Carbon markets have spectaculary failed to curb greenhouse gas emissions for over a decade, and it has been demonstrated that they suffer from unresolvable conceptual issues, such as the inexistence of a reliable price signal. As a result, they will never work and should be abandoned.

Once carbon becomes an asset class for investors, it is also likely to create significant financial stability risks, with a high risk of contagion to other asset classes and the wider economy.

Despite this, new major carbon offset markets are being created, notably linked to the Paris Agreement that could be finalised at the COP25 this year in Chile.

Mandating a progressive phasing out from fossil fuels complemented by targeted tax policies aimed at ensuring a fair sharing of the related costs would be simpler and much more effective in addressing climate change.

Such binding regulations would incidentally make all finance sustainable with regards to climate change, as the risk-adjusted returns of all companies and economic activities would automatically adjust to the new regulations and capital would shift accordingly.

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