Conference Agenda

Incentivizing and financing carbon dioxide removal (CDR) is a challenge for regula-

tors. Using an analytically tractable model, we show how introducing carbon debt in

an emissions trading scheme (ETS) can induce CDR and enable net-negative emissions

flows and targets. We discuss “clean-up certificates”, which bundle emission permits with

carbon debt, and characterize their demand and pricing. Introducing clean-up certificates does not decrease near-term carbon prices and mitigation efforts when they replace

regular emission permits, identifying their “additionality” and “exchange rate” as policy

parameters. In an exemplary calibration to the EU ETS, we find that clean-up certifi-

cates can (a) increase environmental ambition while reducing compliance costs and (b)

facilitate even net-negative long-term emission targets.

Compliance with ambitious temperature targets as in the Paris Agreement will require alongside deep emission cuts also large-scale deployment of carbon dioxide removal (CDR).

This holds, in particular, true for the second half of the century where CO2 emissions have

to become net negative to compensate for non-CO2 greenhouse gas emissions. Currently,

future scenarios focus on terrestrial CDR, like for example bioenergy with carbon capture

and storage (BECCS) and afforestation. While earth-system modelers already implement

ocean-based CDR methods, current integrated assessment models are not capable of properly analyzing these methods. Here, we aim to augment the integrated assessment model DICE to numerically evaluate ocean alkalinity enhancement in an economic assessment framework. We replace the carbon cycle in DICE with the Bolin and Eriksson Adjusted Model (BEAM) carbon cycle which includes basic ocean chemistry. Furthermore, we adjust BEAM such that ocean alkalinity is no longer a parameter but a state variable that

can be increased with costly alkalinity enhancement. The cost of alkalinity enhancement

captures the effectiveness of different alkaline materials to increase ocean alkalinity, in

dependence of different methods of deployment. We investigate optimal ocean alkalinity

enhancement scenarios under a cost effectiveness approach, i.e. temperature targets. We

also investigate how the cost-effective solution changes if limits for ocean acidification are

included.

Temporary carbon credits provide an incentive for the maintenance and enhancement of natural sinks by removals and can, therefore, contribute significantly to net zero pathways. This paper examines temporary carbon credits to offset short-lived emissions such as methane by applying an equivalence factor based on the SCM/SCC ratio. In a case study, the carbon farming method of cover cropping is analysed with a difference-in-difference approach to satellite data. The aim is to determine whether a subsidy scheme can achieve both: economic benefits and conservation. By rewarding project owners for their sequestration efforts, their undertakings become an attractive investment while operating at the frontier of modern agriculture. Finally, a market mechanism is discussed that integrates temporary removals into a compliance mechanism, such as the EU Emissions Trading Scheme (ETS) for agricultural emissions.

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.

Methane (CH$_4$) is between 30 and 100 times more powerful a Green-house Gas than Carbon Dioxide (CO$_2$). The time profile of higher temperatures caused by CH$_4$ is concentrated in the first 20 years after the initial impulse compared to the lower, more permanent effects of CO$_2$ emissions. We argue that these largely temporary temperature effects of CH$_4$ emissions are apt to be offset by temporary CO$_2$ removals, administered by temporary contracts. Short term, say 20-year, contracts are more credibly monitored and enforced than the eternal contracts for permanent removals. Further, the temporal matching of offsetting temperature reductions to the temperature impulse of CH$_4$ removes the major intertemporal transfers that arise when CH$_4$ is offset by equivalent permanent solutions. Agreement on the appropriate quantity of temporary carbon offsets is therefore insensitive to controversial parameters such as the social discount rate, climate damages and emissions scenarios. Assigning temporary carbon removal projects to offset methane emissions therefore leverages projects viewed as low quality to nullify short-lived climate damages. Separate markets could be organized around offsetting CH$_4$ emissions in the agricultural sector, where difficult-to-remove ‘residual’ emissions abound. Credits in this market for CH$_4$ offsets could be based on metrics of equivalence between CH$_4$ and CO$_2$ over an agreed horizon. Using the equivalence based on avoided economic damages suggests that, for 20 year contracts, 136 temporary CO$_2$ removals are needed to offset 1-tonne of CH$_4$. This level of equivalence therefore provides strong incentives for reducing emissions for all but the most expensive cases, rather then offsetting them using temporary projects.

Several issues must be faced in legislating application of carbon dioxide removal (CDR): (a) inducing investment in novel CDR technologies; (b) who should be targeted by CDR legislation; (c) financing CDR investment; and (d) Potential environmental side effects. This paper examines such issues through the lens of recent legislative proposals for CDR implementation in California. Topics addressed include policy design for cost-effectively inducing “pioneer” CDR investments; behavioral differences between public financing and polluter pays; environmental policies for limiting adverse side effects; and coordination of CDR with other GHG mitigation policies, notably ETS systems.