IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v145y2025ics0140988325002130.html
   My bibliography  Save this article

Carbon removals meet Emission Trading System design: A precautionary path towards integration

Author

Listed:
  • Verbist, Flore
  • Meus, Jelle
  • Moncada, Jorge Andrés
  • Valkering, Pieter
  • Delarue, Erik

Abstract

Accounting for negative emissions becomes increasingly important the closer we approach net-zero targets. Carbon removal pricing is, however, still in its infancy and raises several concerns including environmental challenges (e.g. carbon lock-ins, impermanence) and economic trade-offs (i.e. technology learning, financing and market efficiency). These concerns largely hinge on how removal pricing interacts with existing carbon pricing mechanisms, such as Emission Trading Systems (ETSs). This paper aims to offer analytical insights into the performance of different ETS-related removal pricing designs. Eight policy cases, drawn from the literature and real-world proposals, are analysed using an equilibrium model. Those cases vary in their connectivity to ETS markets and may incorporate additional mechanisms to address impermanence and/or stimulate the demand for net negative emissions. The results reveal the underlying working principles and sensitivity to the identified integration concerns. The comparison analytically shows that none of the modelled cases can fully mitigate all integration risks simultaneously. A phased approach is recommended, transitioning from a more market-regulated integration to the establishment of a unified emission and removal market. This gradual approach could especially help to overcome the potential high removal costs of first-of-a-kind removal technologies in the short run and promote market efficiency in the long run. The findings of this study should provide a solid basis to guide the current policy debate on best practices and potential pitfalls in carbon market reforms concerning removal activities.

