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Optimal Timing of Carbon Capture Policies Under Alternative CCS Cost Functions

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  • Amigues, Jean-Pierre
  • Lafforgue, Gilles
  • Moreaux, Michel

Abstract

We determine the optimal exploitation time-paths of three types of perfect substitute energy resources: The first one is depletable and carbon-emitting (dirty coal), the second one is also depletable but carbon-free thanks to a carbon capture and storage (CCS) process (clean coal) and the last one is renewable and clean (solar energy). We assume that the atmospheric carbon stock cannot exceed some given ceiling. These optimal paths are considered along with alternative structures of the CCS cost function depending on whether the marginal sequestration cost depends on the flow of clean coal consumption or on its cumulated stock. In the later case, the marginal cost function can be either increasing in the stock thus revealing a scarcity effect on the storage capacity of carbon emissions, or decreasing in order to take into account some learning process. We show among others the following results: Under a stockdependent CCS cost function, the clean coal exploitation must begin at the earliest when the carbon cap is reached while it must begin before under a flow-dependent cost function. Under stock-dependent cost function with a dominant learning effect, the energy price path can evolve non-monotonically over time. When the solar cost is low enough, this last case can give rise to an unusual sequence of energy consumption along which the solar energy consumption is interrupted for some time and replaced by the clean coal exploitation. Last, the scarcity effect implies a carbon tax trajectory which is also unusual in this kind of ceiling models, its increasing part been extended for some time during the period at the ceiling.

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Bibliographic Info

Paper provided by Toulouse School of Economics (TSE) in its series TSE Working Papers with number 12-318.

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Date of creation: Apr 2012
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Handle: RePEc:tse:wpaper:26012

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Keywords: Carbon capture and storage; Energy substitution; Learning effect; Scarcity effect; Carbon stabilization cap.;

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References

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  1. Chakravorty, Ujjayant & Magné, Bertrand & Moreaux, Michel, 2005. "A Hotelling Model with a Ceiling on the Stock of Pollution," IDEI Working Papers 368, Institut d'Économie Industrielle (IDEI), Toulouse.
  2. 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.
  3. Chakravorty, Ujjayant & Leach, Andrew & Moreaux, Michel, 2011. "Would hotelling kill the electric car?," Journal of Environmental Economics and Management, Elsevier, vol. 61(3), pages 281-296, May.
  4. Grimaud, André & Lafforgue, Gilles & Magné, Bertrand, 2011. "Climate change mitigation options and directed technical change: A decentralized equilibrium analysis," Resource and Energy Economics, Elsevier, vol. 33(4), pages 938-962.
  5. Manne, Alan & Richels, Richard, 2004. "The impact of learning-by-doing on the timing and costs of CO2 abatement," Energy Economics, Elsevier, vol. 26(4), pages 603-619, July.
  6. 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.
  7. Coulomb, R. & Henriet, F., 2011. "Carbon price and optimal extraction of a polluting fossil fuel with restricted carbon capture," Working papers 322, Banque de France.
  8. Toman, Michael A. & Withagen, Cees, 2000. "Accumulative pollution, "clean technology," and policy design," Resource and Energy Economics, Elsevier, vol. 22(4), pages 367-384, October.
  9. Ayong Le Kama, Alain & Fodha, Mouez & Lafforgue, Gilles, 2011. "Optimal Carbon Capture and Storage Policies," LERNA Working Papers 11.13.347, LERNA, University of Toulouse.
  10. Herzog, Howard J., 2011. "Scaling up carbon dioxide capture and storage: From megatons to gigatons," Energy Economics, Elsevier, vol. 33(4), pages 597-604, July.
  11. Jean-Pierre AMIGUES & Michel MOREAUX & Katheline SCHUBERT, 2011. "Optimal Use of a Polluting non Renewable Ressource Generating Both Manageable and Catastrophic Damages," Annales d'Economie et de Statistique, ENSAE, issue 103-104, pages 107-142.
  12. Snorre Kverndokk, 1994. "Depletion of Fossil Fuels and the impact of Global Warming," Discussion Papers 107, Research Department of Statistics Norway.
  13. 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.
  14. Amigues, Jean-Pierre & Lafforgue, Gilles & Moreaux, Michel, 2011. "Optimal CCS and air capture from heterogeneous energy consuming sectors," LERNA Working Papers 11.16.350, LERNA, University of Toulouse.
  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. repec:hal:wpaper:halshs-00564852 is not listed on IDEAS
  17. Kurosawa, Atsushi, 2004. "Carbon concentration target and technological choice," Energy Economics, Elsevier, vol. 26(4), pages 675-684, July.
  18. Olli Tahvonen, 1997. "Fossil Fuels, Stock Externalities, and Backstop Technology," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 855-74, November.
  19. 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.
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Citations

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Cited by:
  1. Michel Moreaux & Cees Withagen, 2014. "Fluctuating Climate Changes Induced by Optimal Carbon Capturing Policies," Working Papers 2014.01, FAERE - French Association of Environmental and Resource Economists, revised May 2014.
  2. Amigues, Jean-Pierre & Lafforgue, Gilles & Moreaux, Michel, 2012. "Optimal timing of CCS policies with heterogeneous energy consumption sectors," TSE Working Papers 12-326, Toulouse School of Economics (TSE), revised 03 Apr 2013.
  3. Pierre-André Jouvet & Marie Renner, 2014. "Social Acceptance and Optimal Pollution: CCS or Tax?," Working Papers 1403, Chaire Economie du Climat.
  4. 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.
  5. Moreaux, Michel & Withagen, Cees, 2013. "Climate Change and Carbon Capture and Storage," IDEI Working Papers 774, Institut d'Économie Industrielle (IDEI), Toulouse.

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