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Escaping the climate policy uncertainty trap: options contracts for REDD+

Golub, Alexander Alexandrovich, Fuss, Sabine, Lubowski, Ruben, Jake, Hiller, Khabarov, Nikolay, Koch, Nicolas, Krasovskiy, Andrey, Kraxner, Florian, Obersteiner, Michael, Palmer, Charles, Piris-Cabezas, Pedro, Reuter, Wolf, Szolgayova, Jana, Taschini, Luca and Wehkamp, Johanna (2018) Escaping the climate policy uncertainty trap: options contracts for REDD+. Climate Policy. ISSN 1469-3062

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Identification Number: 10.1080/14693062.2017.1422478

Abstract

Climate policy uncertainty significantly hinders investments in low-carbon technologies, and the global community is behind schedule to curb carbon emissions. Strong actions will be necessary to limit the increase in global temperatures, and continued delays create risks of escalating climate change damages and future policy costs. These risks are system-wide, long-term and large-scale and thus hard to diversify across firms. Because of its unique scale, cost structure and near-term availability, Reducing Emissions from Deforestation and forest Degradation in developing countries (REDD+) has significant potential to help manage climate policy risks and facilitate the transition to lower greenhouse gas emissions. ‘Call’ options contracts in the form of the right but not the obligation to buy high-quality emissions reduction credits from jurisdictional REDD+ programmes at a predetermined price per ton of CO2 could help unlock this potential despite the current lack of carbon markets that accept REDD+ for compliance. This approach could provide a globally important cost-containment mechanism and insurance for firms against higher future carbon prices, while channelling finance to avoid deforestation until policy uncertainties decline and carbon markets scale up.

Item Type: Article
Official URL: https://www.tandfonline.com/toc/tcpo20/current
Additional Information: © 2018 Informa UK Limited, trading as Taylor & Francis Group
Divisions: Geography & Environment
Grantham Research Institute
Subjects: G Geography. Anthropology. Recreation > GE Environmental Sciences
Sets: Departments > Geography and Environment
Research centres and groups > Grantham Research Institute on Climate Change and the Environment
Date Deposited: 07 Mar 2018 15:28
Last Modified: 20 Oct 2019 00:07
URI: http://eprints.lse.ac.uk/id/eprint/87043

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