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Willingness to Pay for a Climate Backstop: Liquid Fuel Producers and Direct CO2 Air Capture

Gregory F. Nemet and Adam R. Brandt

Year: 2012
Volume: Volume 33
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol33-No1-3
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We conduct a sensitivity analysis to describe conditions under which liquid fuel producers would fund the development of a climate backstop. We estimate (1) the cost to develop competitively priced direct CO2 air capture technology, a possible climate backstop and (2) the effect of this technology on the value of liquid fuel reserves by country and fuel. Under most assumptions, development costs exceed individual benefits. A particularly robust result is that carbon prices generate large benefits for conventional oil producers--making a climate backstop unappealing for them. Unilateral investment does become more likely under: stringent carbon policy, social discount rates, improved technical outcomes, and high price elasticity of demand for liquid fuels. Early stage investment is inexpensive and could provide a hedge against such developments, particularly for fuels on the margin, such as tar sands and gas-to-liquids. Since only a few entities benefit, free riding is not an important disincentive to investment, although uncertainty about who benefits probably is.

Keywords: Air capture, Backstop technology, Climate policy, Learning by doing, R&D, Unconventional oil

Energy R&D Investments and Emissions Abatement Policy

Di Yin and Youngho Chang

Year: 2020
Volume: Volume 41
Number: Number 6
DOI: 10.5547/01956574.41.6.dyin
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The study examines the interactions of the energy R&D investments and the CO2 abatement policy using an endogenous energy R&D climate-economy model. Energy R&D investments affect the carbon emissions directly through efficiency improvements and indirectly by changing the comparative advantages of resources. This study considers the R&D investments in energy efficiency and low-carbon technology and explores how energy R&D investments accelerate the energy transition from fossil fuels to low-carbon technology. Three policies of carbon abatements are considered, namely, the optimal policy, the 2 �C policy, and the 1.5 �C policy. From the perspectives of benefits and costs, the optimal policy leads to the least abatement costs compared to the other two abatement policies. This study indicates that the more restrictive the abatement policy is, the more severe economic damage is caused in the short run, but more economic welfare is gained in the long run. Keywords: Energy R&D investments, Emissions abatement policy, Energy efficiency, Backstop technology, Energy substitution, Cost-benefit analysis, Climate change

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