Subsidies should be used as an incentive to encourage the removal of greenhouse gases after they have been released. In order to encourage the reduction of carbon emissions, subsidies should be larger than the price that is placed on those emissions, according to new data from an economic study that takes into account global markets.
Researchers examine policies for taking carbon dioxide out of the atmosphere and putting it underground or in products in a groundbreaking study. The recommended differing pricing is tied to a leakage impact in the economy rather than technical difficulties.
“We are looking at climate pioneers, countries that are more ambitious in terms of reducing greenhouse gas emissions than others. We have studied how they should subsidize carbon dioxide removal to make it work, hence to create a supply of removal technologies and businesses.,” says Max Franks, from the Potsdam Institute for Climate Impact Research, one of the study’s authors. “This question is relevant, for instance, for the Climate Club recently founded by the G7.”
The seven globally most important economies aim at advancing climate change mitigation.
“To achieve the Paris climate targets, all available options are needed,” says Max Franks. “We must reduce and remove emissions. Carbon removal capacities are limited, they can compensate only a certain share of emissions. Accordingly, for policymakers like those of a Climate Club, the question remains what the best mix of all options and policies is especially given the fact that other countries continue increasing fossil fuel use, and markets are interconnected.”
Our results are particularly important for policy design today and over the next couple of years, where we expect the international climate policy regime to remain fragmented. In the long run, of course, we need all countries to cooperate in order to achieve the Paris target of keeping the temperature increase relative to pre-industrial times well below 2°C.
Kai Lessmann
If climate pioneers buy less oil, the international oil price falls
If climate pioneers buy less oil, for example, then the international oil price falls.
“Other countries will see a drop in oil prices and therefore might buy more oil,” warns Matthias Kalkuhl from the Mercator Research Institute on Global Commons and Climate Change, who co-authored the study. “Thus, if the more ambitious countries reduce carbon emissions by, say, 1000 tons of carbon unilaterally, it might lead other countries to increase their emissions by perhaps 150 tons. The original reduction of 1000 tons is then de facto only a reduction by 850 tons. Then, we can think of these 150 tons as leaking out through the international oil market.”
Hence the economic term of leakage.
As a result, the overall emissions reduction is less than the ambitious countries’ emissions reduction, which is obviously harmful for our climate. It’s different with carbon dioxide removal. Carbon dioxide removal from the atmosphere by ambitious nations has no impact on the supply and demand for fossil fuels.
As a result, it has little impact on the price of fossil fuels globally. This is why it makes sense to provide greater subsidies for each ton of carbon sequestration than for carbon emissions. With carbon dioxide removal, there is no specific type of leakage via the markets for fossil fuels that is brought on by carbon price.
From afforestation to big machines sucking CO2 out of the air
It is crucial to evaluate economic approaches for removing carbon because doing so is thought to be essential for meeting the Paris climate goals. For instance, afforestation is a carbon removal technology because trees naturally absorb carbon from the air and store it in their trunks. Another illustration is direct air capture, which entails using large devices to physically extract greenhouse gases from the atmosphere and store them in underground reservoirs.
“Our results are particularly important for policy design today and over the next couple of years, where we expect the international climate policy regime to remain fragmented,” co-author Kai Lessmann explains. “In the long run, of course, we need all countries to cooperate in order to achieve the Paris target of keeping the temperature increase relative to pre-industrial times well below 2°C.”
