Climate Protection Policy Instruments - Incentive Models for Carbon Dioxide Removal

This paper explores the policy instruments and incentive models that can effectively support CDR deployment.

by Matthias Poralla

Carbon dioxide removal (CDR) has rapidly evolved from a marginal topic into a central pillar of international climate policy. Achieving the objectives of the Paris Agreement requires not only ambitious emission reductions but also large-scale CDR to balance residual emissions from hard-to-abate sectors such as agriculture and transport. In Germany, projections suggest up to 77 million tonnes of residual emissions by 2045, necessitating an estimated 160 million tonnes of removals, of which around 64 million tonnes would need to come from technological solutions such as Direct Air Capture and Storage (DACCS) or Bioenergy with Carbon Capture and Storage (BECCS). Given the decline of natural sinks, the development and scaling of technical removal methods is indispensable.

This paper explores the policy instruments and incentive models that can effectively support CDR deployment. CDR represents a novel policy field and a global public good, requiring political intervention and financial incentives to overcome high costs, uncertainties in monitoring, reporting, and verification (MRV), and underdeveloped market mechanisms. A taxonomy of instruments, aligned with IPCC classifications, distinguishes between market-based and non-market-based approaches, both of which are most effective in combination. Market-based instruments include compliance carbon markets, voluntary carbon markets, and Article 6 mechanisms of the Paris Agreement. While compliance markets have so far focused on emission reductions, integrating durable CDR methods could create stable demand. Voluntary markets currently offer the most dynamic testing ground for pilot projects but require stronger standardization. Article 6 frameworks could facilitate international cooperation, enabling the transfer of CDR outcomes between states.

Non-market-based instruments include subsidies, tax incentives, and Carbon Contracts for Difference (CCFDs), which reduce investment risks and accelerate market entry but risk long-term dependency on public funding. CO, taxes, though politically contentious, can be linked to removal by earmarking revenues or allowing offset substitution. Regulatory frameworks, such as the EU Carbon Removals Certification Framework, establish permanence and MRV standards, while voluntary agreements - e.g., sectoral commitments - and informational instruments can complement financial incentives. Scenario analysis suggests that CCFDs may serve as transitional instruments toward market integration, while national tax credits can spur investment, but risk stranded assets in the absence of stable follow-up markets.

The study concludes that CDR is a necessary complement to emissions reduction rather than an alternative. Policymakers should pursue a sequenced instrument mix: short-term subsidies to overcome entry barriers, medium-term integration into compliance markets, and long-term regulatory frameworks to ensure investment security. Robust MRV and liability rules are essential to maintain environmental integrity, alongside international harmonization of standards and targeted support for projects in the Global South. Finally, societal acceptance must be strengthened through transparent decision-making and equitable distribution of costs and benefits.

Article in German language (There is a free trial available)

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published: Abfallwirtschaft und Energie Band 3, TK Verlag, Berlin, Germany, 1|2026
Keywords: Pollution Control, Policy Tax Instruments, Sustainability, Climate, Resource management, Germany

Matthias Poralla
Perspectives Climate Group