'Those who emit have to pay. Those who provide carbon sinks must be paid!'

One of the big issues at the COP was how to mobilize more money – for adaptation, financial aid and investment. And this topic will dominate the next COP. But there is only ever talk of raising money in the short term – and never of a systemic approach, such as introducing a global carbon price, something you have long been calling for.

The term carbon pricing is avoided. Instead, the narrative is: zero-carbon technologies must become cheaper, and we must subsidize them to this end. Then, the transition will succeed. But why aren't we talking about carbon pricing? Because carbon pricing has several functions: It makes carbon-free alternatives profitable. Carbon pricing also taxes the fossil capital stock and reduces it. And that was highly controversial at the COP. Everyone wants to build up the green capital stock, nobody wants to reduce the brown one. That is concerning.

'No one wants to reduce the fossil capital stock'

Now, you even call for a sort of global waste collection system for CO2. What do you mean by that?

There is always talk of being committed to the 1.5-degree target. However, in reality, it is no longer possible to maintain this limit of warming if this means that we must not exceed it. The best we can achieve is overshoot: Temporarily exceeding 1.5 degrees and then reducing it to below 1.5 degrees. However, we need to remove CO2 from the atmosphere to achieve this. These negative emissions require a new type of climate financing. In other words, it is a kind of compensation for waste disposal through negative emissions. If the world wants to achieve net-zero emissions by 2050 and stay within the 1.5-degree limit in the long term, we need to compensate for the residual emissions from the cement sector or agriculture, for example, which are difficult to avoid, using natural or technical means. Secondly, we must remove more emissions from the atmosphere in the second half of the century than we emit in order to reduce the overshoot.

Costs for waste disposal: 0.5 to 4 trillion US dollars per year

How is that supposed to work?

There are two fundamental principles. The first: Whoever emits has to pay. The other: Those who provide carbon sinks must be rewarded. This applies just as much to farmers who permanently bind carbon in the Horn of Africa through their work in the soil as to people who use technical filters to remove carbon dioxide from the atmosphere and store it in geological formations.

And how is this to be paid for? We're talking about billions.

Yes, because if we want to limit global warming to 1.5 degrees in the long term, we will have to remove 5 to 15 billion tonnes of CO2 from the atmosphere every year until 2050. Assuming prices of 100 to 300 US dollars per metric ton of CO2, that would mean we would have to spend around half a trillion to almost four trillion US dollars on this waste removal. That's a gigantic sum, between 0.3 and three percent of global gross national income – and about as much as the 2.2 trillion military spending worldwide in 2022. This would create a gigantic economic sector. But nobody is talking about this type of climate financing at the COPs either.

Why is this debate not happening?

Because politics is not consistent. If you look at the Nationally Determined Contributions, you can see an improvement. But it's only on paper for now.

But if you then look at what the governments are actually doing and compare it with what their ministers promise at the COP, the promises lose credibility. They are literally doing the opposite: At conferences, they talk about phasing out coal and oil, while making plans to expand production at home.

'The markets are betting that the policy will not be implemented'

But that would all be stranded costs if politics gets its way.

I think the markets are betting that climate policy will not be implemented effectively because they don't believe the government's promises are credible. That is why I do not think that we are heading toward an oil and gas production peak, as the International Energy Agency (IEA) says. The markets have so far shown no willingness to abandon fossil fuels.

You mean the markets are unfazed by a passage that calls on countries to ' transition away from fossil fuels'?

If governments want the markets to react differently, they must make more credible decisions now. Such credibility does not come from constantly setting new targets, such as tripling renewable energies, which has now been agreed in Dubai. The commitment to transition away from fossil fuels in the COP's final document sends an important signal. However, it is now important that this move becomes a reality – for example, by the European Union implementing its European Green Deal. If, for instance, prices for oil and gas rise and imports into the EU fall under the second emissions trading system, which will be introduced in the EU in 2027 for the building and transport sectors, this would have an effect on the markets. To prevent this reduction from leading to increased consumption in Asia, for example, the USA would also have to join in.

'A demand cartel between the EU and the USA could curb demand'

How is that supposed to work?

The EU could form a kind of demand cartel with the United States: If the EU's Green Deal and the US Inflation Reduction Act succeed, the demand for fossil fuels will fall credibly. Other countries could join in with carbon pricing. A look at the European Carbon Border Adjustment Mechanism (CBAM) shows just how effective this can be. Its announcement alone has already had a significant impact. India is considering a national carbon tax, Turkey a national emissions trading system and even Republicans in the USA are considering it. Some countries in the Global South want to talk about it with the EU. We will see market reactions as soon as instruments are credibly implemented.

But why is it so difficult to introduce a carbon price, for example? You've argued before that politicians couldn't actually come up with anything better: Reducing emissions and generating revenue that can then be used to finance social benefits. Why is this still not popular?

There are two ways of looking at the climate problem. You can say that we have known since Nicholas Stern's 2006 climate report that action is cheaper than inaction. This is true, but the benefits of climate policy will be reaped in the future and elsewhere, while the costs are incurred here and now. And they are borne by very powerful groups. If you want to tax the fossil fuel capital stock, you immediately have the entire fossil fuel sector against you: the car industry or the construction industry, for example. You can only overcome this if you are willing to compensate the potential losers – such as home or car owners. The government should have started immediately with compensation for the Heating Act when it came to the largest component of the national economic capital stock.

Necessary: Lowering the burden on lower incomes. Example: gas price brake

That's what the climate money should be for. Except that it's not coming.

Exactly. The government has failed to do this. This is ultimately a political decision. But we as scientists have also done far too little to emphasize that climate policy places a greater burden on poorer households than richer ones. We need to do a much better job of communicating what this kind of relief for lower incomes could look like. We had a very good experience with this last winter with the so-called gas price brake. In my view, this was not properly appreciated at all. The name is completely wrong because we didn't put the brakes on the price; we passed the price on to households in full and then compensated households based on their consumption. And we reduced consumption in Germany by 23 percent in the second half of 2022 and maintained social stability.

Do you also propose such compensation on an international scale?

In my view, this is essential. We need mechanisms that support countries in raising their carbon prices. A developing country cannot have the same carbon price as the EU. There must be funds for this. And climate development aid would have to be linked to the countries introducing a carbon price. Such conditional aid payments are a taboo, I realize that. But some kind of burden-sharing would be necessary and effective.

That would mean that developed countries would pay billions so that developing countries could apply a carbon price that is as high as ours?

We would benefit from this. Why? Firstly, because the others would then also pursue a climate policy. And secondly, we protect our industry from competitive disadvantages. It can be used to eliminate freeloaders. It would be a win-win cooperation.

How is that supposed to work?