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

Abstract

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.

Digitalization Challenges for SMEs: A Systematic Literature Review Perspective and Future Research

“…Digital technologies enable efficient communication between employees, customers, and suppliers, as well as information creation, sharing, and exchange across multiple communities (Leonardi & Vaast, 2017;Lombardi & Secundo, 2021). Therefore, digitalization enables SMEs to participate in digitalized value chains Chen et al (2019) and become part of integrated business networks (Rehm & Goel, 2017). SMEs are increasingly investing in information and communication technologies (ICTs) to enhance the synchronization and integration of their supply chains (Bharadwaj et al, 2007;Yu et al, 2017).…”

“…Furthermore, the innovation theory used relates to encouraging organizations to be more open-minded and functionally coordinated (F. Lin et al, 2022). Open-mindedness and crossfunctional coordination reflect internal learning and sharing of ideologies and values, which help develop the foundation for integrating external knowledge and achieving knowledge creation and new outputs (Chen et al, 2019;Herrmann et al, 2007). Finally, smaller firms generally have more limited in-house IT resources (Anderson et al, 2012;Forsman, 2008), making implementing and using IT in innovation processes harder.…”

Decentralized Finance (DeFi): Foundations, Applications, Potentials, and Challenges

“…In addition, Kli-maDAO incoproates it into DeFi markets, which is envisioned to be a promising way to internalize the negative externality of carbon emission (D. B. Chen et al, 2019;KlimaDAO, 2022). On the other hand, as we already indicated in Section 3 and as we will further elaborate on in Section 5, the feed-in of reliable information to create tokenized representations of emissions will unlikely be solved through a DeFi-powered approach.…”