Separating CO2 emission from removal targets comes with limited cost impacts

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Separating CO2 emission from removal targets comes with limited cost impacts

https://doi.org/10.21203/rs.3.rs-4572047/v1

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Net-zero commitments have become the central focal point for countries to communicate long-term climate targets. However, to this point it is not clear to what extent conventional emissions reductions and carbon dioxide removal (CDR) will contribute to net-zero. An integrated market for emissions and removals with a uniform carbon price delivers the economically efficient contribution of CDR to net-zero, yet it might not fully internalise sustainability risks of CDR and hence could lead to its overuse. In this study, we explore the implications of separating targets for emission reductions and CDR for global net-zero emissions pathways with the Integrated Assessment Model REMIND. Even though it entails a deviation from the solution of the integrated market, we find that efficiency losses are moderate. Limiting CDR lowers the financial burden for public finance, limits reliance on geologic CO₂ storage and leads to lower cumulative emissions, yet this increase in ambition comes at higher total mitigation costs.

Earth and environmental sciences/Environmental social sciences/Climate-change mitigation

Earth and environmental sciences/Environmental social sciences/Climate-change policy

Earth and environmental sciences/Environmental social sciences/Environmental economics

Carbon Dioxide Removal

Residual Emissions

Net-zero

Carbon Pricing

Climate Policy

Climate Economics

Net-zero emissions pledges have become a central means to communicate long term emission reduction commitments in international climate policy¹. As of April 2024, 148 countries causing 88% of global GHG emissions communicated a net-zero emission target² motivated by the conclusion of the IPCC’s Special Report on 1.5°C that global net-zero CO₂ emissions have to be achieved in the early 2050s to limit global mean temperature increase to 1.5°C by 2100 with low overshoot³. To reach a net-zero CO₂ target, Carbon Dioxide Removal (CDR) will be necessary to compensate all residual CO₂ emissions, i.e., the amount of gross CO₂ emissions from fossil-fuel combustion, industry processes and land-use change (before CDR is deployed), of which abatement remains uneconomical at the CO₂ price corresponding to a given reduction target.

While CDR methods play a significant role in climate change mitigation pathways, as of today both industrial scale-up as well as national strategies and policies lag behind the envisioned CDR deployment in 1.5°C scenarios⁴. Furthermore, especially so-called novel CDR (nCDR) methods, which could store CO₂ out of the atmosphere for centuries to millennia with low risk of reversibility are still at low technological readiness levels and not yet proven at large scale⁴. How much CDR will be feasible, and how scale-up should be incentivized vis-à-vis emission reductions are key questions of recent debates.

In principle a variety of policy instruments could be used to incentivise both ambitious emission reduction and CDR deployment. A uniform carbon price in all sectors and on all emissions is, in absence of other externalities, the economically efficient solution. Hence, for economic efficiency, the subsidy for CDR should be equal to the price on emissions, such that marginal abatement costs equal the marginal supply costs of CDR, presuming that CO₂ removals and reductions are equivalent regarding their role for mitigation pathways.

Deviations from equal prices for emissions and removals will inevitably arise if separate targets for emission reductions and CDR deployment are set. Such separation, especially in the context of reaching net-zero is prominently proposed in the literature^5–8, primarily as a means to enhance political credibility of net-zero targets, which might be more important than economic efficiency⁹. While some scholars propose separate targets as a means to prevent mitigation deterrence⁵, it is worth noting that if policy makers set two different targets, they could still overemphasize CDR, even beyond what would emerge in the integrated market with equal prices. The main concern with spelling out separate targets is the entailed deviation from the market efficient solution and the associated efficiency losses. However, price equalisation is only efficient in the absence of market externalities and in case of non-strategic actors with perfect foresight. Yet, carbon markets may not adequately price sustainability risks of CDR¹⁰, creating a misalignment between market outcome and societal objectives and hence a socially optimal contribution of CDR might be lower than the efficient outcome of an integrated market. 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-profits¹¹ especially if CDR-specific deployment constraints or market externalities or imperfections are present, such as environmental side-effects and technological learning impacts. In general, this windfall profits could be taxed away with well-designed rent taxation. However, if rent taxation is politically not feasible, differentiation of carbon prices might be justified¹² and could therefore support a separation of targets. So far studies found that a CDR subsidy below the price on emissions is optimal, when CO₂ is not stored permanently^13,14. On the other hand, Franks et al. found that a lower risk for interregional leakage for some CDR methods in comparison to CO₂ abatement could render a CDR subsidy greater than the CO₂ price optimal¹⁵.

