Kiel Working Papers, Kiel Institute for World Economics
No 1440:
The Use of CCS in Global Carbon Management: Simulation with the DICE Model
Daiju Narita
Abstract: This study attempts a numerical simulation of potential
CCS (carbon dioxide capture and storage) use by using a modified version of
the DICE (Dynamic Integrated model on Climate and Economy) model (Nordhaus,
1994; Nordhaus and Boyer, 2000). In DICE, CO2 emissions are controlled to
the extent in which a hypothetical optimal carbon tax justifies CO2
reduction by firms: in our analysis, CCS is used when the optimal tax level
is higher than the price of CCS. The analysis assesses the economic
optimality of CCS use with a range of different assumptions. The simulation
particularly focuses on the difference of results originating from two sets
of general assumptions on climate change modeling, reflecting the current
debate on the economics of climate change (see for example, Heal, 2008):
(1) Parameterization of the standard DICE; (2) Alternative assumptions
whose hints are drawn from Stern (2007). In the standard DICE cases, the
model calculation shows that at the price level of $25/tCO2 ($92/tC), CCS
is introduced around in the middle of the twenty-first century. With the
alternative assumptions (e.g., near-zero discount rate), CCS begins to be
utilized massively earlier in the century. The two sets of results lead to
contrasting policy implications on the future CCS use; this is particularly
problematic in the CCS context since its benefits are not always clear-cut
(e.g., limitedness of secondary benefits besides CO2 reduction,
uncertainties about the validity of technology itself). Settlement of the
current intellectual debate on the economics of climate change would
greatly benefit the debate on the role of CCS as well
Keywords: Carbon capture and storage (CCS), climate change, energy, integrated assessment models, dynamic optimization; (follow links to similar papers)
JEL-Codes: Q32,; Q43,; Q54; (follow links to similar papers)
41 pages, August 2008
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