Conference Agenda

This paper examines the optimal energy transition to achieve net-zero emissions, integrating carbon dioxide removal (CDR) and mitigation strategies within a dynamic welfare-maximization framework. Our model incorporates three key constraints: (1) a carbon budget limiting cumulative net CO2 emissions to meet climate targets, (2) hard-to-abate emissions from sectors lacking viable decarbonization technologies, and (3) limited land availability for nature-based CDR, such as afforestation. We distinguish between nature-based CDR methods with leakage risks and technological CDR, which are not yet mature and yield high marginal costs but store CO2 almost permanently. Our analysis identifies the conditions under which CDR can complement mitigation without deterring abatement efforts. We show that, while both CDR methods delay carbon budget exhaustion and facilitate smoother transitions to net-zero emission in the medium run, they may lead to mitigation deterrence in the long term. Specifically, at the steady state, when technological CDR becomes sufficiently affordable, abatement efforts may be discouraged, with technological CDR offsetting both incompressible and potentially abatable emissions. Our findings reveal that the social cost of carbon remains at least constant and can even continue to rise after the carbon budget is exhausted, discouraging the reintroduction of fossil fuels and increasing reliance on technological offsetting and abatement, rather than on nature-based CDR.