The Role of Carbon Capture and Sequestration Policies for Climate Change Mitigation

32 Pages Posted: 15 Jun 2012

See all articles by Matthias Kalkuhl

Matthias Kalkuhl

University of Bonn - Center for Development Research (ZEF); Potsdam-Institut für Klimafolgenforschung (PIK)

Ottmar Edenhofer

Potsdam Institute for Climate Impact Research (PIK); Mercator Research Institute on Global Commons and Climate Change (MCC); Technische Universität Berlin (TU Berlin)

Kai Lessmann

Potsdam Institute of Climate Impact Research

Date Written: May 31, 2012

Abstract

This paper takes the ‘policy failure’ in establishing a global carbon price for efficient emissions reduction as a starting point and analyzes to what extent technology policies can be a reasonable second-best approach. From a supply-side perspective, carbon capture and storage (CCS) policies differ substantially from renewable energy policies: they increase fossil resource demand and simultaneously lower emissions. We show in a theoretical model that, under idealized conditions, a pure CCS subsidy can be as efficient as a carbon tax. Within a numerical dynamic general equilibrium model, we analyze CCS and renewable energy policies under more realistic parameter settings for imperfect or missing carbon prices. We find that in contrast to renewable energy policies, CCS policies are not always capable of reducing emissions in the long run. If feasible, CCS policies carry often lower social costs compared to renewable energy policies. In case fossil resources are abundant and renewable energy costs low, renewable energy policies perform better. Our results indicate that a pure CCS policy or a pure renewable energy policy carry specific risks of missing the environmental target. A smart combination of both, however, can be a robust and low-cost temporary second-best policy.

Keywords: renewable energy subsidy, supply-side dynamics, green paradox, carbon pricing, global warming, CCS

JEL Classification: Q310, Q380, Q400, Q540, Q580

Suggested Citation

Kalkuhl, Matthias and Edenhofer, Ottmar and Lessmann, Kai, The Role of Carbon Capture and Sequestration Policies for Climate Change Mitigation (May 31, 2012). CESifo Working Paper Series No. 3834, Available at SSRN: https://ssrn.com/abstract=2084087

Matthias Kalkuhl (Contact Author)

University of Bonn - Center for Development Research (ZEF) ( email )

Walter-Flex-Str. 3
Bonn, NRW 53113
Germany

Potsdam-Institut für Klimafolgenforschung (PIK) ( email )

Telegraphenberg
Potsdam, Brandenburg 14412
Germany

Ottmar Edenhofer

Potsdam Institute for Climate Impact Research (PIK) ( email )

P.O. Box 601203
14412 Potsdam, Brandenburg
Germany

Mercator Research Institute on Global Commons and Climate Change (MCC)

Torgauer Straße 12-15
Berlin, 10829
Germany

Technische Universität Berlin (TU Berlin)

Straße des 17
Juni 135
Berlin, 10623
Germany

Kai Lessmann

Potsdam Institute of Climate Impact Research ( email )

HOME PAGE: http://https://pik-potsdam.de/members/lessmann

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