A trading market for uncertain carbon removal by land use in the EU

This paper designs a trading market for uncertain carbon removal from uptake and reduced leakage by restoration of drained peatland, forest management and afforestation in the EU countries. A cost-efficient design of the quantification of carbon removals takes uncertainty into account by introducing a risk premium that differs between countries and measures. Given the cost-efficient design with risk premiums, the marginal and total costs of achieving carbon removal targets for the EU are higher with reliability concern than without because of the larger carbon removals in order to ensure the achievement of a target at a given probability. The results show large differences in costs after trading where some countries meet high costs and other countries make net gains by selling carbon credits on the market. An evaluation of the EU's regulation on legally binding carbon sink assignments for different countries shows that the total cost of a cost-efficient flexibility with trade could be reduced by 50% compared with no trade, and that all countries benefit from such a change.