A Brief Overview of Carbon Sequestration Economics and Policy

This article provides an overview of the issues and challenges involved in analyzing the costs and program design for carbon sequestration. The first section examines some of the pitfalls of comparing the results of carbon sequestration cost studies and suggests some simple ways in which analysts could make their results more useful. The pitfalls in comparing studies include different definitions for the summary statistic dollars per ton, differences in the type of costs that are estimated, and differences in underlying assumptions regarding program design and implementation. Future cost studies will benefit from improved treatment of leakage, general equilibrium interactions, and public finance interactions. The second section reviews issues related to the implementation of a carbon sequestration program, including which policy tools are available and which have received the most attention, some of the challenges for using those policy tools, and one alternative that has received little attention, but may become necessary. The discussion also provides an overview and analysis of the bills introduced in the last two congresses and considers the general policy implications of those proposals.