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CO2 emission standards and investment in carbon capture

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  • Eide, Jan
  • de Sisternes, Fernando J.
  • Herzog, Howard J.
  • Webster, Mort D.

Abstract

Policy makers in a number of countries have proposed or are considering proposing CO2 emission standards for new fossil fuel-fired power plants. The proposed standards require coal-fired power plants to have approximately the same carbon emissions as an uncontrolled natural gas-fired power plant, effectively mandating the adoption of carbon capture and sequestration (CCS) technologies for new coal plants. However, given the uncertainty in the capital and operating costs of a commercial scale coal plant with CCS, the impact of such a standard is not apparent a priori. We apply a stochastic generation expansion model to determine the impact of CO2 emission standards on generation investment decisions, and in particular for coal plants with CCS. Moreover, we demonstrate how the incentive to invest in coal-CCS from emission standards depends on the natural gas price, the CO2 price, and the enhanced oil recovery price, as well as on the level of the emission standard. This analysis is the first to consider the entire power system and at the same time allow the capture percentage for CCS plants to be chosen from a continuous range to meet the given standard at minimum cost. Previous system level studies have assumed that CCS plants capture 90% of the carbon, while studies of individual units have demonstrated the costs of carbon capture over a continuous range. We show that 1) currently proposed levels of emission standards are more likely to shift fossil fuel generation from coal to natural gas rather than to incentivize investment in CCS; 2) tighter standards that require some carbon reductions from natural gas-fired power plants are more likely than proposed standards to incentivize investments in CCS, especially on natural gas plants, but also on coal plants at high gas prices; and 3) imposing a less strict emission standard (emission rates higher than natural gas but lower than coal; e.g., 1500lbs/MWh) is more likely than current proposals to incentivize investment in coal CCS technology, but only at high gas prices and to a lesser extent than a stringent standard (e.g., 300lbs/MWh).

Suggested Citation

  • Eide, Jan & de Sisternes, Fernando J. & Herzog, Howard J. & Webster, Mort D., 2014. "CO2 emission standards and investment in carbon capture," Energy Economics, Elsevier, vol. 45(C), pages 53-65.
    • Handle: RePEc:eee:eneeco:v:45:y:2014:i:c:p:53-65
    DOI: 10.1016/j.eneco.2014.06.005
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    3. Yang, Lin & Xu, Mao & Fan, Jingli & Liang, Xi & Zhang, Xian & Lv, Haodong & Wang, Dong, 2021. "Financing coal-fired power plant to demonstrate CCS (carbon capture and storage) through an innovative policy incentive in China," Energy Policy, Elsevier, vol. 158(C).
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    6. Holz, Franziska & Scherwath, Tim & Crespo del Granado, Pedro & Skar, Christian & Olmos, Luis & Ploussard, Quentin & Ramos, Andrés & Herbst, Andrea, 2021. "A 2050 perspective on the role for carbon capture and storage in the European power system and industry sector," Energy Economics, Elsevier, vol. 104(C).
    7. Mardones, Cristian & Flores, Belén, 2018. "Effectiveness of a CO2 tax on industrial emissions," Energy Economics, Elsevier, vol. 71(C), pages 370-382.
    8. Roman Mendelevitch & Pao-Yu Oei, 2015. "The Impact of Policy Measures on Future Power Generation Portfolio and Infrastructure: A Combined Electricity and CCTS Investment and Dispatch Model (ELCO)," Discussion Papers of DIW Berlin 1521, DIW Berlin, German Institute for Economic Research.
    9. Acevedo, Giancarlo & Bernales, Alejandro & Flores, Andrés & Inzunza, Andrés & Moreno, Rodrigo, 2021. "The effect of environmental policies on risk reductions in energy generation," Journal of Economic Dynamics and Control, Elsevier, vol. 126(C).
    10. Rana, Anber & Sadiq, Rehan & Alam, M. Shahria & Karunathilake, Hirushie & Hewage, Kasun, 2021. "Evaluation of financial incentives for green buildings in Canadian landscape," Renewable and Sustainable Energy Reviews, Elsevier, vol. 135(C).
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    More about this item

    Keywords

    Electricity generation; CO2 emission standards; Carbon capture and storage;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • O21 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Planning Models; Planning Policy
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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