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Abstract

We investigate the value of carbon sequestration in a dynamic model, demonstrating that it is only a fraction of the value of emission abatement unless the sequestration, the natural decay rate of carbon and the discount rate. We also show that to optimally reduce the carbon stock, sinks should be utilized as early as possible. Further, we propose and assess three mechanisms to efficiently introduce sequestration into a carbon permit trading market, a pay-as-you-go system. We show that, although the three mechanisms may not be equally feasible to implement, they are all efficient.

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