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We consider CO2 emission-backed securities designed as a securitization based on national CO2 emissions. We constructed the securities using data from “CO2 Emissions from Fuel Combustion” of the International Energy Agency. The securities consist of several tranches with specific coupon rates determined by each nation’s probability of threshold (or target emission) achievement. These securities can be traded in financial markets without the interference of other countries and would give countries an incentive to reduce their CO2 emissions. This study also suggests a financial environmental cleanliness measure for each country using the concept of “green spread” for single-tranche securities.
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