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Stochastic carbon sinks for combating carbon dioxide emissions in the EU

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Author Info

  • Gren, Ing-Marie
  • Carlsson, Mattias
  • Elofsson, Katarina
  • Munnich, Miriam

Abstract

This paper carries out numerical calculations on the potential of carbon sinks in the EU Emissions Trading Scheme (ETS) and national commitments under conditions of stochastic carbon dioxide emissions from fossil fuels and carbon sequestration by forests. Chance constraint programming is used to analyze the role of stochastic carbon sinks for national and EU-wide compliance costs. The analytical results show that the inclusion of the carbon sink option can reduce costs for low enough marginal cost and risk discount, but also that costless carbon sinks as by-products from forestry are not part of a cost-effective solution under a high reliability concern. Cost savings are reduced due to risk discounting under a reliability concern, in particular when assigning Chebyshev's inequality as compared with a normal probability distribution. It is also shown that the supply of forest sinks on the market depends on the differences in marginal abatement cost between the trading and the non-trading sectors, and in risk discounting between achievements of the ETS cap and the national commitment. Relatively low marginal abatement cost in the non-trading sector and high risk discounting of national commitment achievements increase the supply of sinks in the market and, hence, reduces the equilibrium price. The empirical application illustrates the importance of risk discounting for the magnitude of cost savings obtained from introducing forest carbon sinks in the EU ETS and national commitments.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 34 (2012)
Issue (Month): 5 ()
Pages: 1523-1531

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Handle: RePEc:eee:eneeco:v:34:y:2012:i:5:p:1523-1531

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Web page: http://www.elsevier.com/locate/eneco

Related research

Keywords: Carbon sequestration; EU emission trading and national commitments; Stochastic emissions and carbon sink; Chance constrained programming; Cost effectiveness;

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References

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Citations

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Cited by:
  1. Gren, Ing-Marie Gren & Elofsson, Katarina, 2013. "Value of land use for carbon sequestration: An application to the EU climate policy," Working Paper Series 2012:4, Department Economics, Swedish University of Agricultural Sciences.
  2. Elofsson, Katarina & Gren, Ing-Marie, 2013. "Should forests be used as uncertain carbon sinks or uncertain fossil fuel substitutes in the EU Roadmap to 2050?," Working Paper Series 2013:8, Department Economics, Swedish University of Agricultural Sciences.
  3. Munnich Vass, Miriam & Elofsson, Katarina, 2013. "Is forest sequestration at the expense of bioenergy and forest products cost-effective in EU climate policy to 2050?," Working Paper Series 2013:9, Department Economics, Swedish University of Agricultural Sciences.
  4. Gren, Ing-Marie & Carlsson, Mattias, 2013. "Economic value of carbon sequestration in forests under multiple sources of uncertainty," Journal of Forest Economics, Elsevier, vol. 19(2), pages 174-189.

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