(Private)-Retroactive Carbon Pricing [(P)Recap]: A Market-Based Approach for Climate Finance and Risk Assessment

25 Pages Posted: 6 May 2022

See all articles by Yoshua Bengio

Yoshua Bengio

University of Montreal - Department of Computer Science and Operations Research

Prateek Gupta

University of Oxford - Department of Engineering Science

Dylan Radovic

University of Oxford - Smith School of Enterprise and the Environment

Maarten P. Scholl

Department of Computer Science, University of Oxford; Institute for New Economic Thinking at the Oxford Martin School

Andrew Williams

University of Montreal - Department of Computer Science and Operations Research; Mila - Quebec AI institute

Christian Schroeder de Witt

University of Oxford - Department of Engineering Science

Tianyu Zhang

Mila - Quebec AI Institute; University of Montreal - Department of Computer Science and Operations Research

Yang Zhang

Mila - Quebec AI Institute

Date Written: April 25, 2022

Abstract

Insufficient Social Cost of Carbon (SCC) estimation methods and short-term decision-making horizons have hindered the ability of carbon emitters to properly correct for the negative externalities of climate change, as well as the capacity of nations to balance economic and climate policy. To overcome these limitations, we introduce Retrospective Social Cost of Carbon Updating (ReSCCU), a novel mechanism that corrects for these limitations as empirically measured evidence is collected. To implement ReSCCU in the context of carbon taxation, we propose Retroactive Carbon Pricing (ReCaP), a market mechanism in which polluters offload the payment of ReSCCU adjustments to insurers. To alleviate systematic risks and minimize government involvement, we introduce the Private ReCaP (PReCaP) prediction market, which could see real-world implementation based on the engagement of a few high net-worth individuals or independent institutions.

Keywords: Climate Change, Market Mechanism, Carbon Price, Carbon Tax, Pigouvian Tax

JEL Classification: Q54, Q01, Q51, Q50, G23, Q55, G10, G14, G20

Suggested Citation

Bengio, Yoshua and Gupta, Prateek and Radovic, Dylan and Scholl, Maarten Peter and Williams, Andrew and Schroeder de Witt, Christian and Zhang, Tianyu and Zhang, Yang, (Private)-Retroactive Carbon Pricing [(P)Recap]: A Market-Based Approach for Climate Finance and Risk Assessment (April 25, 2022). Available at SSRN: https://ssrn.com/abstract=4093252 or http://dx.doi.org/10.2139/ssrn.4093252

Yoshua Bengio

University of Montreal - Department of Computer Science and Operations Research ( email )

CP 6128, Succ. Centre-Ville
2920 Chemin de la tour
Montreal H3C 3J7, Quebec
Canada
514-343-6804 (Phone)
514-343-5834 (Fax)

Prateek Gupta

University of Oxford - Department of Engineering Science ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

Dylan Radovic

University of Oxford - Smith School of Enterprise and the Environment ( email )

United Kingdom

Maarten Peter Scholl

Department of Computer Science, University of Oxford ( email )

Wolfson Building, Parks Road
Oxford
United Kingdom

HOME PAGE: http://https://www.cs.ox.ac.uk/people/maarten.scholl/

Institute for New Economic Thinking at the Oxford Martin School ( email )

Eagle House
Walton Well Road
Oxford, OX2 6ED
United Kingdom

HOME PAGE: http://https://www.inet.ox.ac.uk/people/maarten-scholl/

Andrew Williams

University of Montreal - Department of Computer Science and Operations Research ( email )

C.P. 6128 succursale Centre-ville
Montreal, Quebec H3C 3J7
Canada

Mila - Quebec AI institute

Montreal
Canada

Christian Schroeder de Witt

University of Oxford - Department of Engineering Science ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

Tianyu Zhang (Contact Author)

Mila - Quebec AI Institute ( email )

6666 St-Urbain
#200
Montreal, Quebec H2S 3H1
Canada

HOME PAGE: http://mila.quebec/en/person/tianyu-zhang/

University of Montreal - Department of Computer Science and Operations Research ( email )

Pavillon André-Aisenstadt
2920, chemin de la Tour
Montreal, Quebec H3T 1J4
Canada

Yang Zhang

Mila - Quebec AI Institute ( email )

Quebec
Canada

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