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Cutting costs of catching carbon—Intertemporal effects under imperfect climate policy

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  • Hoel, Michael
  • Jensen, Svenn
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    Abstract

    We use a two-period model to investigate intertemporal effects of cost reductions in climate change mitigation technologies for the power sector. The effect of cost reductions for CCS depends on how carbon taxes are set. If there is no carbon tax in period 1, but an optimally set carbon tax in period 2, a CCS cost reduction may reduce early emissions. Such an innovation may therefore be more desirable than comparable cost cuts related to renewable energy. The finding rests on the incentives fossil fuel owners face. If future profitability is reduced, they speed up extraction (the ‘green paradox’), and vice versa.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0928765512000449
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    Bibliographic Info

    Article provided by Elsevier in its journal Resource and Energy Economics.

    Volume (Year): 34 (2012)
    Issue (Month): 4 ()
    Pages: 680-695

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    Handle: RePEc:eee:resene:v:34:y:2012:i:4:p:680-695

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    Web page: http://www.elsevier.com/locate/inca/505569

    Related research

    Keywords: Climate change; Exhaustible resources; Carbon capture and storage; Renewable energy; Green paradox;

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    References

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    1. Michael Hoel, 2011. "The Supply Side of CO2 with Country Heterogeneity," CESifo Working Paper Series 3393, CESifo Group Munich.
    2. Chakravorty, Ujjayant & Magne, Bertrand & Moreaux, Michel, 2006. "A Hotelling model with a ceiling on the stock of pollution," Journal of Economic Dynamics and Control, Elsevier, vol. 30(12), pages 2875-2904, December.
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    4. Hoel, Michael & Kverndokk, Snorre, 1996. "Depletion of fossil fuels and the impacts of global warming," Resource and Energy Economics, Elsevier, vol. 18(2), pages 115-136, June.
    5. Thomas Eichner & Rüdiger Pethig, 2011. "Carbon Leakage, The Green Paradox, And Perfect Future Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(3), pages 767-805, 08.
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    7. Hoel, Michael, 2011. "The supply side of CO2 with country heterogeneity," Memorandum 08/2011, Oslo University, Department of Economics.
    8. Reyer Gerlagh & Bob van der Zwaan, 2006. "Options and Instruments for a Deep Cut in CO2 Emissions: Carbon Dioxide Capture or Renewables, Taxes or Subsidies?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 25-48.
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    Citations

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    Cited by:
    1. Rübbelke, Dirk & Vögele, Stefan, 2013. "Effects of carbon dioxide capture and storage in Germany on European electricity exchange and welfare," Energy Policy, Elsevier, vol. 59(C), pages 582-588.
    2. Hendrik Ritter & Mark Schopf, 2013. "Unilateral Climate Policy: Harmful or even Disastrous?," FEMM Working Papers 130010, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    3. Durmaz, Tunç & Schroyen, Fred, 2013. "Evaluating Carbon Capture and Storage in a Climate Model with Directed Technical Change," Discussion Paper Series in Economics 14/2013, Department of Economics, Norwegian School of Economics.
    4. Daniel Nachtigall & Dirk Rübbelke, 2013. "The Green Paradox and Learning-by-doing in the Renewable Energy Sector," Working Papers 2013-09, BC3.
    5. repec:pdn:wpaper:62 is not listed on IDEAS
    6. Matthias Kalkuhl & Ottmar Edenhofer & Kai Lessmann, 2012. "The Role of Carbon Capture and Sequestration Policies for Climate Change Mitigation," CESifo Working Paper Series 3834, CESifo Group Munich.
    7. repec:pdn:wpaper:63 is not listed on IDEAS
    8. Niko Jaakkola, 2013. "Monopolistic Sequestration of European Carbon Emissions," OxCarre Working Papers 098, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    9. Walsh, D.M. & O'Sullivan, K. & Lee, W.T. & Devine, M.T., 2014. "When to invest in carbon capture and storage technology: A mathematical model," Energy Economics, Elsevier, vol. 42(C), pages 219-225.

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