Securitization to reduce CO2 emission

• DongHoon Shin

  Inha University, South Korea

  Author

• Changhui Choi

  Korea Insurance Research Institute, South Korea

  Author

• Changki Kim

  Korea University Business School, South Korea

  Author

We consider CO₂ emission-backed securities designed as a securitization based on national CO₂ emissions. We constructed the securities using data from “CO₂ Emissions from Fuel Combustion” of the International Energy Agency. The securities consist of several tranches with specific coupon rates determined by each nation’s probability of threshold (or target emission) achievement. These securities can be traded in financial markets without the interference of other countries and would give countries an incentive to reduce their CO₂ emissions. This study also suggests a financial environmental cleanliness measure for each country using the concept of “green spread” for single-tranche securities.

1. DongHoon Shin, Inha University, South Korea

   Department of Global Finance and Banking

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