The Public Economics of Carbon Dioxide Removal

Environmental economics has investigated optimal policies that incentivize the reduction of environmental externalities in great detail, while clean-up technologies that undo pollution have received little attention. Current projections for climate policy strategies, however, frequently rely substantially on clean-up by including the use of various carbon dioxide removal technologies, or CDRs (IPCC 2018). For limiting global warming to 1.5°C, for example, up to half of current carbon emissions have to be removed annually in the second half of the 21st century (Rogelj 2015). This adds complications to the challenge of finding efficient climate policies that go beyond the state of knowledge in environmental economics: with a comprehensive carbon pricing regime at work, net negative emissions turn tax revenues into subsidy expenditures, putting stress on the fiscal budget instead of generating revenues. Moreover, removing carbon dioxide rather than mitigating emissions could affect leakage related to shifting fossil resource supply or trade of carbon-intensive goods. Finally, when CDR technologies are land-intensive, their implementation becomes intertwined with food production and land use change, which has implications for the real income distribution as well as land-use emissions in non-regulated jurisdictions. The research we propose sheds light on the challenges of optimal policies on clean-up technologies like CDR by considering broader economic aspects like fiscal policy interactions, distributional aspects and jurisdictional spillovers. We contribute in three ways: (1) We advance the understanding of clean-up policies as a complement to and substitute for pricing emissions in a first-best setting, (2) we analyze cleanup policies in the context of distortionary income taxation and distributional consideration, and (3) we investigate CDR policies in fragmented policy regimes that are subject to carbon leakage. Overall, in our research we link the analysis of policy instruments for cleanup technologies to the existing strands of environmental and public economics literature that focuses on taxing externalities.


Jul 01, 2021 until Jun 30, 2024

Funding Agency

DFG - Deutsche Forschungsgemeinschaft


Kai Lessmann