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Incentives for early adoption of carbon capture technology

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  • Comello, Stephen
  • Reichelstein, Stefan

Abstract

We analyze a policy proposal for regulating the next generation of baseload electricity generation facilities in the United States. The cornerstone of this regulation is a (hypothetical) EPA mandate for an emission standard of 80kg of CO2 per MWh of electricity generated. The mandate would go into effect at the end of 2027 for all power generating facilities that come into operation after 2017. Fossil-fuel power plants could meet the standard by capturing between 80 and 90% of their current CO2 emissions. While the initial cost of complying with this standard is relatively high for first-of-a-kind facilities, learning effects are projected to reduce this cost substantially by the end of 2027, provided new facilities consistently adopt carbon capture technology in the intervening years. We identify a combination of investment- and production tax credits that provide the required incentives for new facilities to be willing to comply with the standard ahead of the mandate. Due to the anticipated learning effects, the incremental cost associated with the stricter emission limit is projected to about 1.2¢ per kWh of electricity in the long run.

Suggested Citation

  • Comello, Stephen & Reichelstein, Stefan, 2014. "Incentives for early adoption of carbon capture technology," Energy Policy, Elsevier, vol. 74(C), pages 579-588.
    • Handle: RePEc:eee:enepol:v:74:y:2014:i:c:p:579-588
    DOI: 10.1016/j.enpol.2014.09.003
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    References listed on IDEAS

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    Cited by:

    1. Bistline, John E., 2016. "Energy technology R&D portfolio management: Modeling uncertain returns and market diffusion," Applied Energy, Elsevier, vol. 183(C), pages 1181-1196.
    2. Massol, Olivier & Tchung-Ming, Stéphane & Banal-Estañol, Albert, 2018. "Capturing industrial CO2 emissions in Spain: Infrastructures, costs and break-even prices," Energy Policy, Elsevier, vol. 115(C), pages 545-560.
    3. Comello, Stephen & Reichelstein, Stefan, 2016. "The U.S. investment tax credit for solar energy: Alternatives to the anticipated 2017 step-down," Renewable and Sustainable Energy Reviews, Elsevier, vol. 55(C), pages 591-602.
    4. Massol, Olivier & Tchung-Ming, Stéphane & Banal-Estañol, Albert, 2015. "Joining the CCS club! The economics of CO2 pipeline projects," European Journal of Operational Research, Elsevier, vol. 247(1), pages 259-275.
    5. Albert Banal-Estañol & Jeremy Eckhause & Olivier Massol, 2015. "Incentives for early adoption of carbon capture technology: further considerations from a European perspective," Working Papers hal-02475485, HAL.
    6. Xiangsheng Dou, 2017. "Low Carbon Technology Innovation, Carbon Emissions Trading and Relevant Policy Support for China s Low Carbon Economy Development," International Journal of Energy Economics and Policy, Econjournals, vol. 7(2), pages 172-184.
    7. Bistline, John E. & Comello, Stephen D. & Sahoo, Anshuman, 2018. "Managerial flexibility in levelized cost measures: A framework for incorporating uncertainty in energy investment decisions," Energy, Elsevier, vol. 151(C), pages 211-225.

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