Willingness to Pay for a Climate Backstop: Liquid Fuel Producers and Direct CO2 Air Capture
Gregory F. Nemet and Adam R. Brandt
Authors registered in the RePEc Author Service: Gregory F. Nemet ()
The Energy Journal, 2012, vol. Volume 33, issue Number 1
We conduct a sensitivity analysis to describe conditions under which liquid fuel producers would fund the development of a climate backstop. We estimate (1) the cost to develop competitively priced direct CO2 air capture technology, a possible climate backstop and (2) the effect of this technology on the value of liquid fuel reserves by country and fuel. Under most assumptions, development costs exceed individual benefits. A particularly robust result is that carbon prices generate large benefits for conventional oil producers--making a climate backstop unappealing for them. Unilateral investment does become more likely under: stringent carbon policy, social discount rates, improved technical outcomes, and high price elasticity of demand for liquid fuels. Early stage investment is inexpensive and could provide a hedge against such developments, particularly for fuels on the margin, such as tar sands and gas-to-liquids. Since only a few entities benefit, free riding is not an important disincentive to investment, although uncertainty about who benefits probably is.
JEL-codes: F0 (search for similar items in EconPapers)
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