Skip to main content

Optimal Carbon Capture and Storage Policies

Abstract

The IPCC recommends the use of carbon capture and sequestration (CCS) technologies in order to achieve the Kyoto environmental goals. This paper sheds light on this issue by assessing the optimal strategy regarding the long-term use of CCS technologies. The aim is to analyze the optimal CCS policy when the sequestration rate is endogenous, being therefore one specific tool of the environmental policy. We develop a simple growth model to identify the main driving forces that should determine the optimal CCS policy. We show that, under some conditions on the cost of extractions, CCS may be a long-term solution to curb carbon emissions. We also show that over time the social planner will choose to decrease the rate of capture and sequestration. We then derive the decentralized equilibrium outcome by considering the programs of the fossil resource-holder and of the representative consumer. Finally, we determine the optimal environmental policy, i.e. the carbon tax scheme, as well as the dynamics of the fossil fuel price needed to implement it.

This is a preview of subscription content, access via your institution.

Fig. 1

Notes

  1. It includes gaseous storage in various deep geological formations (including saline formations and exhausted gas fields), liquid storage in the ocean, and solid storage by reaction of CO2 with metal oxides to produce stable carbonates.

  2. One direct extension, among others, is to take into account the uncertainty linked to CSS efficiency. The CSS projects in action are still recent and we do not know exactly the full consequences of such abatement technologies, in terms of environmental consequences (on oceans for instance), or in terms of efficiency once we consider the leakage problems.

  3. See for example Heal [17] for a survey on these topics.

  4. For the sake of computational convenience, we do not assume here that the sequestration cost depends on the accumulated past storage \(S_{t}\). If such an assumption was made, it would give rise to two possible effects acting in two opposite ways. First, the scarcity effect, capturing the idea that it becomes more and more costly to store carbon emissions as the stock already sequestered increases, would be taken into account by assuming that \( \partial D( .) /\partial S>0.\) Secondly, the learning effect, implying that the deployment of the CCS technology improves as the installed capacity increases, would require us to assume that \(\partial D\left ( .\right ) /\partial S<0.\) A discussion about these effects can be found in Amigues et al. [1].

  5. This first term (\(\rho +\alpha \)) is often qualified as a modified discount rate, or environmental discount rate, in order to take into account that emitting an additional unit of carbon today yields a marginal return \(\rho \) tomorrow, but it also increases the future marginal regeneration of the atmosphere by \(\alpha \).

  6. Some agreements also refer to carbon budgets so that the constraint concerns the accumulated emissions instead of the atmospheric carbon concentration.

  7. As suggested by a referee, one would expect a sequentiality of decisions between resource holder and resource users. Doing so, we would assume that firstly, the resource holder could choose the level of extraction; secondly, the resource user could decide the consumption and the sequestration rates. This is an interesting extension that would require to change the framework and would complicate significantly the calculus.

  8. Note that we conduct here a partial decentralization exercise since the behavior of agents on the financial market, which would allow us to determine the equilibrium level of the interest rate, is not examined. It is possible to introduce the budget constraint of the consumer who can save money and hold a stock of bonds \(B_{t}\). In its simplest form, this constraint writes \(\dot {B}_{t}=rB_{t}-p_{t}x_{t}-\beta x_{t}d(\gamma _{t})-\tau _{t}(1-\gamma _{t})\beta x_{t}\). However, it can be easily proved that this additional feature changes neither the properties of the equilibrium trajectories nor the optimum implementation rules.

References

  1. Amigues, J.-P., Lafforgue, G., Moreaux, M. (2012). Optimal timing of carbon capture policies under alternative CCS cost functions, Lerna Working Paper n°12.11.368: Toulouse School of Economics.

  2. Ayong Le Kama, A. (2001). Preservation and exogenous uncertain future preferences. Economic Theory, 18, 745–752.

    Article  Google Scholar 

  3. Ayong Le Kama, A., & Fodha, M. (2010). Optimal Nuclear Waste Burial Policy under Uncertainty. Optimal Control Applications and Methods, 31, 67–76.

    Google Scholar 

  4. Ayong Le Kama, A., & Schubert, K. (2004). Growth, Environment and Uncertain Future Preferences. Environmental and Resource Economics, 28, 31–53.

    Article  Google Scholar 

  5. Ayong Le Kama, A., & Schubert, K. (2006). Ressources renouve lables et incertitude sur les préférences des générations futures. Revue d’Economie Politique, 2, 229–250.

    Google Scholar 

  6. Chakravorty, U., Magné, B., Moreaux, M. (2006). A Hotelling model with a ceiling on the stock of pollution. Journal of Economic Dynamics and Control, 30, 2875–2904.