However, it should be noted that differentiated carbon prices do not necessarily prevent the integration of CDR in an Emissions Trading Scheme (ETS): Price differentiation can be achieved by introducing a new type of certificates in an ETS¹⁶. This new type of certificates – clean-up certificates – can be introduced without deterring mitigation efforts under two conditions. First, the clean-up certificates allow an individual firm to emit more today when it removes this carbon debt in the future. The compliance is guaranteed through the payment of a collataral to a carbon central bank which serves as a lender of last resort. Second, an equal amount of emission permits can be retired leading to a strengthening of ambition. The net-negative emissions are financed by foregone revenues from auctioning the clean-up certificates, as they are sold at a lower price than the regular permits. Due to higher ambition level the overall revenues from carbon prices rise. Therefore, a win-win proposal becomes feasible allowing for higher ambition, a reduced risk of mitigation deterence and increased revenues.

In this paper we will not discuss and comment on the emerging literature how to deal with carbon price differentiation in tax or emission trading schemes. Instead we investigate the trade-off with economic efficiency, and the systemic consequences of deviations from the market efficient contribution of CDR to net-zero. Recent studies on mitigation pathways investigated the size and composition of residual emissions at net-zero¹⁷ and how they could be further reduced^18,19 To the best of our knowledge, a quantitative analysis of 1.5°C mitigation pathways with separate targets and appropriate levels for residual emissions and associated CDR has not yet been available in the scientific literature. In this study, for the first time, we integrate this concept into an Integrated Assessment Model (IAM). We analyse the consequences of various contributions of CDR to global net-zero CO₂ emissions (hereafter referred to as net-zero) in 2050 on emission pathways, the energy system and associated risks and derive policy recommendations on how to set separate targets in the face of uncertain future developments using the IAM REMIND²⁰.

Net-zero quantity targets and the separation of carbon markets

Using the IAM REMIND²⁰ with a detailed representation of the global energy system we design different climate change mitigation scenarios that achieve global net-zero CO₂ in 2050. We explicitly prescribe varying quantity targets for residual CO₂ emissions (i.e. all CO₂ emissions from fossil fuel combustion, industrial processes and land-use before novel CDR) at the time of net-zero that have to be compensated by the same amount of novel CDR (nCDR). The model’s available nCDR options are Direct Air Carbon Capture and Storage (DACCS), Bioenergy with Carbon Capture and Storage (BECCS), Enhanced Weathering of rocks (EW) and Industry CDR (Industry BECCS or carbon capture and storage from fossil-free synthetic fuels) (see Methods for more details on emissions and removal accounting).

In an integrated market with a uniform carbon price, the global residual CO₂ emissions and the amount of deployed nCDR at the time of net-zero amount to 7 GtCO₂/yr in our modelling framework, which will serve as a benchmark scenario throughout this manuscript. For this analysis we deviate from this equal-pricing quantity to span the scenario range from 2 to 12 GtCO₂/yr of residual emissions (corresponding to ~5% up to ~27% with respect to 2019 global CO₂ emissions²¹) and the same amount of compensating nCDR, respectively, in 2050. Both the endogenously derived shadow prices on emissions (hereafter short: carbon price) and for nCDR (hereafter short: nCDR subsidy) follow a Hotelling price path with a growth rate of 5% per year until the time of net-zero in 2050 and remain constant thereafter (see Figure 1c). The carbon price is also applied to non-CO₂ greenhouse gases, leading to substantial but across scenarios almost identical non-GHG emission reductions that will not be further discussed here (see Methods).

Re- and afforestation are prominent CDR methods in mitigation scenarios and also available to REMIND, but for conceptual clarity we exclude them from the quantity target. Separating prices for de- and re/afforestation must be treated with special care as it can lead to perverse incentives for unsustainable management. A clear example is a subsidy for afforestation that is higher than the carbon price on emissions caused by deforestation, which would incentivise clearing of existing forests for reforestation. The majority of stakeholders responding to the Public Consultation on the EU Climate Target for 2040²² even advocated for three separate targets: GHG emission reduction, nature based removals and industrial removals to circumvent this issue.

