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

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  • Gregory F. Nemet and Adam R. Brandt

Abstract

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.

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  • Gregory F. Nemet and Adam R. Brandt, 2012. "Willingness to Pay for a Climate Backstop: Liquid Fuel Producers and Direct CO2 Air Capture," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    • Handle: RePEc:aen:journl:33-1-a03
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    1. Nemet, Gregory F. & Baker, Erin & Jenni, Karen E., 2013. "Modeling the future costs of carbon capture using experts' elicited probabilities under policy scenarios," Energy, Elsevier, vol. 56(C), pages 218-228.
    2. Frédéric Babonneau & Ahmed Badran & Maroua Benlahrech & Alain Haurie & Maxime Schenckery & Marc Vielle, 2021. "Economic assessment of the development of CO2 direct reduction technologies in long-term climate strategies of the Gulf countries," Climatic Change, Springer, vol. 165(3), pages 1-18, April.
    3. Gregory Nemet & Erin Baker & Bob Barron & Samuel Harms, 2015. "Characterizing the effects of policy instruments on the future costs of carbon capture for coal power plants," Climatic Change, Springer, vol. 133(2), pages 155-168, November.
    4. Emanuele Massetti & Massimo Tavoni, 2011. "The Cost Of Climate Change Mitigation Policy In Eastern Europe And Former Soviet Union," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 2(04), pages 341-370.
    5. Cherp, Aleh & Jewell, Jessica, 2014. "The concept of energy security: Beyond the four As," Energy Policy, Elsevier, vol. 75(C), pages 415-421.
    6. Rezaei, Mostafa & Akimov, Alexandr & Gray, Evan MacA., 2024. "Techno-economics of renewable hydrogen export: A case study for Australia-Japan," Applied Energy, Elsevier, vol. 374(C).
    7. Motlaghzadeh, Kasra & Schweizer, Vanessa & Craik, Neil & Moreno-Cruz, Juan, 2023. "Key uncertainties behind global projections of direct air capture deployment," Applied Energy, Elsevier, vol. 348(C).

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