Denny Ellerman
- Published in print:
- 2012
- Published Online:
- September 2012
- ISBN:
- 9780199656202
- eISBN:
- 9780191742149
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199656202.003.0008
- Subject:
- Economics and Finance, Development, Growth, and Environmental
The European Union’s CO2 Emissions Trading Scheme (EU ETS) has shown that cap-and-trade systems can work in a highly decentralized multinational setting, but that experience has also revealed some ...
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The European Union’s CO2 Emissions Trading Scheme (EU ETS) has shown that cap-and-trade systems can work in a highly decentralized multinational setting, but that experience has also revealed some issues in governance that threaten the feasibility of cap-and-trade in an international setting. These issues are captured in the conflicting demands for differentiation and harmonization. This chapter examines the experience of the EU ETS and of cap-and-trade systems in the USA in resolving this conflict with particular attention to the governance institutions and their potential applicability on a broader global scale.Less
The European Union’s CO2 Emissions Trading Scheme (EU ETS) has shown that cap-and-trade systems can work in a highly decentralized multinational setting, but that experience has also revealed some issues in governance that threaten the feasibility of cap-and-trade in an international setting. These issues are captured in the conflicting demands for differentiation and harmonization. This chapter examines the experience of the EU ETS and of cap-and-trade systems in the USA in resolving this conflict with particular attention to the governance institutions and their potential applicability on a broader global scale.
A. J. Mulder
- Published in print:
- 2015
- Published Online:
- January 2016
- ISBN:
- 9780262029285
- eISBN:
- 9780262330435
- Item type:
- chapter
- Publisher:
- The MIT Press
- DOI:
- 10.7551/mitpress/9780262029285.003.0007
- Subject:
- Economics and Finance, Development, Growth, and Environmental
EU member-states rely on both a collectively governed EU Emissions Trading Scheme (EU ETS) as well as a wide array of national instruments that operate in parallel with the EU ETS. Parallel ...
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EU member-states rely on both a collectively governed EU Emissions Trading Scheme (EU ETS) as well as a wide array of national instruments that operate in parallel with the EU ETS. Parallel instruments tend to undermine the strength of the ETS-based carbon price. In this chapter, we estimate when parallel instruments force the EU ETS into redundancy, permanently driving the carbon price down to €0. Probabilistic analysis shows that redundancy of the EU ETS is certain if the parallel instruments trigger more abatement than 45 MtCO2/yr. If parallel instruments trigger more abatement than 20 MtCO2/yr., redundancy of the EU ETS depends on the economic growth rate around Europe. The lower the economic growth rate the greater the likelihood of ETS redundancy. Note that the thresholds levels can be significantly below these estimates if either policymakers or firms lack full commitment to the EU ETS.Less
EU member-states rely on both a collectively governed EU Emissions Trading Scheme (EU ETS) as well as a wide array of national instruments that operate in parallel with the EU ETS. Parallel instruments tend to undermine the strength of the ETS-based carbon price. In this chapter, we estimate when parallel instruments force the EU ETS into redundancy, permanently driving the carbon price down to €0. Probabilistic analysis shows that redundancy of the EU ETS is certain if the parallel instruments trigger more abatement than 45 MtCO2/yr. If parallel instruments trigger more abatement than 20 MtCO2/yr., redundancy of the EU ETS depends on the economic growth rate around Europe. The lower the economic growth rate the greater the likelihood of ETS redundancy. Note that the thresholds levels can be significantly below these estimates if either policymakers or firms lack full commitment to the EU ETS.
A. Denny Ellerman
- Published in print:
- 2015
- Published Online:
- January 2016
- ISBN:
- 9780262029285
- eISBN:
- 9780262330435
- Item type:
- chapter
- Publisher:
- The MIT Press
- DOI:
- 10.7551/mitpress/9780262029285.003.0002
- Subject:
- Economics and Finance, Development, Growth, and Environmental
The European Union’s Emissions Trading System (EU ETS) is the most salient example of emissions trading being used as a climate policy instrument, which many would argue is the most promising form ...
