Amigues, Jean-Pierre, Lafforgue, Gilles and Moreaux, Michel (2012) Optimal Timing of Carbon Capture Policies Under Alternative CCS Cost Functions. LERNA Working Paper, n. 12.11.368

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Abstract

We determine the optimal exploitation time-paths of three types of perfect substitute
energy resources: The first one is depletable and carbon-emitting (dirty coal), the
second one is also depletable but carbon-free thanks to a carbon capture and storage
(CCS) process (clean coal) and the last one is renewable and clean (solar energy). We
assume that the atmospheric carbon stock cannot exceed some given ceiling. These
optimal paths are considered along with alternative structures of the CCS cost function
depending on whether the marginal sequestration cost depends on the flow of
clean coal consumption or on its cumulated stock. In the later case, the marginal
cost function can be either increasing in the stock thus revealing a scarcity effect on
the storage capacity of carbon emissions, or decreasing in order to take into account
some learning process. We show among others the following results: Under a stockdependent
CCS cost function, the clean coal exploitation must begin at the earliest
when the carbon cap is reached while it must begin before under a flow-dependent
cost function. Under stock-dependent cost function with a dominant learning effect,
the energy price path can evolve non-monotonically over time. When the solar cost is
low enough, this last case can give rise to an unusual sequence of energy consumption
along which the solar energy consumption is interrupted for some time and replaced
by the clean coal exploitation. Last, the scarcity effect implies a carbon tax trajectory
which is also unusual in this kind of ceiling models, its increasing part been extended
for some time during the period at the ceiling.