Cost-benefit analysis of carbon dioxide capture and storage considering the impact of two different climate change mitigation regimes

Carbon Capture and Storage (CCS) technologies permit a reduction in carbon dioxide (CO2) emissions from pollution-generating industrial activities. The possibility of using CCS to curb climate change has been studied in previous publications (Van der Zwaan B., Gerlagh R., 2006; Lackner K.S., Sachs J.D., 2005; Pacala S., Socolow R., 2004; Stern N., 2007). CCS’s strong appeal is its potential to reduce CO2 emissions by an amount estimated to be in the billions of tons of CO2 captured. The IPCC (2005), for example, estimated that CCS technologies could ensure the storage of at least 2000 gigatons (Gt) of CO2. However, current CCS technological solutions such as the Enhanced Oil Recovery (EOR) process have a potential for capture and storage of CO2 emissions of less than 5000-6000 Gt/CO2 of fossil resources exploitable on a large scale over the next few years. Furthermore, the introduction of CCS involves a significant initial investment, an additional consumption of energy and high operating costs, which could increase during its use, for both energy producers and end-users/consumers (IEA, 2010). Indeed, many studies show that the use of CCS in electrical energy generation processes could dramatically increase the cost of production and consequently also the price of electrical energy (IPCC, 2005; IEA, 2008). From this point of view, CCS investment analysis is particularly relevant. Investment and operating costs are expected to impact not only financial values, but also the social and environmental costs/benefits related to a reduction of CO2 emissions. Furthermore, a study which analyzes investments in CCS technology has also to investigate the impact of a climate change mitigation regime on alternative solutions in a decision-making process. This paper examines costs and benefits related to the investment and implementation of CCS technologies in the energy sector. In particular, we develop a Costs-Benefits Analysis (CBA) to examine how a climate change mitigation regime might affect the decision to invest in a CCS technological option which involves financial and socio-environmental sustainable performance. Several studies have analyzed key variables for introducing CCS technologies (including Golombek R. et al., 2011; Hammond G.P. et al., 2011; Hardisty P.E. et al., 2011; Ϊşlegen Ӧ. et al., 2011; Loria E. et al., 2011; Van den Broek et al., 2011; Voll D. et al., 2012). Main parameters of the analysis are CO2 price, the CCS technology implemented and a range of financial and economic variables. While some of these variables can be controlled by the investor, other are exogenously fixed by policymakers in particular through the definition of a climate change mitigation regime. The majority of recent studies analyze the impact of either a carbon tax or of a scheme of CO2 emission permits (considering in particular the case of the Emission Trading Scheme - ETS). Most of these studies consider the financial costs of the investment in CCS technology, the operating costs of a plant and the technical and economic aspects of the post-combustion CCS plant. However, to the best of our knowledge, none of the previous studies in literature considered at the same time the impact of different climate change mitigation regimes on the investment in alternative CCS technologies, evaluating the financial aspects and the socio-environmental externalities . Therefore this paper aims to fill out all the entries by considering within the same study two alternative CCS technologies, two climate change mitigation regimes and the main external costs and benefits. In particular, this study develops a CBA to examine which CCS technical option involves the best performance in terms of financial, social and environmental sustainability under two alternative regimes of climate change mitigation, i.e. carbon tax or ETS. The results of this study provide insights for improving local or international political and economic agreements to support climate change mitigation, reducing CO2 emissions in the energy sector through the introduction of a specific CCS technological variant.