The PAL reinsurance event attributed carbon tax (REACT) curve plots the expected future cost of carbon over a ten-year time horizon. It measures the expected financial loss and damage that arises from extreme weather events attributable to carbon emissions in the future. This is predicted using PAL’s unique PALgamma algorithm. The curve is used to calculate the PAL Carbon Spot, and 3- and 6-month forward prices.
Carbon Price y = Σ (Li × xi) / C
y = carbon price ($/tonne CO2),
C = global carbon emissions (tonnes/year),
Li = weather-related loss events during year and
xi = the per event attribution ratio
It is intended for use in reinsurance, for a highly granular approach to pricing of carbon risk over the short term (10–15 years).