Carbon sequestration and permit trading on the competitive fringe

► Sequestration and permit markets are jointly analyzed in a competitive fringe model. ► Numerical analysis demonstrates the determination of allocations and carbon prices. ► The carbon price responds positively to an increase in the fringe's marginal cost. ► The price responds negatively to a decrease in the dominant firm's marginal cost. ► Higher polluting-firm abatement allocations induce higher fringe sequestration.