CDR-LINKED INTERGOVERNMENTAL FISCAL TRANSFERS

A higher-level government allocates part of the revenue it shares with lower-level governments according to verified removal outcomes or the public responsibilities needed to sustain them. A state, province or municipality can then gain predictable budget revenue from supporting CDR, instead of bearing local costs while the climate benefit accrues elsewhere. The mechanism changes the formula for distributing public money between governments. It is distinct from a grant to a project developer, a payment to a land manager or government procurement of removal credits. Existing ecological tax-sharing systems provide precedents for the fiscal mechanism; adapting them specifically to CDR would require new eligibility and accounting rules.

The formula should distinguish payment for additional net removals from support for maintaining existing carbon stocks, providing public services or hosting infrastructure. These are different contributions and should not all be reported as new CDR. Authorities need to choose the transfer pool, each criterion's weight, the update interval and the treatment of reversals. An entitlement based only on historical activity may reward existing capacity without changing future decisions. Conversely, paying only for recent improvements can disadvantage jurisdictions that already protect substantial carbon stocks. Distribution rules should address which government receives revenue when removal, processing and storage occur in different places, while preserving the rights of landholders and communities.

Recurring transfers could make restoration, long-term stewardship and responsible hosting financially relevant to local budget decisions. They can compensate public authorities for services whose benefits extend beyond their boundaries and help governments with a limited tax base maintain those services. Using an established transfer system can avoid repeated competitive grant applications. A formula combining baseline responsibilities with independently verified improvements could give authorities both predictable income and a reason to improve performance. The receiving government would retain discretion over spending unless the transfer rules expressly restrict its use.

Within a fixed revenue pool, one jurisdiction's gain reduces another's share, potentially weakening basic services in places with less CDR potential. Area-based proxies can reward low-quality plantations, reclassifications or existing carbon stocks without additional removal. Payments may be captured by government budgets while affected communities receive little benefit. A powerful financial incentive to host projects must not weaken consent, permitting or environmental protection. Volatile tax receipts and abrupt formula changes can undermine multi-year commitments, while deductions following a reversal may fall on residents who did not control the underlying project.

Finance and environmental authorities should publish the formula, source data, calculated entitlements and actual transfers so receiving governments can reproduce their allocations. Evaluation should separate changes in revenue from changes in stewardship, public investment and verified removal. It should examine effects on poorer jurisdictions, service provision, community rights and the distribution of revenue between host and storage areas. Repeated discrepancies, weak behavioural responses or excessive revenue volatility should trigger changes to verification, formula weights, smoothing rules or the distinction between stewardship and removal payments.

Finance ministries, tax-sharing commissions and legislatures should determine the lawful revenue pool and distribution rules. Receiving governments should test how the formula affects their budgets and identify responsibilities they can actually perform. Environmental agencies and independent verifiers should establish usable data and checks, while public auditors examine payment accuracy and manipulation. Indigenous peoples, landholders and community representatives should help define protections and any onward benefit-sharing requirements. Their legal rights and entitlements should be settled separately from the fiscal reward paid to government.

National governments can change transfers to states or municipalities; regional and state governments can change distributions to local governments, as Paraná's ecological tax-sharing programme demonstrates. A supranational authority could apply CDR criteria to formula-based transfers within its own budget powers. A metropolitan or municipal government could allocate revenue to legally distinct constituent local governments where its fiscal powers permit. In each case, the implementing actor must control the distribution formula; merely receiving money or providing environmental data does not confer that role.