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The European Union’s Emissions Trading System (EU ETS) is the most salient example of emissions trading being used as a climate policy instrument, which many would argue is the most promising form for an eventual global climate regime. These keynote remarks address what is known and not known about the functioning of this instrument in this pioneering, multinational cap-and-trade system. The discussion proceeds through topics that can be considered settled, those that remain to be addressed, and some that remain unsettled. The conclusion is that the EU ETS works in the sense of achieving its basic objective, but that understanding of how and why it works rests more on theory than on empirical verification. This essay can also be seen as presenting an agenda for research on the EU ETS.Less
The European Union’s Emissions Trading System (EU ETS) is the most salient example of emissions trading being used as a climate policy instrument, which many would argue is the most promising form for an eventual global climate regime. These keynote remarks address what is known and not known about the functioning of this instrument in this pioneering, multinational cap-and-trade system. The discussion proceeds through topics that can be considered settled, those that remain to be addressed, and some that remain unsettled. The conclusion is that the EU ETS works in the sense of achieving its basic objective, but that understanding of how and why it works rests more on theory than on empirical verification. This essay can also be seen as presenting an agenda for research on the EU ETS.
Oliver Sartor, Stephen Lecourt, and Clement Pallière
- Published in print:
- 2015
- Published Online:
- January 2016
- ISBN:
- 9780262029285
- eISBN:
- 9780262330435
- Item type:
- chapter
- Publisher:
- The MIT Press
- DOI:
- 10.7551/mitpress/9780262029285.003.0004
- Subject:
- Economics and Finance, Development, Growth, and Environmental
This paper exploits a detailed and original database to analyse the welfare and efficiency implications of the move to benchmark-based free allocation rules in EU ETS Phase 3(2013-20). It is shown ...
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This paper exploits a detailed and original database to analyse the welfare and efficiency implications of the move to benchmark-based free allocation rules in EU ETS Phase 3(2013-20). It is shown empirically that the new allocation rules will lead to a material improvement of the distributional welfare properties of free allocation, by reducing the scope for windfall profits in non-electricity sectors of the EU ETS. Evidence also suggests that new rules have the potential to improve the economic efficiency of the EU ETS by forcing a larger share of installations to purchase allowances at the margin. However, although harmonised benchmarks help to reduce the scope for competitive distortions arising from differing allocation levels to installations in the same sector, the use of ex-ante output levels to determine allocations still leaves considerable scope for internal market distortions, as illustrated using the example of the cement sector.Less
This paper exploits a detailed and original database to analyse the welfare and efficiency implications of the move to benchmark-based free allocation rules in EU ETS Phase 3(2013-20). It is shown empirically that the new allocation rules will lead to a material improvement of the distributional welfare properties of free allocation, by reducing the scope for windfall profits in non-electricity sectors of the EU ETS. Evidence also suggests that new rules have the potential to improve the economic efficiency of the EU ETS by forcing a larger share of installations to purchase allowances at the margin. However, although harmonised benchmarks help to reduce the scope for competitive distortions arising from differing allocation levels to installations in the same sector, the use of ex-ante output levels to determine allocations still leaves considerable scope for internal market distortions, as illustrated using the example of the cement sector.
Marc Gronwald and Beat Hintermann
- Published in print:
- 2015
- Published Online:
- January 2016
- ISBN:
- 9780262029285
- eISBN:
- 9780262330435
- Item type:
- chapter
- Publisher:
- The MIT Press
- DOI:
- 10.7551/mitpress/9780262029285.003.0012
- Subject:
- Economics and Finance, Development, Growth, and Environmental
In this introductory chapter, we describe the goals of the workshop in Venice that has led to this collection of essays and give a brief overview over the individual chapters in this book. We divide ...
