The Potsdam Institute for Climate Impact Research (PIK) and KfW, a leading promotional bank, have introduced a new financing concept for carbon removals at the World Climate Summit. This initiative aims to address the slow pace of CO2 emission reductions and mitigate climate damage costs, which are projected to rise significantly by 2050.
PIK Director Ottmar Edenhofer and KfW CEO Stefan Wintels will present their discussion paper on November 14 at the UN Climate Change Conference, COP 29, in Baku. The document outlines the economic necessity of removing CO2 from the atmosphere, estimating that climate damages per tonne of CO2 could reach 1,000 euros or more. In contrast, current European emissions trading prices are approximately 65 euros per tonne.
The proposal suggests integrating carbon removals into existing emissions trading systems to stimulate market development. Promotional banks like KfW could facilitate this by launching early purchase programs and assuming risks. "Clean-up certificates" are proposed as incentives for private-sector demand, allowing companies to commit to future CO2 removal rather than immediate emission allowances.
Edenhofer emphasizes the urgency of expanding this market: “Time is of the essence for such an expansion.” He highlights that stimulating demand now can help bridge the gap between innovation and marketability in the emerging removal industry.
The discussion paper positions CO2 retrieval and storage as a crucial element of climate policy alongside emission reduction and adaptation. It calls for enhanced government support through grants, premiums, or tax incentives to encourage research and development in carbon removal technologies.
Stefan Wintels underscores the need for innovative governance structures: “In such a situation, creative power is needed. New structures of governance, markets and financing are required to integrate private capital and establish markets.”
At COP 29, PIK and KfW also stress how carbon removal could transform international climate policy. They note that while industrialized countries currently drive demand, the Global South holds natural advantages as a provider of removals. This aligns with discussions on Article 6 of the Paris Agreement regarding voluntary climate cooperation between states.