Climate risk bonds are tools national, state, and local governments can use to internalize the social costs of carbon emissions at the point of extraction. Bonding requirements for risky industries are nothing new – they already exist to cover public financial costs that may arise when corporations abandon their infrastructure before dismantling it or experience catastrophic industrial accidents that decimate local communities. Climate change is the mother of all public financial risks, and so climate risk bonds can be used to help provide the financial resources governments at every level need to pay for the costs of adaptation and climate disaster response. Before any new oil, gas, or coal projects are approved, climate risk bonds should be required and can be set at an amount determined by the lifecycle emissions attributable to the new well or mine and the social cost of carbon.
In collaboration with Cook Inletkeeper in Alaska, CSE has prepared a concept note describing what a Climate Risk Bond program in Alaska would look like, how it can be justified, and what public financial costs it could help offset. While the concept note is Alaska-specific, the concept itself is applicable to any state or county that authorizes fossil fuel extraction.