Timing and Optimal Investments to

Promote Low-Carbon Technologies

Christopher Bennett, John Bistline, Ethan Groveman,

Joo Eun Lee, Paul Mobley, Kristin Robinson

MS&E 243: Energy and Environmental Policy Analysis

Professor James Sweeney
Stanford University

June 2009
Table of Contents

TABLE OF CONTENTS ............................................................................................................................................ 2

EXECUTIVE SUMMARY ......................................................................................................................................... 4
1. INTRODUCTION ................................................................................................................................................... 5
1.1. MOTIVATIONS AND SCOPE .................................................................................................................................. 5
1.2. SELECTED TECHNOLOGIES .................................................................................................................................. 6
1.2.1. CCS Technological Overview ..................................................................................................................... 6
1.2.2. CSP Technological Overview ..................................................................................................................... 7
1.3. MARKET FAILURES ............................................................................................................................................. 7
1.4. INDUCED TECHNOLOGY CHANGE ........................................................................................................................ 8
1.4.1. CCS ............................................................................................................................................................. 9
1.4.2. CSP ............................................................................................................................................................. 9
1.5. POLICY BACKGROUND ...................................................................................................................................... 10
1.5.1. Policy Instruments .................................................................................................................................... 10
1.5.1. Future Prospects ....................................................................................................................................... 11
2. MODEL ASSUMPTIONS AND PARAMETERIZATION ............................................................................... 12
2.1. GENERAL MODEL OVERVIEW ........................................................................................................................... 12
2.2. CCS MODEL ASSUMPTIONS .............................................................................................................................. 15
2.3. CSP MODEL ASSUMPTIONS............................................................................................................................... 17
2.4. EMISSIONS TRAJECTORIES................................................................................................................................. 19
3. RESULTS AND DISCUSSION ............................................................................................................................ 21
3.1. CCS MODEL RESULTS ...................................................................................................................................... 21
3.1.1. Economic Efficiency of CCS Subsidies ..................................................................................................... 21
3.1.2. Emissions Pathway Comparison ............................................................................................................... 24
3.1.3. Carbon Tax Effects ................................................................................................................................... 26
3.1.4. Learning Rate Effects ................................................................................................................................ 27
3.2. CSP MODEL RESULTS ....................................................................................................................................... 28
3.2.1. Economic Efficiency of CSP Subsidies ..................................................................................................... 28
3.2.2. Emissions Pathway Comparison ............................................................................................................... 31
3.2.3. Carbon Tax Effects ................................................................................................................................... 32
3.2.4. Learning Rate Effects ................................................................................................................................ 32
4. SENSITIVITY ANALYSIS .................................................................................................................................. 33
4.1. INTRODUCTION .................................................................................................................................................. 33
4.2. UNCERTAINTY IN CCS MODEL ......................................................................................................................... 33
4.3. UNCERTAINTY IN CSP MODEL .......................................................................................................................... 36
4.4. LIMITATIONS TO THE SENSITIVITY ANALYSIS ................................................................................................... 38
4.5. UNCERTAINTIES AND CAVEATS......................................................................................................................... 39
5. POLICY MECHANISMS .................................................................................................................................... 41
5.1. RELEVANT POLICY MECHANISMS .................................................................................................................... 41
5.2. PROPOSED CCS MECHANISMS .......................................................................................................................... 41
5.3. PROPOSED RENEWABLE ENERGY MECHANISMS ............................................................................................... 41
6. CONCLUSIONS ................................................................................................................................................... 42
6.1. SUMMARY OF RESULTS ..................................................................................................................................... 42
6.2. DISTRIBUTIONAL EFFECTS ................................................................................................................................ 43
6.3. POLITICAL FEASIBILITY..................................................................................................................................... 44
6.4. FINAL POLICY RECOMMENDATIONS .................................................................................................................. 46

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BIBLIOGRAPHY...................................................................................................................................................... 48
APPENDICES............................................................................................................................................................ 51
A. BACKGROUND ..................................................................................................................................................... 51
A.1. Market Failures ........................................................................................................................................... 51
A.2. Carbon Dioxide and Climate Change ......................................................................................................... 51
A.3. Induced Technology Change ....................................................................................................................... 52
B. CCS MODEL ASSUMPTIONS ................................................................................................................................ 52
C. CSP MODEL ASSUMPTIONS ................................................................................................................................. 59
D. UNCERTAINTY ANALYSIS .................................................................................................................................... 62
E. MACRO CODE ...................................................................................................................................................... 63
CCS Macro Code ................................................................................................................................................ 63
CSP Analysis Macro Code .................................................................................................................................. 64
CCS Optimal Pathway Macro Code ................................................................................................................... 65
CSP Optimal Pathway Macro Code ................................................................................................................... 70

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Executive Summary

This paper investigates the optimal timing and level of investments in research and development (R&D)
and deployment subsidies for low-carbon technologies. The analysis focuses on two particular
technologies in the U.S. electric power sector that have the potential for achieving large greenhouse gas
emissions reductions: carbon capture and storage (CCS) and concentrating solar power (CSP). Policies to
support the development of these technologies aim to correct two primary market failures: climate change
externalities (since technologies like CCS and renewables can replace traditional fossil fuel plants that
emit CO2) and innovation failures (stemming from spillover effects when a firm cannot fully appropriate
the benefits from R&D or learning-by-doing).

Quantitative results for timing and optimal magnitudes of investment strategies through 2050 come
through a model built specifically for this paper. The model uses top-down emissions reduction targets to
determine the technology subsidies needed to achieve market parity with the baseline levelized cost of
electricity for substitute technologies. For CCS, the level of capacity installation is determined using
expected increases in electricity demand along with plant retirements and also incorporates retrofitting of
existing plants to meet more ambitious targets. CSP is assumed to displace other carbon-emitting
technologies on the margin until emissions targets are reached. The model accounts for decreases in
capital and operating costs due to learning-by-doing and learning-by-searching, capturing effects of
experience from cumulative installations and investments in research, respectively. Using these values,
the model solves an optimization problem to minimize the total subsidy needed for each technology by
adding research investments.

Deterministic results are obtained for both technologies using assumed cost projections from existing
literature. Furthermore, various emissions reduction pathways are explored for each technology to match
either cumulative environmental damages of two different models or end-year reductions targets in 2050.
These different pathways give insight into how each technology should be deployed to minimize
subsidies required. The model is also exercised to calculate an optimal emissions pathway for each
technology to minimize the subsidy cost of the program. Varying levels of carbon taxes are analyzed in
order to account for the high degree of uncertainty surrounding a future tax policy for carbon mitigation.

Since the model incorporates many costs with varying levels of uncertainty projected out to 2050, a
sensitivity analysis is conducted to test the robustness of the model. Input variables are assigned probably
distributions across a range of possible values, and a Monte Carlo simulation is used to give a range of
possible outcomes and calculate the sensitivity of the conclusions to fluctuations in model inputs.

This analysis gives many insights into the optimal timing and level of investments required for each of
these two technologies to meet emissions reductions targets. Both technologies require large investments
in research and development in the next five to ten years. CCS should begin large-scale deployments as
soon as possible, while CSP should have only a few installations installed to lower costs and speed up the
market viability of the technology. Each program requires subsidies roughly around $100 billion and
would result in more benefits from environmental damages avoided than subsidy costs. Investments in
CCS would help to avoid very large amounts of environmental damages. The program for CSP would
lead to another renewable technology in the competitive marketplace by the 2030s. While this program
may be politically tricky to implement, even a modest carbon tax level would greatly increase the political
feasibility. This analysis concludes that a policy should be enacted for both technologies to help reduce
greenhouse gas emissions and spur technological innovation.

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1. Introduction

1.1. Motivations and Scope

Amid the increasing scientific consensus and growing public chorus that global climate change presents a
significant problem, many governments have established greenhouse gas (GHG) emissions targets in an
effort to reduce the negative environmental externalities that these gases pose. Policymakers and analysts
have suggested a wide array of policy instruments to meet these established targets. Technology
subsidies have been a popular method of incentivizing technology adoption in the past and have already
been extensively used to promote low-carbon technology diffusion, particularly solar energy in countries
like Germany and Japan. Determining the economy efficiency of these technology policies can ensure
that these measures ameliorate the externalities they intend to target, especially as more governments plan
to employ such policies.

This paper investigates the timing and optimal magnitudes of investment strategies for the U.S.
government to promote the deployment of low-carbon technologies. In particular, this study focuses on
the electric power sector, since it contributes 42 percent of annual GHG emissions in the U.S. (EPA,
2009). Although a broad portfolio of emissions reduction options will be needed to tackle GHG
mitigation in the electricity sector (James, 2007), this paper focuses on two specific generation options
that have shown particular promise for larger-scale adoption: carbon capture and sequestration (CCS) and
concentrating solar power (CSP), which is also known as solar thermal. These technologies were selected
for their GHG reduction potential, their well-documented nature in recent technological change literature,
and their potential for cost reductions over time. In order to study the longer-term effects of technology
subsidies while limiting the uncertainty of models with large time scales, this paper concentrates on the
time period up to 2050, which gives enough lead time for research and development (R&D) and capacity
deployment subsidies to take effect.

The economic arguments proposed to support cleantech subsidies typically center on the idea that
technologies like CCS and renewables will replace traditional fossil fuel plants that exert negative
environmental externalities on society. This justification is particularly relevant for large point sources of
emissions like baseload coal plants, which emit 88 percent of emissions from the electric power sector.
However, for smaller scale generation sources, this externality can be smaller than proposed subsidies and
requires other societal benefits to merit implementation (van Benthem, Gillingham, & Sweeney, 2008).

The second primary argument for subsidizing low-carbon power technologies is based on the
appropriability market failure if producing and deploying this new technology has spillover effects
resulting from learning-by-searching (LBS) or learning-by-doing (LBD). These two factors describe the
effects that increased accumulated knowledge (i.e., LBS) and cumulative experience (i.e., LBD) have in
decreasing production costs. For both effects, positive externalities result from the fact that increased
research and output of technologies like CCS by one firm in the present leads to decreases in production
costs in the future, not only for the company making the investments but also benefiting other segments
of the market. Thus, the private market under-provides these technologies owing to the fact that spillover
effects cannot be completely appropriated by firms. Subsidies for R&D and capacity deployment could
address these market failures by helping to move closer to the socially optimal level of production from
firms (which would account for the aggregate cost reductions for all firms and consumers). This Pareto
improvement would increase overall social welfare by increasing total consumer and producer surplus.

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The primary question that this paper addresses is, given specified GHG emission reduction goals, what
level of subsidy would be quantitatively appropriate to balance the aforementioned environmental and
production externalities.

1.2. Selected Technologies

Given the importance of mitigating GHG emissions from the U.S. electric power sector, this report
focuses on how investments in particular technologies can influence the overall costs of achieving
reduction targets. In order to select which specific technologies should be the focus on this analysis, the
well-known EPRI Prism analysis (James, 2007) was used as a reference, since it assesses the
technological feasibility of achieving significant emissions reductions in the coming decades. One of the
most important conclusions from this work is that there are no silver bullet technologies; meeting
emissions targets will require a diverse portfolio of new and existing technologies. If these options are
not available or ready to be deployed at a large scale, even more aggressive levels of performance and
deployment from other technologies will be needed if abatement goals are to be met. The analysis
suggested that a large portion of reductions will come through carbon capture and storage (CCS) and
renewables. However, unlike other mitigation options like efficiency measures, these two technologies
require significant technological development before large scale deployment.

Due to time constraints, this project focuses on two specific technologies that focused on the following
list of selection criteria:
 abatement potential  focus on technologies that could achieve considerable reductions by 2050
 economic viability  focus on technologies that are reasonably close to market parity but have
potential cost reductions through learning
 broad applicability  focus on technologies where analysis can be most meaningful and thus
exclude options that have deployment characteristics that hinge on non-technical or economic
factors (e.g., political and permitting concerns with nuclear)
 supply-side focus  focus on electric utilities as decision-makers; therefore, consumer behavior
(e.g., for PV solar panels) falls outside of the domain of interest

The two technologies ultimately chosen for this analysis are CCS and concentrating solar power (CSP).
With these two technologies, this model can look in depth at two particularly important electricity
generation options while investigating a breadth of possible technology tradeoffs: emissions versus
emissions-free technologies, baseload and intermittent generation, and coverage of the geographical scope
of the U.S. (since solar is more favorable in the West and South, and CCS is more attractive in areas with
existing power plants and abundant coal supplies). The next two sections briefly discuss technological
details for these two types of power generation.

1.2.1. CCS Technological Overview

CCS technologies capture CO2 emitted from large point sources like power plants and industrial sites,
compress this CO2 into a supercritical state, and transport it to permanent storage sites like underground
geological formations. Although CCS technologies are currently in preliminary stages of development,
abatement models predict that CCS will mitigate between 1.4 and 4 gigatons (GT) of CO2 per year
globally by 2030 (1.4 GT in Stern, 2006; 3.5 GT in IEA, 2007; 4.0 GT in McKinsey/Vattenfall, 2007).

There are three capture configurations for CO2 separation and capture: pre-combustion capture from fuel
gas, post-combustion capture from flue gas, and oxy-fuel combustion. Pre-combustion capture systems
enable capture from the fuel gas mixture prior to combustion through a gasification process (e.g.,
integrated gasification combined cycle plants) or reforming (e.g., steam methane reforming plants to
produce hydrogen). Post-combustion capture is achieved through separation of the dilute stream of CO2

6
from the flue gas, which consists of a mixture of nitrogen from combustion air and other gases. The use
of amine scrubbers is a common method based on chemical absorption. Further details on technology
options for CO2 capture and separation can be found in other publications like the IPCC special report on
CCS (IPCC, 2006).

The focus of this analysis is on pre-combustion capture through Integrated Gasification Combined Cycle
(IGCC) plants for new capacity and post-capture, amine-based units for plant retrofits. However, other
plant types are considered in the sensitivity analysis.

1.2.2. CSP Technological Overview

CSP uses mirrors to collect and concentrate solar radiation to produce very high temperatures. These
high temperatures can be used to drive a steam turbine, much like in conventional coal and nuclear power
plants, except that the solar radiation provides the heat source.

Nine SEGS CSP demonstration plants were installed in California during the 1980s to gain a better
understanding of the technology and to experiment with different configurations (National Renewable
Energy Laboratory). After a 15-year hiatus, additional construction on plants has been initiated both in
the Southwestern U.S. and abroad. Global installed capacity today totals only about 450MW (Ummel
and Wheeler).

As an electric power technology, CSP has the benefit of being an emissions free generation source.
However, since the power comes from the sun, CSP installations must deal with the challenge of
intermittency due to meteorological effects like cloud cover, which limit their deployment to only a
fraction of the total possible power generation. By storing thermal energy captured during the day in a
molten salt or other heat reservoir, CSP plants can smooth the impact of intermittency limitations as well
as produce electricity during the nighttime. This thermal storage adds incrementally to the cost of
installation but dramatically enhances the capacity factor of the power plant.

Direct solar irradiance (DNI), a measure of the solar energy that a region receives, is one of the more
important factors determining electricity output of a given CSP installation. Using the base case
assumptions from the National Renewable Energy Laboratory’s SAM model, this analysis uses a DNI
limit of 4.5 kWh/m2d, which is met or exceeded by nearly half the continental U.S., installations using
parabolic trough collectors, and parameterized thermal storage for a capacity factor of about 44 percent
(National Renewable Energy Laboratory). While there are many installation layouts being pursued, the
trough installations with thermal storage have the most available data due to the long-term deployment of
these systems, leading to more reliable conclusions.

