Incentives for Early Adoption of Carbon Capture Technology
Publication Date:November 10, 2014
We analyze a policy proposal for regulating the next generation of stationary power sources in the U.S. The cornerstone of this regulation is a (hypothetical) EPA mandate for an emission limit of 80 kg CO2 per MWh of electricity generated. The mandate would go into effect at the end of 2027 for all power generating facilities that come into operation after 2017. Fossil fuel power plants could meet the standard by capturing between 80-90% of their current CO2 emissions. While the initial cost of complying with this standard is relatively high for first-of-a-kind facilities, learning effects are projected to reduce this cost substantially by the end of 2027, provided new facilities consistently adopt carbon capture technology in the intervening years. We identify a combination of investment- and production tax credits that provide the required incentives for new facilities to be willing to comply with the 80 kg CO2 emission standard ahead of the mandate. Due to the anticipated learning effects, the incremental cost associated with the stricter emission limit is projected to about 1.2¢ per kWh of electricity in the long run.