Gotta Catch ’Em All: CCUS With endogenous technical change

Abstract

Carbon Capture Utilization and Storage (CCUS) is a pivotal technology for achieving ambitious climate targets. Despite its prominent inclusion in energy mix projections, its current deployment falls short of the required level and future uncertainties pose obstacles to its optimal diffusion. This study addresses two primary issues for the widespread adoption of CCUS. Firstly, it investigates how investments in CCUS technology either compete with or complement other green Research and Development (R&D) activity. Secondly, it explores how the heterogeneity among different economies and the peculiarities of CCUS technology itself might lead to alternative configurations compared to the current trajectory. To address these issues, this study introduces CCUS into a regional Integrated Assessment Model incorporating endogenous green R&D and heterogeneous cost functions over the 21st century. The findings reveals that undervaluing R&D costs may crowd out CCUS investments. Additionally, CCUS capital distribution by the end of the century requires substantial investments from regions with currently low deployment, such as China and lower-income countries. However, as Europe and other high income countries lose centrality in the global economy, they may become less willing to finance CCUS expansion, raising concerns about technology transfer and cost-sharing. The findings underscore the need for policies that reduce technological uncertainties and enhance international cooperation to ensure CCUS contributes effectively to emission reduction targets.