The adoption of CCS by the cement industry: a game theoretic analysis

This paper analyzes the adoption of Carbon Capture and Storage (CCS) in the cement industry, a hard-to-abate sector, by modeling firms' strategic choices of adoption timing as a continuous-time game under Cournot competition. The model considers a polluting technology whose cost increases over time due to the social cost of carbon, and a clean CCS technology involving a fixed sunk cost. We find that imperfect competition in the cement sector delays CCS adoption, with a Pareto-dominant Nash equilibrium corresponding to simultaneous adoption. We examine two types of public policies to correct this inefficiency: a subsidy on the fixed cost of CCS and a time-dependent subsidy on profit flows. While both instruments can lead to socially optimal adoption, the fixed-cost subsidy is easier to implement but more expensive. Our numerical application shows that, in the absence of policy intervention, CCS adoption is delayed by ten years relative to the social optimum. To achieve the optimal timing, the fixed-cost subsidy would need to cover about 70\% of the investment cost, while the time-dependent subsidy would be roughly three times less expensive.