1.3. Market Failures

Economic analysis of policy is based on the concept of Pareto efficiency in competitive market
equilibrium. However, when actual market equilibrium fails to be Pareto efficient, the first and second
fundamental welfare theorems and Pareto optimality do not hold, which results in market failure. It is the
basis of environmental policy intervention to mitigate these instances of market failure and to make
Pareto improvements (Mas-Colell, 1995), as discussed in more detail in Appendix A.

The climate and technology policies discussed in this paper respond to market failures from negative
environmental externalities and positive spillover effects. Environmental externalities occur when the
cost of producing a good for a firm differ from the costs that accrue to society, which leads to an over-
allocation of the good relative to the socially optimal quantity. GHG and other emissions from electric
power generation are such externalities, since electric utility companies do not pay for the full damages

7
resulting from emitted pollutants. More detailed discussion of the problems surrounding carbon dioxide
and climate change can be found in Appendix A.

Spillover effects occur when the benefits of producing a good are not captured fully by the producing firm,
which leads to an under-allocation of the good relative to the socially optimal level. As discussed in the
next section, there are two types of learning that have significant spillover effects: learning-by-searching
(LBS) and learning-by-doing (LBD). These factors represent cost reductions attained by knowledge from
research capacity installation, respectively. Since the firm engaging in material R&D or building a plant
does not capture the entire value of non-excludable improvements, these activities are under-allocated in
the marketplace. Thus, government investment and R&D subsidies have the potential to improve
economic efficiency.

1.4. Induced Technology Change

Given that information about innovations is generally a non-excludable, non-rival public good, the
innovation theory paradigm alluded to above suggests that the private sector will under-invest (Arrow,
1962). Furthermore, the non-appropriable aspects of technologies created by profit-seeking firms are able
to create positive externalities for society at large through spillovers, which can generate increasing
returns to scale and lead to sustained economic growth (Weyant & Olavson, 1999). Although a more
detailed theoretical treatment of induced technology changed can be found in Appendix A, the
incorporation of technological learning in the model used for this paper is an important factor in
determining the results for optimal levels of funding and timing of abatement from specific technologies.

Technological learning in most energy technology and environmental models typically is embodied in
single-factor learning curves. These curves measure the effect of cumulative output (measured through
cumulative capacity, production, or a similar metric) on reducing the unit cost for a technology, which is
an effect known as learning-by-doing (LBD). The single-factor learning curve formation for the analysis
in this report is governed by the equation:

(1.1)

where is the time or cost to produce the ith unit, is the cumulative output (typically measured as
installed capacity) through period i, b is the learning rate exponent, and a is a constant coefficient, which
is typically derived from empirical installation data. The percentage cost reduction for a doubling of
cumulative output is known as the learning rate and is defined mathematically as:

1 2 (1.2)

where LR is the learning rate and b is the learning rate exponent. Cost reductions can occur both in
capital expenditures as well as annual operation and maintenance costs. Some studies (van Benthem,
Gillingham, & Sweeney, 2008) account for installed capacity both locally and globally for technologies
like solar photovoltaic units, since managing local installations and supply chains builds knowledge
locally as well.

The primary economic justification for policies that promote technology adoption is the appropriability
market failure mentioned earlier if production of a new technology will have spillovers benefits beyond
the single firm through LBD. LBD is a positive externality, since the increased output by one firm today
plays a role in reducing production costs in the future, which benefits the producing firm, other firms, and
consumers. Due to a firm’s inability to appropriate the entire spillover effect, the private sector
underprovides the product of interest. The socially optimal production level of firms would account for
the future cost reductions for the entirety of firms in the marketplace.

8
Although they provide a conceptual framework for understanding cost reductions deriving from
cumulative production through time, single-factor learning curves neglect the importance of research and
development (R&D) as an influential factor of cost and an important policy tool. Recent analyses of
technological change have attempted to quantify both learning-by-research (LBR) and LBD in order to
understand the relative importance of these effects on innovation theory and energy technology policy
(Pettersson & Söderholm, 2009; Jamasb, 2007). R&D plays an important role at most stages of
technological development, though its nature can change. During early stage development, technical
progress is achieved largely through R&D, since a lack of commercial viability offers very limited
opportunities for capacity growth. Later stages are characterized by increasing diffusion of capacity as
technology support and costs reductions through earlier R&D investments improve commercialization.
Since LBD and LBR greatly impact the ability for large-scale technology penetration, it is important to
study the relative importance of technology push (i.e., R&D) and market pull (i.e., capacity deployment)
forces and their roles in different stages of development.

1.4.1. CCS
Although CCS is not an entirely new suite of technologies (the U.S. already sequesters 8.5 million tons of
CO2 for enhanced oil recovery each year), CCS has not been deployed on a commercial scale and remains
a first-of-a-kind technology in many ways. The pace of cost reductions and technology diffusion for non-
extant technologies like CCS is notoriously difficult to predict. In order to assess future costs and other
indicators of performance, studies that quantify learning curves for systems like CCS typically choose an
analogous technology whose characteristics can offer a reasonable guide to future progress.

There are a number of characteristics of CCS technologies that make finding a comparable analogue
difficult. The component costs of CCS are fraught with high uncertainties due to run-ups in commodity
prices, volatility in markets, recent scarcities of data, and a general lack of analytical understanding about
modeling this first-of-a-kind technology (Herzog, 2008). Furthermore, the actual costs of projects will
vary from reference case values depending on the location, scale, and type of CCS technology being
employed (Nauclér, Campbell, & Ruijs, 2008). Although the costs for the three primary varieties of
capture technologies (pre-combustion, post-combustion, and oxy-fuel) are approximately the same at
present, retrofitting capture technologies and industrial CCS applications have higher total costs (Nauclér,
Campbell, & Ruijs, 2008).

While it would be impossible to find an exact technical analogue to CCS (Rai, Victor, & Thurber, 2009),
past experience in controlling sulfur dioxide emissions from coal power plants using flue gas
desulfurization (FGD) technology is believed to be a reasonable model to approximate learning rates for
CCS (Riahi, Rubin, Taylor, Schrattenholzer, & Hounshell, 2004). This analysis uses the data from
previous work (Riahi, Rubin, Taylor, Schrattenholzer, & Hounshell, 2004) to develop parameters for
experience curves for CCS based on global installations of wet limestone FGD systems.

1.4.2. CSP
Commercial installations of CSP to date total about 450MW of capacity. Although many of these plants
were installed in the early- to mid-1980s in the Southwestern U.S., there has been a recent spike in
installations worldwide over the last few years (Ummel and Wheeler). The vast majority of these plants
are research demonstrations or one-of-a-kind technological showpieces rather than standardized models
adopted for utility installation. This trend suggests that there are significant learning effects to be
captured as CSP plants are installed commercially.

In this manner, the technological situation of CSP resembles that of CCS. Both technologies are not yet
market competitive but are expected to play useful roles in meeting future emissions targets. Due to the

9
small current installed capacity of CSP, the technology will undergo many doublings of capacity under
most emissions mitigation scenarios. This factor suggests that learning effects will contribute to very
large cost reductions, which will have a significant impact on the economic viability of the technology as
well as the required subsidies for installation goals (Enermodal Engineering Limited). However, it also
reveals a possible limitation of the model, since estimated learning rates become increasingly inaccurate
beyond a small number of capacity doublings.

There are several estimates for CSP learning effects based on the SEGS installations in California (Neij)
and (Pilkington Internation Solar GmbH). While these estimates are based on plants constructed and
operated in the 1980s, the fact that the technology has largely been unexplored since this time renders
these results relevant to the current and future learning effects relating to CSP. These show that CSP unit
costs decrease with increased capacity and research according to basic learning rate reductions. This
study approximates learning rates from these estimates.

1.5. Policy Background

Traditionally, energy policy has maintained the conventional fuel stock of the American economy: oil and
natural gas. Since the 1970s oil crisis, policymakers have recognized the value of diversifying the fuel
mix and adding alternative resources, but support has been highly inconsistent. As recently as 2005
during the Bush Administration, the Energy Policy Act of 2005 (P.L. 109-58) provided energy tax cuts of
$11.5 billion for traditional fossil fuel production while simultaneously promoting conservation and
efficiency measures (Lazzari, 2008). Only recently have issues such as energy security and a growing
consensus on climate change spurred unambiguous conservation and alternative driven energy tax policy.
For instance, renewable energy incentives were strongly targeted in the Economic Stabilization Act of
2008 (P.L. 110-343); over $10.9 billion promoted clean energy production and $3.5 billion targeted
efficiency and conservation (Lazzari, 2008).

1.5.1. Policy Instruments

Energy resources may be reallocated through aggressive subsidy mechanisms, and this is the main
category of policies evaluated within the scope of this project. Research and Development (R&D)
subsidies designed to promote the development and adoption of new clean technologies have played an
important role in recent years. Energy efficiency and renewable initiatives have been funded through the
Department of Energy (DOE) as well as the Environmental Protection Agency (EPA). These measures
have historically been of low budget priority. Under the Bush Administration, the DOE sought $484.7
million for efficiency and hybrid/hydrogen research (Sissine, 2006). A recent change in priorities has
been considerable under the Obama Administration. This year’s American Recovery and Investment Act
appropriated $16.8 billion for the newly consolidated DOE’s Office of Energy Efficiency and Renewable
Energy, a tenfold increase from the year before, although only $2.5 billion is directly targeted to R&D
(EPA, 2009).

In addition to R&D subsidies, two further incentive structures subsidize adoption and capacity
deployment of low-carbon and renewable technologies. The first is a feed-in tariff (FiT). A FiT requires
utilities to purchase electricity from renewable sources at above market prices. The approach is revenue-
neutral, overcomes natural cost advantages, and distributes costs among all customers of the utility. Once
the incentive structure has taken hold, the mechanism is phased out over time (GFME, 2007). This
mechanism has received only regional traction in the United States; as of April 2009, 11 U.S. state
legislatures were considering adopting a FiT as a complement to their renewable electricity mandates.
Internationally, the policy has been enormously successful. In Israel, the FiT has caused a windfall of
investment. In Germany, the Erneuerbare-Energien-Gesetz (EEG) law, first introduced in 1990 adds
about 1.01€ (USD1.69) to each monthly residential electric bill. As a result, renewables sources in 2006

10
comprised 12 percent of the total electricity supply (GFME, 2007). Spain has introduced a similarly
successful national policy more recently in 2008.

The second capacity deployment policy instrument is the use of a Renewable Portfolio Standard (RPS), a
mechanism that requires electricity suppliers to purchase a set amount of their electricity from renewable
sources. The RPS has been criticized for the uncertainty of the quota but generally has been successful
when implemented with Production and Investment Tax Credits. As of December 2008, the EIA reports
that 28 states and the District of Columbia have enacted some form of a RPS requirement. In the Energy
Outlook 2009, EIA confirms that these are having a non-negligible effect on the amount of renewable
energy in the market despite their national inconsistencies (EIA, 2009).

Finally, another policy instrument receiving attention is implementing a carbon pricing mechanism, which
would effectively place a tax on each unit of carbon or carbon dioxide equivalent GHG emitted.
Although a price on carbon (through whatever policy mechanism) is not currently in existence and the
time horizon by which it would take effect is not clear, it is considered in this analysis due to its
importance in changing market dynamics for low-carbon energy across the board and high likelihood that
some pricing mechanism will be established in the near-term.

1.5.1. Future Prospects

At the moment, there is no national alternative energy policy. There are merely scattershot federal
regulations, both in terms of RPS and well as FiTs, designed to promote adoption of renewable
technologies. Yet several regional and national initiatives that impact the adoption of CCS and solar
technologies are currently in existence. The Programmatic Environmental Impact Statement (PEIS)
program is helping to secure the public lands needed for large-scale solar installations and has secured
close to a million acres of land that will in time produce around 70,000 MW of electricity. The California
Solar Initiative aims to create 3,000 MW of solar produced electricity by 2017 through state and federal
tax incentives structured through a FiT approach, and the program has received over $2.8 billion in
funding. The American Recovery and Investment Act provided a three-year extension of current
Production and Investment Tax Credits (PTCs and ITCs). These polices will provide a 2.1-cent per
kilowatt-hour (kWh) benefit for the first ten years of a renewable energy facility’s operation. Critically,
the new policy also extends ITCs to larger solar installations and allows for a grant system administered
by the Treasury to provide 30 percent of upfront property costs (Union of Concerened Scientists, 2008).

National policies are also currently under discussion. The most recent policy development that influences
the type of policies earlier discussed is the American Clean Energy and Security Act, introduced in the
House on February 27, 2009. The ACEASA provides significant funding and policy mechanisms that
will strongly influence adoption of renewable energies in the coming years. First, the policy seeks to
establish a national price on carbon through a cap-and-trade mechanism. Second, the policy promotes
CCS through a Carbon Storage Research Corporation administered by EPRI, which will distribute
approximately $1 billion per year for 10 years from the date of enactment. A further incentive for CCS
places a fixed monetary value for every ton of carbon sequestered starting at $90 for the first 3 GW.
Third, the policy streamlines current renewable adoption by establishing a renewable electricity standard
in the place of regional RPS structures. The standard would accelerate market increase by 150 percent
over the next two decades (EPA, 2009).

Combined, these changes seek to catalyze a large-scale movement in the national electricity supply. The
EPA’s analysis suggests that under the plan, the share of low-carbon and zero-carbon energy sources –
including renewables like CSP as well as carbon-capture plants – would rise to 26 percent of the nation’s
energy mix by 2030 and could reach 46 percent by 2050 (EPA, 2009). This change in the power mix is
illustrated in Figure 1.1. Finally, despite the focus in this section on the ACEASA, it is possible that

11
another bill may drive national renewable policy. Still, it is likely that any future iteration will drive
large-scale subsidies for innovation, a mechanism for implementing CCS, and a national renewable
standard to increase adoption of clean sources like CSP installations.

Figure 1.1: Projected electricity generation (EPA, 2009)

2. Model Assumptions and Parameterization

2.1. General Model Overview

To compute the subsidies required to attain top-down CO2 emissions reduction goals, two primary
expenditures were identified: research spending and direct plant subsidies. Research spending consists of
government expenditures on technological research that reduce costs according to:

(2.1)

where cost is the expense of producing a unit of a good, x is the cumulative research to, b is the learning
rate exponent, and a is a constant coefficient (which is typically derived from empirical installation data).
The percentage cost reduction for a doubling of cumulative output is known as the learning rate and is
defined mathematically as:

1 2 (2.2)

where LR is the learning rate and b is the learning rate exponent. Cost reductions can occur both in
capital expenditures as well as annual operation and maintenance costs.

Direct plant subsidies are the total subsidies given out to plant builders to reduce their effective initial
capital costs to incentivize the initial plant construction. The amount of this subsidy is simply the product
of the number of new plants constructed to attain a given emissions reduction goal and the individual
subsidy required per plant. A simplified economy is assumed in which a plant will be constructed if its
levelized cost of electricity (LCOE), a number representing the effective cost of producing electricity over
a plant’s lifetime, is at or below the prevailing market LCOE. This assumption ignores technological
diffusion effects and the profit pursuit of plant builders and operators, but it is hypothesize that it should

12
not affect the analysis to a large degree if the government displays a clear willingness to subsidize new
plant construction to the point that it will not be a money-losing endeavor.

