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