  Carbon dioxide removal (CDR) moves atmospheric carbon to geological or
land-based sinks. In a first-best setting, the optimal use of CDR is achieved
by a removal subsidy that equals the optimal carbon tax and marginal damages.
We derive second-best policy rules for CDR subsidies and carbon taxes when no
global carbon price exists but a national government implements a unilateral
climate policy. We find that the optimal carbon tax differs from an optimal CDR
subsidy because of carbon leakage and a balance of resource trade effect.
First, the optimal removal subsidy tends to be larger than the carbon tax
because of lower supply-side leakage on fossil resource markets. Second, net
carbon exporters exacerbate this wedge to increase producer surplus of their
carbon resource producers, implying even larger removal subsidies. Third, net
carbon importers may set their removal subsidy even below their carbon tax when
marginal environmental damages are small, to appropriate producer surplus from
carbon exporters.
