Work

Fixing carbon credits requires a new financing model

Year: 2026

Type: article

Abstract: Carbon-crediting mechanisms could play a critical role in achieving net zero, yet growing evidence shows that many offset projects lack environmental integrity. Achieving geological net zero requires balancing residual fossil fuel-based emissions with permanent carbon dioxide removal (CDR), making the scale-up of CDR essential. However, current discussions on improving carbon-crediting mechanisms have focused too narrowly on implementation challenges, such as refining standards or monitoring systems. We argue that scaling permanent carbon removal requires a new financing model to address market barriers. This financing model must reduce price volatility and raise credit prices to attract investment. We propose a tiered auction framework to build and scale markets for novel CDR technologies by (i) setting a permanent removal target, (ii) ensuring minimum quality standards, and (iii) running reverse auctions combined with first-of-a-kind finance.

Source: PNAS Nexus

DOI: 10.1093/pnasnexus/pgag117

Authors: Benedict S Probst, Florian Egli

Institutions: University of Cambridge, ETH Zurich, Max Planck Institute for Innovation and Competition, Technical University of Munich

Language: English

Topic: Climate Change Policy and Economics

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Climate action

Open Access status: gold

Estimated APC paid: $4,202