Venturing into Uncharted Financial Waters: an Essay on Climate-Friendly Finance

Jean Charles Hourcade (), Baptiste Perrissin-Fabert and Julie Rozenberg
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Jean Charles Hourcade: CIRED - centre international de recherche sur l'environnement et le développement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique
Baptiste Perrissin-Fabert: CIRED - centre international de recherche sur l'environnement et le développement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique
Julie Rozenberg: CIRED - centre international de recherche sur l'environnement et le développement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique

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Abstract: This paper explores links between global financial imbalances and tensions around reserve currency along with climate change. Currently, risky levels of private and public debts co-exist with vast amounts of savings which "do not know where to go." Long-term climate-oriented financial products could enhance investors' confidence in low carbon projects (LCP) and channel to them large amounts of private savings. The paper outlines a financial architecture, the cornerstone of which is an agreement on the Social Cost of Carbon (SCC) integrated into a project's appraisal and acting as a surrogate for a carbon price. This SCC would be the value of carbon certificates issued by the government, and delivered to Banks to issue credit facilities reducing the risk-adjusted costs of LCPs. These carbon certificates could be gradually transformed into legal reserve assets of the Banks after verification of the reality of the projects. Finally, the paper considers whether such certificates would be recognized as genuine international reserve assets, backed by the rising value of carbon over time. It shows how emerging countries could then diversify their foreign exchange reserves through an asset based on the international recognition of climate as a global public good.

Keywords: Climate Finance; Social Cost of Carbone; carbon certificates; climate agreement; monetary policy; finance climat; valeur sociale du carbone; certificats carbone; négociations climat; politique monétaire (search for similar items in EconPapers)
Date: 2011-11
New Economics Papers: this item is included in nep-ene, nep-env and nep-ppm
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