Bilevel Programming for Optimizing Carbon Dioxide Removal Portfolios

[Geoengineering News]

https://www.cetjournal.it/index.php/cet/article/view/CET25120025

Authors: Aviso, Kathleen B., Migo-Sumagang, Maria Victoria, Tan, Raymond R.

30 November 2025

Abstract

Purchase of carbon dioxide removal (CDR) credits is an important decarbonation option for many firms seeking to reach net zero emissions. These credits can supplement other decarbonization measures by offsetting hard-to-abate emissions. However, carbon markets are currently dominated by low-quality CDR credits generated by techniques with low durability or sequestration permanence. Companies tend to favor these credits due to their low cost compared to more durable CDR produced using novel technologies such as direct air capture (DAC). As a result, CDR portfolios tend to consist of credits with dubious climate change mitigation value. In this work, we develop a bi-level mathematical program to model how government can use economic incentives to induce industry to select portfolios that favor durable CDR. The model is demonstrated using an illustrative case study. In the Stackelberg solution, the government’s objective is only 6.9 % lower than the maximum benefit, while the cost for the industry is 43 % lower than if the government decision was fully in control. The model calibrated the optimal total CDR ratio, durable CDR ratio, and emissions violation ratio, which demonstrates the model’s importance in developing policy instruments.

Source: Chemical Engineering Transactions