The Potsdam Institute for Climate Impact Research (PIK) and KfW Development Bank have teamed up on exploring a new pathway for stimulating carbon removal initiatives.
The two partners have put together a discussion paper, which they will present this week at the COP29 Conference.
In this document, PIK and KfW consider the possibility of carbon removal projects being included into existing national emissions trading schemes like the EU Emission Trading System.
According to PIK and KfW, this scenario would require a rapid market expansion, one that can be facilitated by innovative financial incentives that would power the needed sector growth.
Banks like KfW could serve as the lever that would provide the initial lift for projects by offering early purchase programs and assuming risk. The two partners suggest that mechanisms such as “clean-up certificates” can catalyze early-stage demand from the private sector, accelerating the pace of market development.
This approach would provide an alternative to the up-front emission allowance payments with a new system that will enable interested parties to commit to having the CO2 removed from the atmosphere at a later date, optimally via a high-quality process like direct air capture or enhanced rock weathering.
The partners highlight that transparency, quality assurance, and tracking the overall impact on the environment are vital factors that would contribute to the success of this carbon removal proposal. Additionally, to ensure the market liquidity and stability, a dedicated European institution needs to be established to navigate the trading landscape.
The paper put together by PIK and KfW labels CO2 removal and storage as the third pillar of climate policy, alongside carbon capture efforts and climate change adaptation.
As explained by the authors, to spur carbon removal advancement, the government needs to provide better carbon pricing support. To that end, public sector grants, premiums, or tax incentives could trigger more research and development in this field.
The government could also improve the conditions for venture capital investments, while promotional loans can help power pilot carbon removal projects, promoting the wider adoption of these technologies.
Read more: Carbonx Issued Its First Report On Bridging The Gap In Carbon Removal Financing
