As atmospheric concentrations of CO2 continue to rise, we expose future generations to face massive carbon debt. IIASA researchers and international colleagues call for immediate action to establish carbon debt accountability by implementing carbon phase-out obligations, for example, in the next review of the emissions trading system issue of the EU.
Over the past decades, governments have collectively pledged to slow global warming through agreements such as the Kyoto Protocol and the Paris Agreement. Despite the ratification of these agreements by a large number of countries, the atmospheric concentration of CO2 continues to rise. At the rate we are going, we are on track to utilize the remaining amount of CO2 to limit the temperature rise to around 1.5 ° C over the next ten years. If this so-called “carbon budget” runs out before net emissions are reached globally, we will have to eliminate a ton of CO2 of the atmosphere later in the century for each additional tonne of CO2 that we issue after this point. In other words, if we continue on our current trajectory – which is most likely the case – we will accumulate carbon debt.
The authors of a new study which has just appeared in Nature stress that the net zero promises made by a growing number of countries already assume that a substantial amount of carbon debt will have to be offset by long-term negative net emissions. The idealized global scenarios from the Intergovernmental Panel on Climate Change (IPCC) special report on 1.5 ° C warming, for example, suggest that carbon debt could rise to the equivalent of 2 at 18 years of pre-COVID emissions. This amount is doomed to increase if we fail to reduce CO2 by about 50% by 2030, or if significant feedbacks from the Earth system, such as additional emissions from melting permafrost, occur.
“With its recently adopted climate law, the European Union has not only decided to achieve net zero greenhouse gas emissions by 2050, but already to go net negative thereafter, potentially helping to reduce the global carbon budget overrun. However, so far this is not the case – more than a statement, as any serious discussion of instruments to establish long-term responsibility for large-scale phase-out carbon dioxide is lacking, both in the political debate and in the academic debate, ”says Johannes Bednar, IIASA researcher and doctoral student at the University of Oxford, the study’s lead author.
Despite existing ambitious programs to achieve net zero emissions, there is generally a lack of strategy to pay off potentially costly carbon debt. By implication, we risk that future generations will end up with massive debt, which is not only questionable from an equity standpoint but also dramatically reduces our chances of limiting warming to 1.5 ° C in the long run. To ensure the sustainability of a future net negative carbon economy, the authors argue that funds for carbon debt repayment must be raised through carbon pricing while emissions are still in the net positive domain. Economic logic dictates that the last possible time to start doing so is when the carbon budget runs out.
Using carbon pricing to raise money for carbon debt repayment works through both carbon taxes and emissions trading systems. For carbon taxes, a fraction of tax revenue would have to be allocated to future net negative emissions, which in some ways amounts to paying into trust funds for nuclear decommissioning. Carbon taxes, however, carry the risk that insufficient funding will be raised in the short term through politically set prices to cover the highly uncertain CO.2 moving costs in the future; or that savings are used for other political purposes.
The study shows that in the case of an idealized global emissions trading system, emission caps should accurately reflect the near-depleted carbon budget. For existing trading systems, such as the EU Emissions Trading System, this would imply a downward correction of the currently programmed emission ceilings. The resulting reduction in emission allowances, which would require CO emissions2 however, net zero emissions during this decade could be offset. Companies that continue to emit large amounts of CO2 would be able to hang on to an obligation to remove an equivalent amount of CO2 in the future. Carbon debt would therefore be managed by so-called carbon elimination obligations, which establish legal responsibility for the repayment of carbon debt.
Emissions trading systems must then begin to manage the default risk of carbon debtors. The authors suggest that this could be solved by treating carbon debt like financial debt by charging interest on it. Interest payments can be viewed as rental charges for temporary storage of CO2 in the air. However, since carbon phase-out bonds are marketable assets, this would help reduce the risks of carbon markets over time.
“Decarbonization bonds are completely changing the way we see CO2 deletions: from magical tools to enable a 30-year period of the Great Atmospheric Restoration Project, to a technological option that is being developed and tested today and that is scaled up in a flexible and more gradual manner throughout the 21st century and possibly beyond, ”notes researcher and IIASA study co-author Fabian Wagner.
According to the authors, this policy proposal resolves some of the major inconsistencies in the current literature on predictable long-term climate policy scenarios and failures. Instead of burdening future generations, carbon phase-out obligations imply a much more equitable distribution of financial flows and costs over time. In addition, in climate change mitigation scenarios, a larger portfolio of CO2 technologies enabling phase-out generally go hand in hand with increased carbon debt and heavy dependence on CO2 removal later in the century. With carbon phase-out obligations in place, carbon debt is penalized by interest payments. In this case, say the authors, CO2 elimination helps minimize carbon debt and the associated risks if it is scaled up in the short term to facilitate a faster path to net zero.
“The idea of intertemporal emissions trading has been around for some time. However, its critical importance in dealing with net negative emissions has only been discovered now. Carbon phase-out obligations are in principle fully compatible with existing emissions trading systems. Nonetheless, for regulators and financial institutions this marks new territory, and frictionless operation will only be possible after a few years of pilot testing, ”said co-author Michael Obersteiner, senior researcher at IIASA and director from the Environmental Change Institute at the University of Oxford. “With the rapid exhaustion of the carbon budget, we therefore call for immediate action to establish accountability for carbon debt by implementing carbon phase-out obligations,” he concludes.