Scandinavian Working Papers in Economics

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

No 22/2019: Evaluating Carbon Capture and Storage in a Climate Model with Endogenous Technical Change

Fred Schroyen () and Tunc Durmaz ()
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Fred Schroyen: Dept. of Economics, Norwegian School of Economics and Business Administration, Postal: NHH, Department of Economics, Helleveien 30, N-5045 Bergen, Norway
Tunc Durmaz: Yildiz Technical University, Istanbul

Abstract: We assess the extent to which Carbon Capture and Storage (CCS) and R&D on this abatement technology are 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. We show that two types of solutions exist: a renewable energy regime where current CCS technology is only temporarily used but never further developed; and a fossil energy regime where CCS is part of a long term solution and is further developed at about the same rate as fossil energy technology. Our computations show that for current estimates of the marginal cost of CCS, the renewable energy regime clearly dominates the fossil fuel energy regime.

Keywords: carbon capture and storage; renewable energy; fossil fuel energy; endogenous technical change; climate change

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

52 pages, First version: August 4, 2013. Revised: October 16, 2019.

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