Conference Agenda

Large scale carbon dioxide removal is necessary to reach the Paris agreement and regional net-zero targets. Many scholars argue that, once they are mature, technological CDR options should be integrated into existing carbon markets such as the European ETS. However, previous literature has found that this policy setting could result in sustained windfall profits for CDR companies with stringent emission caps, causing a significant inequality increase. Here, I detail the conditions under which, in theory, rents for CDR might appear under a single carbon market. Furthermore, I analyze possible policy provisions to reduce rents for the CDR industry. Finally, I conduct a numerical simulation with a simple IAM emulator calibrated for the EU to assess the trade-off arising between inequality control and cost-efficiency. The results suggest that an highly inequality averse planner should consider a 30% reduction of the optimal carbon price for CDR in the European ETS at the time of net-zero, challenging the consensus of full market integration. This result is robust to different technologies, but the necessity and opportunity of regulation depends on CDR potential and on the functional form of the cost curve, which calls to a better understanding of CDR cost and potential beyond “best-of-a-kind” estimates.