DEPOSIT-REFUND SCHEME FOR CO₂

A deposit-refund scheme places a charge on CO₂ when fossil carbon is produced, imported, sold or emitted and returns that money when a specified climate outcome is verified. It can be designed to reward emissions reductions, including the capture and permanent storage of fossil CO₂, or atmospheric CO₂ removal. For our purposes, the focus is the CDR variant: liable companies place money into protected accounts and recover it only after providing certified proof that an equivalent quantity of CO₂ has been removed from the atmosphere and durably stored. Unlike a carbon tax, the payment is recoverable; unlike a carbon take-back obligation, the future storage or removal liability is prefunded in cash.

Governments must decide where the deposit enters the supply chain, which emissions reductions and removals qualify for refunds, and whether their rates and deadlines should differ. The framework needs rules for storage durability, reversals, monitoring, deposit ownership, investment risk, insolvency and unredeemed balances. Treatment of non-emitting fossil-carbon uses, imports and exports should prevent gaps or duplicate liability. Links with carbon pricing, certification and registries must ensure that one stored or removed tonne cannot trigger several refunds or claims.

A deposit-refund scheme can finance both emissions reductions and removals while placing responsibility on present emitters rather than future taxpayers. Refund eligibility for permanent storage can support capture projects and increase demand for shared CO₂ transport and storage networks. In its CDR form, protected deposits reduce payment risk for removal suppliers and preserve funding across political cycles. A rising deposit increases the cost of continued emissions, while early redemption rewards companies that deliver storage or removal sooner.

An underpriced deposit may not cover the promised storage or removal, while an excessive charge can raise prices, encourage relocation or shift fossil-carbon sales to uncovered jurisdictions. If fossil CCS and atmospheric removal compete for the same refund, cheaper capture projects may crowd out CDR. Poor investment performance or political diversion can erode protected funds. Weak rules may reward temporary or double-counted outcomes, while long redemption periods can finance eventual cleanup without preventing near-term warming.

Monitoring can compare deposits, outstanding liabilities and fund assets with forecast storage and removal costs. The division of refunds between fossil CCS and atmospheric removal can reveal whether one outcome is crowding out the other. Time from emission to refund can show whether action is being deferred, while registry reconciliation, reversal data and cross-border flows can identify duplicate claims, funding gaps or leakage requiring adjustment.

Finance, environment and tax authorities can align liability, fund governance and carbon-pricing rules. Fossil-carbon suppliers, industrial emitters and importers can identify workable collection points. Capture projects, transport and storage operators, removal developers, certification schemes, registries and national inventory teams can test eligibility and accounting rules. Financial regulators, asset managers and auditors can strengthen custody controls, while civil society and consumer groups can scrutinise integrity, distributional effects and protection against fund diversion.

Supranational authorities can harmonise liability, eligibility and cross-border refunds; the EU packaging regulation demonstrates their power to mandate common deposit-return architecture. National governments can impose the liability, establish the fund and appoint regulators. Regional/State governments with fiscal and environmental authority can operate independent variants, as California does for beverage deposits. Corporate/Industry bodies can administer financial flows and data under statutory supervision, as the United Kingdom’s appointed deposit-management organisation will do for packaging.