Jim Perkaus, Kevin Baumert The devastating impacts of the Asian financial crisis of 1997-98 serve as only the most recent reminder that all liberalized financial markets critically depend on regulatory frameworks that incorporate sound risk-management principles. An international market for greenhouse gas emissions rights will be no exception. Risky Business identifies three risk-management principles as particularly pertinent to this emerging market: establishing transparency and disclosure rules; properly sequencing regulatory policies (so safeguards are in place before large-scale international capital flows begin); and avoiding perverse incentives that result in excessive risk taking. The report also offers recommendations to facilitate their implementation, such as imposing a pre-trading eligibility screening on all countries and establishing a liability rule that properly aligns risks and rewards possibly an “escrow reserve” option, which the paper proposes. Full Text PDF July 2001 / 24 pages |
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