Policy incentives for greenhouse gas removal techniques: the risks of premature inclusion in carbon markets and the need for a multi-pronged policy framework

Joshua Burke and Ajay Gambhir

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Almost all modelled emissions scenarios consistent with the Paris Agreement's target of limiting global temperature increase to well below two degrees include the use of greenhouse gas removal (GGR) techniques. Despite the prevalence of GGR in Paris-consistent scenarios, and indeed the UK's own net-zero target, there is a paucity of regulatory support for emerging GGR techniques.. However, the role of carbon pricing is one area that has experienced more attention than others, including discussion about the future inclusion of GGR in carbon markets. Here we identify three risks associated with using carbon markets as the sole, or main, policy lever to encourage the deployment of GGR techniques. Our categorisation of risks stems from discussions with policymakers in the UK and a review of the broader literature on carbon markets and GGR. We present a three-pronged risk assessment framework to highlight the dangers in doing so. First, treating emissions removals and emissions reductions as entirely fungible allows for undesirable substitution. Second, carbon markets may provide insufficient demand pull to drive currently more-costly GGR techniques to deployment at commercial scales. Third, opening up a carbon market for potentially lower-cost GGR (such as nature-based solutions) too early could exert downward pressure on the overall market-based price of carbon, in the absence of adjustments to emissions caps or other safeguards. We discuss how these risks could hamper overall efforts to deploy GGR, and instead suggest a multi-pronged and intertemporal policy and governance framework for GGR. This includes considering separate accounting targets for GGR and conventional emissions abatement, removing perfect fungibility between GGR permits and carbon market permits and promoting a a wide range of innovation and technology-specific mechanisms to drive currently expensive, yet highly scalable technological GGR down the cost curve. Such a framework would ensure that policymakers can utilise carbon markets and other incentives appropriately to drive development and deployment of GGR techniques without compromising near-term mitigation, and that the representation of GGR in modelled low-carbon pathways is cognisant of its real-world scale-up potential in light of these incentives.

Keywords: mitigation; negative emissions; GGR; carbon markets; policy instruments; governance (search for similar items in EconPapers)
JEL-codes: J01 R14 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2022-12-01
New Economics Papers: this item is included in nep-ene and nep-env
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Published in Energy and Climate Change, 1, December, 2022, 3. ISSN: 2666-2787

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