SEE WHAT OUR CLIENTS 
Claverton Group Article - Carbon or harm?
Carbon or harm? The price of the risk of anthropogenic global warming
by BrunoP November 28, 2008
Summary:
The causes, consequences, mechanisms and extent of anthropogenic global warming (AGW) are uncertain, as is the optimum balance of mitigation and adaptation in response. That balance is achieved where the marginal costs of (a) mitigation, (b) adaptation and (c) inaction are equal. Discovery in an appropriately-structured market is a better way than calculation to establish prices and volumes of complex, diffuse, uncertain and evolving risks. Popular mechanisms (e.g. cap-and-trade or carbon tax) produce distorted outcomes by fixing in advance those things (volume or price) which the market exists to establish.
This paper argues that the market should not host trades in a notional commodity (a quantum of reduction in output of CO2 from certain sources), but rather in the risks associated with AGW. The cost of factors that affect these risks is the cost of liability for future damage attributable to AGW. The present cost of future liability is the cost of insuring with substantial counter-parties against that liability. A mechanism is proposed to match the emission of a volume of greenhouse gases (GHGs) with the liability for a proportionate share of any consequential damage. The mechanism establishes the annual volume of permissible emissions (net of absorption) that participants in the market judge to represent the balance of risk (cost of liability) and reward (sale of emissions permits). National governments are responsible for accounting for the permits for the annual net emissions within their boundaries. They have significant influence over the permitted level of emissions, and their means of achieving the necessary balance of emissions and permits is not constrained. The market is open to private as well as public participants. Liability is depreciated over time in parallel with the absorption of the GHGs. An approach is suggested for quantifying the costs for which those who hold the liability are responsible. Brief consideration is given to some risks and weaknesses of the proposal, and to aspects needing further investigation.