Microsoft Excel software was used to build a model of the new plant constructions required to attain
given emissions goals. A Visual Basic macro was then coded to find the optimal subsidies and research
expenditures required to attain these emissions goals at minimum cost. The code for this macro can be
found in Appendix E. This macro iterated through the various possible research and investment subsidies
to find the minimal total cost of attaining the emission goal for each year.

This analysis treats utilities as simple decision makers who will implement a power technology if its
LCOE is at or below the market LCOE of the replaced technologies. While this simplification ignores
demand effects and product adoption trends, a clear government policy aimed at ensuring low-carbon
technologies are economically competitive over the long term should do much to control market risks for
utilities installing such technologies. The analysis takes place from the perspective of the government in
that it is aimed at minimizing the costs of subsidies.

Figure 2.1: Plant construction required

Figure 2.1 describes the process by which the required number of new plants of each technology was
calculated. Annual production per plant for CCS was calculated as:

(2.3)

where p is annual production, k is the hours in a year, CF is capacity factor, and c is plant capacity. For
CSP, production per plant was calculated as:

(2.4)

where d is the direct normal irradiance (DNI) ratio, measuring the relative intensity of solar irradiance to
that of the base example solar site, a SEGS site in Daggett, CA.

The incremental installed capacity each year was then calculated via the equation:

13
 (2.5)

where ptot represents total incremental electricity production from new installations in a given year, elastyear
is emissions savings in the previous year, ethisyear is the emissions savings required in the given year, iold is
the emissions intensity of the existing technology (normal coal for CCS, the prevailing market marginal
mix for CSP), and inew is the emissions intensity of the new technology. Required emissions savings were
calculated from the EPRI Prism analysis with CCS reduced emissions set to the CCS reduction numbers,
and CSP reduced emissions set to half of the required emissions reductions from non-hydro renewables
(James, 2007).

To calculate the number of new plants constructed in a given year, the following formula was used:

(2.6)

which gives the total number of plants that must be constructed in a given year.

Figure 2.2: Individual plant economics

The second main set of computations surrounds the economics of an individual plant. Capital costs were
divided into old technologies, which improve at a slower learning rate because of their greater maturity,
and new technologies, which improve at a faster rate. Both follow learning rate cost reductions of
equation (2.2). Learning rate cost reductions were also applied to O&M expenses.

1 / (2.7)

where L is the transmission and distribution loss percentage, OM is annual operating costs for a plant, f is
fuel costs per plant per year (zero for CSP), Capold and Capnew are the old technology and new technology
capital components, s is the investment subsidy, and CRd is the annual capital recovery factor at discount
rate d for the lifetime of the plant.

Total expenditures were calculated by:

14
 (2.8)

where Expenditurestot are the total required government expenditures until 2050, rt is the required research
investment in year t, New Plantst is the required number of new plants in year t from equation (2.6), and st
is the subsidy required per plant for the plant to be LCOE competitive with its competing mix. In the case
of CCS, the competing LCOE was set to that of conventional coal. For CSP, the competing mix was set
to the future marginal production mix, which was estimated as a mix of natural gas and coal using the
relative growth in electricity of each type from the EIA’s Annual Energy Outlook as a proxy for the
marginal replaced mix (EIA, 2009).

The Excel macro was then used to vary iteratively rt and st for each year until 2050 to minimize (2.8)
while subject to the constraint that (2.5) be at or below the competing marginal LCOE. Government
expenditures over time were only discounted to account for inflation due to philosophical issues with the
discounting of environmental benefits and cost over long time horizons.

2.2. CCS Model Assumptions

Many technological performance and cost assumptions are embedded in the model of CCS distribution
and installations. Table displays values chosen for the representative model base case as well as a range
of values used in the sensitivity analysis, as discussed in Section 4. All economic values are expressed in
terms of real 2007 U.S. dollars.

As discussed in Section 2.1, this model determines optimal levels of R&D and capacity deployment
investments on a yearly basis given specified emissions reduction targets. New CCS-equipped coal plants
and retrofits for coal-fired units have higher capital and O&M costs than their carbon-intensive
counterparts, and absent price signals that match the marginal environmental externality, CCS plants will
only be built if subsidies can reduce the levelized cost of electricity (LCOE) at or below current market
values. This model assumes that capacity deployment subsidies will first be used to build new CCS-
equipped capacity (until the coal capacity additions meet EIA projections) and then will be used to retrofit
capture-ready existing plants until emissions targets are met. This algorithm assumes that lifetime costs
of building a new CCS plant (instead of a baseline SCPC coal plant) will be lower than CCS retrofits
(James, 2007).

CCS-equipped coal-fired power plants yield environmental benefits over the lifetime of the plant due to
reduced CO2 emissions. These environmental benefits (which can also be thought of as a reduced
environmental damages function) are estimated based on a $50/mtCO2 GHG externality in 2007. It is
assumed that this value will increase through time due to increasing marginal abatement costs, as
increased quantities of emitted CO2 cause greater environmental harms and irreversible effects on the
global climate. However, since the carbon intensity of each unit of electricity generation will decrease
correspondingly through time, it is assumed that the environmental externality value can be treated as a
constant through the time period examined here. In addition to valuing the environmental externality to
calculate benefits from CCS plant installations, the model assumes that a carbon tax of $25 per metric ton
of CO2 (mtCO2) will be factored into the benefit-cost analysis of utility decision makers. This cost to
firms may come in the form of an actual carbon tax or through another carbon pricing mechanism like a
cap-and-trade system with auctioned credits. The sensitivity of the results of the analysis to the values of
the environmental externality and carbon tax are analyzed in Section 4.

As discussed in Section 1.4.1, the learning rate for CCS technology analogues can vary between 0.05-0.27
for capital equipment and O&M costs (Rubin, Yeh, Antes, Berkenpas, & Davison, 2007). However, best
estimates for CCS learning rates typically come through data for empirical learning rates for flue gas

15
desulfurization (FGD) technologies for SO2 capture (Riahi, Rubin, Taylor, Schrattenholzer, & Hounshell,
2004). Data for cumulative global capacity installations of wet FGD scrubbers shown in Figure 2.3 are
used to calculate a 15 percent LBD for capital stock and 10 percent for O&M both for new installations
and retrofits. Since the level to which learning is appropriable and will extend into the future is extremely
uncertain, the sensitivity analysis in Section 4 explores variations in these values and the associated effect
on optimal annual subsidy values.

Figure 2.3: Normalized experience curve for FGD capital cost with learning curve equation (Riahi, Rubin, Taylor,
Schrattenholzer, & Hounshell, 2004)

Since much of the R&D investments by private industry remain proprietary, only government spending
on R&D (through the investments calculated in this analysis) are considered in increasing the amount of
available knowledge stock that drives down costs through LBS. In order to simplify the analysis and
focus on the development of CCS in a domestic context, the model also assumes that there is no
international learning. However, it is important to note that incorporating international effects of CCS
development would help to reduce costs of CCS components through LBD and would decrease the costs
to the U.S. government, since other governments are likely to make investments in CCS. Also, a
depreciation rate was incorporated to account for the loss of knowledge over time as capital physically
degrades and becomes less efficient and as the technology becomes obsolete and replaced (Esposti, 2003).
Similar to the capacity deployment investments, the model uses a lag time of two years to account for
research to take place after each investment (Pettersson, 2009). Annual spending on research is also
limited to $5 billion to account for a maximum amount of learning from research that can be amassed in a
single year. This number also represents an increase by a factor of five over current government spending
levels in RD&D for coal (IEA, RD&D Budgets, 2009). This is a middle-ground approach from what the
IEA suggests is a needed increase in spending levels by two to ten times over current levels to meet the
challenge of global climate change (IEA, 2006).

In addition to economic and learning values, there are also a number of technological parameters assumed
in the model, as shown in Table . First, there are noticeably different values used for the heat rates
(which is the inverse of the plant’s first-law thermal efficiency) and net power for new plants and
retrofits. This difference arises due to the fact that the energy required to run the CCS components of the
power plant is subtracted from the net power of the new plants, which is manifested in the heat rate of the
retrofits, as well as a reduction in the net capacity of the plant from 600 MW to 450 MW. This trend in
heat rates reinforces the assumption that retrofitted plants will be more costly than new plants owing to
increased fuel costs per marginal unit of abatement. Second, a lag time of four years was added in for
plant investments in order to account for the delay between investment and plant operation when
construction occurs.

16
The model assumes that the principal technology used for new CCS plants will be Integrated Gasification
Combined Cycle (IGCC) units. This technology was chosen given that it is the most extensively
researched, demonstrated, and seemingly economically and technologically feasible at this point.
Sensitivity analysis was conducted using different plant technologies like post-combustion capture and
oxy-fuel plants in order to compare the total costs and technical performance associated with each type.
The model used post-combustion capture for all retrofits. The plants that are retrofitted and the new
plants installed would all be baseline (rather than intermediate or peaking plants) and designed for the
highest efficiencies and electricity output.

Table 2.1: Variables within the model with representative values and minimum and maximum values of possible
range used for sensitivity analysisa
Parameter Model Value Sensitivity Value Range

Technical parameters
New plant net power (MW) 380
New plant heat rate (BTU/kWh) 10,700 8,000-13,000
Retrofit net power (MW) 450
Retrofit heat rate (BTU/kWh) 13,000 12,000-17,000
Capacity factor (%) 80%
Plant life (years) 30 25-50
Capture efficiency (%) 90% 60-95%
Transmission and distribution loss (%) 7% 0-15%
Emissions intensity, 2008 baseline (kg CO2/kWh) 0.976

Economic Parameters
Carbon tax ($/mtCO2) $25 $0-50
Environmental damages ($/mtCO2) $50
Fuel cost, 2008 ($/GJ) $1.83
Fuel cost (% of projected amount) 100% 50-150%
Transportation and storage costs ($/mtCO2) 10 5-30

Technical Learning Parameters

Initial knowledge stock (M$) $10,000 $0-20,000
Knowledge stock depreciation rate (%) 3% 0-6%
Knowledge stock lag time (years) 2 1-5
Plant investment lag time (years) 4 2-6
Learning-by-doing rate (capital costs) (%) 15% 0-20%
Learning-by-searching rate (capital costs) (%) 15% 0-20%
Learning-by-doing rate (O&M costs) (%) 10% 0-20%
Learning-by-searching rate (O&M costs) (%) 10% 0-20%
Discount rate (%) 7% 0-15%

a
All costs represent real 2007 U.S. dollars; see Appendices for additional plant performance and cost data

2.3. CSP Model Assumptions

Much like in the CCS model, the CSP model uses a large number of cost, performance, and learning
assumptions. Table 2.2 displays values chosen for the representative model base case as well as a range
of values used in the sensitivity analysis, as discussed in Section 4. All economic values are expressed in
terms of real 2007 U.S. dollars.

As discussed in Section 2.1, this model determines optimal levels of R&D and capacity deployment
investments on a yearly basis given specified emissions reduction targets. Environmental benefits are

17
calculated the same way as in Section 2.3 with environmental damages assumed to be at $50/mtCO2, and
a carbon tax is estimated at $25 per metric ton of CO2. The sensitivities of the final CSP results to
variations in these numbers are given in Section 4.

The model for an individual CSP plant is primarily based off of the technical and economic parameters
included in the National Energy Laboratory (NREL) Solar Advisor Model (SAM), which creates financial
estimates surrounding a plant from the technology and location (National Renewable Energy Laboratory).
CSP plants were assumed to be the SAM base case, a 100MW parabolic solar trough with parameterized
molten salt thermal storage. While there are other plant arrangements such as “power towers” and
Stirling dish collectors, the most accurate numbers exist for parabolic troughs, and they still remain a
commonly-installed technology.

The SAM estimates are based off of one of the SEGS installations in Daggett, CA where the direct
normal irradiance, a measure of solar intensity, is around 5.77 kWh/m2d. The model uses a lower
estimate of DNI for the average installation of 4.5 kWh/m2d to reflect the fact that large-scale deployment
of CSP will require the use of less ideal sites. This DNI allowance covers around half of the continental
U.S. (National Renewable Energy Laboratory).

The model uses a learning rate of 12 percent arrived at through an analysis of the SEGS data (Pilkington
Internation Solar GmbH). While the parabolic solar trough installations have been around since the early
1980s, their low total installed capacity to date allows for significant future learning rate cost reductions.

Similar to CCS, most R&D investments by private industry remain proprietary, so only government
spending on R&D (through the investments calculated in this analysis) was considering in increasing the
amount of available knowledge stock that drives down costs through LBS. Also similar to CCS, the
model assumes no international learning, though in reality this effect may be quite large due to a high
international interest in CSP, as demonstrated by recent projects such as Andasol in Spain. Knowledge
depreciation was set to three percent per year to reflect technological obsolescence, plant investment lag
times were set at three years, and the maximum R&D investment in a single year was capped at three
billion dollars.

Table 2.2: Variables within the model with representative values and minimum and maximum values of possible
range used for sensitivity analysisa
Parameter Model Value Sensitivity Value Range

Technical parameters
New plant net power (MW) 100
Direct normal irradiance (kWh/m2d 4.5
Capacity factor (%) 44%
Plant life (years) 30 25-50
Transmission and distribution loss (%) 7% 0-15%
Economic Parameters
Carbon tax ($/mtCO2) $25 $0-50
Environmental damages ($/mtCO2) $50
Proportion of EPRI Renewables from CSP (%) 50% 20-80%
Proportion of plant that is “fast-learning” (%) 70% 50-100%
Capital cost scaling (%) 100% 50-150%
Fuel cost scaling of alternatives (%) 100% 50-150%

Technical Learning Parameters

Initial knowledge stock (M$) $10,000 $0-20,000

18
 Knowledge stock depreciation rate (%) 3% 0-6%
Knowledge stock lag time (years) 2 1-5
Plant investment lag time (years) 4 2-6
Learning-by-doing rate (capital costs) (%) 12% 0-20%
Learning-by-searching rate (capital costs) (%) 15% 0-20%
Learning-by-doing rate (O&M costs) (%) 10% 0-20%
Learning-by-searching rate (O&M costs) (%) 10% 0-20%
Discount rate (%) 7% 0-15%

a
All costs represent real 2007 U.S. dollars; see Appendices for additional plant performance and cost data

2.4. Emissions Trajectories

Since many policy proposals to limit GHG emissions contain top-down specifications for reduction
targets, various emissions trajectories are investigated with this model to give insight into how policy
decisions may vary depending on the chosen pathways to reduction goals through 2050. The baseline
trajectory for this analysis is taken to be the emissions targets given by EPRI’s Prism analysis (James,
2007). This top-down pathway is chosen due to its moderate approach to mitigating carbon emissions
and represents a reasonable set of annual targets enacted by the government for specific technologies like
CCS, renewables, and nuclear. Furthermore, this analysis is informed by public-private technology
roadmaps, documented energy technology diffusion rates, and expert elicitations to develop its aggressive
but feasible technology deployment targets. These expert elicitations are likely the best way to glean
GHG emissions reduction potential for particular technologies given the large magnitudes of uncertainty
involved with these projections.