In our analysis, re-/ afforestation follows exogenous assumptions that are identical across scenarios and the net-effect of total land-use change emissions is fully accounted for in the residual emissions.

Emission pathways to net-zero and carbon prices for separate targets

First we discuss the variations of emission trajectories and corresponding carbon prices and nCDR subsidies between the scenarios with different net-zero formulations. Gross CO₂ emissions diverge already in 2030 due to different carbon prices reflecting the decarbonisation ambition in 2050. Yet CDR scale-up takes time, primarily due to the high upscaling rates needed from close to zero nCDR deployment to date⁴ and the need for significant future cost reductions due to technological learning. Hence climate-relevant amounts are only reached in 2040 and beyond (see Figure 1 (a)). The different dynamics of emission reduction and the scale-up of CDR deployment lead to different cumulative emissions (Figure 1b). In fact, the cumulative CO₂ emissions from 2020 to 2050 range from 538 GtCO₂ in the scenario with 2 GtCO₂/yr (residual emissions and nCDR in 2050) up to 680 GtCO₂ in the scenario with high reliance on CDR (12 GtCO₂/yr), even though net CO₂ emissions reach zero at the same time.

The carbon price on emissions varies strongly depending on the level of residual emissions across the full scenario scope (Figure 1c). We observe more than a 5-fold increase from the scenario with largest reliance on nCDR (12 GtCO₂) with 120$/tCO₂ to the scenario with little nCDR deployment and the most ambitious reduction (2 GtCO₂) with 610$/tCO₂. This is in line with Knopf et al. 2011²³ that find non-linearly increasing challanges to mitigation with increasing climate target stringency. On the other hand, the carbon subsidy for nCDR is less sensitive and only doubles across the full scope of scenarios, ranging from 200$/tCO₂ under little reliance on nCDR (2 GtCO₂) to 410$/t CO₂ in the scenario with strong nCDR deployment (12 GtCO₂) (see Figure 1d). Furthermore, most of the price increase only occurs for quantity targets beyond 8 GtCO₂ when DACCS enters the CDR portfolio while for the range of lower quantity targets the nCDR subsidy remains remarkably flat. The main reason for the lower price sensitivity of CDR is that there are no low-cost nCDR options available as sustainable biomass is always limited, and the demand for biofuels forces the more expensive Fischer-Tropsch-BECCS technology into the CDR portfolio. On the other end of the spectrum, DACCS is an expensive but scalable option, and higher demands do not increase prices as much.

The lower the target on residual emissions is, the higher are the necessary near- and long-term CO₂ prices and larger transitional challenges arise. Therefore, to avoid societal opposition and smooth out transitional challenges policymakers would likely rather understate the necessary reduction ambition and rely more on nCDR for achieving net-zero. If non-market co-benefits of large-scale nCDR deployment outweigh the sustainability risk, a CDR subsidy above the CO₂ price on emissions would be justified. In that case (blue scenarios) the necessary price on CO₂ emissions is lower, yet it entails crucial harms: higher residual emission targets lead to less near-term reductions that result in larger cumulative emissions (Figure 1) and lower emission reductions have to be compensated by more nCDR, leading to the risk of missing the climate target entirely if nCDR does not deliver as expected (Figure 3).

nCDR deployment and impacts of different net-zero formulations

We observe only very small contributions of CDR in 2030 across scenarios, as scale-up and technological advancement take time. However, having large amounts of CDR (< 6 GtCO2/yr) available in 2050 requires earlier scale-up, which translates to higher quanitites of up to 500 MtCO2/yr CDR already in 2030. Since almost all of this requires CCS, achieving such high amounts already in 2030 would require an immediate and global effort. For example, in the Net-Zero Industry Act, the European Commission has proposed that the EU develops at least 50 million tonnes per year of CO2 storage capacity by 2030, which primarily aims to cover industrial process emissions and will likely not be available for CDR. While the Net-Zero Industry Act is already ambitious, it is only a tenth of what might be needed for CDR alone underlining the risks associated with a too high reliance on future CDR availability.

