October 30, 2011

Optimal Carbon Capture and Storage Policies

by Alain Ayong Le Kama, Mouez Fodha and Gilles Lafforgue

- We develop a simple growth model and exhibit the main driving forces that should determine the optimal CCS policy. We show that, under some conditions on the cost of extractions, CCS may be a long-term solution to curb carbon emissions. Besides, we show that the social planner chooses to decrease over time the rate of capture and sequestration. Next, we derive the decentralized equilibrium outcome by considering the programs of the fossil resource-holder and of the representative consumer. Finally, we determine the environmental policy, i.e. the carbon tax scheme, as well as the the dynamics of the fossil fuel price that implement the optimum.

Le Kama, A.A., M. Fodha and G. Lafforgue (2011). "Optimal Carbon Capture and Storage Policies." LERNA Working Paper, n. 11.13.347, May 2011.