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The Economics of Carbon Dioxide Removal: A Governance Perspective

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Listed:
  • Ottmar Edenhofer
  • Max Franks
  • Friedemann Gruner
  • Matthias Kalkuhl
  • Kai Lessmann

Abstract

Carbon dioxide removal (CDR) is becoming an emerging topic in climate policy. We review the nascent economic literature on the governance of CDR and discuss policy design and institutions. We first assess the role of CDR in climate policy portfolios that include abatement and adaptation. Cost saving technological progress could make CDR a game changer in climate policy: CDR creates new sectoral, intertemporal and international flexibilities, which reduce overall costs and allow returning to a temperature target after temporary overshooting. Moreover, carbon removal can reduce the problem of international cooperation due to substantially lower supply-side leakage via fossil fuel markets. A key challenge lies in its governance and incentive structure that is complicated by non-permanence of carbon storage and default risks of the firms committed to future CDR. For CDR governance, we survey approaches that incentivize removals by price instruments or include CDR in (modified) emissions trading schemes.

Suggested Citation

  • Ottmar Edenhofer & Max Franks & Friedemann Gruner & Matthias Kalkuhl & Kai Lessmann, 2024. "The Economics of Carbon Dioxide Removal: A Governance Perspective," CESifo Working Paper Series 11516, CESifo.
    • Handle: RePEc:ces:ceswps:_11516
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    File URL: https://www.ifo.de/DocDL/cesifo1_wp11516.pdf
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    1. 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).
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    Cited by:

    1. Edenhofer Ottmar & Kalkuhl Matthias, 2024. "Planetarische Müllabfuhr – Gamechanger der Klimapolitik?: Thünen-Vorlesung 2024," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 25(3-4), pages 172-182.

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    More about this item

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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