Carbon Capture and Sequestration: How Much Does this Uncertain Option Affect Near-Term Policy Choices?
Fondazione Eni Enrico Mattei (FEEM); Bocconi University; CMCC - Euro Mediterranean Centre for Climate Change
CIRED, International Research Center on Environment & Development, France; University of Montreal - Centre de recherches mathématiques (CRM)
FEEM Working Paper No. 86.05
One of the main issues in the climate policy agenda, the timing of abatement efforts, hinges on the uncertainties of climate change risks and technological evolution. We use a stochastic optimization framework and jointly explore these two features. First, we embed in the model future potential large-scale availability of Carbon Capture and Storage (CCS) technologies. While non-CCS mitigation that reduces fossil energy use is modelled as exerting inertia on the economic system, mainly due to the durability of the capital in energy systems and to technology lock-in and lock-out phenomena, the implementation of CCS technologies is modelled as implying less resilience of the system to changes in policy directions. Second, climate uncertainty is related in the model to the atmospheric temperature response to an increase in GHGs concentration. Performing different simulation experiments, we find that the environmental target, derived from a cost-benefit analysis, should be more ambitious when CCS is included in the picture. Moreover, the possible future availability of CCS is not a reason to significantly reduce near-term optimal abatement efforts. Finally, the availability of better information on the climate cycle is in general more valuable than better information on the CCS technological option.
Number of Pages in PDF File: 25
Keywords: Climate change, Uncertainty, Sequestration, Cost-benefit analysis
JEL Classification: D62, D63, H23, Q29
Date posted: July 19, 2005
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