@techreport{FranksKalkuhlLessmann2022,
  type      = {Working Paper},
  author    = {Franks, Max and Kalkuhl, Matthias and Lessmann, Kai},
  title     = {Optimal Pricing for Carbon Dioxide Removal Under Inter-Regional Leakage},
  series = {CEPA Discussion Papers},
  journal   = {CEPA Discussion Papers},
  number    = {43},
  issn      = {2628-653X},
  doi       = {10.25932/publishup-53808},
  url       = {http://nbn-resolving.de/urn:nbn:de:kobv:517-opus4-538080},
  pages     = {12},
  year      = {2022},
  abstract  = {Carbon dioxide removal (CDR) moves atmospheric carbon to geological or land-based sinks. In a first-best setting, the optimal use of CDR is achieved by a removal subsidy that equals the optimal carbon tax and marginal damages. We derive second-best subsidies for CDR when no global carbon price exists but a national government implements a unilateral climate policy. We find that the optimal carbon tax differs from an optimal CDR subsidy because of carbon leakage, terms-of-trade and fossil resource rent dynamics. First, the optimal removal subsidy tends to be larger than the carbon tax because of lower supply-side leakage on fossil resource markets. Second, terms-of-trade effects exacerbate this wedge for net resource exporters, implying even larger removal subsidies. Third, the optimal removal subsidy may fall below the carbon tax for resource-poor countries when marginal environmental damages are small.},
  language  = {en}
}