In order to compare the EPRI 2050 end target to other emissions trajectories that reach this same 2050
goal, three other pathways are considered that give the same amount of cumulative CO2 emissions
reductions from the baseline. Due to the long residence time of CO2 in the atmosphere, meeting
cumulative emissions goals will be an important complement to reaching target year objectives. The
different pathways analyzed in Chapter 3 include a linear buildup (where an equal amount of CO2
emissions are reduced each year), an exponential buildup (which occurs in roughly three decades, with a
maximum emissions reduction limit of 50 percent from the baseline case), and a logarithmic buildup.
These cumulative emissions pathways are equated until 2050, and each does not begin reducing emissions
until 2020. This approach means that pathways reducing emissions significantly in early years do not
have to reduce as much of a percentage from the baseline in order to offset the same cumulative amount
of emissions. The opposite is true for pathways that wait longer to begin abatement measures.
Furthermore, if carbon taxes increase over time, reduced capital and O&M costs from learning effects
will make CCS more economically viable at an earlier date than the baseline trajectory. Even though the
2050 goal for cumulative emissions scenarios is lower than the end target goal, the ability to deploy CCS-
equipped plants without subsidies could make up for this difference. Also, if a paradigm-shifting low-
carbon technology is introduced around mid-century (e.g., nuclear fusion), these cumulative emissions
matching scenarios might be closer to economic efficiency while also meeting the overall GHG
abatement goals. In addition to these cumulative trajectories, exponential and logarithmic buildup cases
with the same 2050 reductions goals were also considered.

Another trajectory option is given by the Waxman-Markey bill (H.R. 2454) currently circulating in
Congress (Waxman & Markey, 2009). The emissions reduction trajectory for CCS was determined by
applying the percentage reductions from the Waxman-Markey bill to the baseline emissions from coal-
fired power plants projected by the EIA (EIA, 2008). Since these abatement efforts will be
complemented by other technologies and policies like fuel switching (e.g., to natural gas), new renewable
and nuclear capacity, and increased efficiency, it is assumed that CCS will only have to meet 50 percent

19
of the reductions from coal-fired power plants. Compared to the EPRI goals, this pathway nearly doubles
the cumulative CO2 emissions abatement by 2050.

Similar emissions trajectories to those mentioned in the above paragraphs were considered for the
Waxman-Markey bill. However, for the exponential buildup, the maximum emissions reduction limit is
raised to 65 percent of baseline emissions. Each pathway also begins in 2015 rather than 2020, since the
Waxman-Markey bill aims to start reducing emissions immediately. All twelve emissions pathways used
in this analysis are shown in Figure 2.4.

2,500

EPRI - Normal
2,000
Reduced Emissions

EPRI - Linear (Cumulative)

(MMTCO2/yr)

1,500 EPRI - Exponential (Cumulative)

EPRI - Logarithmic (Cumulative)

1,000
EPRI - Exponential (End Target)
500 EPRI - Logarithmic (End Target)

0
2010 2020 2030 2040 2050

Figure 2.4a: Emissions pathways investigated for the EPRI scenario for CCS

3,000
Waxman-Markey
2,500 Waxman-Markey - Linear
Reduced Emissions

(Cumulative)
(MMTCO2/yr)

2,000 Waxman-Markey - Exponential

(Cumulative)
1,500 Waxman-Markey - Logarithmic
(Cumulative)
1,000 Waxman-Markey - Exponential
(End Target)
500 Waxman-Markey - Exponential
(End Target)
0
2010 2020 2030 2040 2050 2060

Figure 2.4b: Emissions pathways investigated for the EPRI scenario for CCS

The reduction scenarios for CSP are very similar to those shown above for CCS. The only difference is
that, in the EPRI case, CSP is assumed to make up 50 percent of the renewable mix. For the Waxman-
Markey scenario, it is assumed that CSP will comprise 10 percent of the emissions reduction.

20
3. Results and Discussion

3.1. CCS Model Results

Given the parameters discussed in Section 2.2, this section examines the implications of the model results
for the timing and benefits of CCS technology investments. A sensitivity analysis of these results is found in
the following chapter.

3.1.1. Economic Efficiency of CCS Subsidies

Using the baseline model assumptions from Chapter 2 (including a $25/mtCO2 carbon tax and the EPRI emissions
emissions scenario), the model calculates that 158.8 GW of new CCS capacity and 14.3 GW of CCS-equipped
equipped retrofits are installed by 2050, which represents 423 new plants and 27 retrofits. The installation of these
installation of these plants would mitigate nearly 1,400 MMTCO2 annually by 2050 compared to the baseline
baseline projections (a 35 percent reduction) in order to meet the specified emissions target. This emissions
emissions trajectory would stabilize emissions from coal-fired power plants by 2030 and gradually begin to decline
to decline around mid-century, as shown in

4,500
4,000
CO2 emissions (MMTCO2/yr)

3,500
3,000
2,500 Baseline
2,000
1,500
1,000
500
0
2008 2015 2022 2029 2036 2043 2050

Figure .

21
 4,500
4,000
CO2 emissions (MMTCO2/yr)
3,500
3,000
2,500 Baseline
2,000
1,500
1,000
500
0
2008 2015 2022 2029 2036 2043 2050

Figure 3.1: Projected CO2 from coal-fired power plants under baseline scenario (without carbon tax) and mitigation
scenario (model results assuming EPRI emissions scenario)

Figure shows the capacity of these installations through time. This figure illustrates the early behavior
of an S-shaped technological diffusion curve like those orderly patterns observed for many new
technologies and processes (Grübler, 1997). Such logistic penetration curves capture the general
deployment and market share trends for most technologies: slow initial growth, followed by accelerating
market penetration, and after a period of deceleration, diffusion rates approach saturation.

200
180
Cumulative Capacity (GW)

160
140
120
Total CCS
100
New Capacity
80
Retrofits
60
40
20
0
2008 2018 2028 2038 2048

Figure 3.2: Cumulative capacity (GW) of total CCS-equipped plants, new CCS capacity, and CCS retrofits of
existing coal power plants

As expected, the increase in installed capacity reduces the capital and O&M costs of new CCS-equipped
plants and retrofits over time due to LBS and LBD. The total overnight capital cost for a new CCS
modifications decreases from $1,122/kW in 2008 to $517/kW in 2050, as shown in Figure 2.3. Initial
reductions are driven primarily by LBS effects (through R&D investments), and after the technology

22
moves toward the deployment stage through time, unit cost decreases are caused by LBD (through
capacity deployment subsidies). Cost reductions occur rapidly at the onset of the investment period due
to doublings of capacity occurring at more regular intervals. However, as more capacity is needed to
double production over time, it becomes increasingly difficult to extract benefits from learning effects,
and cost reductions occur at ever-decreasing rates. This trend suggests that subsidies are able to have the
largest effect (in terms of CO2 avoided per unit of investment) during early stages of the diffusion process
to encourage technology adoption.

1,200
Total captial costs ($/kW)

1,000

800

600

400

200

0
2008 2015 2022 2029 2036 2043 2050

Figure 2.3: Total capital costs per capacity ($/kW) for new CCS-equipped plant from 2008 until 2050

This emissions reduction scenario would require that a total of $30.0 billion dollars be invested in R&D
and $93.9 billion dollars for capacity deployment between 2008 and 2050. More than 85 percent of the
investments in R&D occur in the next 6 years. Investments in deployment don’t begin in earnest until
2014 and then are roughly constant out until 2050. This roughly constant subsidy arises because cost
reductions from learning are offset by increased annual deployments. Although Figure 3.3 illustrates that
the magnitudes of these investments varies on a yearly basis, the average combined government
investment for CCS would be approximately $2.95 billion per year during this time period.

23
 $40
Bilion 2007 U.S. Dollars
$35 Enviromental Damages Avoided

$30 Consumer Surplus

$25 Annual Subsidy
$20
$15
$10
$5
$0
-$5 2008 2015 2022 2029 2036 2043 2050
-$10
$60

$50 Annual Subsidy

Billion 2007 U.S. Dollars

Carbon Tax Revenues

$40

$30

$20

$10

$0
2008 2015 2022 2029 2036 2043 2050
-$10

Figure 3.3: Annual environmental damages avoided, total surplus, and annual subsides (billion 2007 U.S. dollars) in
baseline emissions reduction scenario (above) and comparison of carbon tax revenues from all electric power and
annual subsidies (below)

Figure 3.3 suggests that the environmental damages avoided through reducing annual CO2 emissions will
be much larger than the annual subsidy costs. However, these environmental benefits will not begin to
accrue until 2020, after investments have been made and lead times for plant construction completed.
Furthermore, a total surplus emerges from lower levelized electricity costs than the baseline scenario
without R&D and capacity deployment investments owing to reductions in CCS costs while maintaining
a carbon tax. This surplus represents the sum of producer and consumer surplus, but the distribution of
these benefits will be determined by the amount of savings that utilities decide to pass on to consumers.
Figure 3.3 indicates that the total surplus is relatively low compared with environmental damages. As a
result, the primary societal benefit of the proposed subsidies is to mitigate environmental externalities.
This policy cannot be justified on economic efficiency grounds based on the producer and consumer
surplus values alone.

The bottom graph in Figure 3.3 presents the same annual subsidy values alongside of revenues from the
$25/mtCO2. If a carbon pricing policy were put in place where the government collected revenues (e.g.,
through either a direct tax or auctioning off emissions permits), the revenues accumulated by the
government just from the coal-fired electric power sector alone would far outweigh the subsidies values
for CCS. Based on Figure 3.3 (and bearing in mind the baseline assumptions), it can be concluded that
this CCS investment policy has a positive net benefit to society and improves economic efficiency.

24
3.1.2. Emissions Pathway Comparison
As discussed in Section 2.4, multiple emissions reduction pathways were developed to understand how
model results and policy conclusions fluctuate depending on how emissions reductions are specified. The
two primary scenarios, the EPRI and Waxman-Markey pathways, have different end emissions goals.
The trajectories specify the pathway taken to meet these goals. For both the EPRI and Waxman-Markey
scenarios, there are pathways that consider both fast (i.e., logarithmic) and slow (i.e., exponential)
diffusion under two conditions: 1. cumulative emissions reductions are equal between 2008 and 2050; 2.
emissions reduced for the end year of 2050 are equal.

Table 3.1: Model results for various emissions reduction trajectoriesa

2050 Reduction Damages Investment, Investment, Investment,

Scenario Name Trajectoryb (MMTCO2/yr) Avoided (B$) R&D (B$) Deploy. (B$) Total (B$)

EPRI Normal 1357 $434 $30 $94 $124

Linear (C) 1119 $434 $23 $88 $111
Exponential (C) 1946 $434 $64 $148 $212
Logarithmic (C) 762 $434 $17 $83 $99
Exponential (E) 1357 $54 $134 $228 $362
Logarithmic (E) 1357 $772 $29 $125 $153

Waxman-Markey Normal 1731 $752 $27 $121 $147

Linear (C) 1671 $752 $26 $115 $141
Exponential (C) 2530 $752 $73 $181 $253
Logarithmic (C) 1126 $752 $15 $118 $133
Exponential (E) 1731 $69 $150 $255 $405
Logarithmic (E) 1731 $1,160 $20 $167 $187
a
Assumes carbon tax of $25/mtCO2 and $5 billion per year cap on R&D spending; all costs represent real 2007 U.S.
dollars; see Section 2.4 for more information about the emissions trajectories
b
Trajectories labeled with C represent scenarios in which cumulative emissions are matched, while those labeled
with an E have the same end year emissions target

In order to compare the EPRI emissions targets to those of the Waxman-Markey plan, a benefit-cost
analysis of the environmental damages avoided compared to the total subsidy required for each set of
goals was performed. The EPRI program has a net benefit of $310 billion, while that of Waxman-Markey
is $618 billion. Waxman-Markey also appears better on the surface when looking at the ratio of benefits
to the costs of the program. EPRI has a 3.5:1 ratio, while Waxman-Markey has a 5:1 ratio of benefits to
costs. While the annual increases in emissions reduced by the two are almost the exact same, the
Waxman-Markey begins reducing a few years before the EPRI case, which add up a great deal over the
long term. The practicality of such a quick rollout may be hard for CCS plants due to the lag time in
building plants, difficulties obtaining permits, and the limited current designs of large-scale operations.
The Waxman-Markey’s high goals in early years do show that there are considerable benefits to gain by
starting reductions as soon as possible.

In both the EPRI and Waxman-Markey scenarios, the lowest investment costs to meet cumulative
emissions targets came through the logarithmic scenario. This result suggests that there is an economic
incentive to beginning mitigation efforts early. Moderately increasing investments in the next decade will
spur capacity deployment in the near term and lead to cost reductions through LBS and LBD, which will

25
put CCS in a more cost competitive position when more capacity is needed to meet increasing demand
and plant retirements around 2025. Furthermore, if carbon taxes increase over time, the reduced capital
and O&M costs will make CCS more economically viable at an earlier date than the baseline trajectory.
Even though the 2050 goal is lower than the EPRI projections, the ability to deploy CCS-equipped plants
without subsidies could make up for this difference. Also, if a paradigm-shifting low-carbon technology
is introduced around mid-century (e.g., nuclear fusion), these cumulative emissions matching scenarios
might be closer to economic efficiency while also meeting the overall GHG abatement goals. Although
the model uses a constant marginal environmental damage cost, the logarithmic pathway would be an
ideal abatement trajectory if the damage function increases exponentially in the quantity of emissions.

For the end goal matching scenarios, the EPRI normal scenario yields the least expensive total investment
costs with the logarithmic pathway being slightly more expensive. However, the exponential reductions
pathway is two to three times more expensive than the EPRI trajectory. These results indicate that
waiting a few decades before beginning reductions in earnest will be less economically efficient than
achieving modest gains each year or mitigating relatively quickly. Additionally, emissions trajectories
that require very fast capacity diffusion (e.g., the exponential pathway) do not allow for enough of a gap
between plant deployments to make learning cost reductions considerable, which increases the overall
investment costs.

Even though it is generally more economically efficient to make investments early rather than waiting a
few decades, comparing the normal and logarithmic reductions pathways under the end goal matching
scenarios illustrates that this generalization does not hold under the extreme case of fast deployment.
When large subsidies are channeled into capacity deployment too early, more old subcritical plants have
to be retrofitted to meet emissions reductions targets, which increases overall plant diffusion costs. Thus,
if investments are to be made efficiently, early subsidies should be invested in R&D and only modest
deployment should occur very early on, with significant capacity roll outs beginning around 2025.

The model was also exercised to produce optimal pathways for CCS and CSP. Figure 3.4 shows these
two pathways compared to the normal EPRI scenarios. They reveal that the cheapest way to implement
such a subsidy plan is to install plants in bursts and allow time for learning from those installments before
another round of them. While the model is able to have learning in an idealized fashion, it is not so cut
and dry realistically. However, for CCS it does show that if you were to smooth it out, it roughly follows
that of the EPRI targets and therefore the EPRI model is generally a good pathway to follow. It also
shows some of the lessons learned from the other pathways, such as that it is best to install larger amounts
as soon as possible. This starts to level out over time like the logarithmic case before a final push to the
2050 target. This still allows for a paradigm-shifting technology to help meet a 2050 end target in later
years. In the case of CSP, you can clearly see that while there are still wiggles, the optimal pathway is
below that of the EPRI model. This allows for initial installments to lead to sizable cuts in costs through
LBD until the technology is economically viable, and subsidies are no longer required.

26
 Emissions Reductions (MMTCO2) 1600

1400

1200

1000
CCS - EPRI
800 CCS - Optimal Pathway

600 CSP - EPRI

CSP - Optimal Pathway
400

200

0
2008 2015 2022 2029 2036 2043 2050

Figure 3.4: Optimal emissions pathways for CCS and CSP and the normal EPRI scenarios

3.1.3. Carbon Tax Effects

The effects that different carbon taxes would have on the amount of subsidies necessary for the program
were investigated at $5/mtCO2 intervals for the normal EPRI scenario. While the total amount of
subsidies decreased nearly linearly as seen in Figure 3.6, the amount of investments in R&D were
constant for the taxes anywhere between $0 and $30. This constant level of investments in R&D leads to
a major policy conclusion. Since it is unknown exactly when a carbon tax might be enacted, it may be
hard to argue to invest now rather than wait to see what tax level is chosen and invest accordingly;
however, the model shows that the same amount of spending in R&D is required for a large range of
carbon tax levels expected to be politically feasible in the near future. Therefore, the government should
invest now in R&D without knowing what the tax policy that may be accepted in the future.

