By Faridat Salifu
Global climate damages could surge into trillions of euros annually by 2050 if climate change continues unchecked, according to a research.
The research, conducted by Potsdam Institute for Climate Impact Research (PIK) and German Development Bank (KfW), estimates that the economic damage of each tonne of CO₂ emitted already stands at 1,000 euros or more, compared to the current price of 65 euros per tonne in the European carbon market.
The research is to be presented by PIK Director, Ottmar Edenhofer, and KfW CEO, Stefan Wintels, at COP29 in Baku on November 14, 2024.
The research contains a proposal, which aims to establish a sustainable and scalable carbon removal market, as it advocates for a sweeping financial architecture to mobilise private capital for carbon removal efforts.
The two researchers painted a scary picture of the current global carbon emissions situation, remarking that global CO₂ emissions reductions progressing too slowly to keep global heating below 1.5°C.
The discussion paper the two organisations will introduce outlines the economic urgency of investing in large-scale CO₂ removal.
Edenhofer and Wintels propose integrating carbon removals into the existing emissions trading system, creating a new market mechanism that promotes private-sector engagement.
They argue that promotional banks like KfW could be pivotal by launching early purchase programs, taking on financial risk, and supporting high-quality carbon removal projects such as air filtration systems or accelerated rock weathering.
They also suggest the introduction of “clean-up certificates,” a tool that would allow companies to commit to CO₂ removal rather than paying upfront for conventional emissions allowances.
Edenhofer emphasises the urgency: “Time is of the essence. We must stimulate demand for carbon removals now to bridge the critical gap between technological innovation and market viability.”
The discussion paper frames CO₂ removal as the “third pillar” of climate policy, alongside emission reduction and climate adaptation, advocating for regulatory and market mechanisms that would accelerate the sector’s growth to the gigatonne scale by mid-century.
The proposal also envisions the establishment of a new European institution responsible for market liquidity and quality assurance, ensuring transparency and stability as carbon removal technologies scale up.
PIK and KfW argue that carbon pricing and direct support for R&D, pilot projects, and market diffusion of removal technologies are essential to strengthening the incentive effect and supporting private venture capital investment.
“This market is in a race of discovery, with high technological and economic uncertainties,” says Wintels. “We need creative solutions, governance structures, and financing models to attract private capital and establish stable markets.”
The potential impact on international climate policy is profound. The paper notes that while demand for carbon removal is concentrated in industrialised nations, the Global South holds natural advantages as a removal provider.
PIK and KfW’s approach ties into Article 6 of the Paris Agreement, which enables voluntary climate cooperation and cross-border crediting—a key topic at this year’s climate summit.
By establishing a global framework for carbon removal, the proposal seeks to make it an integral part of the climate strategy, not only for Europe but as a game changer for the international community.
