To Deploy or Not to Deploy CCS Abatement, and When: A Differential Game Perspective

Yiwen Chen (), Nora Paulus (), Xi Wan () and Benteng Zou
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Yiwen Chen: Shandong Agricutural University, CN
Nora Paulus: University of Luxembourg
Xi Wan: Nanjing University, CN

DEM Discussion Paper Series from Department of Economics at the University of Luxembourg

Abstract: Carbon capture and storage (CCS) can be considered as one of the key tools in the fight against climate change, providing a promising method to reduce human-generated CO2 emissions. Despite its potential, the high cost of CCS deployment leads to an uneven adoption across countries. This paper employs a differential game model with heterogeneous countries facing transboundary pollution to determine the optimal timing to initiate CCS projects, and delivers analytical results for the existence of Markov Perfect Equilibria and the numerical illustration. We show that: (1) The trigger threshold for CCS deployment depends not only on a country’s own costs, but also on the costs of other countries and the costs associated with pollution damage. (2) The optimal timing for different countries to initiate their CCS projects occurs when a country’s pollution level reaches a critical threshold. (3) Countries are more inclined to freeride on the pollution abatement efforts of others when the pollution damage costs are symmetric rather than asymmetric. (4) Finally, we provide sufficient conditions under which some countries refrain from engaging in CCS, despite facing the same pollution damage costs as others.

Keywords: Carbon capture and storage; optimal timing; Markovian perfect equilibrium. (search for similar items in EconPapers)
JEL-codes: C61 C72 Q53 Q58 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-ene, nep-gth and nep-res
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