How should CCS technologies be supported?

Carbon capture and storage (CCS) technologies have the potential to bridge the gap between the current carbon-based society and a future low-carbon society. Using CCS electricity technologies, either with coal or natural gas as the fuel, may reduce emissions by as much as 90 percent relative to standard fossil-fuel based technologies.

One main disadvantage of CCS is high cost. These may, however, be lower through continued R&D. An important question is then whether CCS should be prompted through subsidizing the producers of CCS technology (upstream subsidy) or through subsidizing the use of CCS technology (downstream subsidy). In a combined theoretical-empirical subproject we first study optimal design of CCS subsidizes within a simple model of imperfect competition where CCS technology producers are divided into two groups according to whether they are owned by EU citizens/member countries. We then use the numerical equilibrium model of the European energy market LIBEMOD, combined with a new model block with non-competitive supply of CCS technologies, to study how the CCS subsidy should be designed.