A two-step carbon pricing scheme enabling a net-zero and net-negative CO$$_2$$-emissions world

Abstract

AbstractThis contribution introduces a novel carbon pricing system and illustrates its benefits. The system is based on two related but distinct ideas. First, we group the global pools of carbon into three aggregate pools, and we tax or credit human-caused carbon fluxes across the boundaries of the pools. Second, we base the tax or credit solely on physical movements of carbon between pools; hence, the system uses a physical baseline instead of a behavioral baseline based on the hypothetical emissions levels that would have arisen absent the carbon price. The proposed system goes beyond the limitations of current carbon pricing schemes for a number of reasons: it is designed to capture all positive and negative emissions based purely on their climate impact, allowing a broader scope and more appropriate incentives than current systems; it avoids creating bad incentives, particularly those caused by additionality requirements found in carbon offset systems; it captures the complexity of carbon movements through human and natural systems; it reduces measurement errors; and it provides transparent and easily observed price signals. Though this manuscript is conceptual in nature and refrains from discussing the technicalities related to the implementation of the proposed carbon pricing system, we trust that it may contribute to the development of policies enabling a net-zero and net-negative CO$$_{2}$$ 2 -emissions world.