CDR subsidies in the 10 and 12 GtCO₂/yr scenarios in 2040 are already high enough (> 200$/tCO₂) to incentivise significant contributions from EW. This is due to the fact that EW deployment relies on infrastructure for mining, grinding and transportation of material that already exists today and therefore EW can be scaled up in shorter time periods. BECCS and EW are the major contributors to fulfilling the CDR targets in 2050, contributing similar shares except for the 2 GtCO₂/yr (mostly BECCS). This potential early contribution of EW to permanent carbon removal suggests that EW should receive more attention as a component in regional CDR portfolios. Increasing the CDR quantity target, we find increasingly larger contributions from BECCS options with higher capture efficiency, such as H₂ and electricity production in addition to bioliquids.

The deployment of specific technologies and their relative contribution can depend strongly on the CDR target. EW is deployed in all scenarios except the one with the lowest CDR quantity target, and 2050 deployment scales up almost linearly with increasing CDR target. Industry CDR has in all scenarios a similar, but small contribution to overall removals. DACCS is only deployed in scenarios with quantity targets above 8 GtCO₂/yr and is accompanied by a significant increase in the necessary CDR subsidy due to its high costs. Note that we focus on global targets, and that at a regional level DACCS may be needed to reach country-level net-zero even for very low CDR targets.

Total biomass use is lowest in the equal-pricing net-zero formulation and increases stronger for high CDR targets (blue scenarios) than for low CDR targets (pink scenarios) (Figure 2 panel b). However, in 2050 total biomass use is already close to the exogenously imposed sustainability limit of 100 EJ/yr across the whole scenario range and all scenarios exploit the full potential shortly after net-zero and throughout the second half of the century. We find a quasi-linear relation between the 2050 gross CO₂ reduction target and the remaining fossil primary energy of approximately 15 EJ/yr increased fossil fuel use per GtCO₂/yr residual emissions at net-zero, corresponding to a reduction of 60-93% from fossil fuel use in 2020. Although available to the model, we do not observe fossil carbon capture in any of the scenarios, due to substantial residual emissions from imperfect capture and upstream CH₄ emissions²⁴ and the competition with nCDR for the carbon transport and storage infrastructure. We observe a quasi-linear increase in geologic carbon storage with a stronger increase for the highest CDR targets of 10-12 GtCO₂/yr when DACCS becomes viable. Interestingly, the total volume of captured carbon, exhibits similar magnitudes of around 5-6 GtCO₂/yr across CDR targets between 2 to 8 GtCO₂/yr. In low CDR scenarios (2-4 GtCO₂/yr), the amount of carbon captured that exceeds the CDR limit is not stored, but used to provide carbon-neutral synthetic fuels to substitute conventional liquids. Hence, even a low CDR target cannot mitigate all risks associated with large-scale CDR deployment. While it could limit the dependency on geologic CO₂ storage, it does not relieve the pressure on biomass demand or carbon capture, as these are needed to decarbonise remaining liquid fuels.

Fiscal and economic consequences of high and low CDR contributions to net-zero

If net-zero is achieved with separate targets, fiscal challenges may arise from diverging prices in the CDR and CO₂ emission markets¹².

For moderate deviations (4-10 GtCO₂/yr) from the equal-pricing contribution of nCDR to net-zero we observe only moderate efficiency losses of <10% additional consumption loss that might be acceptable in return of higher policy credibility (Figure 3). In absolute terms, it is a relatively large increase from 2.6% to 3.1% for the 12 GtCO₂/yr (from 2020-2050 with respect to continued current policies) and only 4.3% to 4.5% in 2 GtCO₂/yr scenario. This is in line with Strefler et al.²⁵ who also found only moderately increasing costs for moderate limitations on CDR in a uniform carbon pricing framework. To isolate the consumption losses introduced by the separation of targets (and the deviation from equal prices) from the additional consumption losses caused by achieving lower cumulative emissions (Figure 1), the additional consumption loss is calculated with respect to counterfactual scenarios, achieving the same respective cumulative CO₂ budget until 2050 but with a uniform carbon price on emissions and removals (see Methods).