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In this introductory chapter, we describe the goals of the workshop in Venice that has led to this collection of essays and give a brief overview over the individual chapters in this book. We divide them into four different thematic sections that focus, respectively, on the current state and the development of the EU ETS (Section I); aspects related to political economy in the sense that firms aim to influence climate regulation (Section II); interactions with parallel instruments of climate policy (Section III); and firm behavior in the emissions market (Section IV). We provide some general and mostly positive conclusions about the EU ETS as a policy experiment, but argue that in order for it to provide a significant contribution to combatting climate change, the future cap should be tightened.Less
In this introductory chapter, we describe the goals of the workshop in Venice that has led to this collection of essays and give a brief overview over the individual chapters in this book. We divide them into four different thematic sections that focus, respectively, on the current state and the development of the EU ETS (Section I); aspects related to political economy in the sense that firms aim to influence climate regulation (Section II); interactions with parallel instruments of climate policy (Section III); and firm behavior in the emissions market (Section IV). We provide some general and mostly positive conclusions about the EU ETS as a policy experiment, but argue that in order for it to provide a significant contribution to combatting climate change, the future cap should be tightened.
David Langlet and Said Mahmoudi
- Published in print:
- 2016
- Published Online:
- November 2016
- ISBN:
- 9780198753926
- eISBN:
- 9780191831904
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780198753926.003.0011
- Subject:
- Law, Environmental and Energy Law
This chapter details EU efforts in taking action against climate change and, in conjunction, maintaining more energy efficient solutions. Notably, the EU committed itself to taking action against ...
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This chapter details EU efforts in taking action against climate change and, in conjunction, maintaining more energy efficient solutions. Notably, the EU committed itself to taking action against anthropogenic climate change in the early 1990s and has before and since then played a leading role in the attempts to agree on and implement effective measures at the international level for curbing greenhouse gas emissions. The chapter explores climate change measures relating to the reducing of emissions of greenhouse gases in a cost-effective manner, most particularly in the EU’s 2003 emissions trading scheme (EU ETS), as well as measures falling beyond the scope of the EU ETS. This chapter also looks at the EU’s energy efficiency measures, especially in response to the EU’s ‘20-20-20 by 2020’ targets. In order to meet these goals, the chapter explores energy efficiency solutions, methods of carbon capture and storage (CCS), renewable energy resources, and ecolabelling.Less
This chapter details EU efforts in taking action against climate change and, in conjunction, maintaining more energy efficient solutions. Notably, the EU committed itself to taking action against anthropogenic climate change in the early 1990s and has before and since then played a leading role in the attempts to agree on and implement effective measures at the international level for curbing greenhouse gas emissions. The chapter explores climate change measures relating to the reducing of emissions of greenhouse gases in a cost-effective manner, most particularly in the EU’s 2003 emissions trading scheme (EU ETS), as well as measures falling beyond the scope of the EU ETS. This chapter also looks at the EU’s energy efficiency measures, especially in response to the EU’s ‘20-20-20 by 2020’ targets. In order to meet these goals, the chapter explores energy efficiency solutions, methods of carbon capture and storage (CCS), renewable energy resources, and ecolabelling.
Andreas Lange
- Published in print:
- 2015
- Published Online:
- January 2016
- ISBN:
- 9780262029285
- eISBN:
- 9780262330435
- Item type:
- chapter
- Publisher:
- The MIT Press
- DOI:
- 10.7551/mitpress/9780262029285.003.0003
- Subject:
- Economics and Finance, Development, Growth, and Environmental
This paper discusses the EU ETS as a dynamic system. I review changes to the rules of the market that have been proposed or implemented in reaction to observed market developments. I link such a ...
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This paper discusses the EU ETS as a dynamic system. I review changes to the rules of the market that have been proposed or implemented in reaction to observed market developments. I link such a changing regulatory environment to the literature on regulatory uncertainty. Investment decisions may be distorted due to uncertain market conditions. However, the relative impact on the different investment options, e.g., the choice of technologies, is ambiguous. I highlight this discussion based on a simple analytical model.Less
This paper discusses the EU ETS as a dynamic system. I review changes to the rules of the market that have been proposed or implemented in reaction to observed market developments. I link such a changing regulatory environment to the literature on regulatory uncertainty. Investment decisions may be distorted due to uncertain market conditions. However, the relative impact on the different investment options, e.g., the choice of technologies, is ambiguous. I highlight this discussion based on a simple analytical model.
Leigh Raymond
- Published in print:
- 2016
- Published Online:
- May 2017
- ISBN:
- 9780262034746
- eISBN:
- 9780262336161
- Item type:
- chapter
- Publisher:
- The MIT Press
- DOI:
- 10.7551/mitpress/9780262034746.003.0005
- Subject:
- Political Science, Environmental Politics
After RGGI’s implementation in 2008, a series of political set backs led some to declare cap and trade “dead.” This chapter rejects the asserted demise of cap and trade, arguing that the public ...