$500
Subsidies (Billions 2007 U.S. Dollars)

$450
$400
$350
$300
$250
$200 Deployment
$150 R&D
$100
$50
$0
$0 $5 $10 $15 $20 $25 $30 $35 $40 $45 $50
Carbon Tax ($mt/CO2)

Figure 3.5: Calculated subsidies required for different values of carbon taxes

27
As the carbon tax is raised, the externality of environmental damages is internalized and therefore the
amount of damages avoided above the baseline case is decreased. As expected, as the carbon tax is
raised, tax revenues are great increased as shown in Table . One of the key goals of such a subsidy
program is speeding up when such a technology becomes economically competitive. Table displays
when new CCS plants as well as retrofits become viable technologies and no longer need subsidies to
offset costs. An interested result is that if a carbon tax of $50 were enacted, matching the cost of
environmental damages from CO2, new CCS plants and retrofits are both currently competitive.

Table 3.2: Model results for various emissions reduction trajectories with different amounts of carbon taxes,
including the year that the technology becomes economically viable

Carbon Tax Environmental Damages Tax Revenues Year New CCS Year Retrofits
($/MTCO2) Avoided (B$) (B$) Plants Viable Viable

$0 $867 $0
$5 $780 $518
$10 $694 $1,040
$15 $607 $1,550
$20 $520 $2,070
$25 $433 $2,590
$30 $347 $3,110 2045
$35 $260 $3,630 2032
$40 $173 $4,140 2025 2035
$45 $87 $4.660 2009 2022
$50 $0 $5,180 2009 2009

a
Assumes $5 billion per year cap on R&D spending; all costs represent real 2007 U.S. dollars; see Section 2.4 for
more information about the emissions trajectories
b
Viability is reached after 2050 when no year is listed

3.1.4. Learning Rate Effects

To determine the general effects of learning-by-doing (LBD) and learning-by-searching (LBS), the
normal EPRI scenario was investigated with and without LBD and LBS. The results can be seen below in
Table . The results show that the effect of LBD is much higher than that of LBS. Of note, when LBD is
factored in and LBS is not considered, the total investment is actually lower than when both effects are
incorporated. This occurs due to the knowledge stock depreciation rate, which means that some
investment in R&D must be occasionally spent in order to keep costs at their initial levels. If no money is
invested in R&D, costs continue to go up. This may show that many models that only consider LBD
may underestimate the total cost of a program. To determine the effect of the depreciation rate, the case
of no depreciation rate was analyzed and costs were reduced nearly 20 percent. It shows how important
the knowledge stock depreciation rate is to the final outcome, if it were not considered.

28
Table 3.3: Model results for the EPRI emissions scenario with and without LBD and LBSa

Investment, Investment, Total Investment

Scenario Name Learning Rates R&D (B$) Deploy (B$) (B$)

EPRI LBD and LBS $30 $94 $124

LBD and LBS (No
Dep. Rate) $20 $81 $100
LBD, no LBS $0 $117 $117
LBS, no LBD $48 $167 $215
No LBD and LBS $0 $223 $223
a
Assumes carbon tax of $25/mtCO2 and $5 billion per year cap on R&D spending; all costs represent real 2007 U.S.
dollars; see Section 2.4 for more information about the emissions trajectories

3.2. CSP Model Results

Given the parameters discussed in Section 2.3, this section examines the implications of the model results
for the timing and benefits of CSP technology investments. A sensitivity analysis of these results is found
in the following chapter.

3.2.1. Economic Efficiency of CSP Subsidies

Using the baseline model assumptions from Chapter 2 (including a $25/mtCO2 carbon tax and the EPRI
emissions scenario), the model calculates that 153.1 GW of new CSP capacity is installed by 2050, which
represents 1,531 new plants. The installation of these plants would mitigate 185.1 MMTCO2 annually by
2050 compared to the baseline projections (a 4.75 percent reduction) in order to meet the specified
emissions target. This fraction is much smaller than fraction due to CCS reductions due to the larger role
in emissions reductions required by the EPRI scenario.

4,500
CO2 Emissions (MMTCO2/yr)

4,000
3,500
3,000
2,500 Baseline
2,000
1,500 Mitigation
Scenario
1,000
500
0
2008 2015 2022 2029 2036 2043 2050

Figure 3.6: Project CO2 emissions from U.S. electricity sector (without carbon tax) and mitigation scenario (model
results assuming EPRI emissions scenario)

Figure shows the capacity of these installations through time. This figure illustrates flat initial capacity
which then increases following a linear pattern. This is a result of the EPRI emissions targets, which
assign a linear increate to total renewable energy capacity (within which CSP is included).

29
 180
160
Cumulative capacity (GW) 140
120
100
80
60
40
20
0
2008 2015 2022 2029 2036 2043 2050

Figure 3.7: Cumulative capacity (GW) of total CSP power plants

For CSP, the learning effects are very similar to CCS. Increases in installed capacity dramatically reduce
the capital and O&M costs of new CSP plants over time due to LBS and LBD. The total overnight capital
cost for new CSP plants decreases from $4,141/kW in 2008 to $1453/kW in 2050, as shown in Figure 3.9.
Initial reductions are driven primarily by LBS effects (through R&D investments), and after the
technology moves toward the deployment stage through time, unit cost decreases are caused by LBD
(through capacity deployment subsidies). Cost reductions occur rapidly at the onset of the investment
period due to doublings of capacity occurring at more regular intervals. However, by around 2015, as
more capacity is needed to double production over time, it becomes increasingly difficult to extract
benefits from learning effects, and cost reductions occur at ever-decreasing rates. This trend suggests that
subsidies are able to have the largest effect (in terms of CO2 avoid per unit of investment) during early
stages of the diffusion process to encourage technology adoption. One caveat of this analysis is the large
number of doublings that happen. Capacity increases from 450 MW to 153 GW, or almost twelve
doublings, which is well beyond the rate of most conventional learning-by-doing models. Thus, the cost
reductions may not be as large in reality compared with those in the model.

4,500
Total captial costs ($/kW)

4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
2008 2015 2022 2029 2036 2043 2050

Figure 3.8: Total capital costs per capacity ($/kW) for new CSP plants from 2008 until 2050

This emissions reduction scenario would require that a total of $20.5 billion dollars be invested in R&D
and $110.2 billion dollars for capacity deployment between 2008 and 2050. Although Figure 3.3
illustrates that the magnitudes of these investments varies greatly on a yearly basis, the average combined
government investment for CCS would be approximately $3.1 billion per year during this time period.

30
 Enviromental Damages Avoided
Annual Subsidy Carbon tax
Net Surplus
Annual Subsidy $100
$15

Billion 2007 U.S. dollars

$80
Bilion 2007 U.S. dollars

$10
$5 $60
$0
$40
-$5 2008 2015 2022 2029 2036 2043
$20
-$10
-$15 $0
-$20 -$20 2008 2015 2022 2029 2036 2043 2050
-$25
-$40
-$30

Figure 3.9: Annual environmental damages avoided, total surplus, and annual subsides (billion 2007 U.S. dollars) in
baseline emissions reduction scenario (left) and comparison of carbon tax revenues from U.S. electricity generation
and annual CSP subsidies (right)

Figure 3.3 suggests that the ratio of environmental damages avoided through reducing annual CO2
emissions relative to the subsidy costs is much less favorable than in the case of CCS. At a discount rate
of zero, the net environmental damages avoided until 2050 total about twice as much as the subsidies.
However, since the subsidies are large and immediate, compared to a longer-term return on environmental
damages, the policy becomes inefficient under most forms of discounting. Like in the case of CCS, the
net surplus, the sum of consumer and producer surpluses, is very small relative to the subsidies and
damages avoided. In this case, it is in the tens of millions of dollars after 2040, compared to multibillion
dollar annual subsidies. Thus, it will likely play a small role in policy feasibility.

The right graph in Figure 3.3 presents the same annual subsidy values alongside of revenues from the
$25/mtCO2. If a carbon pricing policy were put in place where the government collected revenues (e.g.,
through either a direct tax or auctioning off emissions permits), the revenues accumulated by the
government just from the coal-fired electric power sector alone would far outweigh the subsidies values
for CSP. Based on Figure 3.3, the policy of subsidizing CSP is of questionable improvements to
efficiency over the period until 2050.

However, due to the immense improvements in CSP economics through learning effects, CSP becomes a
commercially competitive technology in 2036, able to stand alone without subsidies from that point
forward. Figure 3.11 shows the levelized cost of electricity (LCOE) of CSP electricity produced without
a subsidy versus the LCOE of the marginal mix composed of natural gas and coal. Both include a $25/
mtCO2 tax. At 2036, the LCOE of CSP electricity is below that of the marginal mix due to learning rate
improvements, meaning that the technology can compete in the open market without government
assistance. This trend suggests that there is value in subsidizing CSP over the long run since it has the
potential to become a competitive technology. However, due to the large number of capacity doublings
that this requires, it is likely that real-world cost improvements will be less than computed, demonstrating
the limitations of a simple learning model over many doublings of capacity.

31
 $200
$180
LCOE ($/MWh)

$160
$140
CSP
$120
Marginal mix
$100
$80
$60
2000 2010 2020 2030 2040 2050

Figure 3.10: LCOE of electricity produced from CSP versus the marginal market mix

3.2.2. Emissions Pathway Comparison

As discussed in Section 2.4, multiple emissions reduction pathways were developed to understand how
model results and policy conclusions fluctuate depending on how emissions reductions are specified.

Table 3.2: Model results for CSP under various emissions reduction trajectoriesa

2050 Reduction Damages Investment, Investment, Investment,

Scenario Name Trajectory (MMTCO2/yr) Avoided (B$) R&D (B$) Deploy. (B$) Total (B$)

EPRI Normal 185.1 $180 $20.5 $110.2 $130.7

Linear 250.7 $180 $30 $107.5 $137.5
Exponential 436.1 $180 $78 $54.6 $132.6
Logarithmic 170.9 $180 $27 $204.9 $231.9

Waxman-Markey Normal 319.9 $265 $24 $165.8 $189.3

Linear 334.2 $265 $27 $140.3 $167.3
Exponential 506 $265 $72 $86.7 $158.7
Logarithmic 225.2 $265 $20 $250.4 $270.4
a
Assumes carbon tax of $25/mtCO2 and $5 billion per year cap on R&D spending; all costs represent real 2007 U.S.
dollars; see Section 2.4 for more information about the emissions trajectories

As shown in Table 3.4, for the EPRI targets, the cheapest mitigation scenario is the normal reduction
scenario. The linear and exponential scenarios are relatively close as well. Under the Waxman-Markey
scenario, the normal, linear, and exponential pathways are also similar, although the exponential
represents the cheapest pathway to attainment in this case.

In both cases, the exponential pathway also provides the highest yearly reduction in 2050, making it
relatively more favorable as the period of consideration extends beyond 2050. This result indicates that
CSP is more favorable over the longer term, as research knowledge accumulates to reduce the high capital
costs of installation.

In both cases, the logarithmic scenario is far more expensive because it requires greater deployment
investments earlier in the period. Since CSP takes a large amount of time and money to gain LBS
benefits, the logarithmic scenario fails to capture these benefits, leading to higher costs. Furthermore, the

32
logarithmic scenario leads to a yearly reduction in 2050 of less than half that of the exponential cases,
meaning that it would require additional installations then or a breakthrough low-carbon technology in
order to continue to keep emissions low.

3.2.3. Carbon Tax Effects

Like CCS, if no policy to internalize a carbon externality is enacted, the costs to fund a subsidy program
to help R&D of CCS technologies increases in varying amounts depending on the emissions trajectory
employed. Similar trends occurred for each type of buildup whether it was relative to the EPRI or
Waxman-Markey goals. The greatest increase in total cost by far came from the exponential pathway,
which increased in both scenarios by about two-thirds. Under both scenarios, the normal and linear
pathways increased by about one-third. The logarithmic total subsidy cost increased by about 20 percent
under both scenarios. Deployment subsidies changed far more than R&D subsidies.

Table 3.3: Model results for various emissions reduction trajectories with different amounts of carbon taxesa

$25 Carbon Tax $0 Carbon Tax

Investment, Investment, Investment, Investment,
Scenario Name Trajectory R&D (B$) Deploy. (B$) R&D (B$) Deploy. (B$)

EPRI Normal $20.5 $110.2 $26.7 $151.2

Linear $30 $107.5 $37.1 $149.3
Exponential $78 $54.6 $84 $133.3
Logarithmic $27 $204.9 $30 $248

Waxman-Markey Normal $23.5 $165.8 $32.5 $221.1

Linear $27 $140.3 $35.9 $195.9
Exponential $72 $86.7 $75 $193.1
Logarithmic $20 $250.4 $23 $308.5
a
Assumes $3 billion per year cap on R&D spending; all costs represent real 2007 U.S. dollars; see Section 2.4 for
more information about the emissions trajectories

3.2.4. Learning Rate Effects

To determine the general effects of LBD and LBS, the normal EPRI scenario (with $25/mtCO2 tax) was
investigated with and without LBD and LBS, as shown in Table . The results show that the effect of
LBD is much higher than that of LBS. When only LBD is included and not LBS, the result is very
similar to the base case. This result suggests that, since so little CSP capacity is installed today, a model
considering only LBD is adequate, since the LBD effects dominate the LBS effects. The immense cost
increases that happen when LBD is removed demonstrate the reliance of this model upon LBD effects.
The four-fold increase in total program expense between a no-learning scenario and the base case
demonstrates the importance of learning effects upon economic viability of power generation
technologies over the long term. Any model ignoring these effects is thus likely to misallocate resources
over significant periods of time. It also shows that CSP at the moment is not yet ready for widespread
commercialization until some of these effects are captured. As mentioned before, however, this model is
vulnerable to overestimating the impact of LBD effects, since so many doublings of capacity are expected
to occur to attain expected emissions targets.

33
Table 3.4: Model results for the EPRI emissions scenario with and without LBD and LBSa

Investment, Investment, Total

Scenario Name Learning Rates R&D (B$) Deploy (B$) Investment (B$)

EPRI LBD and LBS $21 $110.2 $130.7

LBD, no LBS $0 $137.4 $137.4
LBS, no LBD $63 $367.2 $430.2
No LBD and LBS $0 $522.3 $522.3
a
Assumes carbon tax of $25/mtCO2 and $5 billion per year cap on R&D spending; all costs represent real 2007 U.S.
dollars; see Section 2.4 for more information about the emissions trajectories

4. Sensitivity Analysis

4.1. Introduction
As mentioned in Section 2.2, the amount of uncertainty of input variables used in the model requires
sensitivity analysis to validate the results. Oracle’s Crystal Ball software was utilized to perform a
sensitivity analysis on the uncertainties in the model. The software allows probability distributions to be
assigned to each of the uncertainties, and the relative correlation between those uncertainties and the
outcomes to be ascertained. Crystal Ball uses Monte Carlo simulation, which uses the input distributions
to create random variable inputs and tabulates the results. The ultimate goal of sensitivity analysis is to
determine which uncertainties are most important in determining the model’s result and hence require the
most attention and effort in properly quantifying.

4.2. Uncertainty in CCS Model

The probabilistic input used in Crystal Ball was estimated using existing forecasts and historical data (the
details are described in Chapter 2 and the Appendix). Due to the complexity of the model and the
resulting long runtime (and limited computing resources available to the group), only 100 simulations
were performed to collect the results for the sensitivity analysis.

The results of the model, organized into percentiles, are presented in Table 4.1. The results indicate that
the median subsidy requirement in 2015 is $3.9 billion, with a P10-P90 range of $0.4-$8.3 billion. That
value increases through 2050, with a median annual average of $4.5 billion. The median R&D
investment requirement is $19.2 billion. The wide distribution for outcomes is indicative of the large
amount of uncertainty in the model.

Table 4.5: Outcome ranges (in percentiles)

2015 Subsidy 2035 Subsidy 2050 Subsidy Annual Average Investment in
Percentiles
(B$) (B$) (B$) Subsidy (B$) R&D (B$)

10 percent 0.4 0 0 0.2 0

50 percent 3.9 5.1 6.8 4.5 19.2
90 percent 8.3 16.0 21.9 13.2 34.9

34
A trend chart, shown in Figure 4.1, demonstrates how the uncertainties in the model compound over time.
From 2010 to 2050, the variance in the subsidy requirement dramatically increases. This trend is a result
of the reduced ability to predict results further in the future based on current data.

50
45
40
35
Subsidy (Billion $)

30
25 90%
20
30%
15
10 10%
5
0
2010 2015 2020 2025 2030 2035 2040 2045 2050
Year

Figure 4.1: Annual subsidy trend over time horizon

Sensitivity charts demonstrate the impact of uncertainties in the model on outcomes. Uncertainties with a
greater absolute magnitude indicate more influence on determining the result of the model. A negative
value indicates an inverse relationship between the uncertainty and the outcome; as one goes up, the other
goes down. A positive correlation indicates a direct relationship. A sensitivity chart of the uncertainties
in the model and the resulting required subsidy calculation are shown in Figure 4.2. For a more complete
discussion of the sensitivity analysis performed, please refer to Appendix D.

-0.60 Carbon Tax

CO2 Transport & Storage costs

0.27

-0.04 Capital LBD Rate

0.03 New CCS Heat Rate

-0.02 Discount Rate

-0.70 -0.60 -0.50 -0.40 -0.30 -0.20 -0.10 0.00 0.10 0.20 0.30 0.40

Sensitivity Analysis - Average Annual Subsidy

Figure 4.2: Sensitivity chart for average annual subsidy (CCS model)

35
The results of the sensitivity analysis indicate that the carbon tax variable is the highest impact input in
determining the average annual subsidy requirement. Since the value of the sensitivity of the carbon tax
is negative, it indicates that a greater carbon tax leads to a reduced subsidy requirement. This is logical: a
high carbon tax increases the cost of electricity resulting in carbon emissions and requires a lower subsidy
to make CCS economically attractive. Therefore, when analyzing the results of the CCS model, changing
the carbon tax will have a significant effect on the economics.

The uncertainties of CO2 transport and storage costs are also significant in determining the required
annual subsidy for CCS. The positive correlation indicates that as transport and storage costs increase, so
does the annual subsidy requirement. Clearly, transport and storage costs are a significant component in
determining the total cost of CCS. As these costs increase, so does the subsidy requirement to make CCS
viable. The uncertainties involved in CO2 transport and storage costs are potentially high, due to the
unknown scalability of these technologies.

The capital learning-by-doing (LBD) rate, CCS heat rate, and discount rate are less significant in
determining the annual subsidy. An increased capital LBD rate improves the economics of CCS over
time, which reduces the average subsidy requirement. However, an increased LBD rate is not as effective
as an increased carbon tax or reduced transport and storage costs. Similarly, a reduced CCS heat rate
improves the economics of CCS and reduces the average subsidy but does not have as large of an impact
as taxes and absolute transport and storage costs.

Sensitivity analysis was also used to evaluate the effect of the uncertainties on the required investment in
R&D for CCS. Figure 4.3 is a sensitivity chart for the R&D requirement outcome.

0.35 LBS rate (capital)

-0.18 Carbon Tax

-0.17 LBD rate (capital)

Knowledge stock depreciation

0.08
rate

0.07 CO2 Transport & Storage costs

-0.60 -0.40 -0.20 0.00 0.20 0.40 0.60

Sensitivity Analysis - Investment in R&D

Figure 4.3: Sensitivity chart for investment in R&D (CCS model)

Unlike the sensitivity analysis on the subsidy requirement, the learning-by-searching (LBS) rate was the
most significant uncertainty input in determining the R&D requirement. While the LBS rate does not
actually have a huge effect on the annual subsidy amount, when it is compared directly to the investment
of R&D, the large impact of the LBS rate can be observed.

36
Similar to the sensitivity analysis performed on the average annual subsidy, the carbon tax proves to be
one of the most significant variables tied to the change in R&D investments. Closely following the
carbon tax is the LBD rate (capital). Both of these input variables have a negative correlation with an
increase in R&D. Therefore, as the carbon tax and LBD rate (capital) increase, the R&D amount will
decrease. For the increase in carbon tax, this is due to the fact that when more of the externality is
internalized by the tax, less R&D is necessary to make the model economically viable. The LBD rate
(capital) will also increase the economic efficiency of the model and will have the similar effect of
decreasing the amount of annual R&D.

The two input variables with the lowest correlation with the amount of R&D are the T&D loss and the
LBD rate (O&M). While the LBD rate (capital) does have a larger effect, the LBD rate (O&M) will not
affect the R&D amount as much because an increase in efficiency of the O&M side of the model is not a
main target of the R&D. In other words, since the R&D does not directly cause efficiency in the LBD rate
(O&M), a change in the efficiency will reciprocate, and a less significant change in R&D is the result.

4.3. Uncertainty in CSP Model

The sensitivity analysis performed on the CSP model follows the same structure as the CSS model
analysis. As before, the probabilistic input used in Crystal Ball was estimated using existing forecasts
and historical data. Due to the time limitations, 50 simulations have been performed for the following
sensitivity analysis.

The results of the model, organized into percentiles, are presented in Table 4.2. For the CSP model, the
results show that the median subsidy requirement in 2015 is $3 billion, with a P10-P90 range of $0-$16.9
billion. The range for the subsidy in 2015 is wider than the range found for the CSS model. However,
unlike the values found for the CSS model, the range is smaller in later years than in 2015. The median
range for the subsidy in both 2035 and 2050 is $0. These results occur because in nearly all cases the
technology becomes economically viable in later years and subsidies at that point are rarely needed. The
future state of the subsidies has far less uncertainty than does the results shown for 2015, and reveals a
high confidence in long-term market parity for the technology.

Table 4.6: Percentile range of forecasts in CSP model

2015 Subsidy 2035 Subsidy 2050 Subsidy Annual Average Investment in

Percentiles
($B) ($B) ($B) Subsidy ($B) R&D ($B)

10 percent 0 0 0 1.2 11.1

50 percent 3 0 0 3.1 21
90 percent 16.9 4.3 2.1 7.3 51.5

37
 New CSP New tech Cap
0.24
Cost

0.15 New CSP Plant Life

0.13 LBS rate (new capital)

-0.12 Discount Rate

-0.09 Fuel Cost Scaling

-0.15 -0.10 -0.05 0.00 0.05 0.10 0.15 0.20 0.25 0.30

Sensitivity Analysis - Annual Average Subsidy

Figure 4.4: Sensitivity chart for average annual subsidy (CSP model)

Figure 4.4 displays the correlation between certain input variables in the CSP model and the annual
average subsidy. The variability of the new technology capital cost affects the annual average subsidy of
the CSP model the greatest. This input variable has a positive correlation with the average annual
subsidy. Therefore, when the technology capital costs increase, which increases the cost of the project,
the expected annual subsidy will also increase. Due to the increase in the project costs, the subsidy would
have to be increased in order to help offset the additional incurred costs, especially in the early years of
the program.

The fuel cost scaling result displays a negative correlation with the annual average subsidy and the
increased pricing of competitor solutions and the baseline electricity. With a price increase of the
alternative solution, a fuel mix of natural gas and coal, the total amount of reductions in order to meet the
baseline has been reduced. This means that a lower subsidy will be needed in order to achieve the new
levelized costs.

38
 -0.30 Fuel Cost Scaling

0.15 LBS rate (new capital)

-0.13 Discount Rate

0.11 New CSP New tech Cap Cost

-0.06 Knowledge Stock Lag Time

-0.40 -0.30 -0.20 -0.10 0.00 0.10 0.20

Sensitivity Analysis - Investment in R&D

Figure 4.5: Sensitivity chart for investment in R&D (CSP model)

Figure 4.5 displays the correlation between certain variables and the amount of R&D that is conducted.
The fuel cost scaling is the input variable that most affects the amount of investments into R&D. As in
the case of the annual average subsidy, the fuel cost scaling has a negative correlation with the amount of
investment in R&D. Since the overall effort is reduced as the price of the competing fuel mix increases,
the amount of money invested in R&D is able to decrease and still produce an acceptable outcome.
Therefore, the uncertainty surrounding the price of the alternative fuel mix has important implications in
the money spent developing the CSP plants.

The new technology capital cost is one of the input variables that has the smallest impact on the amount
of R&D investment. The new technology capital cost has a positive correlation with the R&D amount,
showing that as the cost of the technology increases, the total investments in R&D will also have to
increase.

Based on the results provided by the sensitivity analysis, the CSP model is affected much less by the
uncertainty in the input variables, as compared to the CCS model. There are certain variables that have a
larger affect on the results in the CSP model, but overall, the variability of the inputs do not cause as large
of an effect. This demonstrates that the inherent structure of the CSP model is such that the results are not
as closely tied to the input variables. Since the technology is found to almost certainly become market
viable, the uncertainty surrounding the amount of the subsidy significantly decreases. The interpretation
of the results is such that the outcomes found from the CSP model are considerably robust.

4.4. Limitations to the Sensitivity Analysis

While the sensitivity analysis provides much-needed insight into the accuracy of the model, there are a
number of limitations to bear in mind when interpreting the results. The number of simulations, the
amount of uncertainty, and obtaining accurate information about the probability distributions of each
variable are among the limitations.

39
As with any type of simulated analysis, the number of iterations only increases the robustness of the
results. Unfortunately, due to the limited amount of time and the complexity of the model, the number of
simulations, 100, is lower than optimal. However, the 100 simulations that were performed provide
further insight into the model, even if the exact correlation may be slightly off. The iterations were able
to clearly display which input variables have the greatest effect on the model, and are therefore more
important in terms of accurately predicting the values.

The amount of uncertainty with the input variables, coupled with the complexity of the model, leads to
additional limitations with the sensitivity analysis. Crystal Ball requires a probability distribution for
each input variable. While this is useful in determining a range and likelihood structure, it may not be
very accurate in all cases. The original parameters used in the model are based on extensive research and
knowledge of the future state of each variable. However, without an accurate model of how the range of
each variable is distributed, the results from the sensitivity analysis may become useless. The actual
probability distributions used for the simulations can be found in the Appendix. Please note that the
distributions, due to the large number of them, have been simplified to less complex distributions. The
important piece of the distributions was to focus on the range, and the base value, which was determined
to be the most accurate given the current state of information. Furthermore, the complexity and
completeness of the model has its downside – it is much more difficult to interpret individual or joint
changes in variables. With so many input values, clarity is sacrificed and the true nature of the
dependencies and causal relationships between variables may easily be lost. Unfortunately, limiting the
number of input variables might lead to an oversimplified sensitivity analysis.

In addition to shortcomings with the actual sensitivity analysis, there are also certain input variables that
may have caused misleading results. The discount rate, which is an input variable for both the CCS and
the CSP models, is not used consistently throughout the model. In the CSP model, a discount rate of 7%
is used for determining the plant owners’ annual capital cost. Therefore, the cost of the plant will be
discounted over a 30-year period. However, the other input variables are set in constant 2007 dollars.
This is interpreted as an assumption that the discount rate will always equal the inflation rate. Therefore,
in the sensitivity analysis results, as the discount rate changed, the inflation rate was also assumed to
change. This result may be responsible for the unexpected analysis of the change in discount rate, and
how it affects both the annual subsidies and the investments in R&D. Fortunately, the effects of a change
in the discount rate are not as significant as the majority of the other input variables. Other than the
discount rate, the knowledge of the lag time between the research and the actual increase in efficiency is
another input variable that may have a flawed sensitivity analysis result. Due to the constraints set in the
model, there is a cap on the amount of money that can be put towards research each year. This factor,
coupled with the fact that new plants are being built later in the lifetime of the model, leads to a somewhat
misleading sensitivity analysis conclusion.

4.5. Uncertainties and Caveats

There are several uncertainties that affect the economic impacts of the results of the model. The specific
input uncertainties identified in the sensitivity analysis certainly have an effect on the generated results,
but there are many high level uncertainties to consider for the feasibility of the results.

The availability of new nuclear power is one such uncertainty that must be taken into account (EPA
Preliminary Analysis of the Waxman-Markey Discussion Draft, 2009). While the model assumes that
new nuclear power can be created up to the point that it is cost effective, it does not fully consider the
consequences from technical, political, and social viewpoints.

40
One possible limitation of this analysis is that not all possible technologies classified as CCS and CSP
were fully investigated. In the case of CCS, both pre- and post-combustion separation technologies were
utilized for new plants and retrofits, respectively. While retrofits are almost always going to be post-
combustion separation, oxy-fuel combustion may possibly become the dominant technology for new plant
installments instead of IGCC. For CSP technologies, power towers are an emerging technology and may
have a large share of the CSP market along with CSP or possibly dominating it.

A potential limitation in the analysis is that the model assumes a constant value for the environmental
damages calculations. Therefore, the optimal pathways analyzed in the model do not take into account
increasing damages and negative effects from higher concentrations of carbon dioxide in the atmosphere.
Additionally, there exists a large uncertainty in the marginal damage of carbon dioxide, due to the
uncertainty surrounding the discount rate. The uncertainty of the marginal damage costs of carbon
dioxide is right skewed, which implies that the expected value of the costs exceed the “best guess” value
(Helm, 2005). Although it may be correct to model the marginal damage as a constant value, the
uncertainty involved in the calculation may result in inaccurate results.

Due to the lack of real-world experience in capturing carbon and storing it at a large scale, the
uncertainties involving the costs and feasibility are very high (EPA Preliminary Analysis of the Waxman-
Markey Discussion Draft, 2009). The scalability of such capturing and storing technologies is unknown,
and therefore the current pricing assumptions may not prove to be accurate as more information is gained.

One caveat of the presented model is the inconsistency of the usage of discount rates. While a discount
rate of 7 percent has been used for the upfront capital cost of new plants, the remaining areas of the
models are expressed in constant (chain-weighted) 2007 dollars; therefore, the rest of the model implicitly
assumes a discount rate equal to the rate of inflation. The decision to separate the discount rate from the
rest of the model, including the annual subsidies, was made for a variety of reasons. The consequence of
the decision is that the monetary values presented will not always be directly comparable.

Additionally, it is important to note that a carbon tax was assumed to be the enacted carbon mitigation
policy in the United States. The analysis is also valid for a cap-and-trade program where carbon credits
are auctioned off at the market price. Where the analysis breaks down is when carbon credits are
distributed at no charge and users are allowed to trade between themselves at the market price. Therefore,
the allocation will be distributed based on historic emissions. This results in lower costs to utilities for
continuing with business as usual and gives less incentive to invest in low-carbon technologies. There
will also be no revenues to the government to offset the costs of the subsidy program, lowering the
political feasibility. The model may still be used to give an upper and lower bound on necessary
subsidies; the lower bound using a carbon tax in the model of the market price of carbon credits, and the
upper bound with a carbon tax of zero.

41
5. Policy Mechanisms

5.1. Relevant Policy Mechanisms

Government has the opportunity to affect price signals and market dynamics through an extensive range
of policy options. This paper focuses only on mechanisms within the larger energy strategy of increasing
domestic supply. Some of these options include a tax, subsidy, standard, or other related financial
incentives. However, only two of these options fall within the scope of this model. One of which is the
subsidies that would bring these technologies to parity both in terms of subsidy needed per plant installed
as well as upfront subsidies for research and development. The second is a tax on the price of carbon,
which has been referenced throughout the analysis and which is vital to the implementation of any low
carbon technology in the coming years.

These mechanisms take slightly different approaches to internalizing market externalities. In the case of a
carbon tax, a price on carbon emissions internalizes the actual cost of carbon emissions on an economy-
wide level. While this corrects many signals facing decision-makers at electric utilities, it does not fully
shift towards the socially optimal level. Given that it is infeasible to create a tax high enough that fully
makes up for all damages, other policy mechanisms will be needed in tandem in order to drive a shift
towards increasing low-carbon energy supply. Subsidies that drive investment in deployment and R&D
of low carbon technologies are needed in order to meet these reductions goals. Additionally, these
subsidies are able to correct another market failure by helping to promote spur effects like LBD and LBS
that are naturally under-allocated in the competitive market.

Information is another type of policy mechanism that bears relevance to changing decision-making,
behaviors, and attitudes in society. Therefore, information is a mechanism that is relevant to the scope of
this project. In the case of CCS and CSP, information is especially important to generate and include
along with taxation and subsidy mechanisms simply due to the fact that both technologies are so nascent.
Information mechanisms impact both the political motivation needed to implement the policy as well as
the mechanism’s ability to change successfully the decision-making of individuals in the electricity
sector. These public implications will be addressed in more detail in the political feasibility section.

5.2. Proposed CCS Mechanisms

There are a couple of policy mechanisms specific to investment in CCS. The first is a store of upfront
subsidy funds to push initial research as well as to drive implementation of initial projects. An illustration
of such a mechanism is the Carbon Storage Research Corporation currently proposed under the Waxman-
Markey draft under Subtitle B, Section 14 and designed to “accelerate the availability of CCS methods,”
(110th Congress). The mechanism would distribute $1 billion in funding each year for the first 10 years
and push 5-7 projects to initial viability. A second policy mechanism is the idea of a CCS bonus that
would provide direct financial incentive for scaling coal with CCS in tandem to the subsidy mechanisms
the model evaluates. In the Waxman-Markey formulation, the mechanism pays a fixed monetary value
for every ton of carbon dioxide sequestered.

5.3. Proposed Renewable Energy Mechanisms

As a renewable energy source in the same category as other technologies like wind power and
geothermal, CSP is a more generic subsidy case in both the EPRI and Waxman-Markey scenarios.
Generally, there are two important mechanisms likely to gain popularity in the coming years: a renewable
electricity standard and emissions reduction scenarios.

42
Electricity standards for renewable technologies have been codified both in the AEO 2009 bill as well as
in the current WM draft. In the bill, retail electric suppliers must provide 6 percent of their power from
renewable sources like CSP starting in 2012, ramping up to 25 percent for 2025 and beyond (110th
Congress). This could certainly enhance incentives to install CSP, however, this model only focuses on
the quantifiable subsidies needed to drive that change. There is no clear program for renewable subsidies,
so the model instead finds the optimal programs based on achieving emissions reduction scenarios. In the
WM baseline scenario, renewables constitute 3 percent of generation in 2010, 4 percent in 2020, and 5
percent in 2030 in reference scenario. In the modified case, this increases to 7 percent in 2020, 12 percent
2030 (Environmental Protection Agency, 2009).

6. Conclusions

6.1. Summary of Results

Subsidies to promote an increased supply of these two technologies in the U.S. electric power-generating
sector are economically efficient as a whole. In both cases, total benefits exceed total costs. For CCS,
benefits (almost entirely in terms of environmental damages avoided) are three and a half times greater
than the total cost of the program. This trend is portrayed graphically in Figure 6.1, where the total
amount of costs in blue is plotted against annual subsidy costs in red throughout the life of the program.
The margin is smaller for CSP, with the total benefits slightly more than twice as large as the costs, as
shown in Figure 6.2. However, this representation underestimates the potential benefits of the program,
since the upfront research and later deployment subsidies drive the technology toward market viability
during the 2030s.

$40
Enviromental Damages Avoided
$35
Bilion 2007 U.S. Dollars

$30 Net Surplus

$25 Annual Subsidy
$20
$15
$10
$5
$0
-$5 2008 2015 2022 2029 2036 2043 2050
-$10
Figure 6.1: Benefits and costs over the lifetime of proposed CCS subsidy program

43
 $15
$10
Bilion 2007 U.S. Dollars

$5
$0
-$5 2008 2015 2022 2029 2036 2043 2050

-$10
Enviromental Damages Avoided
-$15
Net Surplus
-$20
Annual Subsidy
-$25
-$30

Figure 6.2: Benefits and costs over the lifetime of proposed CSP subsidy program

Although not visible in the graph due to scale, net surplus does accrue throughout the life of program for
CSP. For CSP, surplus does not accrue until 2036, the year at which the technology reaches parity in
levelized cost with more carbon intensive options. The total surplus generated is $54.6 million through
that 14-year period. Since CCS does not reach market viability before 2050 with a $25/mtCO2 carbon
tax, no surplus is realized. In the case of CSP, this surplus stems from a lower levelized cost than would
be the case in the baseline scenario without deployment subsidies and research. Nevertheless, these
numbers are extremely low relative to the costs of each exceeding $100 billion. The policy could not be
justified on efficiency grounds based on this increased consumer and producer surplus alone; however,
the fact a net surplus exists is another benefit of the policy that may enhance its palatability.

6.2. Distributional Effects

Distributional effects of these proposed policies are not immediately evident from the model alone. The
model calculates total surplus but does not distinguish how this is borne out between consumer and
producer surplus, as this incidence would require more detailed knowledge of firm and consumer
behavior (e.g., empirical values for elasticities). In the CSP model, they are not apparent until the year
2036, and for the CCS model, they do not occur. Nevertheless, some general distributional results will
eventually emerge. It is clear that a significant portion of the net subsidies suggested, with respective
price tags of $124 billion and $100 for CCS and CSP, would ultimately be passed on to taxpayers, but this
effect is diffuse. Since a carbon tax accompanies and funds the proposals discussed in this paper, this tax
poses the majority of distributional issues and is consequently the focus of this distributional analysis.

Several articles in the literature have addressed this issue. A seminal paper by Ian Parry laid the
foundation for assessing distributional costs to households from large-scale investment schemes paid for
through taxation. Parry’s paper uses social welfare to value distributional weights and finds that a
grandfathered emissions tax scheme has significantly regressive effects (Parry, 2004). Even with revenue
recycling and auctioning, the effects from a carbon tax tend to be stubbornly regressive, since poor
households tend to spend a greater proportion of their expenditures on energy inputs and are therefore
disproportionately affected. In a related exercise, Metcalf examines the distributional effects of a carbon
tax of $15/mtCO2. In this case, he assumes a system equivalent to a cap-and-trade system with full
auctioning and similar to what is expected under the Waxman-Markey bill by 2015. His key result is that,
without a tax credit, the policy is still regressive, but it can be progressive with a properly designed credit
(Metcalf, 2007). These results are displayed in Table 6.1, where a representative spectrum of income
deciles is exposed to a $15/mtCO2 tax (Environmental Protection Agency, 2009). At the lowest decile,

44
the net percent of income is 3.4 percent, compared to only a 0.8 percent drop at the highest decile.
However, with an earned income credit, this decrease is mitigated to only a 0.7 percent drop in the lowest
group. With any combination of Social Security or a lump sum, there is an increase (Metcalf, 2007).

Table 6.1: Distributional effects of a carbon tax and proposed tax credits (Metcalf, 2007)

Therefore, additional transfer payments can help to correct any distributional issues confronting the
policy. The cost of these additional payments and whether or not they can be built into a revenue
recycling system is less clear. Other uncertainties include a significant lag between the longer-term
surplus and the upfront distributional effects of a carbon tax and the fact that patterns and demand for
energy themselves may significantly change as a result of the policy.

6.3. Political Feasibility

Political feasibility will serve as a serious but not impossible barrier to the implementation of large-scale
investments in these low carbon technologies. There are three key reasons that political feasibility is
relatively low in a baseline scenario. The first and most salient is that environmental benefits represent
nearly the entire benefits of the policy. These benefits do not accrue to any one individual or stakeholder
in society but rather are spread amongst all. This result suggests that no one individual has a strong
incentive to promote the policy, because it will not support them, leading to a general lack of political will
to enable the policy. Again, the surplus to consumers and producers through the policy is relatively
small, so politicians and decision makers may find the policy difficult to approve unless environmental
concerns are strong enough to obviate the lack of more concrete economic efficiency.

Second, in addition to non-apparent benefits, the costs themselves are very significant in both cases. This
result is combined with a general breadth of administrative cost and difficulty in mobilizing a large-scale
research and development and industry-wide subsidy program.

Third, public ambivalence toward these technologies may hamper large-scale funding programs meant to
enhance their scalability. Although the technical, regulatory, and economic barriers to CCS diffusion are
non-trivial, public acceptance of carbon capture technologies may be an equally difficult challenge that
will decide the fate of CCS. Public opinion polls for the U.S. have shown increasing concern for climate
change and a greater willingness to pay for mitigation measures in recent years (Curry, 2007). However,
only five percent of a surveyed sample had heard of CCS or carbon sequestration, and even these
respondents had trouble identifying which environmental problem CCS technologies are intended to
address (Curry, 2007). This concern is particularly significant in the U.S. relative to other countries like
Sweden and Japan, where awareness of CCS technologies is closer to 15 and 22 percent, respectively
(Reiner, 2006). Given questions about whether captured CO2 will remain isolated from the atmosphere

45
over the coming centuries, it is not surprising to learn that public concerns about CCS center on its long-
term environmental integrity. Acceptance of the technology currently ranks lower than nuclear power
(Reiner, 2006). Yet, support for CCS has been demonstrated to increase when information on costs and
environmental benefits of CCS are provided (Curry, 2007). Thus, information dissemination to the
public and communicating in a transparent manner during the course of early stage projects may be
crucial in determining the general public attitude toward CCS technologies. Information may be another
key policy type, as discussed earlier. Although public acceptance of CSP hasn’t been as thoroughly
investigated, in the same vein there is likely to be little initial support given almost total public ignorance
of the technology. This suggests a strong role for information campaigns as a simultaneous policy
mechanism for both technologies.

The single biggest mitigating factor for political feasibility is the prospect of a carbon tax. A carbon tax
enhances the likelihood of the program on two fronts. First, it helps to make both technologies cost
competitive at earlier respective years. Assuming the technology were viable, CCS could achieve current
market viability at a tax level of $50/ton, even though this tax level is extremely unlikely in the near term.
In a more probable case, a relatively high tax could greatly improve deployment by the 2030s. Due to
high upfront costs, CSP is insensitive to all ranges of a carbon tax anytime until the 2030s. By that point,
it helps to push toward the threshold of market parity. In both cases, a carbon tax plays a non-negligible
role in decreasing the upfront costs of the program. Second, the prospect of using revenues from a carbon
tax to fund some of the investment price tag in these technologies is very significant, as is visible in Table
6.2. Even at relatively low tax levels and if only a small slice of the revenue pie were used to pay for a
portion of these subsidies, the amount of the costs defrayed is quite high. Take the example of a
$15/mtCO2 tax (currently used as a benchmark in the Waxman-Markey draft). According to the model,
this tax would generate $1.76 trillion dollars in revenue. If only 10 percent of that amount were used to
defray costs of bringing these two technologies to scale, half of the costs would be eliminated. Even at
$5/mtCO2, $600 billion would be generated, more than the total cost of the two programs combined.
Revenues are enhanced by the fact that a carbon tax would likely ramp up through time. According to the
EPA’s analysis, a tax of $17 is expected by 2017, a tax of $22 by 2022, and a tax of $28 by 2025 (EPA
2009). Therefore, increasing revenues at a later point could even make the overall policy have no net
cost, especially if CSP technology breaks through to market parity and only CCS requires subsidization.
The takeaway is that at any non-zero level of carbon taxation, the policy becomes fairly political feasible.

Table 6.2: Carbon tax revenues at various taxation levels

Carbon Tax Level ($/mtCO2) Tax Revenue ($T)

$5 $0.59
$15 $1.76
$25 $2.93
$35 $4.10
$45 $5.27

A final point that eases some of the initial barriers to feasibility discussed is the current political
environment. Although a program of this scope would be difficult to implement at any point, the current
political climate is close to ideal for implementing a large-ticket item that will combat climate change.
The Obama Administration has made its support of a comprehensive climate change bill unequivocal, and
even if the Waxman-Markey bill currently in circulation gets cannot pass in the Senate, it is likely that a
similar iteration will take its place soon after. The fact that the Waxman-Markey bill incorporates
mechanisms for increasing CSP and CCS technologies speaks to how palatable these issues have become.

46
6.4. Final Policy Recommendations
In this last section, policy design is considered and concrete policy recommendations offered. Given that
this policy passes the basic litmus tests of economic efficiency, distribution, and feasibility, the last step is
to take the analysis and formulate a design for achieving these targets in the most cost-effective manner
possible. The optimal emissions reduction pathways for both CCS and CSP was found by setting the end
reduction goal equal to that of the EPRI model and then allowing the model to optimize by minimizing
cost. The results are shown below in Figure 6.3 as red and black lines for CCS and CSP, respectively.
The optimal CCS pathway was found to mirror the EPRI predictions closely, while the CSP conclusions
suggest that the CSP EPRI pathway is too optimistic. The graph also demonstrates a second key point:
installation should take place in discrete spurts in order to garner the full effects of learning in the market
after upfront plant installations. This trend creates the “wiggles” visible along both paths in the figure.

1600
Emissions Reductions (MMTCO2)

1400

1200

1000
CCS - EPRI
800 CCS - Optimal Pathway

600 CSP - EPRI

CSP - Optimal Pathway
400

200

0
2008 2015 2022 2029 2036 2043 2050

Figure 6.3: Proposed emissions reduction pathways

Finally, in order to achieve these optimized pathways, an overall price tag and required subsidies in both
R&D and deployment were calculated for both technologies throughout the time horizon, as illustrated in
Figure 6.4. The model suggests that research should take place up front and occur as much as possible for
both CCS and CSP technologies. However, installation should happen through two different pathways
for the technologies.

