Scandinavian Working Papers in Economics

Discussion Paper Series in Economics,
Norwegian School of Economics, Department of Economics

No 14/2013: Evaluating Carbon Capture and Storage in a Climate Model with Directed Technical Change

Tunç Durmaz () and Fred Schroyen ()
Additional contact information
Tunç Durmaz: Dept. of Economics, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Economics, Helleveien 30, N-5045 Bergen, Norway
Fred Schroyen: Dept. of Economics, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Economics, Helleveien 30, N-5045 Bergen, Norway

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.

Keywords: Carbon capture and storage CCS; climate.

JEL-codes: H23; O31; Q43; Q54; Q55

40 pages, August 4, 2013

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