How policy choice affects investment in low-carbon technology: The case of CO2 capture in indirect coal liquefaction in China

Wenji Zhou, Bing Zhu, Dingjiang Chen, Fangxian Zhao and Weiyang Fei

Energy, 2014, vol. 73, issue C, 670-679

Abstract: An improved understanding of investment decisions on low-carbon technology will greatly facilitate assessing the effectiveness of carbon emissions mitigation policies. We use the example of implementing CCS (carbon capture and storage) within ICL (indirect coal liquefaction), a controversial technology in China, by constructing a RO (real options) model for the investment decision-making process to assess how different climate policies affect low-carbon technology investors under highly uncertain circumstances. We find that a carbon tax provides the strongest signal for investment and that a market-based measure provides firms with flexibility. Moreover, different types of carbon markets generate substantially different effects on firm behavior, and the CO2 price level exerts a more powerful influence on investors than market volatility or the policy's implementation date. Considering the regional disparities among the coal-abundant but less-developed provinces and the affluent coastal regions in China, we suggest that a sub-national CDM (clean development mechanism) would complete the current domestic policy framework to balance the development requirement and CO2 abatement, whereas extraordinary administrative efforts are necessary to raise the current price of CO2 credits to an effective level, to broaden the carbon market coverage and consolidate the carbon market foundation.

Keywords: Carbon capture; Indirect coal liquefaction; Carbon market; Clean development mechanism; Real options analysis (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (29)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0360544214007671
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:energy:v:73:y:2014:i:c:p:670-679

DOI: 10.1016/j.energy.2014.06.068

Access Statistics for this article

Energy is currently edited by Henrik Lund and Mark J. Kaiser

More articles in Energy from Elsevier
Bibliographic data for series maintained by Catherine Liu ().