Technological uncertainty and cost-effectiveness of CO2 emission trading schemes

Löschel, Andreas ; Otto, Vincent M.

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URN: urn:nbn:de:bsz:180-madoc-20555
Document Type: Working paper
Year of publication: 2008
The title of a journal, publication series: None
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: Q43 O33 H23 D83 D58 ,
Subject headings (SWD): Umweltzertifikathandel , Klimaschutz , Wirtschaftlichkeit , Umwelttechnik , Dynamisches Modell , Allgemeines Gleichgewichtsmodell
Keywords (English): CO2 capture and storage , computable general equilibrium modeling , directed technical change , emission trading , technological uncertainty
Abstract: This paper studies implications of uncertainty about the arrival date of a competitive CO2 backstop technology for the design of cost-effective CO2 emission trading schemes. For this purpose, we develop a dynamic general equilibrium model that captures empirical links between CO2 emissions associated with energy use, the rate and direction of technical change and the economy. We specify CO2 capture and storage (CCS) as the backstop technology whose competitiveness is anticipated or not. We find that the discounted welfare loss associated with the environmental target is lower if CCS is not anticipated and that CO2 shadow prices are then relatively high in the years before CCS is competitive. By not simply postponing the implementation of an emission reduction strategy until CCS is competitive, one relies more on economy-wide technical change and its welfare-enhancing technology externalities, thus allowing for a higher steady state.
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