The Power of Perspectives

The Canadian Bar Association

Yves Faguy

Who is really driving carbon pricing?

January 27 2017 27 January 2017

 

Jason Kroft, Jonathan Drance and Luke Sinclair size up the outlook for carbon regulation and pricing now that the climate skeptics have taken over in the new Trump administration and take a somewhat sanguine view:

While government policy can significantly impact changes in corporate behavior, the transition away from coal to natural gas and renewables is largely driven by private market mechanics. Private actors invest in natural gas and renewables because they offer the highest level of risk adjusted return, not out of altruistic motives. The private market is increasingly incorporating carbon pricing into their risk analysis and investment decisions and project proponents at least consider the carbon “shadow price” in their financial metrics regardless of government policy.

With a long-term investment horizon, often approaching 30-40 years, most infrastructure projects currently in the planning phase will long outlive a Trump presidency. The views of one administration are largely irrelevant as project proponents must consider the risk of increased costs associated with carbon emissions over a project's useful lifetime.

Along similar lines, Lawrence Hsieh writes that it will be the cities that will have to respond to the challenges of climate change, because insurers who taken on municipal risk will be keeping an eye out their responses:

This is because many insurers invest their premiums in real estate. Falling property values due to inundation plus large disaster pay-outs and sudden upticks in disaster-related mortality could jeopardize insurer solvency across all lines of coverage, and threaten the reinsurers and capital markets investors who traffic in insurance risk.

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