Optimal timing of CCS policies with heterogeneous energy consumption sectors

Using the Chakravorty et al. (2006) ceiling model, we characterize the optimal consumption paths of three energy resources: dirty oil, which is non-renewable and carbon emitting; clean oil, which is also non-renewable but carbon-free thanks to an abatement technology, and solar energy, which is renewable and carbon-free. The resulting energy-mix can supply the energy needs of two sectors. These sectors differ in the additional abatement cost they have to pay for consuming clean rather than dirty oil (sector 1 can abate its emissions at a lower cost than sector 2). We show that it is optimal to begin by fully capturing sector 1’s emissions before the ceiling is reached. Also, there may exist optimal paths along which both capture devices have to be activated. In this case first sector’s 1 emissions are fully abated before sector 2 abates partially. Finally, we discuss the effect of heterogeneity regarding the abatement cost on the uniqueness of the sectoral energy price paths.