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Stochastic carbon sinks for combating carbon dioxide emissions in the EU

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  • 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.

Suggested Citation

  • Gren, Ing-Marie & Carlsson, Mattias & Elofsson, Katarina & Munnich, Miriam, 2012. "Stochastic carbon sinks for combating carbon dioxide emissions in the EU," Energy Economics, Elsevier, vol. 34(5), pages 1523-1531.
  • Handle: RePEc:eee:eneeco:v:34:y:2012:i:5:p:1523-1531
    DOI: 10.1016/j.eneco.2012.07.002
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    Citations

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    Cited by:

    1. 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, Swedish University of Agricultural Sciences, Department Economics.
    2. Gren, Ing-Marie, 2012. "Economic value of land use for carbon sequestration," Department of Economics publications 9328, Swedish University of Agricultural Sciences, Department of Economics.
    3. Nie, S. & Li, Y.P. & Liu, J. & Huang, Charley Z., 2017. "Risk management of energy system for identifying optimal power mix with financial-cost minimization and environmental-impact mitigation under uncertainty," Energy Economics, Elsevier, vol. 61(C), pages 313-329.
    4. Münnich Vass, Miriam & Elofsson, Katarina & Gren, Ing-Marie, 2013. "An equity assessment of introducing uncertain forest carbon sequestration in EU climate policy," Energy Policy, Elsevier, vol. 61(C), pages 1432-1442.
    5. Münnich Vass, Miriam, 2017. "Renewable energies cannot compete with forest carbon sequestration to cost-efficiently meet the EU carbon target for 2050," Renewable Energy, Elsevier, vol. 107(C), pages 164-180.
    6. 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, Swedish University of Agricultural Sciences, Department Economics.
    7. repec:eee:foreco:v:29:y:2017:i:pb:p:78-86 is not listed on IDEAS
    8. 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, Swedish University of Agricultural Sciences, Department Economics.
    9. 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.

    More about this item

    Keywords

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

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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