14th journées Louis-André Gérard-Varet

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Track-and-Trade: A liability approach to climate policy
Justin Théodore Leroux, Etienne Billette de Villemeur

Last modified: 2015-05-11


We argue for 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. Because liabilities could be traded like financial debt, this decentralizes the choice of the rate by which countries discount future benefits and damage, thus yielding first-best emissions patterns. Rather than being based on an expected discounted sum of future marginal damage (as with a carbon tax or tradable emission permits) our proposal relies only on realized damage and on the well-documented emission history of countries.


Carbon Liabilities; Climate Policy; Market Instruments.