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Monopolistic Sequestration of European Carbon Emissions

  • Niko Jaakkola

Mitigating climate change by carbon capture and storage (CCS) will require vast infrastructure investments. These investments include pipeline networks for transporting carbon dioxide (CO2) from industrial sites ('sources') to the storage sites ('sinks'). This paper considers the decentralised formation of trunk-line networks when geological storage space is exhaustible and demand is increasing. Monopolistic control of an exhaustible resource may lead to overinvestment and/or excessively early investment, as these allow the monopolist to increase her market power. The model is applied to CCS pipeline network formation in northwestern Europe. The features identified above are found to play a minor role. Should storage capacity be effectively inexhaustible, underinvestment due to the inability of the monopolist to capture the entire social surplus is likely to have substantial welfare impacts. Multilateral bargaining to coordinate international CCS policies is particularly important if storage capacity is plentiful.

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Paper provided by Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford in its series OxCarre Working Papers with number 098.

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Date of creation: 2013
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Handle: RePEc:oxf:oxcrwp:098
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