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Optimal Carbon Capture and Storage policies

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  • Alain Ayong Le Kama
  • Mouez Fodha
  • LAFFORGUE Gilles

Abstract

Following the IPCC's report (2005), which recommended the development and the use of carbon capture and sequestration (CCS) technologies in order to achieve the environmental goals, defined by the Kyoto Protocol, the issue addressed in this paper concerns the optimal strategy regarding the long-term use of CCS technologies. The aim of this paper is to study the optimal carbon capture and sequestration policy. The CCS technologies has motivated a number of empirical studies, via complex integrated assessment models. This literature always considers that the existing technology allows sequestrating a fraction of the carbon emissions and concludes that the early introduction of sequestration can lead to a substantial decrease in the cost of environmental externality. But, the level of complexity of such operational models, aimed at defining some specific climate policies. We develop a very simple growth model so as to obtain analytical and tractable results and therefore exhibit the main driving forces that should determine the optimal CSS policy. We show within on the cost of extractions, CSS may be a long-term solution for the carbon emissions problem. Besides, it is also shown that the social planner will optimally choose to decrease the rate of capture and sequestration. Besides, we also introduce the decentralization of this simple economy, by considering the individual program of the fossil resource-holder and the one of the representative consumer. This helps us to compute analytically the optimal environmental policy, that is the also the optimal fossil fuel price profile.

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File URL: http://www2.toulouse.inra.fr/lerna/travaux/cahiers2009/09.24.300.pdf
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Bibliographic Info

Paper provided by LERNA, University of Toulouse in its series LERNA Working Papers with number 09.24.300.

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Date of creation: Oct 2009
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Handle: RePEc:ler:wpaper:09.24.300

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References

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  1. Lafforgue, Gilles & Magné, Bertrand & Moreaux, Michel, 2006. "Optimal Sequestration Policy with a Ceiling on the Stock of Carbon in the Atmosphere," IDEI Working Papers 401, Institut d'Économie Industrielle (IDEI), Toulouse.
  2. Frederick Ploeg & Cees Withagen, 1991. "Pollution control and the Ramsey problem," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 1(2), pages 215-236, June.
  3. repec:hal:cesptp:hal-00267891 is not listed on IDEAS
  4. repec:hal:cesptp:halshs-00206513 is not listed on IDEAS
  5. Reyer Gerlagh, 2006. "ITC in a Global Growth-Climate Model with CCS: The Value of Induced Technical Change for Climate Stabilization," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 223-240.
  6. Grimaud, André & Rougé, Luc, 2008. "Séquestration du carbone et politique climatique optimale," IDEI Working Papers 540, Institut d'Économie Industrielle (IDEI), Toulouse.
  7. GRIMAUD André & LAFFORGUE Gilles & MAGNE Bertrand, 2008. "Climate change mitigation options and directed technical change: A decentralized equilibrium analysis," LERNA Working Papers 08.10.254, LERNA, University of Toulouse.
  8. repec:hal:cesptp:halshs-00115685 is not listed on IDEAS
  9. Smulders, J.A. & Gradus, R.H.J.M., 1993. "Pollution abatement and long-term growth," Discussion Paper 1993-73, Tilburg University, Center for Economic Research.
  10. Hartwick, John M, 1977. "Intergenerational Equity and the Investing of Rents from Exhaustible Resources," American Economic Review, American Economic Association, vol. 67(5), pages 972-74, December.
  11. repec:hal:journl:hal-00267891 is not listed on IDEAS
  12. Alain Le Kama & Katheline Schubert, 2004. "Growth, Environment and Uncertain Future Preferences," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 28(1), pages 31-53, May.
  13. Alain Ayong Le Kama, 2001. "Preservation and exogenous uncertain future preferences," Economic Theory, Springer, vol. 18(3), pages 745-752.
  14. Kurosawa, Atsushi, 2004. "Carbon concentration target and technological choice," Energy Economics, Elsevier, vol. 26(4), pages 675-684, July.
  15. LAFFORGUE Gilles & MAGNE Bertrand & MOREAUX Michel, 2007. "Energy Substitutions, Climate change and Carbon sinks," LERNA Working Papers 07.01.222, LERNA, University of Toulouse.
  16. 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.
  17. repec:hal:cesptp:halshs-00348869 is not listed on IDEAS
  18. Alain Ayong Le Kama & Mouez Fodha, 2008. "Optimal nuclear waste burial policy under uncertainty," Documents de travail du Centre d'Economie de la Sorbonne v08092, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  19. 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.
  20. Lionel Ragot & Katheline Schubert, 2006. "The optimal carbon sequestration in agricultural soils : does the dynamics of the physical process matter ?," Cahiers de la Maison des Sciences Economiques v06040, Université Panthéon-Sorbonne (Paris 1).
  21. Edmonds, Jae & Clarke, John & Dooley, James & Kim, Son H. & Smith, Steven J., 2004. "Stabilization of CO2 in a B2 world: insights on the roles of carbon capture and disposal, hydrogen, and transportation technologies," Energy Economics, Elsevier, vol. 26(4), pages 517-537, July.
  22. Alain Ayong Le Kama & Katheline Schubert, 2006. "Ressources renouvelables et incertitude sur les préférences des générations futures," Revue d'économie politique, Dalloz, vol. 0(2), pages 229-250.
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Citations

