GC21A-05 Mutual Reinforcement of Land-based Carbon Dioxide Removal and International Emissions Trading in Deep Decarbonization Scenarios

Abstract

Climate stabilization pathways limiting warming to 1.5^oC or 2^oC typically rely on negative emissions strategies to offset residual positive greenhouse gas (GHG) emissions in hard-to-abate sectors. Among carbon dioxide removal (CDR) technologies, bioenergy with carbon capture and storage (BECCS) and natural-climate solutions such as afforestation and reforestation (A/R) are among the most widely considered options. While many studies have explored the potential role of land-based CDR, little attention has been given to how BECCS and A/R deployment might interact with or depend on the assumed climate policy regime. Because regional comparative advantages in alternative CDR options are not evenly distributed, total CDR deployment may depend on the extent to which global mitigation relies on international GHG permit trade to complement national strategies. The level of trading, in turn, may depend on how Article 6 of the Paris Agreement is implemented. How would the deployment of these CDR technologies behave under alternative carbon emissions trading regimes? Conversely, if CDR is limited, what are the implications for an international carbon market? This study explores different policy designs, varying the availability of international emissions trading and land-based CDR options in deep decarbonization scenarios. These assumptions impact the scale of CDR and emissions trading, carbon prices, and GDP growth. We utilize a multi-region, multi-sector dynamic model of the global economy, the MIT EPPA model, which represents the market interactions among all sectors and regions of the world. We develop an integrated analysis taking into account connections between energy and agriculture markets and endogenous land use competition in different regions of the world. We find CDR and international trade in GHG permits mutually reinforce each other. Because carbon prices vary inversely with the volume of emissions trading and CDR, the total amount spent on offsets and the revenue received by CDR producers are quite similar under the different assumptions. However, spending is more efficient (GDP is higher) when both CDR and trading are available.

Plain-language Summary

This study explores different policy designs, varying the availability of international emissions trading and land-based carbon dioxide removal (CDR) options in deep decarbonization scenarios. These assumptions impact the scale of CDR and emissions trading, carbon prices, and GDP growth. We find CDR and international trade in GHG permits mutually reinforce each other. Because carbon prices vary inversely with the volume of emissions trading and CDR, the total amount spent on offsets and the revenue received by CDR producers are quite similar under the different assumptions. However, spending is more efficient (GDP is higher) when both CDR and trading are available.