risk" in reference to financial and physical fragilities associated with anthropogenic climate change (refer Sect.…”

Section: Externalized Cost Of Carbonmentioning

confidence: 99%

“…What is the total externalized cost of carbon emissions? Chen et al (2017) postulate that (3) the total externalized cost of carbon emissions is the SCC plus a second externality, called the Risk Cost of Carbon (RCC). The RCC is the assessed cost of providing a positive externality and it does not substitute for the SCC, which is the assessed cost of a negative externality.…”

Section: Externalized Cost Of Carbonmentioning

confidence: 99%

“…The above provisional terms may help to open up a wider discourse on positive pricing. According to Chen et al (2017), the global carbon reward should be implemented as a parallel currency so that monetary policy and currency trading can be used to internalize the RCC into the economy. The global carbon reward generates a positive externality because it acts as preventative climate insurance, and this insurance may be classified as a 'public good' because it yields physical benefits that are non-rivalrous and non-excludable.…”

Section: Positive Carbon Pricementioning

confidence: 99%

“…The topic of this chapter is the theoretical plausibility of a second externalized cost of anthropogenic greenhouse gas (GHG) emissions, called the Risk Cost of Carbon (RCC), whereby the first externalized cost is already established as the Social Cost of Carbon (SCC). Chen et al (2017) originally postulated the existence of the RCC, which they describe as the cost of managing climate risk with positive incentives guided by cost-effectiveness analysis. The possible existence of the RCC is explained with the Holistic Market Hypothesis (HMH), which Chen et al (2017) introduced using an epistemology of complementary relationships.…”

Section: Introductionmentioning

confidence: 99%

“…Chen et al (2017) originally postulated the existence of the RCC, which they describe as the cost of managing climate risk with positive incentives guided by cost-effectiveness analysis. The possible existence of the RCC is explained with the Holistic Market Hypothesis (HMH), which Chen et al (2017) introduced using an epistemology of complementary relationships. The HMH could have major implications for economic assessments, climate policy, and environmental law because it posits that the total externalized cost of the market failure is significantly underestimated when the RCC is ignored.…”

Section: Introductionmentioning

confidence: 99%

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Hypothesis for a Risk Cost of Carbon: Revising the Externalities and Ethics of Climate Change

Chen¹,

Beek²,

Cloud³

2018

Understanding Risks and Uncertainties in Energy and Climate Policy

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Standard market-based policies for addressing climate change mostly aim to internalize the Social Cost of Carbon (SCC) into the economy with either carbon taxes or cap-and-trade schemes. Standard policies are failing to manage the systemic risk of dangerous-to-catastrophic climate change for a variety of reasons. In this chapter we clarify and expand on a market hypothesis that argues for a second externalized cost of carbon, called the Risk Cost of Carbon (RCC), as the appropriate solution to this risk problem. The combination of the SCC and RCC creates a new paradigm of complementary market pricing for the dual objectives of improving market efficiency and managing systemic risk, respectively. Introducing the RCC addresses the problem of how to decouple gross world product (GWP) from carbon emissions and how to solve the paradox of time discounting under systemic risk. Subsequently the RCC could have major implications for climate change economics, public policy, and sustainability theory. The hypothesis is novel by taking into consideration both the entropy and the mass of the carbon budget. The RCC is technically defined as the cost of imposing risk tolerances (%) on climate mitigation objectives, and it has units of USD per tonne of carbon dioxide equivalent (CO 2 e) mitigated. The RCC is internalized with a "global carbon reward" that manages a trade-off between market efficiency and climate certainty. The carbon reward is issued as a parallel currency and with an exchange rate that is managed by central banks over a rolling 100-year planning horizon. A key recommendation is to test the hypothesis with experiments.

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Section: Externalized Cost Of Carbonmentioning

confidence: 99%

Section: Externalized Cost Of Carbonmentioning

confidence: 99%

Section: Positive Carbon Pricementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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