Sequestration and the engagement of developing economies in a global carbon market

We develop a differential game within a general equilibrium framework of carbon sequestration with and without international trade. We characterize the game's equilibrium and demonstrate how a global carbon permit market can be structured to induce the participation of developing countries through the harnessing of their potential to sequester carbon. We show that a permit market with carbon sequestration is mutually welfare improving for developed and developing nations, and that international trade in finished goods and carbon permits lowers the stock of global pollution.