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Willingness to Pay for a Climate Backstop: Liquid Fuel Producers and Direct CO2 Air Capture

Gregory F. Nemet and Adam R. Brandt

Year: 2012
Volume: Volume 33
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol33-No1-3
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Abstract:
We conduct a sensitivity analysis to describe conditions under which liquid fuel producers would fund the development of a climate backstop. We estimate (1) the cost to develop competitively priced direct CO2 air capture technology, a possible climate backstop and (2) the effect of this technology on the value of liquid fuel reserves by country and fuel. Under most assumptions, development costs exceed individual benefits. A particularly robust result is that carbon prices generate large benefits for conventional oil producers--making a climate backstop unappealing for them. Unilateral investment does become more likely under: stringent carbon policy, social discount rates, improved technical outcomes, and high price elasticity of demand for liquid fuels. Early stage investment is inexpensive and could provide a hedge against such developments, particularly for fuels on the margin, such as tar sands and gas-to-liquids. Since only a few entities benefit, free riding is not an important disincentive to investment, although uncertainty about who benefits probably is.

Keywords: Air capture, Backstop technology, Climate policy, Learning by doing, R&D, Unconventional oil



A Resource Whose Time Has Come? The Alberta oil Sands as an Economic Resource

Frank. J. Atkins and Alan J. MacFadyen

Year: 2008
Volume: Volume 29
Number: Special Issue
DOI: 10.5547/ISSN0195-6574-EJ-Vol29-NoSI-6
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Abstract:
The Alberta oil sands, which comprise over 170 billion barrels of proven recoverable reserves, are a resource of an order of magnitude similar to many estimates of ultimate world conventional oil reserves. Campbell Watkins maintained a long-standing emphasis on the essential economic component of any meaningful definition of the world�s natural resources. The fact is that the Alberta oil sands have had a very shaky economic foundation until only recently. The intention of this paper is to examine this emerging resource from an economic perspective; one, it is hoped, similar to that which Watkins evinced, in order to fully assess the extent to which the Alberta oil sands may be regarded as being no different in any meaningful way from other oil resources.





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