April 25, 2011

How CO2 Capture and Storage Can Mitigate Carbon Leakage

by Philippe Quirion, Julie Rozenberg, Olivier Sassi and Adrien Vogt-Schilb

- Most CO2 abatement policies reduce the demand for fossil fuels and therefore their price in international markets. If these policies are not global, this price decrease raises emissions in countries without CO2 abatement policies, generating "carbon leakage". On the other hand, if the countries which abate CO2 emissions are net fossil fuel importers, they benefit from this price decrease, which reduces the abatement cost. In contrast, CO2 capture and storage (CCS) does not reduce fossil fuel demand, therefore it generates neither this type of leakage nor this negative feedback on abatement costs. We quantify these effects with the global hybrid general equilibrium model Imaclim-R and show that they are quantitatively important.

Quirion, P., J. Rozenberg, O. Sassi and A. Vogt-Schilb (2011). "How CO2 Capture and Storage Can Mitigate Carbon Leakage." FEEM Note di lavoro No. 2011.015, Mar 2011.