Willingness to Pay for a Climate Backstop: Liquid Fuel Producers and Direct CO2 Air Capture

Gregory Nemet and Adam R. Brandt

The Energy Journal, 2011, vol. 33, issue 1, 53-82

Abstract: 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 CO 2 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. doi: 10.5547/ISSN0195-6574-EJ-Vol33-No1-3

Keywords: Air capture; Backstop technology; Climate policy; Learning by doing; R&D; Unconventional oil (search for similar items in EconPapers)
Date: 2011
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Journal Article: Willingness to Pay for a Climate Backstop: Liquid Fuel Producers and Direct CO2 Air Capture (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:sae:enejou:v:33:y:2011:i:1:p:53-82

DOI: 10.5547/ISSN0195-6574-EJ-Vol33-No1-3

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