Pigou's Advice and Sisyphus’Warning: Carbon Pricing Withnon-Permanent Carbon Dioxide Removal

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

Abstract

This paper develops a welfare and public economics perspective on optimal policies for carbon removaland storage (CDR) in permanent and non-permanent sinks. Non-permanent CDR reduces mitigation costs,even though the stored carbon is released into the atmosphere eventually. It does not, however, raise theambition of optimal temperature levels. Its valuation differs from the social cost of carbon since a social costof carbon removal arises from marginal damages caused by emissions released from non-permanent storage.We discuss three policy regimes that ensure optimal deployment of non-permanent CDR in terms of theirinformational and institutional requirements for monitoring, liability, and financing.

Keywords: Carbon Dioxide Removal · Carbon Capture · Social Cost of Carbon · Climate Policy ·Impermanence.

Suggested Citation: Suggested Citation

Franks, Max and Gruner, Friedemann and Kalkuhl, Matthias and Lessmann, Kai and Edenhofer, Ottmar, Pigou's Advice and Sisyphus’Warning: Carbon Pricing Withnon-Permanent Carbon Dioxide Removal. Available at SSRN: https://ssrn.com/abstract=4828800 or http://dx.doi.org/10.2139/ssrn.4828800