Optimal Timing of Carbon Capture Policies under Learning-by-doing

Using a standard Hotelling model of resource exploitation, we determine the optimal energy consumption paths from three options: dirty coal, which is non-renewable and carbon-emitting; clean coal, which is also non-renewable but carbon-free thanks to carbon capture and storage (CCS); and solar energy, which is renewable and carbon-free. We assume that the atmospheric carbon stock cannot exceed an exogenously given ceiling. Taking into account learning-by-doing in CCS technology, we show the following results: i) Clean coal exploitation cannot begin before the outset of the carbon constrained phase and must stop strictly before the end of this phase; ii) The energy price path can evolve non-monotonically over time; and iii) When the solar cost is low enough, an unusual energy consumption sequence along which solar energy is interrupted for some time and replaced by clean coal may exist.