Attaining Net-Zero through a GHG-Economic Sector

Abstract

Greenhouse gas (GHG) emitters haven’t faced the costs of using the atmosphere. Limiting climate change requires internalizing that economic externality. Trading GHG emissions is a possible solution, yet the trading implemented to date is based on the issuance of permits, which are licenses to emit, meaning net-positive emissions. To attain net-zero, positive emissions must be traded against negative emissions. Modeling an economy in which GHG credits are earned for removing emissions reveals a GHG-Sector through which economic activity limits climate change. Analysis of the model indicates that if direct air capture of CO2 is part of attaining net-zero, then market prices will direct all pre-emission captured CO2 (e.g., flu gas) to sequestration. The policy implications of a GHG-Sector for sustainable transitions in aviation, food production, and elsewhere are discussed.