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 show that if the initial level of pollution is relatively high, state dependent emissions reductions can lead to higher overall environmental quality, hence, feedback strategy leads to less social waste.