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

Justin Leroux
Authors registered in the RePEc Author Service: Etienne Billette de Villemeur

CIRANO Working Papers from CIRANO

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.

Keywords: Carbon liabilities; climate policy; market instruments; Pigovian tax (search for similar items in EconPapers)
JEL-codes: H23 Q54 (search for similar items in EconPapers)
Date: 2015-04-15
New Economics Papers: this item is included in nep-ene, nep-env and nep-res
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:cir:cirwor:2015s-18

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