On the Governance of Carbon Dioxide Removal – a Public Economics Perspective

45 Pages Posted: 19 Apr 2023

See all articles by Ottmar Edenhofer

Ottmar Edenhofer

Potsdam Institute for Climate Impact Research (PIK); Mercator Research Institute on Global Commons and Climate Change (MCC); Technische Universität Berlin (TU Berlin)

Max Franks

Potsdam-Institut für Klimafolgenforschung (PIK)

Matthias Kalkuhl

Mercator Research Institute on Global Commons and Climate Change (MCC)

Artur Runge-Metzger

Mercator Research Institute on Global Commons and Climate Change (MCC)

Date Written: 2023

Abstract

This paper highlights the importance of carbon dioxide removal (CDR) technologies for climate policy. We first describe their role in iconic transformation pathways and discuss removal costs and storage duration of different technologies. Based on economic principles, we characterize optimal removal flows and reservoirs for non-permanent removals. Furthermore, we discuss different pricing regimes that achieve an optimal allocation under different information and liability conditions. Notably, seemingly cheap removal technologies in the land sector can indeed be very expensive when increasing opportunity costs and and impermanence are appropriately accounted for. The use of non-permanent removal – though to a certain extent economically optimal – creates high liability to firms and regulators that warrants a careful and deliberative risk management. Based on these insights, we discuss how policy makers can embed the CDR option in the EU’s policy architecture. There are four key tasks for regulating bodies to ensure an optimal governance: the management of the net carbon emission cap; support for research, development and diffusion of CDR technologies; certification of the quality of removals; management of the liability implied by non-permanent CDR. We propose that three new institutions, a European Carbon Central Bank, a Carbon Removal Certification Authority and a Green Leap Innovation Authority, are established to carry out these tasks.

Keywords: carbon dioxide removal, EU-ETS, social cost of carbon, climate policy, impermanence

JEL Classification: D610, H230, Q540, Q580

Suggested Citation

Edenhofer, Ottmar and Franks, Max and Kalkuhl, Matthias and Runge-Metzger, Artur, On the Governance of Carbon Dioxide Removal – a Public Economics Perspective (2023). CESifo Working Paper No. 10370, Available at SSRN: https://ssrn.com/abstract=4422845 or http://dx.doi.org/10.2139/ssrn.4422845

Ottmar Edenhofer (Contact Author)

Potsdam Institute for Climate Impact Research (PIK) ( email )

P.O. Box 601203
14412 Potsdam, Brandenburg
Germany

Mercator Research Institute on Global Commons and Climate Change (MCC)

Torgauer Straße 12-15
Berlin, 10829
Germany

Technische Universität Berlin (TU Berlin)

Straße des 17
Juni 135
Berlin, 10623
Germany

Max Franks

Potsdam-Institut für Klimafolgenforschung (PIK) ( email )

Telegrafenberg 31
Potsdam, Brandenburg 14473
Germany

Matthias Kalkuhl

Mercator Research Institute on Global Commons and Climate Change (MCC) ( email )

Torgauer Straße 12-15
Berlin, 10829
Germany

Artur Runge-Metzger

Mercator Research Institute on Global Commons and Climate Change (MCC)

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