Kiel Working Papers, Kiel Institute for World Economics
No 1475:
Carbon Capture and Storage & the Optimal Path of the Carbon Tax
Thomas S. Lontzek and Wilfried Rickels
Abstract: In the presence of rising carbon concentrations more
attention should be given to the role of the oceans as a sink for
atmospheric carbon. We do so by setting up a simple dynamic global carbon
cycle model with two reservoirs containing atmosphere and two ocean layers.
The net flux between these reservoirs is determined by the relative
reservoir size and therefore constitutes a more appropriate description of
the carbon cycle than a proportional decay assumption. We exploit the
specific feature of our model, the mixing of the carbon reservoirs, by
allowing for a special form of carbon capture and storage: The capture of
CO2 from the air and the sequestration of CO2 into the deep ocean
reservoir. We study the socially optimal anthropogenic intervention of the
global carbon cycle using a non-renewable resource stock. We find that this
kind of carbon capture and storage facilitates achieving strict
stabilization targets for the atmospheric carbon content. It accelerates
the slow natural flux within the carbon cycle, and because of its temporary
abatement character it dampens the overshooting of the atmospheric
reservoir. Furthermore, we analyze the optimal paths of the carbon tax. The
carbon tax shows to be inverted u-shaped but depending on the initial sizes
of the reservoirs and the speed of carbon fluxes between the reservoirs we
also find the optimal tax to be increasing, decreasing or u-shaped.
Finally, we suggest to link the level of the carbon tax to the declining
ability of the deep ocean to absorb atmospheric carbon
Keywords: exhaustible resource, CCS, ocean sinks, ocean sequestration, air capture, carbon tax, carbon cycle; (follow links to similar papers)
JEL-Codes: Q32,; Q54,; C61; (follow links to similar papers)
35 pages, December 2008
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