The Geoengineering Put: Ecological Debt, Termination Risk, and Asset Prices - Preprint

[Geoengineering News]

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=6799198

Authors: Kelly Shue, Samuel M. Hartzmark

30 May 2026

Abstract

Solar Radiation Management and other forms of geoengineering fundamentally invert the standard economics of climate change. Because these interventions are inexpensive and fast-acting, they replace the classic free-rider problem of global mitigation with a free-driver problem (Weitzman2015), where a single vulnerable nation can unilaterally cool the planet. We develop a macro-finance framework to formalize the asset pricing implications of this technological regime. By capping realized temperatures without reducing the atmospheric carbon stock, geoengineering acts as a put option on climate damages funded by the accumulation of "Ecological Debt." This debt introduces a catastrophic, endogenous tail risk known as a termination shock. We show that the anticipation of geoengineering initially subsidizes fossil fuel incumbents by suppressing the carbon tax, but ultimately transforms them into toxic assets as Ecological Debt deepens. Geoengineering and Carbon Dioxide Removal switch from substitutes to complements once termination risk is present.

Source: SSRN