Rethinking Economics for Managing the Systemic Risks of Climate Change
Rome | 14th January, 2025
Dr Delton Chen describes a climate policy called a “carbon reward”. This is a new market policy framed by a new theory called “carrot and stick carbon pricing”. Delton emphasises that traditional market mechanisms and economic models fail to account for the systemic risks linked to greenhouse gases. The carbon reward will be used to drive capital flows into low-carbon projects at the volume required to address the Paris Climate Agreement.
The carbon reward introduces a new market tool and asset class for investors, called a “carbon currency”. The carbon currency will be used to develop bankable low-carbon projects in all economic sectors and geographic regions that need support, and it will align mitigation outcomes with the profit motive and fiduciary duties of the private sector. At a macro-financial level, the carbon currency will price systemic risk into the financial system. This includes filling the US $3 to $8 trillion per year gap in climate finance. This will be achieved by backing the carbon currency with central bank guarantees and inducing a voluntary reallocation of financial capital. The new policy will dissolve political gridlock by diverting costs away from the balance sheets of stakeholders.
Presentation
Public Notice:
This presentation is a reconstruction of the Harvard Business School Online presentation, given on 14th January 2025. The original event was not sponsored or endorsed by Harvard Business School and the participants were acting as volunteers and not employees of HBS. Also, the views and opinions of the presenter do not necessarily reflect the views or opinions of HBS or any other person associated with the online event.
Original Event:
https://hbsonlinecommunity.myhbx.org/s/event/aDIDm0000008RZJOA2/rethinking-economics-for-managing-the-systemic-risks-of-climate-change
Photography Credits:
Gary Walker Jones (Unsplash)
Citations:
Hansen, J. (2005). “A slippery slope to climate catastrophe.” In Proceedings of the American Geophysical Union Fall Meeting, San Francisco, CA.
Lenton, T. M., Held, H., Kriegler, E., Hall, J. W., Lucht, W., Rahmstorf, S., & Schellnhuber, H. J. (2008). Tipping elements in the Earth’s climate system. Proceedings of the National Academy of Sciences, 105(6), 1786-1793.
Rockström, J., Steffen, W., Noone, K., Persson, Å., Chapin III, F. S., Lambin, E. F., … & Schellnhuber, H. J. (2009). Planetary boundaries: Exploring the safe operating space for humanity. Ecology and Society, 14(2), 32.
United Nations Environment Programme (UNEP). (2020). Making Peace with Nature: A scientific blueprint to tackle the climate, biodiversity and pollution emergencies.
Pigou, A. C. (1920). The Economics of Welfare. London: Macmillan.
Coase, R. H. (1960). The Problem of Social Cost. Journal of Law and Economics, 3, 1-44.
Scripps Institution of Oceanography. (2025). Keeling Curve. Retrieved January 14, 2025, from https://x.com/keeling_curve?lang=en
Timothy J. Garrett has published several works relating to the economy as a heat engine:
2011 – “No way out? The double-bind in seeking global prosperity alongside mitigated climate change” 1.
2013 – “Thermodynamics of long-run economic innovation and growth” 3.
2014 – “Long-run evolution of the global economy: 1. Physical basis” 67.
2020 – “Past world economic production constrains current energy demands” 45.