Atmospheric and geological CO2 damage costs in energy scenarios

Geological carbon dioxide capture and storage (CCS) is currently seriously considered for addressing, in the near term, the problem of climate change. CCS technology is available today and is expected to become an increasingly affordable CO2 abatement alternative. Whereas the rapidly growing scientific literature on CCS as well as experimental and commercial practice demonstrate the technological and economic feasibility of implementing this clean fossil fuel option on a large scale, relatively little attention has been paid so far to the risks and environmental externalities of geological storage of CO2. This paper assesses the effects of including CCS damage costs in a long-term energy scenario analysis for Europe. An external cost sensitivity analysis is performed with a bottom-up energy technology model that accounts not only for CCS technologies but also for their external costs. Our main conclusion is that in a business-as-usual scenario (i.e. without climate change intervention or externality internalisation), CCS technologies are likely to be deployed at least to some extent, mainly in the power generation sector, given the economic benefits of opportunities such as enhanced coal bed methane, oil and gas recovery. Under a strict climate (CO2 emissions) constraint, CCS technologies are deployed massively. With the simultaneous introduction of both CO2 and CCS taxation in the power sector, designed to internalise the external atmospheric and geological effects of CO2 emissions and storage, respectively, we find that CCS will only be developed if the climate change damage costs are at least of the order of 100 €/t CO2 or the CO2 storage damage costs not more than a few €/t CO2. When the internalised climate change damage costs are as high as 67 €/t CO2, the expensive application of CCS to biomass-fuelled power plants (with negative net CO2 emissions) proves the most effective CCS alternative to reduce CO2 emissions, rather than CCS applied to fossil-based power plants.