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After RGGI’s implementation in 2008, a series of political set backs led some to declare cap and trade “dead.” This chapter rejects the asserted demise of cap and trade, arguing that the public benefit model for climate policies offers the best hope for political progress. The chapter reviews post-2008 climate policies, noting thatdespite a few prominent failures,cap and trade with auction has become the most common approach to addressing climate change. In addition, the chapter documents how three policies—the EU ETS, California’s cap and trade program, and RGGI—used the public benefit frame to resist political challenges and strengthen their emissions goals. The chapter then describes additional potential applications for the public benefit model, including carbon tax policies and the new Clean Power Plan regulations promulgated by the U.S. EPA in 2015. As uses of the public benefit frame expand, the chapter notes, a key question for the future will be what types of policy designs will be perceived as “fitting” with the norms that constitute the frame. Finally, the chapter discusses how normative framing could improve the ability to understand and predict other sudden policy changes beyond the topic of climate change.Less
After RGGI’s implementation in 2008, a series of political set backs led some to declare cap and trade “dead.” This chapter rejects the asserted demise of cap and trade, arguing that the public benefit model for climate policies offers the best hope for political progress. The chapter reviews post-2008 climate policies, noting thatdespite a few prominent failures,cap and trade with auction has become the most common approach to addressing climate change. In addition, the chapter documents how three policies—the EU ETS, California’s cap and trade program, and RGGI—used the public benefit frame to resist political challenges and strengthen their emissions goals. The chapter then describes additional potential applications for the public benefit model, including carbon tax policies and the new Clean Power Plan regulations promulgated by the U.S. EPA in 2015. As uses of the public benefit frame expand, the chapter notes, a key question for the future will be what types of policy designs will be perceived as “fitting” with the norms that constitute the frame. Finally, the chapter discusses how normative framing could improve the ability to understand and predict other sudden policy changes beyond the topic of climate change.
Marc Gronwald and Beat Hintermann (eds)
- Published in print:
- 2015
- Published Online:
- January 2016
- ISBN:
- 9780262029285
- eISBN:
- 9780262330435
- Item type:
- book
- Publisher:
- The MIT Press
- DOI:
- 10.7551/mitpress/9780262029285.001.0001
- Subject:
- Economics and Finance, Development, Growth, and Environmental
This book is the result of a workshop about emission permit markets in Venice, organized by the editors in collaboration with CESifo. The individual contributions were written independently of each ...
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This book is the result of a workshop about emission permit markets in Venice, organized by the editors in collaboration with CESifo. The individual contributions were written independently of each other and differ in topic and methodology, yet they share the underlying theme of theoretical and empirical research in emission permit markets. The chapters are grouped into four thematic sections: A discussion of the development of the EU ETS since its beginning to the present; political economy considerations; interactions with parallel instruments for climate policy; and firm behavior in this new market. Although all contributions are economic in nature, they depart from rigorous assumptions often encountered in economics research, or examine to what extent market participants’ action can in fact be explained by neoclassical theory. The overall findings are that the market appears to work in the sense that there is a single price for allowances, and that emissions have been kept below the cap. However, several chapters show that the market is not fully efficient due to reasons such as rent seeking, transactions costs, limited information, regulatory uncertainty, over-allocation and interactions with other climate instruments. Some of these problems have been addressed by the European Commission in the context of rule changes for Phase 3, whereas others have been mitigated by learning on behalf of market participants. Overall, we view the EU ETS as a successful implementation of market-based environmental policy. However, in order to improve the ecological efficiency of the scheme, the future emissions cap should be decreased.Less
This book is the result of a workshop about emission permit markets in Venice, organized by the editors in collaboration with CESifo. The individual contributions were written independently of each other and differ in topic and methodology, yet they share the underlying theme of theoretical and empirical research in emission permit markets. The chapters are grouped into four thematic sections: A discussion of the development of the EU ETS since its beginning to the present; political economy considerations; interactions with parallel instruments for climate policy; and firm behavior in this new market. Although all contributions are economic in nature, they depart from rigorous assumptions often encountered in economics research, or examine to what extent market participants’ action can in fact be explained by neoclassical theory. The overall findings are that the market appears to work in the sense that there is a single price for allowances, and that emissions have been kept below the cap. However, several chapters show that the market is not fully efficient due to reasons such as rent seeking, transactions costs, limited information, regulatory uncertainty, over-allocation and interactions with other climate instruments. Some of these problems have been addressed by the European Commission in the context of rule changes for Phase 3, whereas others have been mitigated by learning on behalf of market participants. Overall, we view the EU ETS as a successful implementation of market-based environmental policy. However, in order to improve the ecological efficiency of the scheme, the future emissions cap should be decreased.
