Figure 1

Applied discount factor (δ) in percent as a function of the share of sequestered carbon expected to be lost over the relevant time horizon ( f ) and the factor by which the spot price for permits exceeds the target price set by the regulator ( S ) or by which it exceeds the expected discounted future equilibrium price. The limits described in the main text are easy to identify on this figure. The no-reversal limit is found along the left edge of the figure; the discount factor of 100% is independent of the value of S. The full reversal limit returns a low discount factor when S is small (lower right-hand corner) but a high discount factor when S is large (upper right-hand corner).