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Optimal Timing of Carbon Capture Policies Under Alternative CCS Cost Functions

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

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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Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 727.

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Date of creation: Apr 2012
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Handle: RePEc:ide:wpaper:26019
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  1. 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).
  2. Hoel, Michael & Kverndokk, Snorre, 1996. "Depletion of fossil fuels and the impacts of global warming," Resource and Energy Economics, Elsevier, vol. 18(2), pages 115-136, June.
  3. Chakravorty, Ujjayant & Leach, Andrew & Moreaux, Michel, 2010. "Would Hotelling Kill the Electric Car?," Working Papers 2010-12, University of Alberta, Department of Economics.
  4. Grimaud, André & Lafforgue, Gilles & Magné, Bertrand, 2008. "Climate Change Mitigation Options and Directed Technical Change: A Decentralized Equilibrium Analysis," IDEI Working Papers 510, Institut d'Économie Industrielle (IDEI), Toulouse, revised Nov 2009.
  5. 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.
  6. Ujjayant Chakravorty & Bertrand Magne & Michel Moreaux, 2003. "A Hotelling Model with a Ceiling on the Stock of Pollution," Emory Economics 0321, Department of Economics, Emory University (Atlanta).
  7. Lafforgue, Gilles & Magné, Bertrand & Moreaux, Michel, 2007. "Energy Substitutions, Climate Change and Carbon Sinks," IDEI Working Papers 427, Institut d'Économie Industrielle (IDEI), Toulouse.
  8. Olli Tahvonen, 1997. "Fossil Fuels, Stock Externalities, and Backstop Technology," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 855-74, November.
  9. repec:hal:wpaper:halshs-00564852 is not listed on IDEAS
  10. 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.
  11. Kurosawa, Atsushi, 2004. "Carbon concentration target and technological choice," Energy Economics, Elsevier, vol. 26(4), pages 675-684, July.
  12. 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.
  13. 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.
  14. 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.
  15. 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.
  16. Amigues, Jean-Pierre & Moreaux, Michel & Schubert, Katheline, 2011. "Optimal use of a polluting non renewable resource generating both manageable and catastrophic damages," LERNA Working Papers 11.10.344, LERNA, University of Toulouse.
  17. 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.
  18. 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.
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