Beat Hintermann and Marc Gronwald
- Published in print:
- 2015
- Published Online:
- January 2016
- ISBN:
- 9780262029285
- eISBN:
- 9780262330435
- Item type:
- chapter
- Publisher:
- The MIT Press
- DOI:
- 10.7551/mitpress/9780262029285.003.0001
- Subject:
- Economics and Finance, Development, Growth, and Environmental
This chapter provides a brief overview of the EU ETS. It outlines the design and scope of this market, presents data on aggregate allocation as well as emissions, and summarizes the development of ...
More
This chapter provides a brief overview of the EU ETS. It outlines the design and scope of this market, presents data on aggregate allocation as well as emissions, and summarizes the development of allowance prices between 2005 and today.Less
This chapter provides a brief overview of the EU ETS. It outlines the design and scope of this market, presents data on aggregate allocation as well as emissions, and summarizes the development of allowance prices between 2005 and today.
Leigh Raymond
- Published in print:
- 2016
- Published Online:
- May 2017
- ISBN:
- 9780262034746
- eISBN:
- 9780262336161
- Item type:
- chapter
- Publisher:
- The MIT Press
- DOI:
- 10.7551/mitpress/9780262034746.003.0003
- Subject:
- Political Science, Environmental Politics
This chapter describes the “old” model of cap-and-trade policy design that largely controlled emissions trading policy from its origins in the 1970s through the 1990s, under which emissions trading ...
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This chapter describes the “old” model of cap-and-trade policy design that largely controlled emissions trading policy from its origins in the 1970s through the 1990s, under which emissions trading programs were adopted reluctantly, and “grandfathered” emissions allowances to current emitters at no cost. It also describes some important events starting in the 1990s that helped lay the groundwork for the sudden switch to auctions in RGGI, including: greater attention to allocation rules by political actors, new precedents such as spectrum rights auctions and severance taxes on some nature resources, new political and economic pressures from electricity deregulation, and the emergence of “public benefit” charges and programs to improve energy efficiency for consumers. In addition, this period saw the emergence of new polluter pays and public ownership normative frames in the context of emissions allowances. At the same time, the chapter documents how these initial changes were insufficient to successfully promote allowance auctions in the development of two prominent cap and trade programs: the initial phase of the EU ETS from 1998-2005, and the NOx Budget emissions trading program from 1994-2005.Less
This chapter describes the “old” model of cap-and-trade policy design that largely controlled emissions trading policy from its origins in the 1970s through the 1990s, under which emissions trading programs were adopted reluctantly, and “grandfathered” emissions allowances to current emitters at no cost. It also describes some important events starting in the 1990s that helped lay the groundwork for the sudden switch to auctions in RGGI, including: greater attention to allocation rules by political actors, new precedents such as spectrum rights auctions and severance taxes on some nature resources, new political and economic pressures from electricity deregulation, and the emergence of “public benefit” charges and programs to improve energy efficiency for consumers. In addition, this period saw the emergence of new polluter pays and public ownership normative frames in the context of emissions allowances. At the same time, the chapter documents how these initial changes were insufficient to successfully promote allowance auctions in the development of two prominent cap and trade programs: the initial phase of the EU ETS from 1998-2005, and the NOx Budget emissions trading program from 1994-2005.
