Funding large-scale negative emissions through a carbon market designed for traditional emission reduction strategies risks exacerbating long-term economic inequality. We suggest exploring alternative financing mechanisms that address this concern and that still ensure decarbonization at reasonable costs.
Recommendations for policy
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In a net-zero emissions world, NETs could become a trillion-dollar business globally.
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If financed through an unregulated carbon market, the owners of these companies would enjoy windfall profits, potentially leading to a large increase in economic inequality.
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Market regulation, such as profit caps, could reduce the inequality increase, but at the risk of stimulating too much or too little carbon removal — policymakers should be aware of this trade-off.
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Concentrating removal efforts in the Global North or transferring resources to the Global South could, to some extent, offset the increase in inequality at the global level.
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These dynamics mostly apply to a net-zero and post-net-zero world. The current priority of policymakers should remain to provide adequate resources to scale up NETs towards technology maturity.
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Further reading
Budolfson, M. et al. Climate action with revenue recycling has benefits for poverty, inequality and well-being. Nat. Clim. Change 11, 1111–1116 (2021). This paper provides a global analysis of the long-term distributional effects of climate policy and carbon taxes using a similar modelling framework.
Semieniuk, G. et al. Potential pension fund losses should not deter high-income countries from bold climate action. Joule 7, 1383–1387 (2023). This article discusses the international and within-country distributional implications of the propagation of losses related to fossil fuel stranded assets.
Gazzotti, P. et al. Persistent inequality in economically optimal climate policies. Nat. Commun. 12, 3421 (2021). This paper presents a model-based analysis of the between-country inequality consequences of climate policy and climate impacts.
Fyson, C. L., Baur, S., Gidden, M. & Schleussner, C.-F. Fair-share carbon dioxide removal increases major emitter responsibility. Nat. Clim. Change 10, 836–841 (2020). This paper quantitatively reflects on the role of equity principles in shaping the international distribution of carbon-removal efforts in deep mitigation scenarios.
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Andreoni, P., Emmerling, J. & Tavoni, M. Financing negative emissions leads to windfall profits and inequality at net zero. Nat. Clim. Chang. 14, 20–21 (2024). https://doi.org/10.1038/s41558-023-01871-6
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DOI: https://doi.org/10.1038/s41558-023-01871-6
