Evaluating Carbon Capture and Storage in a Climate Model with Directed Technical Change

46 Pages Posted: 21 Aug 2013 Last revised: 17 Jul 2014

See all articles by Tunc Durmaz

Tunc Durmaz

Norwegian School of Economics (NHH) - Department of Economics

Fred Schroyen

Norwegian School of Economics (NHH) - Department of Economics

Date Written: August 4, 2013

Abstract

Carbon capture and storage (CCS) is considered a critical technology needed to curb CO2 emissions and is envisioned by the International Energy Agency (IEA) as an integral part of least-cost greenhouse gas mitigation policy. In this paper, we assess the extent to which CCS and R&D in CCS technology are indeed part of a socially efficient solution to the problem of climate change. For this purpose, we extend the intertemporal model of climate and directed technical change developed by Acemoglu et al. (2012, American Economic Review, 102(1): 131{66) to include a sector responsible for CCS. Surprisingly, even for an optimistic cost estimate available for CCS ($60/ton of CO2 avoided), we find that it is not optimal to deploy CCS or devote resources to R&D in CCS technology either in the near or distant future. Indeed, it is only when the marginal cost of CCS is less than $12/ton that a scenario with an active CCS sector (including R&D) becomes optimal, though not in the near future.

Suggested Citation

Durmaz, Tunc and Schroyen, Fred, Evaluating Carbon Capture and Storage in a Climate Model with Directed Technical Change (August 4, 2013). NHH Dept. of Economics Discussion Paper No. 14/2013. Available at SSRN: https://ssrn.com/abstract=2313092 or http://dx.doi.org/10.2139/ssrn.2313092

Tunc Durmaz

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway

HOME PAGE: http://www.nhh.no/en/research-faculty/department-of-economics/sam/cv/durmaz--tunc.aspx

Fred Schroyen (Contact Author)

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway

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