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The Role of Carbon Capture and Sequestration Policies for Climate Change Mitigation

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Author Info

  • Matthias Kalkuhl
  • Ottmar Edenhofer
  • Kai Lessmann

Abstract

This paper takes the ‘policy failure’ in establishing a global carbon price for efficient emissions reduction as a starting point and analyzes to what extent technology policies can be a reasonable second-best approach. From a supply-side perspective, carbon capture and storage (CCS) policies differ substantially from renewable energy policies: they increase fossil resource demand and simultaneously lower emissions. We show in a theoretical model that, under idealized conditions, a pure CCS subsidy can be as efficient as a carbon tax. Within a numerical dynamic general equilibrium model, we analyze CCS and renewable energy policies under more realistic parameter settings for imperfect or missing carbon prices. We find that in contrast to renewable energy policies, CCS policies are not always capable of reducing emissions in the long run. If feasible, CCS policies carry often lower social costs compared to renewable energy policies. In case fossil resources are abundant and renewable energy costs low, renewable energy policies perform better. Our results indicate that a pure CCS policy or a pure renewable energy policy carry specific risks of missing the environmental target. A smart combination of both, however, can be a robust and low-cost temporary second-best policy.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2012/wp-cesifo-2012-05/cesifo1_wp3834.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3834.

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Date of creation: 2012
Date of revision:
Handle: RePEc:ces:ceswps:_3834

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Related research

Keywords: renewable energy subsidy; supply-side dynamics; green paradox; carbon pricing; global warming; CCS;

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References

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  1. Hoel, Michael & Jensen, Svenn, 2012. "Cutting costs of catching carbon—Intertemporal effects under imperfect climate policy," Resource and Energy Economics, Elsevier, vol. 34(4), pages 680-695.
  2. Gerlagh, R. & Zwaan, B.C.C. van der, 2004. "A sensitivity analysis of timing and costs of Greenhouse gas emission reductions," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3764009, Tilburg University.
  3. André Grimaud & Gilles Lafforgue & Bertrand Magné, 2009. "Climate Change Mitigation Options and Directed Technical Change: A Decentralized Equilibrium Analysis," CESifo Working Paper Series 2875, CESifo Group Munich.
  4. Parry, Ian, 2003. "Are Emissions Permits Regressive?," Discussion Papers dp-03-21, Resources For the Future.
  5. Renaud Coulomb & Fanny Henriet, 2010. "Carbon price and optimal extraction of a polluting fossil fuel with restricted carbon capture," PSE Working Papers halshs-00564852, HAL.
  6. Amigues, Jean-Pierre & Lafforgue, Gilles & Moreaux, Michel, 2010. "Optimal capture and sequestration from the carbon emission flow and from the atmospheric carbon stock with heterogeneous energy consuming sectors," IDEI Working Papers 610, Institut d'Économie Industrielle (IDEI), Toulouse.
  7. Gerlagh, R. & Zwaan, B.C.C. van der & Hofkes, M.W. & Klaassen, G., 2004. "Impacts of CO2-taxes in an economy with niche markets and learning-by-doing," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3764008, Tilburg University.
  8. Kalkuhl, Matthias & Edenhofer, Ottmar & Lessmann, Kai, 2012. "Learning or lock-in: Optimal technology policies to support mitigation," Resource and Energy Economics, Elsevier, vol. 34(1), pages 1-23.
  9. Mirrlees, J. A. & Stern, N. H., 1972. "Fairly good plans," Journal of Economic Theory, Elsevier, vol. 4(2), pages 268-288, April.
  10. repec:hal:wpaper:halshs-00564852 is not listed on IDEAS
  11. Ayong Le Kama, Alain & Fodha, Mouez & Lafforgue, Gilles, 2009. "Optimal Carbon Capture and Storage Policies," TSE Working Papers 09-095, Toulouse School of Economics (TSE).
  12. R. Quentin Grafton & Tom Kompas & Ngo Van Long, 2010. "Biofuels Subsidies and the Green Paradox," CESifo Working Paper Series 2960, CESifo Group Munich.
  13. Kalkuhl, Matthias & Edenhofer, Ottmar & Lessmann, Kai, 2013. "Renewable energy subsidies: Second-best policy or fatal aberration for mitigation?," Resource and Energy Economics, Elsevier, vol. 35(3), pages 217-234.
  14. Thomas Eichner & Rüdiger Pethig, 2009. "Carbon Leakage, the Green Paradox and Perfect Future Markets," CESifo Working Paper Series 2542, CESifo Group Munich.
  15. Bob van der Zwaan & Reyer Gerlagh, 2008. "The Economics of Geological CO2 Storage and Leakage," Working Papers 2008.10, Fondazione Eni Enrico Mattei.
  16. Ottmar Edenhofer , Brigitte Knopf, Terry Barker, Lavinia Baumstark, Elie Bellevrat, Bertrand Chateau, Patrick Criqui, Morna Isaac, Alban Kitous, Socrates Kypreos, Marian Leimbach, Kai Lessmann, Bertra, 2010. "The Economics of Low Stabilization: Model Comparison of Mitigation Strategies and Costs," The Energy Journal, International Association for Energy Economics, vol. 0(Special I).
  17. Michael Hoel, 2010. "Is there a Green Paradox?," CESifo Working Paper Series 3168, CESifo Group Munich.
  18. Reyer Gerlagh & Bob van der Zwaan & Marjan Hofkes & Ger Klaassen, 2004. "Impacts of CO 2-Taxes in an Economy with Niche Markets and Learning-by-Doing," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 28(3), pages 367-394, July.
  19. Sinn, Hans-Werner, 2008. "Public policies against global warming: A supply side approach," Munich Reprints in Economics 19638, University of Munich, Department of Economics.
  20. 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.
  21. Ian W.H. Parry & Roberton C. Williams III, 2010. "What Are the Costs of Meeting Distributional Objectives for Climate Policy?," NBER Working Papers 16486, National Bureau of Economic Research, Inc.
  22. Edenhofer, Ottmar & Bauer, Nico & Kriegler, Elmar, 2005. "The impact of technological change on climate protection and welfare: Insights from the model MIND," Ecological Economics, Elsevier, vol. 54(2-3), pages 277-292, August.
  23. Reyer Gerlagh, 2011. "Too Much Oil," CESifo Economic Studies, CESifo, vol. 57(1), pages 79-102, March.
  24. Edenhofer, Ottmar & Kalkuhl, Matthias, 2011. "When do increasing carbon taxes accelerate global warming? A note on the green paradox," Energy Policy, Elsevier, vol. 39(4), pages 2208-2212, April.
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Citations

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Cited by:
  1. Matthias Weitzel, 2014. "Worse off from reduced cost? The role of policy design under uncertain technological advancement," Kiel Working Papers 1926, Kiel Institute for the World Economy.
  2. 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.
  3. Grimaud, André & Rougé, Luc, 2012. "Carbon Sequestration, Economic Policies and Growth," IDEI Working Papers 751, Institut d'Économie Industrielle (IDEI), Toulouse, revised Aug 2013.

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