Pigou’s Advice and Sisyphus’ Warning

  • Carbon dioxide removal from the atmosphere is becoming an important option to achieve net zero climate targets. This paper develops a welfare and public economics perspective on optimal policies for carbon removal and storage in non-permanent sinks like forests, soil, oceans, wood products or chemical products. We derive a new metric for the valuation of non-permanent carbon storage, the social cost of carbon removal (SCC-R), which embeds also the conventional social cost of carbon emissions. We show that the contribution of CDR is to create new carbon sinks that should be used to reduce transition costs, even if the stored carbon is released to the atmosphere eventually. Importantly, CDR does not raise the ambition of optimal temperature levels unless initial atmospheric carbon stocks are excessively high. For high initial atmospheric carbon stocks, CDR allows to reduce the optimal temperature below initial levels. Finally, we characterize three different policy regimes that ensure an optimal deployment of carbon removal: downstreamCarbon dioxide removal from the atmosphere is becoming an important option to achieve net zero climate targets. This paper develops a welfare and public economics perspective on optimal policies for carbon removal and storage in non-permanent sinks like forests, soil, oceans, wood products or chemical products. We derive a new metric for the valuation of non-permanent carbon storage, the social cost of carbon removal (SCC-R), which embeds also the conventional social cost of carbon emissions. We show that the contribution of CDR is to create new carbon sinks that should be used to reduce transition costs, even if the stored carbon is released to the atmosphere eventually. Importantly, CDR does not raise the ambition of optimal temperature levels unless initial atmospheric carbon stocks are excessively high. For high initial atmospheric carbon stocks, CDR allows to reduce the optimal temperature below initial levels. Finally, we characterize three different policy regimes that ensure an optimal deployment of carbon removal: downstream carbon pricing, upstream carbon pricing, and carbon storage pricing. The policy regimes differ in their informational and institutional requirements regarding monitoring, liability and financing.show moreshow less

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Author details:Matthias KalkuhlORCiDGND, Max FranksORCiDGND, Friedemann Gruner, Kai LessmannORCiDGND, Ottmar EdenhoferORCiDGND
URN:urn:nbn:de:kobv:517-opus4-575882
DOI:https://doi.org/10.25932/publishup-57588
ISSN:2628-653X
Title of parent work (English):CEPA Discussion Papers
Subtitle (English):Carbon Pricing with Non-Permanent Carbon-Dioxide Removal
Publication series (Volume number):CEPA Discussion Papers (62)
Publication type:Working Paper
Language:English
Date of first publication:2023/01/25
Publication year:2023
Publishing institution:Universität Potsdam
Release date:2023/01/25
Tag:Carbon Capture; Carbon Dioxide Removal; Climate Policy; Impermanence; Social Cost of Carbon
Issue:62
Number of pages:66
RVK - Regensburg classification:AR 23400, AR 28300, MK 8900, QT 000, QT 800
Funding institution:DFG
Funding number:456947458
Organizational units:Extern / Extern
Zentrale und wissenschaftliche Einrichtungen / Center for Economic Policy Analysis (CEPA)
Wirtschafts- und Sozialwissenschaftliche Fakultät / Wirtschaftswissenschaften / Fachgruppe Volkswirtschaftslehre
DDC classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
JEL classification:D Microeconomics / D6 Welfare Economics / D61 Allocative Efficiency; Cost–Benefit Analysis
H Public Economics / H2 Taxation, Subsidies, and Revenue / H23 Externalities; Redistributive Effects; Environmental Taxes and Subsidies
Q Agricultural and Natural Resource Economics; Environmental and Ecological Economics / Q5 Environmental Economics / Q54 Climate; Natural Disasters; Global Warming
Q Agricultural and Natural Resource Economics; Environmental and Ecological Economics / Q5 Environmental Economics / Q58 Government Policy
Peer review:Nicht referiert
License (German):License LogoKeine öffentliche Lizenz: Unter Urheberrechtsschutz
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