Title: Technological Uncertainty and Cost-Effectiveness of CO2 Emission Reduction
Authors: LÖSCHEL Andreas
Citation: ENERGY ECONOMICS vol. 31 no. Supplement 1 p. S4-S17
Publication Year: 2009
JRC N°: JRC56968
ISSN: 0140-9883
URI: http://www.sciencedirect.com/
DOI: 10.1016/j.eneco.2008.11.008
Type: Articles in periodicals and books
Abstract: This paper studies implications of uncertainty about the arrival date of a competitive CO2 backstop technology for the design of cost-effective CO2 emission trading schemes. For this purpose, we develop a dynamic general equilibrium model that captures empirical links between CO2 emissions associated with energy use, the rate and direction of technical change and the economy. We specify CO2 capture and storage (CCS) as the backstop technology whose competitiveness is anticipated or not. We find that the discounted welfare loss associated with the environmental target is lower if CCS is not anticipated and that CO2 shadow prices are then relatively high in the years before CCS is competitive. By not simply postponing the implementation of an emission reduction strategy until CCS is competitive, one relies more on economy-wide technical change and its welfare-enhancing technology externalities, thus allowing for a higher steady state. Keywords: CO2 capture and storage, computable general equilibrium modeling, directed technical change, emission trading, technological uncertainty JEL classification: D58, D83, H23, O33, Q43
JRC Directorate:Growth and Innovation

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