    Article  Google Scholar 

  7. Dasgupta, P., & Heal, G. (1974). The Optimal Depletion of Exhaustible Resources. Review of Economic Studies, 41, 1–28.

    Article  Google Scholar 

  8. Edenhofer, O., Bauer, N., Kriegler, E. (2005). The impact of technological change on climate protection and welfare: insights from the model MIND. Ecological Economics, 54, 277–292.

    Article  Google Scholar 

  9. Edmonds, J., Clarke, J., Dooley, J., Kim, S.H., Smith, S.J. (2004). Stabilization of CO2 in a B2 world: insights on the roles of carbon capture and disposal, hydrogen, and transportation technologies. Energy Economics, 26, 517–537.

    Article  Google Scholar 

  10. Gerlagh, R. (2006). ITC in a global growth-climate model with CCS. The value of induced technical change for climate stabiliza tion. Energy Journal, 1, 55–72 Special issue.

    Google Scholar 

  11. Gerlagh, R., & van der Zwaan, B.C. (2006). Options and instruments for a deep Cut in CO2 emissions: carbon capture or renewable, taxes or subsidies. Energy Journal, 27, 25–48.

    Google Scholar 

  12. Gitz, V., Ambrosi, P., Magné, B., Ciais, P. (2009). Is there an optimal timing for sequestration to stabilize future climate?. Washington, DC: American Geophysical Union.

  13. Gradus, R., & Smulders, S. (1996). Pollution Abatement and Long-term Growth. European Journal of Political Economy, 12, 505–532.

    Article  Google Scholar 

  14. Grimaud, A., & Rouge, L. (2009). Séquestration du carbone et politique climatique optimale. Economie et Prévision, 190–191, 53–69.

    Google Scholar 

  15. Grimaud, A., Lafforgue, G., Magné, B. (2011). Climate change mitigation options and directed technical change: A decentralized equilibrium analysis. Resource and Energy Economics, 33, 938–962.

    Article  Google Scholar 

  16. Hartwick, R. (1977). Intergenerational Equity and the Investing of Rents from Exhaustible Resources. American Economic Review, 67, 972–974.

    Google Scholar 

  17. Heal, G.M. (1993). The Optimal Use Of Exhaustible Resources. In A. V. Kneese, J. L. Sweeney (Eds.), Handbook of Natu ral Resource and Energy Economics (Vol. III). Elsevier SciencePublishers.

  18. Hotteling, H. (1931). The Economics of Exhaustible Resources. Journal of Political Economy, 39, 137–175.

    Article  Google Scholar 

  19. IPCC. (2005). Special Report on Carbon Dioxide Capture and Storage, Contribution of Working Group III , Report of the Inter-governmental Panel on Climate Change. Cambridge: Cambridge Univ. Press.

    Google Scholar 

  20. Kurosawa, A. (2004). Carbon concentration target and technological choice. Energy Economics, 26, 675–684.

    Article  Google Scholar 

  21. Lafforgue, G., Magne, B., Moreaux, M. (2008a). Energy substitutions, climate change and carbon sinks. Ecological Economics, 67, 589–597.

    Article  Google Scholar 

  22. Lafforgue, G., Magne, B., Moreaux, M. (2008b). The optimal sequestration policy with a ceiling on the stock of carbon in the atmosphere. In R. Guesnerie, H. Tulkens (Eds.), The Design of Climate Policy (Chapter 14, pp. 273–304). Boston: The MIT Press.

    Google Scholar 

  23. McFarland, J.R., Herzog, H.J., Reilly, J.M. (2003). Economic modelling of the global adoption of carbon capture and sequestration technologies. In J. Gale, Y. Kaya (Eds.), Proceedings of the Sixth International Conference on Greenhouse Gas Control Technologies. Oxford: Elsevier Science.

    Google Scholar 

  24. Ragot, L., & Schubert, K. (2008). The optimal carbon sequestration in agricultural soils: do the dynamics of the physical process matter?. Journal of Economic Dynamics and Control, 32, 3847–3865.

    Article  Google Scholar 

  25. van der Ploeg, F., & Withagen, C. (1991). Pollution Control and the Ramsey Problem. Environmental and Resource Economics, 1, 215–236.

    Article  Google Scholar 

Download references

Acknowledgements

The authors are indebted to two anonymous referees for their helpful suggestions and comments on an earlier version of this article.

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Mouez Fodha.

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Ayong Le Kama, A., Fodha, M. & Lafforgue, G. Optimal Carbon Capture and Storage Policies. Environ Model Assess 18, 417–426 (2013). https://doi.org/10.1007/s10666-012-9354-y

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10666-012-9354-y

Keywords

  • Carbon capture and sequestration
  • Optimal growth
  • Environmental policy