A financing model for permanent carbon removal

Carbon credits allow companies to offset their greenhouse gas emissions through mitigation projects in order to meet voluntary targets, compliance obligations, or national net-zero goals. However, a recent analysis found that at least 84% of carbon credits did not represent real emissions reductions. Avoided emissions claimed by protecting forests can be double-counted—or reversed if those trees are later harvested—and some mitigation, such as certain renewable energy projects, would likely have gone forward even without being counted as a credit. Benedict S. Probst and Florian Egli argue that permanent carbon removal, such as biochar, enhanced rock weathering, or direct air carbon capture and storage, should play an increasingly important role in reaching net-zero emissions. The authors argue that permanent removals require a new regulatory and financial architecture as they are often technologically novel and capital-intensive. Drawing on the experience of renewable energy, the authors suggest a tiered auction framework to build and scale markets for novel carbon dioxide removal technologies. The framework would entail governments setting a permanent removal target and minimum quality standards, and then running reverse auctions that specify a target volume of gas to remove and a price ceiling. Companies would then bid for the contracts—and bear the risks of project failure. For the first decade, governments would pay the cost. From 2035–2045, as technologies mature, responsibilities for financing would be shifted toward regulated emitters. According to the authors, only a fundamentally new financing model can bring permanent carbon removal to market.

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