Pricing and Policy for Carbon Capture and Sequestration with Learning by Doing

Abstract

This paper derives the efficient tax-subsidy policy in an energy-economy-environment growth model with carbon emission externalities, and a carbon capture and sequestration (CCS) sector with learning by doing (LBD) externalities. First we derive the socially optimum pricing, quantities, cashflows, and valuation. Then we derive the government tax-subsidy policies for carbon emissions and CCS that support socially efficient economic behavior with a competitive CCS industry. The Social Accounting Matrix for supporting institutional structure is derived. We analyze the qualitative dynamics of the time paths of emissions and CCS and of pricing for atmospheric carbon, sequestration capacity, and LBD.

Keywords: Energy, environment, energy-economy growth model, carbon sequestration, learning by doing