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Cited by:
  1. Amigues, Jean-Pierre & Lafforgue, Gilles & Moreaux, Michel, 2012. "Optimal Timing of Carbon Capture Policies Under Alternative CCS Cost Functions," TSE Working Papers 12-318, Toulouse School of Economics (TSE).
  2. Hoel, Michael, 2013. "Supply Side Climate Policy and the Green Paradox," Memorandum 03/2013, Oslo University, Department of Economics.
  3. Michael Hoel & Svenn Jensen, 2010. "Cutting Costs of Catching Carbon - Intertemporal Effects under Imperfect Climate Policy," CESifo Working Paper Series 3284, CESifo Group Munich.
  4. 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.
  5. Michael Hoel, 2013. "Supply Side Climate Policy and the Green Paradox," CESifo Working Paper Series 4094, CESifo Group Munich.
  6. Pierre-André Jouvet & Marie Renner, 2014. "Social Acceptance and Optimal Pollution: CCS or Tax?," Working Papers 1403, Chaire Economie du Climat.
  7. Hoel, Michael & Jensen, Svenn, 2010. "Cutting Costs of Catching Carbon - Intertemporal effects under imperfect climate policy," Memorandum 19/2010, Oslo University, Department of Economics.
  8. 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.
  9. Grimaud, André & Rougé, Luc, 2012. "Carbon Sequestration, Economic Policies and Growth," LERNA Working Papers 12.22.379, LERNA, University of Toulouse.
  10. Michael Hoel, 2011. "The Supply Side of CO2 with Country Heterogeneity," CESifo Working Paper Series 3393, CESifo Group Munich.
  11. Grimaud, André & Rougé, Luc, 2012. "Carbon Sequestration, Economic Policies and Growth," IDEI Working Papers 751, Institut d'Économie Industrielle (IDEI), Toulouse, revised Aug 2013.
  12. Michael Hoel, 2010. "Is there a Green Paradox?," CESifo Working Paper Series 3168, CESifo Group Munich.
  13. Hoel, Michael, 2011. "Is there a green paradox?," Memorandum 13/2010, Oslo University, Department of Economics.
  14. Michael Hoel, 2011. "The Supply Side of CO 2 with Country Heterogeneity," Scandinavian Journal of Economics, Wiley Blackwell, vol. 113(4), pages 846-865, December.
  15. Hoel, Michael, 2011. "The supply side of CO2 with country heterogeneity," Memorandum 08/2011, Oslo University, Department of Economics.
  16. Michael Hoel & Svenn Jensen, 2010. "Cutting Costs of Catching Carbon. Intertemporal effects under imperfect climate policy," Discussion Papers 639, Research Department of Statistics Norway.
  17. 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.

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