Carbon sequestration or abatement? The effect of rising carbon prices on the optimal portfolio of greenhouse-gas mitigation strategies

Existing projections of the optimal share of carbon sequestration in an overall portfolio of greenhouse-gas mitigation strategies almost all assume the carbon price to be constant over time. This paper shows analytically that if the price instead increases over time-consistent with projections from integrated assessment models-it becomes optimal to delay certain sequestration projects, whereas the optimal timing of energy-based abatement projects remains unchanged. As a result, the optimal share of sequestration falls, and significantly so. Calibrating our analytical model, we find that a modest, 3% rate of price increase results in about a 60% reduction in the optimal sequestration share relative to constant-price projections. Numerical simulations based on predicted carbon-price paths from Nordhaus' RICE01 model indicate quantitatively similar reductions under an economically efficient scenario, and much larger reductions (80-100% for up to 80 years) under a scenario that aims to limit the atmospheric CO2 concentration to double its pre-industrial level.