Optimal Timing of Carbon-Capture Policies Among Different Countries Under Markovian Competition

Carbon capture and storage (CCS) is considered one of the most important and efficient tools in fighting against greenhouse gas emissions. Countries differ in terms of the level CCS processes implemented, with the main barrier to CCS adoption being its high cost. This paper introduces a differential game model with heterogeneous countries to investigate the optimal timing for countries to initiate CCS projects, taking into account CCS costs. We show that (i) the thresholds for the triggering of CCS projects depend not only on one's own CCS costs but also those of others, in addition to the pollution damage costs; (ii) the optimal timing for different countries to initiate their CCS projects is the moment when their threshold level of pollution stock is reached; (iii) countries are more inclined to free-ride by both reducing pollutant emissions and deploying CCS when pollution damage costs are symmetric rather than asymmetric; finally, (iv) we provide sufficient conditions under which some countries never deploy CCS even though they bear the same pollution damage as the others.