International Emission Trading and the Cost of Greenhouse Gas Emissions Mitigation and Sequestration

The deployment of carbon capture and sequestration (CC&S) technologies is greatly affected by the marginal cost of controlling carbon emissions (also the value of carbon, when emissions permits are traded). Both the severity and timing of emissions limitations and the degree to which emissions limitation obligations can be traded will affect the value of carbon and thereby the timing and magnitude of CC&S technology deployment. Emissions limits that are more stringent in the near term imply higher near-term carbon values and therefore encourage the local development and deployment of CC&S technologies.Trade in emissions obligations lowers the cost of meeting any regional or global emissions limit and so affects the rate of penetration of CC&S technologies. Trade lowers the marginal value of carbon and CC&S penetration in high cost regions and raises the marginal value of carbon and CC&S penetration in low cost regions. The net impact on the world CC&Stechnologies depends on whether their increased use in low-cost regions exceeds the reduced use in high-cost regions.In the long term, CC&S technologies must not only remove carbon but permanently sequester it. If reservoirs are not permanent, then the emissions and costs of control are merely displaced into the future. The paper presents quantitative estimates for the impacts of trade in emissions limitation obligations on the timing, magnitude, and geographic distribution of CC&S technologies and the marginal and total costs of carbon control.