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

Alexander Golub, Sabine Fuss, Ruben Lubowski, Jake Hiller, Nikolay Khabarov, Nicolas Koch, Andrey Krasovskii, Florian Kraxner, Timothy Laing, Michael Obersteiner, Charles Palmer, Pedro Piris-Cabezas, Wolf Heinrich Reuter, Jana Szolgayova, Luca Taschini, Johanna Wehkamp

Research output: Contribution to journalArticlepeer-review

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 costcontainment 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.
Original languageEnglish
Pages (from-to)1227-1234
JournalClimate Policy
Volume18
Issue number10
DOIs
Publication statusPublished - 2 Mar 2018

Bibliographical note

This is an Accepted Manuscript of an article published by Taylor & Francis in Climate Policy on 02/03/2018, available online: http://www.tandfonline.com/10.1080/14693062.2017.1422478

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