Making climate policy more like monetary policy: Calibrating climate policy through corporate solvency

Report

We propose that corporate solvency metrics be used as an objective tool for policymakers to calibrate the optimal magnitude of climate policies, and thereby achieve greater emissions abatement at lower social cost. In particular, solvency metrics could calibrate the optimal severity of climate policies and/or the generosity of industrial compensation. Policymakers currently monitor and regulate certain aspects of corporate solvency for financial firms (such as capital reserve requirements) in order to reduce the risk of bankruptcy while simultaneously maintaining profitability. In a similar vein, policymakers could do likewise with respect to climate change policies which target carbon-intensive firms.

Authors: Caldecott, B; Dericks, G

• Publication status: Published
• Peer review status: Peer reviewed
• Publisher: Smith School of Enterprise and the Environment
• Host title: Stranded Assets Program
• Journal: Stranded Assets Program
• Publication date: 2015-11-17
• Keywords: SBTMR