Conditional fungibility: sequencing permanent removals into emissions trading systems

Carbon dioxide removal (CDR) is a cornerstone of climate change mitigation strategies aiming for net-zero CO₂ and GHG emissions targets, as emphasized in the IPCC AR6 (IPCC 2023) and many national modeling studies (Larson et al 2021, He et al 2022, European Commission 2024). However, a significant gap exists between the CDR required in climate scenarios and the current state of CDR in terms of public and private finance, policy instruments, and actual deployment (Smith et al 2024). A broad portfolio of CDR policy instruments and CDR methods will be needed to address this gap in the coming years and decades.

The upscaling pathways of the individual methods differ significantly. In addition to technological readiness, costs, side effects, and other method-specific aspects, the upscaling dynamics will also be shaped by its embeddedness in existing policy architectures and sector- and country-specific politics. The role of specific CDR methods in climate policy should be fundamentally shaped by their permanence features. The positioning of methods on the continuum from decades to centuries, centuries to millennia, ten thousand years or more has important implications for the fungibility of emissions and removals, which in turn informs the emerging discussion on the potential integration of these methods into cap-and-trade systems.

In order to highlight the importance of permanence for designing CDR policies in general and deriving implications for policy discussion on possible ETS integration more specifically, this perspective is structured as follows: first, we present the policy context and a mapping and conceptual distinction of five groups of measures applicable to address varying levels of permanence in CDR policy. Second, we make the case for limiting the fungibility of different CDR methods with each other and with fossil CO₂ emissions. Third, and building on the identified measures and conditional fungibility, we present a sequencing strategy for integrating permanent removals into existing compliance carbon markets.

Josh Burke and Felix Schenuit 2024 Environ. Res. Lett. 19 111002
DOI 10.1088/1748-9326/ad796b