Deployment of negative emissions technology under various policy scenarios intended to limit warming or limit CO2 atmospheric stocks

Abstract:

The marginal costs of CO₂ emissions under the climate policies that aim to limit global warming to 1.5°C or below 2°C by limiting the stock of CO₂ emissions follow a least-cost path. If the climate mitigation policy aims to achieve the warming goal by directly limiting warming rather than limiting the stock of CO₂ emissions, the trajectory of the marginal cost of CO₂ mitigation will be lower than when limiting the stock of CO₂ emissions. This trajectory takes advantage of the climate system inertia: the gradual future increase in warming from an increase in the current CO₂ concentration. The climate system’s inertia allows policymakers to delay emission reduction without incurring an immediate rise in temperature-related damages. In this presentation, we will use a general equilibrium framework to examine the policy choice between limiting warming or limiting the stock of CO₂ but with the added possibility of investing in negative emission technology (NET). Using the Global Change Assessment Model (GCAM), an integrated assessment model that uses a partial equilibrium framework, we have simulated global electricity power generation under a climate mitigation goal to achieve a well-below 2°C scenario by end of the century. Our results suggest that the deployment of direct air capture and carbon storage technology (DACCS), a negative emissions technology, would lower the price on emissions relative to when there is no DACCS available. This would lower the near-term CO₂ abatement and would thus reduce the stranding of existing long-lived power plants and delay their stranding, in future. To further understand these dynamics, we use a two-sector dynamic general equilibrium model and examine the effect of policy choices on investments in negative emissions technology. Our results reveal important distinctions between policy options and investment choices in carbon constrained world where negative emissions technology are available.

References

Lemoine, Derek and Ivan Rudik, 2017. “Steering the Climate System: Using Inertia to Lower the Cost of Policy”, American Economic Review, 107(10): 2947-2957.