The Effect of Emissions Trading and Carbon Sequestration on the Cost of CO2 Emissions Mitigation

Abstract

Carbon capture and sequestration (CC&S) technologies remove carbon from emissions streams or the atmosphere and seek to sequester it in one way or another for a very long time. As such, deployment of CC&S technologies can be an important component of efforts to meet future emissions limits, either regionally or globally, and in the reduction of compliance costs. The magnitude and timing of sequestration opportunities and the opportunity to trade emissions permits affect the value of carbon, and, therefore, the cost of compliance. Trade lowers the marginal value of carbon in high-cost regions and raises it in low-cost regions. This chapter examines the issues outlined above and present quantitative estimates for the impacts on the marginal cost of carbon as well as the cost of compliance with a climate policy of stabilizing atmospheric CO2 concentrations at twice pre-industrial levels. PNNL's MiniCAM model version 2001 as the analytical foundation for the analysis is used. MiniCAM is an integrated assessment model of global change. It includes representations of both the world's energy and agriculture systems for 14 world regions. Engineered capture and sequestration technologies are modeled generically in terms of their cost and performance characteristics. Carbon capture is explicitly represented in the model at key fuel transformation nodes. CC&S technologies are adopted if the economics are favorable.