Incentivizing Negative Emissions Through Carbon Shares

I analyze a novel climate policy instrument that attaches a transferable asset to each unit of carbon in the atmosphere. I show that this instrument improves on an emission tax by incentivizing both optimal emission reductions and optimal removal of past emissions. Emitters post a bond equal to the worst-case social cost of carbon, and the regulator deducts damages as they are realized over time. Quantitatively, a bond that is double the optimal emission tax is sufficient to provide optimal carbon removal incentives in 95% of cases.