Commitments through financial options: an alternative for delivering climate change obligations
Governments willing to commit themselves to maintain carbon prices at or above a certain level face the challenge that their commitments need to be credible both for investors in low-carbon technology and for foreign governments. This article argues that governments can make such commitments by issuing long-term put option contracts on the price of CO<sub>2</sub> allowances. This mechanism gives investors the right, but not the obligation, to sell allowances to the government at the strike price. From the investors' point of view, a government is therefore fully committed to a price floor for allowances in the future. This proposed approach alters the incentives that a government faces when considering noncompliance and serves to prevent non-compliance. The proposal fares well when assessed against criteria to determine its suitability in legitimacy, enforcement, proportionality, lack of interference from other contracting States, and transparency. It also allows for fine-tuning through the number and duration of issued options and the strike price. A robust contract structure is proposed to protect against government interference that might threaten the credibility of commitments.
Year of publication: |
2009
|
---|---|
Authors: | ISMER, ROLAND ; NEUHOFF, KARSTEN |
Published in: |
Climate Policy. - Taylor & Francis Journals, ISSN 1469-3062. - Vol. 9.2009, 1, p. 9-21
|
Publisher: |
Taylor & Francis Journals |
Saved in:
Online Resource
Saved in favorites
Similar items by person
-
Leakage protection for carbon-intensive materials post-2020
Neuhoff, Karsten, (2015)
-
Maßnahmen zum Schutz vor Carbon Leakage für CO2-intensive Materialien im Zeitraum nach 2020
Neuhoff, Karsten, (2015)
-
Vorschlag für die zukünftige Ausgestaltung der Ausnahmen für die Industrie bei der EEG-Umlage
Neuhoff, Karsten, (2013)
- More ...