If nCDR targets exceed the volume that would emerge in an equal-pricing case from an integrated market (blue scenarios), it will lead to a situation where the nCDR subsidy is larger than the CO₂ price and therefore total nCDR expenditures exceed total annual CO₂ tax revenues, leading to a heavy burden on taxpayers (Figure 3). The total carbon market value - the cumulative, discounted difference of CO₂ tax revenues and nCDR subsidy expenditure from 2020 to 2050 - would also be much smaller, as we find a decrease of carbon revenues and an increase of the nCDR subsidy expenditures with increasing nCDR targets. This strongly reduces the financial leeway for policy makers to support the transition, e.g., by subsidizing technologies or infrastructure or by redistributing revenues to ease regressive effects on poorer households.

On the other hand, if reduction targets are stricter than the market efficient outcome (pink scenarios), CO₂ prices could more than double, as discussed above. If the costs for nCDR are well below the costs for emission reduction, this may lead to political pressure from high-emitting actors calling for a relaxation of the reduction target, potentially leading to a gradual convergence of prices and iterative adjustments of the respective targets.

The separation of emission reduction and CDR targets could strengthen trust in political commitment, stabilise expectations and would set a clear signal for the pace and depth of the phase-out of fossil fuels. In addition, a target for CDR would also set clear signals for CDR suppliers and increase their planning security to enable sufficient parallel progress of reductions and removals^5,6,9,26. Furthermore a separation of emissions and removals is necessary, when damages from environmental side effects^27–29 are not reflected in the prices but are valued higher than the loss of economic efficiency from deviating from the economic optimum. If targets were to be separated to account for these market imperfections and externalities the question arises how they should be chosen. Here we analyse the consequences of deviations from the equal-pricing integrated market outcome. If targets were chosen with lower than equal-pricing CDR contributions and more stringent reduction targets, economic efficiency losses induced by a deviation remain limited at less than 10% additional mitigation costs. 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 financial 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. While these scenarios show a lower reliance on geologic storage of CO₂, we still observe a high demand for biomass due to increased pressure on the mitigation side. A sensitivity analysis exploring unconstrained biomass use across net-zero target formulations reveals that biomass use is almost identical for a wide range of scenarios 2–8 GtCO₂/yr. Note, however, that in low CDR scenarios a more stringent climate outcome is achieved with the same amount of biomass. When correcting for different climate outcomes, biomass use increases with increasing CDR target (see SI). Hence the CDR target has an impact on overall biomass use but is by far not the sole driver of exacerbated biomass demand. A low CDR target alone might not be enough to limit sustainability risks typically associated with large-scale CDR deployment particularly on land and additional land-use policies will therefore be needed³¹. Finally, the necessary CO₂-prices increase non-linearly with increasing reduction target strictness, posing aggravated transitional challenges. Ambitious emission reduction targets reduce reliance on CDR and therefore mitigate the risk of missing the climate target if large-scale CDR deployment should fail, but they also entail increasing risks of a failure of necessary emission reductions.

On the other hand, CDR contributions to net-zero higher than what would emerge from an integrated market outcome would only be socially optimal, if there are non-market co-benefits that outweigh the non-market side-effects of large-scale CDR deployment. So far, there is no such evidence in the literature. In that case, annual CDR expenditures at net-zero exceed revenues from emissions pricing, imposing a heavy burden on taxpayers and public funding. In case of very high CDR targets, mitigation costs increase significantly. The associated price on emissions is lower, easing transitional challenges but resulting in higher cumulative emissions and therefore higher climate impacts.

It is important to note that the REMIND modelling framework used for this study has no internal price uncertainties and optimises with perfect foresight. However, large uncertainties on future costs of emission reduction and CDR deployment exist. 1.5°C mitigation pathways assessed by the 6th assessment report of the IPCC(AR6, Riahi et al., Chap. 3)³² show a large spread in carbon prices (see Fig. 2 in SI) as well as CDR contributions to net-zero. While we present relevant insights on the consequences of deviating from the outcome of an integrated market, the absolute numbers are inherently uncertain. Even more so, global numbers presented in this study cannot be downscaled to regional levels. Special attention has to be paid to the fact that the emission accounting as well as the scope varies between this study and the net-zero targets adopted by many Annex I countries. Here we analyse global net-zero CO₂ but many countries also include non-CO₂ emissions but also additional carbon flows from managed forests in their pledge to net-zero. In particualr, significant discrepancies between country level land sink accounting and accounting in IAMs currently exist due to inconsistencies in the definition of anthropogenic flows from forests³³. Finally, this analysis assumes a globally uniform carbon price, perfect foresight and full international cooperation to reach the specified net-zero targets.

