Beyond Carbon Pricing: Integrating Mitigation, Adaptation, and Carbon Removal

Markus Leippold and Felix Matthys
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Markus Leippold: University of Zurich; Swiss Finance Institute
Felix Matthys: ITAM

No 26-07, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Relying solely on carbon pricing to meet Paris Agreement targets imposes prohibitive economic costs. We show that achieving the 2 ˝C stabilization goal through taxation alone requires carbon prices reaching approximately $474/tCO 2 , a level that triggers widespread capital divestment. To resolve this dilemma, we develop a dynamic stochastic integrated assessment model that optimizes a portfolio of carbon taxation, clean-capital subsidies, adaptation investment, and carbon dioxide removal (CDR). Our analysis identifies CDR as a necessary condition for stabilization rather than a supplementary measure. In the optimal portfolio, net carbon removal scales from 0.04 to 3.7 GtCO 2 /year by 2050 to maintain temperature targets at a feasible cost. These instruments act as economic complements: carbon pricing and subsidies target new emissions, CDR reduces the legacy atmospheric stock, and adaptation protects the economic base from immediate damages. Consequently, the welfare gains from the integrated portfolio significantly exceed the sum of individual instrument effects. We conclude that optimal climate policy requires shifting from a price-centric framework to a diversified approach in which carbon removal and adaptation serve as core pillars of decarbonization.

Keywords: climate policy mix; carbon tax; clean subsidies; adaptation; carbon dioxide removal; integrated assessment model; social cost of carbon; disaster risk (search for similar items in EconPapers)
JEL-codes: D62 D81 H23 O44 Q54 Q58 (search for similar items in EconPapers)
Pages: 71 pages
Date: 2026-01
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2607

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