Stable Cost Sharing for Carbon Storage

David Lowing (), Adrien Nicolle () and Cyril Rouault ()
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David Lowing: CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique, ENS Rennes - École normale supérieure - Rennes
Adrien Nicolle: UniFI - Università degli Studi di Firenze = University of Florence = Université de Florence
Cyril Rouault: Unipd - Università degli Studi di Padova = University of Padua

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Abstract: The European Union's Net-Zero Industry Act requires oil and gas producers to develop CO2 storage capacity. Because obligations and suitable storage sites are unevenly distributed, producers often need agreements with others. These agreements raise a cost sharing problem among participants with different obligations and capacities. A good cost allocation should be stable, leaving no group with an incentive to act separately, and should rest on sound normative principles. We propose a cost allocation rule that meets both criteria, which we call the effective-price rule. We show that the rule always yields a stable allocation, that it is uniquely characterized by four axioms reflecting desirable principles, and that it reproduces the payments of a decentralized market at the lowest competitive price. Finally, we illustrate the rule using Danish, Dutch, and French data.

Keywords: Carbon storage; Cost allocation; Cooperative games; Competitive equilibrium; Axiomatic characterization (search for similar items in EconPapers)
Date: 2026-10-16
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