Benefits of Energy Technology Innovation Part 2: Economy-Wide Direct Air Capture Modeling Results

Marc Hafstead

No 20-20, RFF Working Paper Series from Resources for the Future

Abstract: The world is on pace to exceed the level of global warming universally agreed to under the landmark Paris Agreement of 2015 unless negative emissions technologies (NETs) are adopted at scale. Unlike technologies that remove emissions from the point source of emissions such as carbon capture and storage (CCS), NETs either remove carbon dioxide (CO₂) from the atmosphere or enhance natural methods for removal. Storing one ton of CO₂ from NETs has the same impact on the climate system as reducing one ton of emissions and NETs could be used if emissions reductions in some sectors prove too difficult. Due to relatively low costs, most focus has been on NETs, such as afforestation or biomass energy with carbon capture and storage (BECCS). Despite its high current costs of removal as a nascent technology, however, there has been an increasing interest in direct air capture (DAC).DAC has several benefits relative to other NETs. DAC requires little land (especially relative to afforestation and BECCS), can remove emissions from dispersed sources, such as transportation, and can be placed anywhere, including near geological storage sites. Most importantly, despite a substantial thermal energy requirement, properly designed DAC plants can remove much more carbon dioxide (CO₂) from the air than they produce and could theoretically scale to a very large level. By some estimates, the US alone could store 1 - 1.4 trillion metric tons of carbon dioxide underground captured by DACs, BECCS or CCS EPA (2017).At current costs, DAC is unlikely to be utilized as a method to significantly offset emissions, but innovations that reduce the costs of carbon dioxide removal could drive significant growth in DAC over time. This study uses an economy-wide model of the United States to project the deployment of DAC across a range of technological cost and policy scenarios and provides estimates of the net benefits to society of innovation in DAC that lower its future technological costs. These estimates can help inform research, development, and demonstration (RD&D) expenditures on DAC technologies and future research can inform the expected levels of innovation that can be achieved through public RD&D spending on DAC.In climate policy scenarios where DAC is an option for policy compliance, the use of DAC storage (carbon dioxide pulled from the air and then pumped into underground reservoirs) will depend on its costs relative to alternative compliance costs. Under the economy-wide emissions targets considered in this study (modeled as cap-and-trade programs), firms may comply with the regulation by either: (i) reducing their emissions, (ii) purchasing allowances from the government (or other market participants), or (iii) purchasing offset credits from the DAC sec-tor. In equilibrium, if the DAC costs exceed the marginal abatement cost required to meet the emissions target, then DAC will not be competitively deployed. Alternatively, if DAC is a cost-effective compliance option, the compliance cost will equal the cost of DAC at the level where gross emissions less DAC removals equals the emissions target.The same logic applies to other policies to reduce emissions where firms can choose to further reduce emissions or pay a compliance cost in lieu of additional reductions. Carbon taxes and nonemissions pricing policies that create compliance markets—e.g., clean electricity standards, tradable performance standards, and low carbon fuel standards—are examples of other policies that could create incentives for DAC storage.The relationship between the marginal compliance costs of meeting an emissions target and the marginal cost of DAC is the key mechanism that determines the level of DAC storage. With a more stringent policy, the marginal cost of emissions reductions will be higher, and therefore DAC storage is increasing in policy stringency. Because DAC innovation lowers its marginal costs, the amount of anticipated DAC storage increases with greater magnitudes of innovation.

Date: 2020-12-14
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