Cutting Costs of Catching Carbon – Intertemporal effects under imperfect climate policy

By Michael Hoel with Svenn Jensen

Published in

Resource and Energy Economics 34, pages 680-695

DOI: 10.1016/j.reseneeco.2012.07.001


We use a two-period model to investigate intertemporal effects of cost reductions in climate change mitigation technologies for the power sector. The effect of cost reductions for CCS depends on how carbon taxes are set. If there is no carbon tax in period 1, but an optimally set carbon tax in period 2, a CCS cost reduction may reduce early emissions. Such an innovation may therefore be more desirable than comparable cost cuts related to renewable energy. The finding rests on the incentives fossil fuel owners face. If future profitability is reduced, they speed up extraction (the ‘green paradox’), and vice versa.

Fulltext (pdf)

By Michael Hoel with Svenn Jensen
Published Sep. 12, 2013 2:41 PM - Last modified Sep. 12, 2013 2:41 PM