Microeconomic analysis of investment incentives under emission control

Table of Contents

1 Introduction

2 Carbon Capture and Storage

2.1 Technologies

2.1.1 The Post-Combustion Capture Process

2.1.2 The Pre-Combustion Capture Process

2.1.3 The Oxy-Fuel Process

2.1.4 Long-Term Technology Options

2.2 CO2 Transport

2.2.1 CO2 Storage

2.2.2 Geologic Storage

2.2.2.1 Enhanced Oil Recovery

2.2.2.2 Enhanced Gas Recovery

2.2.2.3 Enhanced Coal-Bed Methane Recovery

2.2.3 Ocean Storage

2.2.4 Mineral Storage

2.2.5 Monitoring

2.2.6 Costs

3 Innovation Economics

3.1 A Definition of Innovation

3.2 Innovation Behavior and the Structure of Markets

3.3 Cournot meets Bertrand: Innovation and the Nature of Competition

3.4 Failures on the Market for Innovation

3.4.1 Knowledge Externalities, Technological Spillovers and Patent Protection

3.4.2 Patenting

3.4.3 The Impact of Knowledge Spillovers on Innovation

3.4.4 Adoption of Technologies

3.4.5 Adoption Externalities

3.5 Innovation under Pollution Control

3.5.1 The Basics of Weitzman

3.5.2 The Nature of Electricity and External Effects in Generation

3.5.3 Incomplete Information

3.6 Innovation and optimal pollution control

3.6.1 Investment Incentives under Emission Permits

3.6.2 Investment into Carbon Capture and Storage

3.6.3 Critical Discussion of the Results

3.7 Patent Race vs. Research Joint Venture under Emission Control

4 The Model

4.1 Model Description

4.2 Scenarios

4.2.1 Base Case Calibration

4.2.2 Scenario 1 – Changing Input Parameters

4.2.3 Scenario 2 – Permit Reduction

4.2.4 Scenario 3: Only Nuclear Capacity Replacement

4.2.5 Scenario 4 – Withdrawal from the Nuclear Energy Program

4.2.6 Scenario 5 – Learning Effects

4.2.7 Asymmetric Players

4.2.7.1 Scenario 6 – Asymmetric Players, no Learning

4.2.7.2 Scenario 7 – Asymmetric Players, Learning

4.3 Conclusion

Research Objectives and Core Topics

The main objective of this thesis is to provide a microeconomic analysis of investment incentives for clean technologies, specifically Carbon Capture and Storage (CCS), within an electricity market subject to emission control. The research investigates how industrial organizational factors, such as market structure and market failures, interact with pollution control policies to influence technology adoption and diffusion.

• Overview of innovative carbon capture and storage technologies.
• Economic analysis of innovation behavior under various market forms and competition types.
• Evaluation of market failures for innovation, particularly in relation to pollution control policies.
• Simulation of CCS adoption and diffusion using a two-player Cournot game model.
• Impact of learning effects, policy support, and nuclear energy phase-out on technological transition.

Excerpt from the Book

Summary of Chapters

1 Introduction: Provides an overview of the global energy demand and the necessity of fossil fuels alongside the growing urgency of addressing CO2 emissions through CCS technologies.

2 Carbon Capture and Storage: Details various technical methods for capturing, transporting, and storing CO2, while highlighting economic barriers and cost structures.

3 Innovation Economics: Analyzes the theoretical underpinnings of innovation, market structures, and the failures associated with adopting pollution-controlling technologies.

4 The Model: Introduces a simulation of CCS technology diffusion in a two-player Cournot game and examines various scenarios such as policy changes and learning effects.

Keywords

Carbon Capture and Storage, Emission Control, Innovation Economics, Cournot Competition, Market Failure, Technological Spillovers, Electricity Market, Patent Race, Research Joint Venture, Pollution Control, Learning Effects, Investment Incentives, Environmental Policy, CO2 Abatement, Technology Diffusion

Frequently Asked Questions

What is the core focus of this thesis?

The thesis explores the microeconomic determinants of investment in clean technologies like Carbon Capture and Storage (CCS) under specific regulatory frameworks for emission control.

What are the primary themes addressed in the work?

Key themes include the technical aspects of CCS, the economics of innovation, market failures related to new technology adoption, and game-theoretic modeling of firm behavior in the energy sector.

What is the central research question?

The work seeks to understand how investment incentives are shaped by existing market structures and whether pollution control policies effectively promote the necessary transition to low-carbon technologies.

Which scientific methodology is employed?

The author uses an industrial organization framework, combining theoretical analysis of innovation economics with a dynamic simulation model based on a two-player Cournot game, solved via GAMS.

What aspects of the energy market are covered in the main body?

The main body treats the identification of technical and economic barriers for CCS, the interaction between innovation and pollution regulation, and the simulation of scenarios such as nuclear energy phase-outs.

Which keywords best characterize this research?

The research is defined by terms such as CCS, emission control, Cournot competition, innovation economics, technological diffusion, and market failure.

How do "learning effects" impact the adoption of CCS in the model?

The model shows that learning effects, which lead to efficiency gains and cost reductions over time, are crucial drivers for the diffusion of CCS technology within the simulated energy market.

What conclusion does the author draw regarding the German electricity market?

The thesis suggests that CCS adoption requires stringent policy support, such as firm emission limits and R&D backing, because private incentives alone are insufficient to overcome the high costs and risks associated with these technologies.