Research or Carbon Capture and Storage – How to limit climate change?

Gilbert Kollenbach

Volkswirtschaftliche Diskussionsbeiträge from Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht

Abstract: The consequences of the 2°C climate target and the implicitly imposed ceiling on CO2 have been analyzed in several studies. We use an endogenous growth model with a ceiling and a carbon capture and storage (CCS) technology to study the effect of the ceiling on the allocation of limited funds for R&D, CCS and capital accumulation. It turns out that the advantagenousness of CCS investments rise with the CO2 stock. If the gains of CCS, in terms of lower energy costs, outweigh the gains of R&D and capital accumulation, investments are reallocated towards CCS. On the one hand, this reduces the investments into R&D and/or capital. On the other hand, lower energy costs may increase research and/or capital investments. Positive CCS investments allow a higher extraction of fossil fuel, which implies lower backstop utilization. Consequently, CCS investments lower the advantageousness of R&D ceteris paribus. Furthermore, we show that the gains of CCS can be high enough to justify an investment reallocation even before the ceiling is binding, which contrast with existing literature.

Keywords: Climate Change; Research and Development; Carbon Capture and Storage; Endogenous Growth; Fossil Fuel; Renewable Resource (search for similar items in EconPapers)
JEL-codes: O13 O44 Q54 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2014
New Economics Papers: this item is included in nep-ene, nep-env and nep-res
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Persistent link: https://EconPapers.repec.org/RePEc:sie:siegen:163-14

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