Future work should explore more heterogeneous and diverse policy assumptions that better reflect the ambition levels of real world actors and the implications of separate targets for regional net-zero CO₂ or GHG targets. For that, the respective scope of emissions, local constraints to deployment as well as implications of burden sharing and fairness principles^34,35 are key. Lastly, for designing optimal policy instruments, it is necessary to keep the long-term goal in mind⁹ and not stop considerations at net-zero. In the case of CDR governance, after net-zero, net-negative emissions will likely be needed to return to the safe operating space after a temporal temerature overshoot²¹. In the literature, several proposals on how to operationalise net-negative emissions have been brought forward^36,37. When targets and therefore markets on emissions and removals shall be separated, further analysis is needed on how it could help or hinder achieving net-negative emissions in the second half of this century.

In summary, there are strong arguments to set emission reduction targets rather strict than too lose to avoid overemphasizing CDR and underinvestment into low-carbon technologies. A mechanism for iterative adjustments of the two targets once more knowledge on environmental side effects and future costs becomes available might be an option to increase intertemporal flexibility. The price on emissions, or alternative, equally stringent climate policy instruments, in 2030 are essential to bring the world on track to stay within the 1.5° carbon budget. It also reduces the overshoot and with that the necessary finance volumes to incentivize large amounts of net-negative emissions over the 2nd half of the 21st century. Hence it is of utmost importance to not underestimate it in near-term policies.

Acknowledgement

This research has received funding from the European Union’s Horizon Europe research and innovation programme under grant agreement No. 101081521 “Bridging current knowledge gaps to enable the UPTAKE of carbon dioxide removal methods” (UPTAKE project). The authors gratefully acknowledge the European Regional Development Fund (ERDF), the German Federal Ministry of Education and Research and the Land Brandenburg for supporting this project by providing resources on the high performance computer system at the Potsdam Institute for Climate Impact Research.

Data availability

The specific model runs and scenario data as well as plotting routines for this study are archived at Zenodo under a CC-BY-4.0 license upon publication and is available under https://zenodo.org/doi/10.5281/zenodo.11562230.

Code availability

The REMIND code is available under the GNU Affero General Public License, version 3 (AGPLv3) via GitHub https://github.com/remindmodel/remind. We use a model version based on REMINDv3.2.0 that additionally includes a separate carbon market for novel CDR. The code is available on Github at https://github.com/amerfort/remind/tree/SepMark_REMIND3.2.0 and technical documentation of the equation structure can be found at [https://rse.pik-potsdam.de/doc/remind/3.2.0].

Author contributions

All authors conceived the study. A.M., J.S., N.B., E.K., G.L. and O.E. conceived the experiments. A.M, J.S., G.A, N.B., T.D., E.K., G.L. and L.M. contributed to developing the energy-economy. A.M. performed the experiment. A.M., G.A. and L.M. performed data analysis and created the figures. A.M wrote the manuscript with input and feedback from all authors.

Competing interests

The authors declare no competing interests.

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Creutzig, F. et al. Bioenergy and climate change mitigation: an assessment. GCB Bioenergy 7, 916–944 (2015).

Modelling framework

The model description is taken from (Strefler et al 2021)³⁸. “We use the global multi-regional energy-economy-climate model REMIND²⁰ Version [3.2.0] for our analysis. REMIND is open source and available on GitHub at https://github.com/remindmodel/remind. The technical documentation of the equation structure can be found at [https://rse.pik-potsdam.de/doc/remind/3.2.0]. In REMIND, each single region is modelled as a hybrid energy-economy system and is able to interact with the other regions by means of trade. Tradable goods are the exhaustible primary energy carriers coal, oil, gas and uranium, a composite good, and emission permits. The economy sector is modelled by a Ramsey-type growth model which maximizes utility, a function of consumption. Labour, capital, and end-use energy generate the macroeconomic output, i.e. GDP. The produced GDP covers the costs of the energy system, the macroeconomic investments, the export of a composite good, and consumption. The energy sector is described with high technological detail. It uses exhaustible and renewable primary energy carriers and converts them to final energies as electricity, heat, and fuels. Various conversion technologies are available, including technologies with carbon capture and storage (CCS). Regional annual CCS deployment is limited to 0.5% of total storage capacity. This limits total global CCS use to ~20 Gt CO₂/yr.”

