Risky business

The paper argues that the international greenhouse gas emissions market must incorporate sound risk-management principles to avoid the types of crises seen in liberalized financial markets, such as the 1997-98 Asian financial crisis. It proposes three specific pillars: transparency and disclosure rules based on Kyoto Protocol and IPCC standards, the sequencing of regulatory policies to ensure eligibility requirements are binding before trading begins, and the creation of a 'liability rule'—such as an 'escrow reserve'—to prevent perverse incentives and excessive risk-taking.

• To ensure market stability, transparency and disclosure rules must be established by utilizing existing monitoring, reporting, and review provisions from the Kyoto Protocol and IPCC 'good practices' for emissions inventories.
• Regulatory safeguards should be implemented before large-scale international capital flows occur; specifically, the international emissions trading system should require legally binding eligibility criteria for participating countries.
• To prevent environmental failure caused by misaligned incentives and excessive risk, the market should employ a 'liability rule' to align risks and rewards, with the author suggesting an 'escrow reserve' option.

APA

World Resources Institute (n.d.). Risky business. https://www.wri.org/research/risky-business

Chicago

World Resources Institute. Risky business. n.d. https://www.wri.org/research/risky-business.

Wikipedia

{{cite report |author=World Resources Institute |title=Risky business |url=https://www.wri.org/research/risky-business |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{worldresourcesinstitutendrisky, author = {{World Resources Institute}}, title = {{Risky business}}, institution = {World Resources Institute}, url = {https://www.wri.org/research/risky-business}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }