Policy uncertainty and diffusion of carbon capture and storage in an optimal region

Abstract

Carbon capture and storage (CCS) has the potential to dramatically reduce GHG emissions in energy supply and industry. However, its high costs mean that uncertainty about the stringency of future climate policy may dissuade firms from investing in this technology. This article explores the relationship between firms expectations of government policy and investment in CCS. First, it synthesizes recent cost estimates for CCS applications in electricity generation and oil sands extraction in Canada. Second, it uses these estimates to investigate the potential impact of policy stringency and uncertainty on CCS adoption in Alberta, a Canadian province with near-ideal CCS potential. The results suggest investment in CCS, and by extension other costly abatement actions, will not occur unless governments create a more stringent and durable climate policy environment than currently exists.

Policy relevance

This paper has two novel and linked objectives, the first of significant utility to researchers and energy modellers in particular, the second to climate policy analysts and decision makers. First, it synthesizes publicly available carbon capture and storage literature and develops cost estimates for key applications related to thermal electricity generation and oil sands extraction in Canada. Second, it uses these cost estimates to investigate the potential impact of policy stringency and uncertainty on carbon capture and storage adoption in Alberta, Canada. Alberta is a test case for CCS due to its fossil resources and high CO₂ storage potential, and the technology's success or failure in this jurisdiction should be of interest to policy makers elsewhere.

Keywords:

• carbon capture and storage
• climate change mitigation
• climate change policies
• economic models
• energy models
• technological change

Acknowledgement

The authors gratefully acknowledge Carbon Management Canada for providing funding for this research.