Policy Brief: Build Carbon Removal Reserve to Secure Future of EU Emissions Trading

by Wilfried Rickels, Mathias Fridahl, Roland Rothenstein, Felix Schenuit, Kiel Institute for the World Economy, May 2024

Transforming an existing ETS that covers gross emissions into a net-emissions system that covers both emissions and removals and introducing a net-zero cap followed by a net-negative cap, poses the challenges of ensuring that the market remains operational and that the policy objectives underlying the ETS are maintained during the transition period. The EU faces this dual challenge. Delpla and Gollier (2019), Rickels, Proelß, et al. (2021), Rickels, Rothenstein, et al. (2022), and Edenhofer et al. (2024) propose introducing a Carbon Central Bank (CCB) to manage the inclusion of CRC trading and the transformation of the existing EU ETS into a net-zero and then net-negative ETS.