We consider a model of optimal carbon sequestration and storage in a pollution-emitting economy. It is a generalization of a model in which pollution damages are taken into account through a maximum value for the atmospheric CO2 stock. We add the feature that the CO2 stock used for storage is leaking at a constant rate,thereby introducing an intertemporal economical compromize between the short-term advantages of consuming energy and storing pollution, and the long-term drawback of creating an additional, uncontrollable source of pollution: the leaking stock. We provide a complete description of the solutions to this problem, depending on the values of the parameters. This includes a variety of situations, some of which are very different from those described in the literature.
Group for Research in Decision Analysis