Timing carbon capture and storage (CCS) deployment across borders: A game-theoretic analysis

Abstract

Carbon capture and storage (CCS) is a crucial technology for reducing carbon emissions and mitigating climate change; however, its high deployment cost has resulted in uneven global adoption. This study develops a differential game model involving heterogeneous countries exposed to transboundary pollution to analyse the optimal timing for initiating CCS. Potentially, two-stage games are played where the transition from the first to the second stage is endogenously determined by the two players. We establish the existence of Markov Perfect Equilibria for general functions and provide numerical illustrations using linear–quadratic specifications. The relevant results are fourfold: (1) the threshold for CCS adoption not only depends on a country’s own costs, but also on those of others and the extent of pollution damage; (2) CCS is optimally initiated when domestic pollution crosses a critical level; (3) symmetrical pollution damage increases free-riding incentives and worsens long-term environmental outcomes; and (4) in some scenarios, it is socially optimal for certain countries to never adopt CCS, even when facing similar pollution damage as others. Global cooperation is essential for deploying CCS technologies effectively, ensuring significant emissions reductions and progress against climate change.