Venturing into uncharted financial waters: an essay on climate-friendly finance

Jean Charles Hourcade (hourcade@centre-cired.fr), B. Perrissin Fabert and J. 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
B. 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
J. 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 coexist with vast amounts of savings that "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.

Date: 2012
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Published in INTERNATIONAL ENVIRONMENTAL AGREEMENTS-POLITICS LAW AND ECONOMICS, 2012, 12 (2), pp.165--186. ⟨10.1007/s10784-012-9169-y⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00715343

DOI: 10.1007/s10784-012-9169-y

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