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Willingness to Pay for a Climate Backstop: Liquid Fuel Producers and Direct CO2 Air Capture

Listed author(s):
  • Gregory F. Nemet and Adam R. Brandt

We conduct a sensitivity analysis to describe conditions under which liquid fuel producers would fund the development of a climate backstop. We estimate (1) the cost to develop competitively priced direct CO2 air capture technology, a possible climate backstop and (2) the effect of this technology on the value of liquid fuel reserves by country and fuel. Under most assumptions, development costs exceed individual benefits. A particularly robust result is that carbon prices generate large benefits for conventional oil producers--making a climate backstop unappealing for them. Unilateral investment does become more likely under: stringent carbon policy, social discount rates, improved technical outcomes, and high price elasticity of demand for liquid fuels. Early stage investment is inexpensive and could provide a hedge against such developments, particularly for fuels on the margin, such as tar sands and gas-to-liquids. Since only a few entities benefit, free riding is not an important disincentive to investment, although uncertainty about who benefits probably is.

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Article provided by International Association for Energy Economics in its journal The Energy Journal.

Volume (Year): Volume 33 (2012)
Issue (Month): Number 1 ()
Pages:

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Handle: RePEc:aen:journl:33-1-a03
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  1. Brandt, Adam R. & Plevin, Richard J. & Farrell, Alexander E., 2010. "Dynamics of the oil transition: Modeling capacity, depletion, and emissions," Energy, Elsevier, vol. 35(7), pages 2852-2860.
  2. Nemet, Gregory F., 2009. "Interim monitoring of cost dynamics for publicly supported energy technologies," Energy Policy, Elsevier, vol. 37(3), pages 825-835, March.
  3. James L. Smith, 2003. "Inscrutable OPEC? Behavioral Tests of the Cartel Hypothesis," Working Papers 0305, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
  4. Searchinger, Timothy & Heimlich, Ralph & Houghton, R. A. & Dong, Fengxia & Elobeid, Amani & Fabiosa, Jacinto F. & Tokgoz, Simla & Hayes, Dermot J. & Yu, Hun-Hsiang, 2008. "Use of U.S. Croplands for Biofuels Increases Greenhouse Gases Through Emissions from Land-Use Change," Staff General Research Papers Archive 12881, Iowa State University, Department of Economics.
  5. Rubin, Edward S. & Yeh, Sonia & Antes, Matt & Berkenpas, Michael & Davison, John, 2007. "Use of experience curves to estimate the future cost of power plants with CO2 capture," Institute of Transportation Studies, Working Paper Series qt46x6h0n0, Institute of Transportation Studies, UC Davis.
  6. David Keith & Minh Ha-Duong & Joshua Stolaroff, 2006. "Climate strategy with CO2 capture from the air," Post-Print halshs-00003926, HAL.
  7. Considine, Timothy J. & Dalton, Maurice, 2008. "Peak Oil in a Carbon Constrained World," International Review of Environmental and Resource Economics, now publishers, vol. 1(4), pages 327-365, February.
  8. Jaffe, Adam B. & Newell, Richard G. & Stavins, Robert N., 2005. "A tale of two market failures: Technology and environmental policy," Ecological Economics, Elsevier, vol. 54(2-3), pages 164-174, August.
  9. Klaus S. Lackner & Jeffrey D. Sachs, 2005. "A Robust Strategy for Sustainable Energy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(2), pages 215-284.
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