Researching and Designing Market Shaping Tools for Carbon Removal
Carbon dioxide removal is a pure public good—its benefits are global, while the entity that funds it receives only a tiny fraction of the total social benefit. This imbalance creates little incentive for private investment in carbon removal as there is little opportunity for private return on that investment. As a result, private research, development, and deployment of carbon removal remains far below the socially optimal level.
This project aims to discover the most effective economic tools to incentivize the research, development, and deployment of carbon dioxide removal technologies. To do so, several preliminary questions must be addressed, including:
- To what extent are potential cost reductions for carbon removal driven by learning-by-doing versus fundamental research? This question motivates whether public incentives should emphasize spending today or reserve money for the future.
- How should funders balance between push funding (paying upfront to specific firms for specific projects) and pull funding (paying proportionately based on outputs or outcomes)? Answering this question requires an understanding of the extent of private information held by firms and the level of uncertainty about which carbon removal approaches are most promising.
- How can funders create a pathway-agnostic funding mechanism that recognizes the idiosyncrasies inherit to each approach? For example, some approaches vary in their ease of measurement and verification, while others vary in their potential negative or positive ecological side effects.
Answering these questions and designing effective market shaping mechanisms could provide policymakers and private funders with better tools to support carbon removal at scale.
