Pigou’s Advice and Sisyphus’ Warning: Carbon Pricing with Non-Permanent Carbon Dioxide Removal

Overview

This research examines optimal policy design for carbon dioxide removal and storage technologies, distinguishing between permanent and non-permanent sequestration approaches. Non-permanent CDR refers to storage solutions from which captured carbon is eventually released back into the atmosphere, while permanent CDR involves indefinite sequestration. The analysis applies welfare economics and public economics frameworks to evaluate how non-permanent CDR can function as a transitional technology while permanent solutions develop. A central contribution is the identification that non-permanent CDR, despite its temporal limitations, can reduce overall mitigation costs and serve strategic purposes in climate policy. The work addresses the economic valuation challenge posed by non-permanent storage, where standard social cost of carbon metrics do not fully capture the dynamics of eventual re-release.

Methods and approach

The study develops a theoretical framework grounded in welfare and public economics to assess optimal deployment conditions for both permanent and non-permanent carbon removal technologies. The analysis distinguishes between the valuation mechanisms appropriate for each storage type, introducing the concept of a social cost of carbon removal that accounts for marginal damages from emissions eventually released from non-permanent storage. The framework evaluates three distinct policy regimes designed to achieve optimal non-permanent CDR deployment, examining each regime according to its informational requirements, monitoring demands, liability structures, and financing mechanisms. This comparative institutional analysis provides a basis for assessing the practical feasibility and efficiency of different regulatory approaches.

Results

The analysis demonstrates that non-permanent CDR can reduce mitigation costs even though stored carbon is released eventually, supporting its role as a bridge technology during the transition to permanent removal capacity. A critical finding is that non-permanent CDR does not alter the optimal long-run temperature target, distinguishing its climate impact from permanent removal technologies. The valuation of non-permanent CDR diverges from conventional social cost of carbon calculations because marginal damages from eventual re-release must be incorporated through a distinct social cost of carbon removal metric. The three policy regimes examined differ substantially in their institutional and informational requirements, creating trade-offs between monitoring intensity, liability assignment, and financing structures that affect implementation feasibility and efficiency.

Implications

The findings indicate that policy frameworks for carbon removal must differentiate between permanent and non-permanent storage technologies, as their optimal deployment conditions and economic valuations follow distinct principles. The identification of a social cost of carbon removal as a separate metric from the social cost of carbon has implications for pricing mechanisms and regulatory design in carbon markets and climate policy instruments. The comparative assessment of policy regimes provides guidance for institutional design, highlighting that the choice among regulatory approaches involves balancing informational demands, monitoring capacity, liability allocation, and financing arrangements. These insights are relevant for jurisdictions developing carbon removal strategies where non-permanent solutions may provide cost-effective transitional options while permanent technologies scale.