Securitization to reduce CO2 emission

DongHoon Shin; Changhui Choi; Changki Kim

doi:10.31686/ijier.vol6.iss5.1037

Authors

DongHoon Shin Inha University, South Korea
Changhui Choi Korea Insurance Research Institute, South Korea
Changki Kim Korea University Business School, South Korea

DOI:

https://doi.org/10.31686/ijier.vol6.iss5.1037

Keywords:

securitization, green, CO2 emission, green spread, climate change

Abstract

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.

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Author Biography

DongHoon Shin, Inha University, South Korea

Department of Global Finance and Banking

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