Leigh Raymond
- Published in print:
- 2016
- Published Online:
- May 2017
- ISBN:
- 9780262034746
- eISBN:
- 9780262336161
- Item type:
- book
- Publisher:
- The MIT Press
- DOI:
- 10.7551/mitpress/9780262034746.001.0001
- Subject:
- Political Science, Environmental Politics
Reclaiming the Atmospheric Commons explains recent changes in emissions trading policy to address climate change with a new theory of sudden policy change. The new theory of “normative reframing” ...
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Reclaiming the Atmospheric Commons explains recent changes in emissions trading policy to address climate change with a new theory of sudden policy change. The new theory of “normative reframing” argues that policy change advocates can draw on the unique power of social norms to undermine support for existing policies and successfully promote new alternatives, even in the face of resistance from vested economic interests. The book uses this theory of “normative reframing” to explain the surprising and unexpected political decision to make large power companies pay for the rights to emit greenhouse gases for the first time under a so-called “cap and trade” policy, as implemented in the 2008 Regional Greenhouse Gas Initiative (RGGI). The book provides evidence that a new “public benefit” frame was critical to making allowance auctions possible in RGGI, by going beyond typical polluter pays norms in environmental policy to also include norms regarding the fair distribution of public resources such as the atmosphere. The book also argues that the public benefit frame offers promising option for promoting new climate change policies in other contexts, including the EU ETS, California’s cap and trade policy, and the EPA’s new Clean Power Plan. The book also describes the wider implications of normative reframing as a strategy for creating policy change in many contexts beyond climate policy, including improving the ability of policy theories to predict which policies are likely to change suddenly in the future.Less
Reclaiming the Atmospheric Commons explains recent changes in emissions trading policy to address climate change with a new theory of sudden policy change. The new theory of “normative reframing” argues that policy change advocates can draw on the unique power of social norms to undermine support for existing policies and successfully promote new alternatives, even in the face of resistance from vested economic interests. The book uses this theory of “normative reframing” to explain the surprising and unexpected political decision to make large power companies pay for the rights to emit greenhouse gases for the first time under a so-called “cap and trade” policy, as implemented in the 2008 Regional Greenhouse Gas Initiative (RGGI). The book provides evidence that a new “public benefit” frame was critical to making allowance auctions possible in RGGI, by going beyond typical polluter pays norms in environmental policy to also include norms regarding the fair distribution of public resources such as the atmosphere. The book also argues that the public benefit frame offers promising option for promoting new climate change policies in other contexts, including the EU ETS, California’s cap and trade policy, and the EPA’s new Clean Power Plan. The book also describes the wider implications of normative reframing as a strategy for creating policy change in many contexts beyond climate policy, including improving the ability of policy theories to predict which policies are likely to change suddenly in the future.
Hill and
- Published in print:
- 2020
- Published Online:
- November 2019
- ISBN:
- 9780190909345
- eISBN:
- 9780190069247
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/oso/9780190909345.003.0005
- Subject:
- Political Science, Environmental Politics
Even for the largest economy in the world, ever-larger climate bailouts are not a responsible solution to confronting present and future climate impacts. Governments everywhere, including in the ...
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Even for the largest economy in the world, ever-larger climate bailouts are not a responsible solution to confronting present and future climate impacts. Governments everywhere, including in the United States, will have to raise unprecedented amounts of money to cope with the impacts of climate change. This chapter examines how communities can raise the money needed, and how can they do so while keeping the financial strain as low as possible. It highlights some traditional solutions, such as taxes, borrowing, and buying reinsurance, alongside newer ideas, such as setting up special reserve funds, using value capture, raising funds from carbon taxes and cap-and-trade mechanisms, and issuing green and catastrophe bonds.Less
Even for the largest economy in the world, ever-larger climate bailouts are not a responsible solution to confronting present and future climate impacts. Governments everywhere, including in the United States, will have to raise unprecedented amounts of money to cope with the impacts of climate change. This chapter examines how communities can raise the money needed, and how can they do so while keeping the financial strain as low as possible. It highlights some traditional solutions, such as taxes, borrowing, and buying reinsurance, alongside newer ideas, such as setting up special reserve funds, using value capture, raising funds from carbon taxes and cap-and-trade mechanisms, and issuing green and catastrophe bonds.