Separate markets on residual emissions and CDR

Table 1: Components of the separate emission markets divided into "nCDR" and "CO₂ emissions" used throughout this study.

CO₂ Removals (nCDR)	CO₂ Emissions (excluding nCDR)
BECCS (four supply side technology routes)	Gross energy
DACCS	Industrial processes
Enhanced Weathering	Land-use
Industry CDR (demand side CCS with carbon neutral fuels such as biofuels or synthetic fuels)	Land-use change (including positive emissions from deforestation or conversion of carbon rich land and removals from afforestation/reforestation)

In this study we set separate quantity targets on CO₂ emissions and nCDR (for explicit definition refer to Table 1) in 2050 such that global carbon neutrality is reached. For this we exclude negative emissions generated by nCDR technologies from the default tax on emissions and add a complementary subsidy. The carbon price trajectories for both, emissions and removals, follow a Hotelling price path that increases at 5% per year and the starting value in 2025 is iteratively adapted such that the annual emission or removal target in 2050 is met. In the market efficient case the removal price and the CDR subsidy are identical.

Land-use and land-use change CO₂ emissions as well as non-CO₂ GHGs are also penalised with the price on CO₂ emissions and are abated using exogenous marginal abatement cost curves derived from coupled REMIND-MAgPIE scenarios with comparably stringent climate protection. In all scenarios the carbon price on emission is sufficiently high to tap most of the abatement potential and hence the scenarios exhibit almost identical land-use change and non-CO₂ GHG contributions and we therefore forgo a detailed analysis of the respective emission reductions.

CDR technology portfolio

The following nCDR options are available to REMIND v3.2.0: bioenergy with carbon capture and storage (BECCS) with 4 conversion routes (electricity, hydrogen, biogas and biodiesel), direct air carbon capture and storage (DACCS), enhanced weathering of rocks (EW) and industry CDR from combining carbon neutral fuels (i.e. bio- or synthetic fuels) with CCS in the industry sector. For techno-economic data on capture rates, costs, energy requirements and other relevant limitations of nCDR technologies see SI. Total biomass availability is constrained in all scenarios to 100 EJ/yr for sustainability concerns ³⁹, which is in all cases fully exploited after 2050. Therefore, the bioenergy impact on the land-system (and with that associated land-use change emissions) are almost identical across the scenario range. A sensitivity analysis with unconstrained biomass availability can be found in the SI.

Note that re-/afforestation cannot be treated the same way as the other CDR options. In the case of separate targets (and hence separate monetary incentives) of emission reduction and CDR it could lead to situations where clearing of existing forests in favour of reforestation is incentivised when the CDR subsidy is higher than the price on CO₂ emissions. We therefore exclude it from the total CDR target and focus solely on nCDR. We use the default REMIND-standalone setup with exogenous data on net-LULUCF emissions derived from coupled REMINDv3.2.0-MAgPIEv4.6.4 scenarios based on rcp2.0 and SSP2. For this study, net-LULUCF emissions are fully accounted for in the residual emission.

Economic efficiency indicators

As the scenarios from the main text display variations in the respective cumulative emissions until 2050 (see fig. 1b), pathways are not directly comparable with respect to their economic efficiency, as consumption losses result from the deviation from the model-internal economic efficient contribution of CDR to net-zero (i.e. from equal pricing) but even stronger from increasing mitigation effort with resulting lower cumulative emissions. As we explicitly want to assess the economic losses induced by the separation of carbon markets, we have to subtract the consumption losses from increasing mitigation efforts. For that we use counterfactual scenarios that reach the same cumulative emissions but with only a single carbon market (i.e. equal prices) for emissions and removals. We calculate the difference of cumulative, discounted consumption losses from 2020-2050 (w.r.t. 2020 and at discount rate 5%) from the main scenarios with their corresponding counterfactual scenario. The additional consumption loss can then be attributed to the separation of carbon markets and is displayed in (Figure 3).

There is NO Competing Interest.

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Separating CO2 emission from removal targets comes with limited cost impacts

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