Operationalizing the net-negative carbon economy

Nature. 2021. No. 596. P. 377–383.

Bednar J., Obersteiner M., Baklanov A., Thomson M., Wagner F., Geden O., Allen M., Hall J. W.

The remaining carbon budget for limiting global warming to 1.5 degrees Celsius will probably be exhausted within this decade. Carbon debt generated thereafter will need to be compensated by net-negative emissions. However, economic policy instruments to guarantee potentially very costly net carbon dioxide removal (CDR) have not yet been devised. Here we propose intertemporal instruments to provide the basis for widely applied carbon taxes and emission trading systems to finance a net-negative carbon economy. We investigate an idealized market approach to incentivize the repayment of previously accrued carbon debt by establishing the responsibility of emitters for the net removal of carbon dioxide through ‘carbon removal obligations’ (CROs). Inherent risks, such as the risk of default by carbon debtors, are addressed by pricing atmospheric CO2 storage through interest on carbon debt. In contrast to the prevailing literature on emission pathways, we find that interest payments for CROs induce substantially more-ambitious near-term decarbonization that is complemented by earlier and less-aggressive deployment of CDR. We conclude that CROs will need to become an integral part of the global climate policy mix if we are to ensure the viability of ambitious climate targets and an equitable distribution of mitigation efforts across generations.

Keywords: climate change

Publication based on the results of: Economic mechanisms: information design and robustness to manipulation (2021)