Cooling the Planet on Credit: The Financial Risks of Geoengineering

Imagine a technology that could substantially cool the planet and cost perhaps $10-20 billion a year at scale, tiny compared with the trillions involved in climate damages and decarbonization, and within reach of more than one country.

There’s no need to imagine it, as the technology already exists. This is the uncomfortable promise of solar geoengineering, particularly stratospheric aerosol injection: placing reflective particles in the upper atmosphere to send a small fraction of sunlight back into space. The basic physics are well established, and engineering estimates suggest remarkably low direct deployment costs.

In our new paper, “The Geoengineering Put: Ecological Debt, Termination Risk, and Asset Prices,” we study what geoengineering would do to climate policy, innovation, and financial markets. Our central argument is that solar geoengineering functions like a put option on climate damages, but exercising that option creates a growing liability we call Ecological Debt.

Geoengineering can lower the temperature we experience, but it does not remove carbon dioxide from the atmosphere. Ecological Debt is the gap between the temperature that accumulated carbon would naturally produce and the cooler temperature created by geoengineering. As emissions continue, that gap grows.

Why call it debt? Because the cooling must be continuously maintained. Carbon dioxide remains in the atmosphere for centuries, while reflective aerosols dissipate within a year or two. If a large program were interrupted—because of war, political opposition, sanctions, technical failure, or a breakdown in international cooperation—temperatures would rapidly snap back toward the level implied by the underlying carbon stock. Scientists call this potentially catastrophic event a termination shock. Economically, it is a sudden default on the world’s Ecological Debt.

This changes the conventional economics of climate policy.

First, geoengineering creates moral hazard. If cooling is cheap and there is no risk that the program will end, the incentive to cut emissions weakens. In our model, the carbon price falls, fossil-fuel production remains high, and fossil-fuel firms become more valuable. Green-energy firms and carbon-removal technologies suffer because geoengineering reduces the reward for avoiding carbon damages. This is the “geoengineering put”: the ability to cap temperatures protects carbon-intensive businesses from the consequences of their emissions.

The picture changes when geoengineering carries a risk of termination. At first, the put can still benefit fossil-fuel firms. But as the carbon stock builds up, so does Ecological Debt—and with it the damage that a sudden termination would cause. Eventually, the put becomes toxic: fossil-fuel firms’ exposure to a termination catastrophe outweighs the benefit of lower carbon taxes. They become high-yield, disaster-exposed assets: investors earn more because the firms perform especially badly when the rest of the world is also suffering.

The second surprise concerns carbon dioxide removal. Geoengineering and carbon removal are usually described as substitutes: why pay to remove carbon if we can cheaply mask its warming effects? That conclusion is correct only if geoengineering is guaranteed to continue forever.

With termination risk, the relationship reverses. Carbon removal is the only technology that can retire Ecological Debt. Clean energy can stop the debt from growing, but it cannot eliminate the carbon already accumulated. A credible geoengineering strategy therefore makes large-scale carbon removal more important, not less.

There is also the issue of innovation. The strongest argument for geoengineering is that it can buy time while we wait for breakthroughs in clean energy or carbon removal. But innovators are rewarded by the future price of avoiding carbon damages. By suppressing carbon prices, geoengineering shrinks that reward. In our baseline calibration, the prospect of deployment delays the expected arrival of scalable carbon removal relative to a world without geoengineering. The bridge meant to buy time for a technological rescue can slow development of the rescue technology itself.

Termination risk eventually revives research incentives and directs them toward carbon removal—but only after Ecological Debt has become substantial. Until then, the world underinvests in the exit technology relative to a world without geoengineering.

Our results are not a categorical verdict for or against geoengineering. Under our baseline assumptions, having the technology available produces a modest net benefit. But the answer depends on a race between two clocks: how long a geoengineering program remains stable, and how quickly a clean-energy or carbon-removal breakthrough arrives. If innovation arrives soon enough to avoid deployment or bring Ecological Debt under control, geoengineering can serve as a bridge. Otherwise, it can become a dangerous dependency: the world must keep the program running even as the consequences of stopping grow more severe.

Our research underscores the importance of a deeper understanding of geoengineering technology. It lays out a number of mechanisms at play regarding the risks and rewards of geoengineering implementation. At this point in time, we do not know enough about how these factors interact to determine whether, or how, such a program should be implemented.

The need for that research is urgent because the decision to deploy may not wait for international consensus or for our understanding of the risks to become complete. Solar geoengineering is inexpensive enough to be within the technical and fiscal reach of many countries, any one of which could act unilaterally. As warming intensifies, the pressure to act for particularly hard-hit countries will intensify as well. The global consequences of doing so remain quite uncertain. If deployment carries extreme downside risks, it is paramount to understand them now. Absent such knowledge, a government may deploy and discover their consequences in practice at a global scale, rather than safely through small-scale experiments.

This possibility has received little attention in the research on climate finance. A large literature studies transition risk, i.e., the financial consequences of carbon taxes, regulation, and the shift away from fossil fuels. Yet it has largely overlooked the distinct risk that geoengineering could be deployed and later interrupted. We show such a development could reprice fossil-fuel assets, clean-energy firms, carbon-removal companies, and climate-vulnerable sovereigns. Our paper hopes to start the conversation and research on understanding the importance and implications of such solar geoengineering.

Samuel M. Hartzmark is a professor in the Seidner Department of Finance at the Boston College Carroll School of Management. 

Kelly Shue is the Amman Mineral Professor of Finance at Yale School of Management.

This blog is based on a paper presented at the Lisbon Sustainability Week 2026, held at Católica-Lisbon School of Business and Economics and organised with Santander Central Services and ECGI. Visit the event page to explore more conference-related blogs.

The ECGI does not, consistent with its constitutional purpose, have a view or opinion. If you wish to respond to this article, you can submit a blog article or 'letter to the editor' by clicking here.