Providing adequate economic incentives for bioenergies with CO2 capture and geological storage

Knowing that carbon capture and storage (CCS) could play an important role in reducing emissions, it is important to have a good understanding of this role and the importance of environmental policies to support carbon capture and geological storage from bioenergies (BECCS). To date CCS technologies are not deployed on a commercial level, and policy instruments should be used to provide incentives to firms to use these technologies to reduce pollution. The aim of this paper is to compare the cost-efficiency of several incentive-based instruments (a fossil fuel tax, an emissions tax, a cap and trade system, and a subsidy on captured emissions) needed to spur the adoption of CCS and BECCS, using a dynamic general equilibrium model. This type of model has become the standard for assessing economy-wide impacts of environmental and technological policies. The study shows that BECCS will be deployed only if a specific subsidy per unit of biomass emissions captured with a CCS technology is available. We show also that the two most cost-efficient instruments for achieving a given emissions reduction target are a specific subsidy that rewards captured emissions and a carbon tax whose revenues are recycled to subsidize BECCS.

► We investigate the suitability of economic instruments to support CCS and BECCS.
► We model CCS and BECCS in a dynamic general equilibrium model.
► We compare the cost-efficiency of economic instruments to reduce emissions.
► A subsidy that rewards biomass captured emissions is appropriate to encourage BECCS.
► A carbon tax whose revenues are recycled to subsidize BECCS is cost-efficient.