Inequality repercussions of financing negative emissions

Abstract

Negative emission technologies are attracting the interest of investors in the race to make them effective and profitable. When deployed at scale, negative emissions will need to be financed through carbon tax revenues or issuing other taxes. Financing negative emissions could thus reduce the fiscal resources needed for a socially inclusive transition. Moreover, if negative emissions are privately owned their profits will disproportionally benefit investors and equity holders. We quantify the inequality repercussions of negative emission through an integrated assessment model which features within-country income heterogeneity and direct air capture of CO2. We find that negative emissions technologies deployed by private actors contribute to more than half of the increase in income inequality observed in a 1.5°C scenario. The effects are concentrated around the time of net-zero and are higher in scenarios with carbon budget overshoot. We attribute regional variations to two main mechanisms, the revenue drying and private ownerships effects of negative emissions.

Separating CO2 emission from removal targets comes with limited cost impacts

“…Furthermore, cumulative emissions remain lower, which reduces the overshoot of the 1.5°C limit. Due to higher revenues from carbon pricing and lower overall spendings on CDR there is more nancial leeway for policy makers to mitigate regressive effects of climate policies on poorer households 11,30 or for green investments. We observe a steeper fossil fuel phase out that is accompanied by an increased reliance on biogenic and synthetic fuels to decarbonise the remaining liquids demand of the energy system.…”

“…In addition, an integrated market reduces planning security for CDR investors as well as fossil emitters resulting in unclear expectations and a lack of security for zero-carbon investments, which could provoke strategic behaviour and lobbying. Furthermore, if a uniform carbon price is used to remunerate removals and penalize emissions, this could lead to huge windfall-pro ts 11 especially if CDR-speci c deployment constraints or market externalities or imperfections are present, such as environmental side-effects and technological learning impacts. In general, this windfall pro ts could be taxed away with well-designed rent taxation.…”