Carbon dioxide removal can help the climate––if only the government can enable competition
WASHINGTON (Oct. 24, 2022)—A new report published today by Philip Rossetti, resident senior fellow for Energy Policy at the R Street Institute and Nick Loris, vice president of public policy at C3 Solutions, explains the benefits of carbon dioxide removal (CDR) technology and its potential in public and private sectors.
CDR is exactly what it sounds like: the removal of carbon dioxide from the atmosphere. This can be done in a number of natural ways including planting trees, but in recent years technological options have become attractive to remove CO₂ from the atmosphere. Direct air capture (DAC) facilities effectively run air through chemical reactions to extract CO₂.
Demand for carbon capture and removal technology that could benefit both public and private markets is burgeoning. CDR is a promising option that could reduce the costs of climate change and lessen the risk of high-impact tail scenarios. However, the role that public policy plays in regards to CDR technology and the structure of any policy is of critical importance to the technology’s success.
While policymakers are keen on using public funds for these efforts, they should prioritize policies that enable choice. The market is a much better tool for rewarding outcomes over political debates. Policy mechanisms like reverse auctions—where there is one buyer and many sellers competing to offer the lowest price—are ideal for stimulating market entry and innovation, as they allow the most efficient technologies to claim the most profit.
Importantly, this paper does not advocate for any specific climate program or subsidy, but it is important to note that a reverse auction would be a much better tool for garnering innovation in carbon dioxide removal technology than alternative programs such as grants, 45Q expansions or regulatory mandates.
Rossetti and Loris are clear, “[i]f designed with competition, CDR policies could increase economic efficiency, protect the taxpayer and help drive cost reductions.” Conversely, “[i]f designed incorrectly or if policy oversteps the role of the private sector, government intervention could misallocate resources and impede the progress of the very technologies it aims to promote.”