Carbon capture and storage and transboundary pollution: A differential game approach

We study the strategic behavior of two countries facing transboundary pollution under a differential game setting. In our model, the reduction of both pollution and CO2 concentration occur through the creation of pollution sinks, rather than through the adoption of cleaner technologies. To our knowledge, this is the first formal attempt to model carbon capture and storage. Furthermore, we provide the explicit short-run dynamics for this game with symmetric open-loop and a special Markovian Nash strategies. Furthermore, we analyze and compare these strategies and the games’ steady states along some balanced growth paths. Our results ∗We appreciate enormously the valuable discussion in the early stage of this work with Raouf Boucekkine, Herbert Dawid and Ingmar Schumacher. But of course, all mistakes and errors are ours. †CREA, Université du Luxembourg, 162A, avenue de la Faencerie L-1511 Luxembourg. E-mail: [email protected]. Tel:+352 46 6644 6620 ‡CNRS, Centre d’Economie de la Sorbonne, Universit Paris 1 Panthéon-Sorbonne, 106 Boulevard de l’ Hpital, 75013, Paris, France. E-mail: [email protected]. §CREA, Université du Luxembourg, 162A, avenue de la Faencerie L-1511 Luxembourg. E-mail: [email protected]. Tel:+352 46 6644 6622.