EPRG 1035

Dominique Finon

The Efficiency of Policy Instruments for the Deployment of CCS as a Large-sized Technology

EPRG 1035 | Non-Technical Summary | PDF

Abstract: This paper analyses a set of policy instruments designed to support investment during the learning phase of CCS technology, following the demonstration stage. The focus is on specific barriers to learning investment during early-commercial deployment. We analyze imperfections in the carbon price signal and market failures from barriers to large-sized innovative technology, which justify support during the learning investment phase and the initial roll out of CCS in electricity generation. Then we analyze and compare the efficiency of different ways to help CCS technology cross the so-called “death valley”: command and control instrument (CCS mandate), investment support (grant, tax credit, loan guarantee, subsidy by trust fund) and production subsidies (guaranteed carbon price, feed-in price, etc.). Three criteria are used in this comparison: effectiveness, static efficiency and dynamic efficiency. Policy instruments must be adapted to the technological and commercial maturity of the CCS system. Mandate policies must be handled with much care and subsidization mechanisms must be designed to be market-oriented.

Keywords: low carbon innovation, market failure, subsidy, policy instrument

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