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Incentivizing Negative Emissions Through Carbon Shares

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  • Derek Lemoine

Abstract

I analyze a novel climate policy instrument that attaches a transferable asset to each unit of carbon in the atmosphere. I show that this instrument improves on an emission tax by incentivizing both optimal emission reductions and optimal removal of past emissions. Emitters post a bond equal to the worst-case social cost of carbon, and the regulator deducts damages as they are realized over time. Quantitatively, a bond that is double the optimal emission tax is sufficient to provide optimal carbon removal incentives in 95% of cases.

Suggested Citation

  • Derek Lemoine, 2020. "Incentivizing Negative Emissions Through Carbon Shares," NBER Working Papers 27880, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:27880
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    Cited by:

    1. Lessmann, Kai & Gruner, Friedemann & Kalkuhl, Matthias & Edenhofer, Ottmar, 2024. "Emissions Trading with Clean-up Certificates: Deterring Mitigation or Increasing Ambition?," CEPR Discussion Papers 19180, C.E.P.R. Discussion Papers.
    2. Franks, Max & Kalkuhl, Matthias & Lessmann, Kai, 2023. "Optimal pricing for carbon dioxide removal under inter-regional leakage," Journal of Environmental Economics and Management, Elsevier, vol. 117(C).
    3. Matthias Kalkuhl & Max Franks & Friedemann Gruner & Kai Lessmann & Ottmar Edenhofer, 2022. "Pigou’s Advice and Sisyphus’ Warning: Carbon Pricing with Non-Permanent Carbon-Dioxide Removal," CESifo Working Paper Series 10169, CESifo.
    4. Burke, Joshua & Gambhir, Ajay, 2022. "Policy incentives for greenhouse gas removal techniques: the risks of premature inclusion in carbon markets and the need for a multi-pronged policy framework," LSE Research Online Documents on Economics 115010, London School of Economics and Political Science, LSE Library.

    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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