Optimal Timing of Carbon Capture and Storage Policies Under Learning-by-doing

Using a standard Hotelling model of resource exploitation, we determine the optimal consumption paths of three energy resources: dirty coal, which is depletable and carbon-emitting; clean coal, which is also depletable but carbon-free thanks to an abatement technology (CCS: Carbon Capture and Storage), and solar energy which is renewable and carbon-free. Carbon emissions are released into the atmosphere and we assume that the atmospheric carbon stock cannot exceed a given ceiling. We consider learning-by-doing in the abatement technology, implying that the marginal CCS cost is decreasing in the cumulative consumption of clean coal. We show the following results. i) Learning-by-doing does not imply "early" capture, i.e. the clean coal exploitation must begin at the earliest once the carbon cap is reached. ii) The energy price path can evolve non-monotonically over time. iii) When the solar cost is low enough, there may exist unusual energy consumption sequence along which solar energy is interrupted for some time and replaced by clean coal.