Promoting CCS in Europe: A Case for Green Strategic Trade Policy?

According to IEA (2018), there is a huge gap between the first-best social optimal utilization of Carbon Capture and Storage (CCS) technologies to lower global CO2 emissions and the current, negligible diffusion of this technology. This calls for a financial support mechanism for CCS. We study to wh...

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Published inThe Energy journal (Cambridge, Mass.) Vol. 43; no. 6; pp. 71 - 102
Main Authors Aune, Finn Roar, Gaure, Simen, Golombek, Rolf, Greaker, Mads, Kittelsen, Sverre A.C., Ma, Lin
Format Journal Article
LanguageEnglish
Norwegian
Published Los Angeles, CA SAGE Publications 01.11.2022
Sage Publications Ltd. (UK)
International Association for Energy Economics
Subjects
Air quality management
Carbon dioxide
Carbon dioxide emissions
Carbon sequestration
Coal
Commercial policy
Diffusion
Economic aspects
Economic development
Economic models
Electricity
Energy industry
Environmental aspects
Financial support
Industrial plant emissions
International economic relations
Markets
Power
Power plants
Storage
Subsidies
Suppliers
Technology
Trade policy
Upstream
Value chain
Europe
Downstream subsidy
Profit shifting
Electricity
Carbon capture and storage (CCS)
Upstream subsidy
Cournot
Strategic trade policy
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Summary:According to IEA (2018), there is a huge gap between the first-best social optimal utilization of Carbon Capture and Storage (CCS) technologies to lower global CO2 emissions and the current, negligible diffusion of this technology. This calls for a financial support mechanism for CCS. We study to what extent promotion of CCS in Europe should be through subsidizing development and production of CCS technologies—an upstream subsidy—or by subsidising the purchasers of CCS technologies—a downstream subsidy. This question is examined theoretically in a stylized model and numerically by using a new approach that integrates strategic trade policy with an economic model of the European energy markets. The theory model suggests that upstream subsidies should clearly be preferred, and this is confirmed by the numerical simulations. For the European power market, the numerical simulations suggest that subsidies to CCS coal power should exceed subsidies to CCS gas power.
Bibliography:NFR/324892
ISSN:0195-6574
1944-9089
DOI:10.5547/01956574.43.6.faun