Grimaud, André and Rougé, Luc (2014) Carbon Sequestration, Economic Policies and Growth. Resource and Energy Economics, vol.36 (n°2). pp. 307-331.

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Identification Number : 10.1016/j.reseneeco.2013.12.004


We present a model of endogenous growth in which the use of a non-renewable resource in production yields CO2 emissions whose accumulated stock negatively affects welfare. A CCS technology enables, via some effort, a partial reduction of these emissions. We characterize the social optimum and how the availability of CCS technology affects it, and study the trajectories of the decentralized economy. We then analyze economic policies. We first derive the expression of the Pigovian carbon tax and we give a full interpretation of its level, which is unique. We then study the impacts of three different second-best policies: a carbon tax, a subsidy to sequestered carbon, and a subsidy to labor in CCS. While all three tools foster CCS activity they generally have contrasting effects on resource extraction, carbon emissions, output and consumption. The carbon tax postpones resource extraction whereas the two subsidies accelerate it. Although the tax decreases short-term carbon emissions, the two subsidies can increase them, thus yielding a green paradox. The tax has a negative impact on the levels of output and consumption in the short-term, unlike the subsidies. The tax generally fosters growth whereas the subsidies reduce it; however, when the weight of the CCS sector in the economy is high, these impacts can be reversed

Item Type: Article
Language: English
Date: May 2014
Refereed: Yes
Uncontrolled Keywords: Carbon capture and storage (CCS), Endogenous growth, Polluting non-renewable resources, Carbon tax, Subsidy to CCS
JEL Classification: O3 - Technological Change; Research and Development
Q3 - Nonrenewable Resources and Conservation
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 09 Jul 2014 17:42
Last Modified: 02 Apr 2021 15:48
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