What if we could accelerate decarbonization and the removal of carbon dioxide from the air, achieving global climate targets, all without saddling future generations with trillions of dollars of debt?
That’s a question being considered by researchers in Oxford who have developed a novel idea for dealing with greenhouse gas emissions—by treating them like financial debt.
The key to the concept: issue carbon emitters such as oil companies with debt instruments called carbon removal obligations (CROs). While these would be tradeable, such obligations would gather interest over time, effectively charging emitters for storing CO2 in the air. The payments on the debt could be used to pay for carbon dioxide removal as such technologies become available at scale.
The brainchild of PhD researcher Johannes Bednar of the Austrian International Institute for Applied Systems Analysis in conjunction with the University of Oxford, the concept for carbon removal obligations offers a reversal of the current situation, in which polluters are free to emit greenhouse gases while making vague promises about decarbonizing operations and using carbon capture technologies that don’t yet exist. This means current generations are able to pass the buck of ever higher concentrations of CO2 on to future generations to deal with. The costs of reversing the damage done by today’s carbon polluters have been estimated at some $535 trillion—many times the size of the entire global economy.
CROs, on the other hand, immediately put the responsibility for carbon removal onto the emitter.
In a press briefing Thursday, Bednar explained how the system would work.
“As an emitter, instead of purchasing an allowance right now, I can choose to obtain an obligation to clean up whatever I have done,” Bednar said. “To make sure I’ll be doing that, I’ll have to pay interest. This reduces the risk that I’ll default on my obligation; it’s very much like a financial debt obligation.”
This, Bednar said, could help spread the cost of carbon mitigation efforts across generations, rather than kicking the can down the road, and motivate emitters to accelerate their own decarbonization efforts. In their research, published today in the journal Nature, the authors write: “we find that interest payments for CROs induce substantially more ambitious near-term decarbonization complemented by earlier and less aggressive deployment of CDR [carbon dioxide removal].”
Commenting on the research, Myles Allen, professor of geosystem science at the Environmental Change Institute and Director of the Oxford Net Zero initiative, said: “What I found really interesting about this result was that it’s working back from the cost of carbon removal in future … and this actually gives you a much more logical present-day carbon price. In the EU, the carbon price is determined essentially politically by what leaders think the market will bear, but this [the CRO proposal] gives you an objective value of carbon today.”
Establishing that objective value, Allen said, was crucial in helping countries to understand what it will take to achieve net zero.
In their efforts to control global warming, many countries have set themselves ambitious carbon emissions targets. The European Union, the U.S. and the U.K. have pledged to reach net zero carbon emissions by 2050, in line with the Paris Agreement goal of limiting warming to 1.5 degrees Celsius this century. Indeed, for the world to achieve this target, beyond 2050 countries should be capturing more carbon than they produce.
But, as highlighted by the UN, the international community is not on track to meet its promises. As it is, the world’s carbon budget—the remaining quantity of CO2 that humans can release before passing the point where achieving the Paris target is possible—is due to be exhausted within a decade. Meanwhile, extreme weather events are increasing, and more evidence is emerging that the effects of even limited global warming could prove catastrophic.
Almost all major countries need to reduce emissions much more rapidly if the world is to avoid further catastrophic heating. But there is not yet a consensus on the best financial methods to achieve this transformation. At present, various forms of carbon taxes and emissions trading schemes are the main ways by which governments are penalizing heavy emitters.
There are several problems with the current schemes—not least that they essentially give emitters the ability to buy permission to pollute. In addition, neither carbon taxes nor current emissions trading schemes are able to take into account negative emissions systems. That is to say, if a company developed the technology to take it from being a producer of CO2 to a remover of CO2, carbon taxes would be reversed, becoming subsidies. Similarly, current emissions trading schemes are designed only to recognize emissions being added to the atmosphere, rather than emissions being removed.
At the moment, the technological barriers to building and deploying large scale carbon removal systems have not yet been overcome. Indeed, direct carbon-dioxide removal (CDR) remains in its infancy; current iterations of CDR technologies are expensive, inefficient, and cannot at present be expected to make a valuable contribution to emissions reductions this side of 2050.
But given the reality that this situation must change if humanity is to bring down record atmospheric CO2 concentrations, mechanisms are needed that can take carbon removal into account. And costing that removal is vital.
“Going net-negative requires cash, and that’s why we need to think about these mechanisms right now,” Bednar said. “And if carbon removal technologies are viable, you can use them to avoid creating a carbon debt.”
There is no guarantee that authorities, such as the European Union, will adopt carbon removal obligations. But Bednar and colleagues believe the concept sells itself.
“At the moment, the risk of carbon removal proving more expensive than current models suggest it might be is entirely borne by the future taxpayer. That’s a bad situation because no risks are borne by the present-day emitter,” said Allen. “The point about a carbon removal obligation is that it’s an obligation to do something. So if that thing you’re obliged to do turns out to be more expensive, that’s your problem—not the future taxpayer’s problem.”
Michael Obersteiner, director of the Environmental Change Institute at the University of Oxford, said: “Policy uncertainty is hindering the fightback against climate change, and the clock is ticking. Our proposed measures would help direct capital in the right direction today, not in 2050 when the damage is done.”
An abstract of the paper, titled “Operationalizing the net-negative carbon economy,” can be viewed here. A subscription may be required to view the whole manuscript.