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“Offsetting” Crisis? – Climate Change Cap and Trade Need Not Contribute to Another Financial Meltdown

Victor B. Flatt, University of North Carolina

Abstract

Much of the fear of a cap and trade system to control greenhouse gases concerns the financial instruments that will be created in such a system and the concern that they will lead to another financial crisis. This belief may have been a major contributor to the defeat of cap and trade in the U.S. Senate. However, greenhouse gas cap and trade systems can be structured to avoid the problem of toxic assets that led to the financial crisis while still retaining real greenhouse gas control with an efficient market.

Given that cap and trade still exists in many greenhouse gas control systems and still seems the most likely probability for greenhouse gas mitigation in the United States and internationally, it is important to understand how to structure the market correctly to avoid problems of toxic assets. This article explains how a key component of a greenhouse gas cap and trade system, offsets, could be problematic in a market context, but how offsets can be regulated in such a way to provide genuine greenhouse gas reductions and be part of an efficient cap and trade market without risk of another financial meltdown.

Suggested Citation

Victor B. Flatt. 2011. "“Offsetting” Crisis? – Climate Change Cap and Trade Need Not Contribute to Another Financial Meltdown" ExpressO
Available at: http://works.bepress.com/victor_flatt/2

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