Suggested Citation

  • Verbist, Flore & Meus, Jelle & Moncada, Jorge Andrés & Valkering, Pieter & Delarue, Erik, 2025. "Carbon removals meet Emission Trading System design: A precautionary path towards integration," Energy Economics, Elsevier, vol. 145(C).
    • Handle: RePEc:eee:eneeco:v:145:y:2025:i:c:s0140988325002130
    DOI: 10.1016/j.eneco.2025.108389
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140988325002130
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.eneco.2025.108389?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Guo, Jian-Xin & Zhu, Lei & Fan, Ying, 2016. "Emission path planning based on dynamic abatement cost curve," European Journal of Operational Research, Elsevier, vol. 255(3), pages 996-1013.
    2. Koch, Nicolas & Fuss, Sabine & Grosjean, Godefroy & Edenhofer, Ottmar, 2014. "Causes of the EU ETS price drop: Recession, CDM, renewable policies or a bit of everything?—New evidence," Energy Policy, Elsevier, vol. 73(C), pages 676-685.
    3. Ottmar Edenhofer & Max Franks & Matthias Kalkuhl & Artur Runge-Metzger, 2023. "On the Governance of Carbon Dioxide Removal – A Public Economics Perspective," CESifo Working Paper Series 10370, CESifo.
    4. Kim, Hansung & Lee, Hwarang & Koo, Yoonmo & Choi, Dong Gu, 2020. "Comparative analysis of iterative approaches for incorporating learning-by-doing into the energy system models," Energy, Elsevier, vol. 197(C).
    5. Fabian Kesicki & Paul Ekins, 2012. "Marginal abatement cost curves: a call for caution," Climate Policy, Taylor & Francis Journals, vol. 12(2), pages 219-236, March.
    6. Anne Schopp & William Acworth & Daniel Huppmann & Karsten Neuhoff, 2015. "Modelling a Market Stability Reserve in Carbon Markets," Discussion Papers of DIW Berlin 1483, DIW Berlin, German Institute for Economic Research.
    7. Johannes Bednar & Michael Obersteiner & Artem Baklanov & Marcus Thomson & Fabian Wagner & Oliver Geden & Myles Allen & Jim W. Hall, 2021. "Operationalizing the net-negative carbon economy," Nature, Nature, vol. 596(7872), pages 377-383, August.
    8. Burke, Joshua & Gambhir, Ajay, 2022. "Policy incentives for greenhouse gas removal techniques: the risks of premature inclusion in carbon markets and the need for a multi-pronged policy framework," LSE Research Online Documents on Economics 115010, London School of Economics and Political Science, LSE Library.
    9. Rickels, Wilfried & Rothenstein, Roland & Schenuit, Felix & Fridahl, Mathias, 2022. "Procure, Bank, Release: Carbon Removal Certificate Reserves to Manage Carbon Prices on the Path to Net-Zero," Open Access Publications from Kiel Institute for the World Economy 266370, Kiel Institute for the World Economy (IfW Kiel).
    10. Darius Sultani & Sebastian Osorio & Claudia Günther & Michael Pahle & Katrin Sievert & Tobias S. Schmidt & Bjarne Steffen & Ottmar Edenhofer, 2024. "Sequencing Carbon Dioxide Removal into the EU ETS," CESifo Working Paper Series 11173, CESifo.
    11. Yao, Xing & Fan, Ying & Zhu, Lei & Zhang, Xian, 2020. "Optimization of dynamic incentive for the deployment of carbon dioxide removal technology: A nonlinear dynamic approach combined with real options," Energy Economics, Elsevier, vol. 86(C).
    12. Romain Sacchi & Viola Becattini & Paolo Gabrielli & Brian Cox & Alois Dirnaichner & Christian Bauer & Marco Mazzotti, 2023. "How to make climate-neutral aviation fly," Nature Communications, Nature, vol. 14(1), pages 1-17, December.
    13. Yue, Xiufeng & Deane, J.P. & O'Gallachoir, Brian & Rogan, Fionn, 2020. "Identifying decarbonisation opportunities using marginal abatement cost curves and energy system scenario ensembles," Applied Energy, Elsevier, vol. 276(C).
    14. Goulder, Lawrence H. & Mathai, Koshy, 2000. "Optimal CO2 Abatement in the Presence of Induced Technological Change," Journal of Environmental Economics and Management, Elsevier, vol. 39(1), pages 1-38, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lessmann, Kai & Gruner, Friedemann & Kalkuhl, Matthias & Edenhofer, Ottmar, 2024. "Emissions Trading with Clean-up Certificates: Deterring Mitigation or Increasing Ambition?," CEPR Discussion Papers 19180, C.E.P.R. Discussion Papers.
    2. Quemin, Simon & Trotignon, Raphaël, 2021. "Emissions trading with rolling horizons," Journal of Economic Dynamics and Control, Elsevier, vol. 125(C).
    3. Weiwei Xiong & Katsumasa Tanaka & Philippe Ciais & Daniel J. A. Johansson & Mariliis Lehtveer, 2022. "emIAM v1.0: an emulator for Integrated Assessment Models using marginal abatement cost curves," Papers 2212.12060, arXiv.org.
    4. Guo, Jian-Xin & Tan, Xianchun & Gu, Baihe & Zhu, Kaiwei, 2022. "Integration of supply chain management of hybrid biomass power plant with carbon capture and storage operation," Renewable Energy, Elsevier, vol. 190(C), pages 1055-1065.
    5. Wähling, Lara-Sophie & Fridahl, Mathias & Heimann, Tobias & Merk, Christine, 2023. "The sequence matters: Expert opinions on policy mechanisms for bioenergy with carbon capture and storage," Open Access Publications from Kiel Institute for the World Economy 275739, Kiel Institute for the World Economy (IfW Kiel).
    6. Fridahl, Mathias & Schenuit, Felix & Lundberg, Liv & Möllersten, Kenneth & Böttcher, Miranda & Rickels, Wilfried & Hansson, Anders, 2023. "Novel carbon dioxide removals techniques must be integrated into the European Union’s climate policies," Open Access Publications from Kiel Institute for the World Economy 281982, Kiel Institute for the World Economy (IfW Kiel).
    7. Bruninx, Kenneth & Ovaere, Marten & Delarue, Erik, 2020. "The long-term impact of the market stability reserve on the EU emission trading system," Energy Economics, Elsevier, vol. 89(C).
    8. Anouk Faure & Marc Baudry, 2021. "Technological Progress and Carbon Price Formation: an Analysis of EU-ETS Plants," Working Papers hal-04159764, HAL.
    9. Mengfei Jiang & Xi Liang & David Reiner & Boqiang Lin & Maosheng Duan, 2018. "Stakeholder Views on Interactions between Low-carbon Policies and Carbon Markets in China: Lessons from the Guangdong ETS," Working Papers EPRG 1805, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    10. Guo, Jian-Xin & Huang, Chen, 2020. "Feasible roadmap for CCS retrofit of coal-based power plants to reduce Chinese carbon emissions by 2050," Applied Energy, Elsevier, vol. 259(C).
    11. Guo, Jian-Xin & Zhu, Lei & Fan, Ying, 2016. "Emission path planning based on dynamic abatement cost curve," European Journal of Operational Research, Elsevier, vol. 255(3), pages 996-1013.
    12. Pahle, Michael & Quemin, Simon & Osorio, Sebastian & Günther, Claudia & Pietzcker, Robert, 2025. "The emerging endgame: The EU ETS on the road towards climate neutrality," Resource and Energy Economics, Elsevier, vol. 81(C).
    13. Anne Merfort & Jessica Strefler & Gabriel Abrahão & Nico Bauer & Tabea Dorndorf & Elmar Kriegler & Gunnar Luderer & Leon Merfort & Ottmar Edenhofer, 2025. "Separating CO2 emission from removal targets comes with limited cost impacts," Nature Communications, Nature, vol. 16(1), pages 1-10, December.
    14. Perino, Grischa & Willner, Maximilian, 2016. "Procrastinating reform: The impact of the market stability reserve on the EU ETS," Journal of Environmental Economics and Management, Elsevier, vol. 80(C), pages 37-52.
    15. Tiruwork B. Tibebu & Eric Hittinger & Qing Miao & Eric Williams, 2024. "Adoption Model Choice Affects the Optimal Subsidy for Residential Solar," Energies, MDPI, vol. 17(3), pages 1-19, February.
    16. Saujot, Mathieu & Lefèvre, Benoit, 2016. "The next generation of urban MACCs. Reassessing the cost-effectiveness of urban mitigation options by integrating a systemic approach and social costs," Energy Policy, Elsevier, vol. 92(C), pages 124-138.
    17. Conrad, Klaus, 2001. "The Optimal Path of Energy and CO2 Taxes for Intertemporal Resource Allocation," Discussion Papers 602, Institut fuer Volkswirtschaftslehre und Statistik, Abteilung fuer Volkswirtschaftslehre.
    18. Rosendahl, Knut Einar, 2004. "Cost-effective environmental policy: implications of induced technological change," Journal of Environmental Economics and Management, Elsevier, vol. 48(3), pages 1099-1121, November.
    19. Grimaud, André & Lafforgue, Gilles & Magné, Bertrand, 2011. "Climate change mitigation options and directed technical change: A decentralized equilibrium analysis," Resource and Energy Economics, Elsevier, vol. 33(4), pages 938-962.
    20. Barbara Buchner & Carlo Carraro, 2006. "‘US, China and the Economics of Climate Negotiations’," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 6(1), pages 63-89, March.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:145:y:2025:i:c:s0140988325002130. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eneco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.