Projects

The team will produce peer-reviewed scholarly working papers and publications, new datasets and models, host workshops, and engage in public outreach efforts to translate our research for stakeholders in the policy community in the four following research areas:

What is the effect of policy uncertainty on CCUS infrastructure investments, how do the effects of uncertainty depend on risk management and risk aversion among infrastructure investors, and how can policy design navigate the tradeoffs between policy commitment and policy flexibility?

More than other climate change mitigation technologies, the economic attractiveness of CCUS depends on the existence of policies to financially reward companies for capturing and storing carbon. CCUS requires large, discrete, upfront investments in long-lived infrastructure with long payback periods. One particularly important example is the need for an expanded network of CO2 pipelines; these pipelines are likely to be quite costly, and of little use for other purposes. Even if the current 45Q tax incentives appear sufficient to induce these investments, they may not materialize because the long-run policy environment is uncertain.

Are coordination problems among private sector actors a substantial barrier to CCUS infrastructure development, and if so, how can these challenges be overcome?

Investments in CCUS at scale will require that firms overcome significant coordination challenges, similar to those encountered in the context of reducing methane flaring during oil production. Coordination problems and strategic conflicts among capture facilities, pipeline operators, storage site owners and other actors may be major impediments to CCUS infrastructure development and market growth.

A major limitation of all existing CCUS infrastructure network optimization models is that they inherently adopt a perspective of a single decision-maker. If CCUS is to be deployed on a large enough scale to be a globally-relevant mitigation strategy, then numerous actors will be involved. We will develop an equilibrium model to capture the multi-agent nature of CCUS.

What are the major strengths and weaknesses of the current U.S. federal approach to subsidizing CCUS (through the 45Q tax credit), compared to other major climate policy instruments, such as a carbon tax or a standards-based approach?

While policy makers might consider pollution control subsidies (like 45Q) and taxes to be equivalent mechanisms to achieve an environmental goal, with different fiscal and distributional impacts, economists have long recognized that this is not the case. In the long run, subsidies affect firms’ entry and exit decisions in the regulated industry, providing an additional marginal incentive to enter and a disincentive to exit. Relative to an efficient tax, subsidies may result in both excessive pollution and an excessively large polluting industry. A subsidy like 45Q, in which the incentive is a tax credit, has an implicit profitability requirement, which further differentiates it from a tax—firms can only benefit to the degree that they have taxable income, which introduces additional complications.

This portion of our proposed project will provide a bird’s-eye view of these tradeoffs among climate policy choices in the U.S. context. Research on this topic is critical, given the increasing prominence of CCUS subsidies in U.S. climate policy. The 2018 bipartisan support for expanding 45Q suggests that CCUS subsidies may be an important piece of the U.S. climate policy portfolio moving forward. Indeed, President Biden’s climate plan includes increased CCUS incentives, and with the Congress narrowly divided along political lines, this piece of his plan may be one of a handful unlikely to generate significant legislative opposition.

What are the welfare and distributional implications,via local air pollution impacts, of increased CCUS deployment in the United States?

The potential local air pollution impacts of CCUS are heterogeneous. For example, SO2 emissions may decline with carbon capture, while ammonia emissions may increase. Allam cycle natural gas electricity generation, which provides relatively pure streams of CO2 that make CCUS more cost-effective than for other technologies, also produces lower levels of particulate matter (PM). Local air pollution can create larger damages than GHG externalities, given impacts of PM and other local pollutants on morbidity and premature mortality. Moreover, given policy concerns about racial and socioeconomic disparities in U.S. pollution exposure and the fact that industrial and power facilities are often located in communities of color, increased CCUS deployment may have important distributional implications. We will examine the potential co-benefits and/or co-damages of local air pollution exposure from increased reliance on CCUS, including environmental justice outcomes.