Build carbon removal reserve to secure future of EU emissions trading

Wilfried Rickels, Mathias Fridahl, Roland Rothenstein and Felix Schenuit

No 175, Kiel Policy Brief from Kiel Institute for the World Economy (IfW Kiel)

Abstract: A carbon central bank (CCB) that translates carbon removals into allowances would transform the European Union Emissions Trading System (EU ETS) from a fiat allowance to a gold standard system, ensuring unchanged net emissions on the path to net-zero greenhouse gas (GHG) targets. Meeting such expectations would require a CCB with a clear commitment to a net-zero GHG target, but also with the capacity to manage the market on the path to that target. This requires a strong institutional framework, which could be achieved by integrating the CCB into the European Central Bank (ECB), building on its reputation and capacity. Given the long lead time to set up such an institution, the European Commission should already take the first steps to fulfil the other requirement, namely building up a large carbon removal certificate (CRC) reserve, which would provide the CCB with the credibility to stabilize the market in the future. To fill the CRC reserve, the EU should emulate the US approach by immediately initiating result-based carbon removal procurement as a first key step of a sequential approach to integrated carbon removal into climate policy. This could be achieved by developing a centralized procurement program, supporting existing procurement programs, such as Sweden's or Denmark's, and incentivizing additional EU member states to initiate procurement. An important prerequisite for this is the ability to bank CRCs that are not yet eligible for compliance with near-term EU climate targets and use them in later crediting periods.

Keywords: Carbon Dioxide Removal; Carbon Central Bank; Carbon Certificate Banking; Net-Zero Emissions Targets; Net-Negative Emissions Targets; CO2-Entnahme; CO2-Zentralbank; CO2-Zertifikatereserve; Netto-Null Emissionsziele; Netto-Negative Emissionsziele (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-eec, nep-ene, nep-env, nep-eur and nep-inv
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