Cutting Costs of Catching Carbon - Intertemporal Effects Under Imperfect Climate Policy

32 Pages Posted: 26 Dec 2010

See all articles by Michael Hoel

Michael Hoel

University of Oslo; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Svenn Jensen

Oslo Metropolitan University

Date Written: December 23, 2010

Abstract

We use a two-period model to investigate intertemporal effects of cost reductions in climate change mitigation technologies for the power sector. With imperfect climate policies, cost reductions related to carbon capture and storage (CCS) may be more desirable than com-parable cost reductions related to renewable energy. The finding rests on the incentives fossil resource owners face. With regulations of emissions only in the future, cheaper renewables speed up extraction (the ‘green paradox’), whereas CCS cost reductions make fossil resources more attractive for future use and lead to postponement of extraction.

Keywords: climate change, exhaustible resources, carbon capture and storage, renewable energy, green paradox

JEL Classification: Q30, Q42, Q54

Suggested Citation

Hoel, Michael and Jensen, Svenn, Cutting Costs of Catching Carbon - Intertemporal Effects Under Imperfect Climate Policy (December 23, 2010). CESifo Working Paper Series No. 3284, Available at SSRN: https://ssrn.com/abstract=1730087

Michael Hoel (Contact Author)

University of Oslo ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway
+ 47 22 85 83 87 (Phone)
+ 47 22 85 50 35 (Fax)

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Svenn Jensen

Oslo Metropolitan University ( email )

PO Box 4, St Olavs plass
Oslo, 0130
Norway

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