A numerical model for cost effective mitigation of CO2 in the EU with stochastic carbon sink

This paper presents a model for the analysis of the potential of carbon sinks in the EU Emissions Trading Scheme (ETS) under conditions of stochastic carbon sequestration by forest land. A partial equilibrium model is developed which takes into account both the ETS and national commitments. Chance constraint programming is used to analyze the role of stochastic carbon sinks for national and EU-wide costs as well as carbon allowance price. The results show that the inclusion of the carbon sink option can reduce costs by as much as 2/3, but the cost saving is dampened when higher reliability of targets achievement is required. When carbon sinks are included, some countries with large carbon sequestration in relation to carbon emissions can achieve their national commitments without any costly reductions in energy use. However, cost estimates are sensitive to changes in assumed parameter values, in particular to changes in given business-as-usual levels of the use of fossil fuel.