Since research is insensitive to a carbon tax (and since it would be an imprudent risk management
strategy to hope to get lucky with a high enough carbon tax to immediately spur growth), research should
be heavily front-loaded to capture the full benefits of research and development and smooth later costs.
For installations, the analysis finds two consistently different options among different emissions pathways
and in both Waxman-Markey and EPRI scenarios. Logarithmic pathways make more sense for CCS, and
exponential pathways make more sense for CSP. For CCS, the costs are lower up front, so subsidies
should push installations in the near term to maximize environmental benefits. For CSP, costs are
prohibitively high, so it makes more sense to wait until costs have fallen and then promote subsidies for
installation at a later time. This conclusion is not immediately apparent from the graph, but the large bars
up front for CSP indicate how high the cost of a low subsidy program is due to the large gulf between the
baseline and subsidized levelized cost. By 2025, costs have fallen significantly, leading to reduced
subsidies level to encourage deployment.

47
Figure 6.4: Proposed subsidies for CCS and CSP by five-year periods

48
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51
Appendices

A. Background
A.1. Market Failures
Economic analysis of policy is based on the concept of Pareto efficiency in the competitive market
equilibrium. The first welfare theorem guarantees that competitive market equilibrium is necessarily
Pareto optimal. By the second welfare theorem (under suitable convexity assumptions in a competitive
market), Pareto optimality can be achieved as a competitive allocation after an appropriate lump-sum
redistribution of wealth. With these theorems, intervention by government is strictly limited. However,
when actual market equilibrium fails to be Pareto efficient, these fundamental welfare theorems and
Pareto optimality do not hold and results in market failure. It is the basis of environmental policy
intervention to eliminate market failure and make Pareto improvements (Mas-Colell, 1995).

Potentially harmful consequences from economic activities on the environment can exert externalities on
society and are the most well known sources of market failure. For example, if a factory emits lots of
GHGs into the atmosphere, these emissions are regarded as negative externalities, since they could cause
local and global environmental damages like climate change. Based on its consequences to climate
change and considering its environmental damage costs, the release of GHGs exerts harmful externalities
to the society that prevents Pareto optimality at competitive equilibrium. However, from the firm’s point
of view, these externalities are real external costs to them. Thus, there is a lack of incentives for firms to
correct this negative externality (Jaffe, 2005).

Environmental and energy policies aim at correcting the externalities in order to achieve Pareto efficiency.
In instances of market failure, intervention to correct externalities could be justified; otherwise, there
would be significant social costs. One of the ways to overcome market failures is internalizing the
externality to the agents who impose externalities on the society. Taxes are popular measures to
internalize these externalities to firms that would otherwise lack incentives to minimize externalities on
society. Policies typically internalize environmental costs to the polluters through either quantity limits
(e.g., carbon quotas) or price-based mechanisms (e.g., taxes).

A.2. Carbon Dioxide and Climate Change

Since the industrial revolution of the mid-1800s, increased anthropogenic use of fossil fuels for energy
release has transferred carbon deposits from the Earth’s lithosphere, where they had been for millions of
years, into the atmosphere in the form of carbon dioxide (EIA Brochures, 2008). While the level of
carbon dioxide (CO2) in the atmosphere has fluctuated greatly over the course of history, the current level
is 27 percent higher than at any time in the last 650,000 years, measured from ice core data (Siegenthaler,
2005). It has also risen roughly 30 percent since the emissions of carbon dioxide from burning of fossil
fuels began to escalate in the last 150 years (EIA Brochures, 2008).

This rising level of carbon dioxide is of significance due to the fact that CO2 is a greenhouse gas. This
term arises due to the fact that the carbon dioxide molecule does not absorb the wavelength of radiation
given off by the surface of the sun; however, it does from the surface of the Earth, causing CO2 in the
atmosphere to act much like a greenhouse (Incropera F. P., 2004). While there are several other
molecules that act as GHGs, more than 80 percent of current U.S. GHG emissions are related to CO2
(EIA Brochures, 2008). Given that the 15 warmest years in recorded history have occurred since 1988
this combination of events is hard to ignore (McCarthy, 2008). The Intergovernmental Panel on Climate
Change’s (IPCC) Fourth Assessment Report states, “Most of the observed increase in globally averaged

52
temperatures since the mid-20th century is very likely due to the observed increase in anthropogenic
greenhouse gas concentrations” (EIA Brochures, 2008).

However, raising the surface temperature of the Earth is not the only fear to arise from increased levels of
CO2. Shifts in weather patterns are predicted, including stronger storms, precipitation shifts (e.g., longer
droughts, heavier flooding), and melting of the polar ice caps causing sea level rise. Numerous reports
have found that global climate change is escalating faster than predicted and therefore conclude that a
solution must be started as soon as possible (Lydersen, 2009). A recent poll shows that 54 percent of
Americans believe that the government can stop global climate change, 27 percent believe that the
government is powerless to stop it, and the rest do not believe that it exists (Steinhauser, 2009). Even
with this diversity in public opinion, this survey indicates that government policy is believed to be the
best possible way with growing public acceptance to stop this rapidly expanding problem.

A.3. Induced Technology Change

Technological progress is inherently linked to productivity and economic growth. Early analysis in this
area focused on the role of economic factors on technological change and treated technical progress as
exogenous to the economy. One of two primary approaches to analyzing technology change is the
innovation theory approach, which centers on incentives for investments that lead to innovation and the
anticipated appropriability (Weyant & Olavson, 1999). Kenneth Arrow was among the first economists
to discuss how basic scientific research provides technological paradigms for major innovations (Arrow,
1962). Given that information about innovations is generally a non-excludable, non-rival public good,
this paradigm suggests that the private sector will under-invest.

The second paradigm is to treat technological change as an endogenous factor that can be induced, which
is reflected in the use of learning curves for technology assessment. Endogenous growth theory focuses
on spillovers from innovations and their potential for providing long-term economic growth (Weyant &
Olavson, 1999). The non-appropriable aspects of technologies created by profit-seeking firms are able to
create positive externalities for society at large through spillovers, which can generate increasing returns
to scale and lead to sustained economic growth (Weyant & Olavson, 1999).

Although induced technical change can be a complex, non-linear process with many feedbacks,
innovation theory and cross-technology analysis are important for model incorporation, especially in the
domains of energy and environmental policy. Insights from technological change can help to improve the
process of learning and to identify technologies that are likely to achieve the most progress (Jamasb,
2007). Understanding technical learning also can help to determine the allocation of funding resources
either for research and development or capacity promotion and deployment. Furthermore, neglecting
technological characteristics like uncertainty, heterogeneity, and path-dependence can lead to
underestimating the effectiveness and time lags for policy options (Weyant & Olavson, 1999).

B. CCS Model Assumptions

This section discusses specific parameters from the CCS version of the model. It expands the description
of the technological and economic characteristics of the model in Section 2.2.

While overall demand for CCS-equipped plants is determined in the model through emissions reduction
goals, the specific deployment of new CCS coal-fired power plants is assumed to be a function of the
projected EIA new coal capacity data found in the 2008 Annual Energy Outlook (EIA, 2008). As
illustrated in Figure 11, cumulative new coal-fired capacity additions will exceed 300 GW by 2050 in
order to keep pace with the increased demand for electricity within the U.S. economy. Data from 2031

53
through 2050 are extrapolations from the EIA growth trends and represent a second-order polynomial fit,
with the regression equation shown on the figure.

350
y = 0.1598x2 - 640.88x + 642570
Cumulative Coal Capacity

300 R² = 0.9982
Additions (GW)

250
200
Coal
150
Poly. (Coal)
100
50
0
2008 2018 2028 2038 2048

Figure 11: Projected cumulative coal-fired power plant capacity additions (GW) between 2008 and 2050; data
between 2008 and 2030 come from EIA, 2008 and forward values are extrapolated.

When determining the welfare benefits to firms and consumers through lower levelized electricity costs
than the baseline, it is important to know the total quantity of electricity generation from coal-fired plants.
Figure 12 shows that, much like capacity additions, the net generation increases through time. As such,
the data for these values come from the EIA data (EIA, 2008) between 2008 and 2030 and then were
extrapolated using a second-order, polynomial fit.

4,000
y = 0.7457x2 - 2989.6x + 3E+06
Net generation from coal plants

3,500 R² = 0.994
3,000
2,500
(BkWh)

2,000 Generation
1,500 Poly. (Generation)
1,000
500
0
2008 2018 2028 2038 2048

Figure 12: Net generation from coal-fired power plants (billion kWh) from 2008 until 2050; data between 2008 and
2030 come from EIA, 2008 and forward values are extrapolated.

Projected annual CO2 emissions from coal-fired power plants in the U.S. were needed to calculate
baseline emissions levels when considering mitigation scenarios. Like capacity additions and total
generation, projected emissions are expected to increase over time, as fossil fuel based fuels are expected
to remain the largest contributor to the nation’s energy mix under a business-as-usual scenario. As shown
in , the projected emissions were determined by using publically-available EIA data (EIA, 2008) and
extrapolating these projections until 2050.

54
 4,500
CO2 Emissions (MMTCO2)
4,000 y = 0.5942x2 - 2368.3x + 2E+06
3,500 R² = 0.9982
3,000
2,500
2,000 Coal
1,500 Poly. (Coal)
1,000
500
0
2008 2018 2028 2038 2048

Figure 13: Projected CO2 emissions from coal-fired power plants in the U.S. between 2008 and 2030; data between
2008 and 2030 come from EIA, 2008 and forward values are extrapolated.

As described in Section 2.2, the model determines the subsidy needed to calculate the break-even point
where the levelized electricity cost for a new CCS-equipped coal-fired power plant is equal to the
levelized cost of a new supercritical pulverized coal (SCPC) plant. This analysis requires cost data for
new baseline SCPC plants, new CCS-equipped plant, and CCS retrofits. The levelized cost calculation
includes capital expenditures (including modification costs for CCS), fixed and variable operation and
maintenance costs (O&M), and other annual operating costs (including fuel costs, carbon taxes, and CO2
transport and storage costs for CCS plants). Representative values used in the primary analysis for initial
costs for baseline plants and new CCS come from EIA data from the 2009 Annual Energy Outlook (EIA,
2009), and data for retrofit costs come from a 2007 paper (Simpson, Weyant, & Simon, 2007). Values for
various plants can found in [insert cross-reference]. The sensitivity analysis explored how models results
are influenced by uncertainties in parameter values like those for plant costs. In order to account for the
broad spectrum of plant costs predicted in the literature and to explore the possibility that IGCC plants
will not be the dominant CCS technology, a literature search was used to compile values for CCS plant
costs. Table 7 shows the values found for total capital costs for these units.

Table 7: Projected capital cost data for coal-fired power plants compiled from recent literature ($/kW)a
Capture Representative
Power generation technology technology value (± 95% CIb) Low High

Pulverized Coal
Ultra/Supercritical (New) Post-Combustion $2,170 ± $290 $1,894 $2,578
Oxy-Fuel $2,600 – $2,600 $2,600
Ultra/Supercritical (Retrofit) Post-Combustion $2,155 ± $758 $1,776 $2,534
IGCC Pre-Combustion $2,131 ± $494 $1,414 $3,496
Baseline – Scrubbed new coal N/A
$1,429 ± $266 $1,161 $2,058
Note: Final values typically rounded to three or four significant figures to avoid spurious precision.
a
All values are expressed in 2007 U.S. dollars
b
95% confidence interval computing according to the equation: . , where is the statistical mean, .
√
is the z-value for a confidence level of 0.95, is the standard deviation, and n is the number of samples.

Another technological parameter explored in the sensitivity analysis is the plant heat rate. As a measure
of the overall thermal efficiency of a power plant, the heat rate accounts for the amount of fuel necessary
to produce electricity. This value has considerable implications for fuel consumption, variable operation
and maintenance costs, carbon and criteria pollutant emissions, and the overall economic feasibility of

55
CCS-equipped units. Since the cost of capturing CO2 is more expensive than transport and storage
component costs for CCS (IPCC, 2006), the efficiency penalty associated with capture technologies will
determine the extent to which CCS technologies will be attractive options for carbon mitigation from the
electric power sector. To develop a clearer quantitative understanding of how the heat rate affects
forecasting results, the sensitivity analysis for the heat rate performed here considers a range of reported
values from published technical literature. Heat rate and plant efficiency values were compiled from
technical papers for a range of power generating plants and capture technologies, as shown in Table 8.

Table 8: Representative heat rates for power generating facilities from published projections (Btu/kWh)a
Capture Representative
Power generation technology technology value (± 95% CIb) Low High

Pulverized Coal
Ultra/Supercritical (New) Post-Combustion 9,970 ± 770 7,990 12,910
Oxy-Fuel 11,870 ± 4,070 9,250 17,820
Subcritical (New) Post-Combustion 12,290 ± 1,580 9,430 13,700
Ultra/Supercritical (Retrofit) Post-Combustion 12,610 ± 1,230 12,000 13,230
Subcritical (Retrofit) Post-Combustion 14,960 ± 1,590 12,950 17,520
IGCC Pre-Combustion 10,060 ± 651 8,170 12,800

Note: Final values typically rounded to three or four significant figures to avoid spurious precision.
a
All sources used to compile this table are referenced in Table 9. All efficiency data are calculated on a higher
heating value basis.
b
95% confidence interval computing according to the equation: . , where is the statistical mean, .
√
is the z-value for a confidence level of 0.95, is the standard deviation, and n is the number of samples.

Table 9: Resources for heat rate scenarios

Capture
Power generation technology technology Sources

Pulverized Coal
Ultra/Supercritical Post-Combustion Beér (2007), Davison (2007), EPRI
(2008), EPRI (2006), IPCC (2006)a,
Johnson and Keith (2004), Klara, Woods,
et al. (2007), Rubin, Chen, et al. (2007),
Simpson and Simon (2007), Wheeldon,
Booras, et al. (2006), Wise and Dooley
(2007)
Oxy-Fuel Beér (2007), Davison (2007), IPCC
(2006)a, Simpson and Simon (2007)
Subcritical Post-Combustion Beér (2007), EPRI (2008), IPCC (2006)a,
Klara, Woods, et al. (2007), Wise and
Dooley (2007)
IGCC Pre-Combustion Beér (2007), Davison (2007), EPRI
(2006), IPCC (2006)a, Johnson and Keith
(2004), Rubin, Chen, et al. (2007), Wise
and Dooley (2007)
a
The IPCC special report on carbon capture and storage contains multiple data points for each type of power
generation technology and capture system. Please refer to the original paper (IPCC, 2006) for more information
about the resources used in the report.

56
The remaining tables below show summaries of the data used for new plants and retrofits over time. The
spreadsheets used in the model contain a vast amount of data, since values are calculated for time steps of
one year and vary depending on the emissions scenario used. As such, the values in the tables represent a
qualitative snapshot of these trends through time (for the EPRI emissions reduction pathway).

Table 10: Baseline cost and performance data for new SCPC power planta
Value Units 2008 2020 2030 2040 2050
Plant net power MW 600 600 600 600 600
Capacity factor % 80% 80% 80% 80% 80%
Annual generation MWh/yr 4,204,800 4,204,800 4,204,800 4,204,800 4,204,800
Plant life yr 30 30 30 30 30
Thermal efficiency (HHV) % 37.1% 37.6% 38.1% 38.6% 39.0%
Heat rate (HHV) Btu/kWh 9,200 9,069 8,959 8,850 8,740
Annual fuel use quads/yr 0.03868 0.03813 0.03767 0.03721 0.03675
b
New capital cost $ $1,231,884,519 $1,202,303,435 $1,137,620,754 $1,097,155,464 $1,069,375,436
New capital cost (less subsidy) $ $1,231,884,519 $1,202,303,435 $1,137,620,754 $1,097,155,464 $1,069,375,436
Capital cost for modifications $ $0 $0 $0 $0 $0
Total capital cost $ $1,231,884,519 $1,202,303,435 $1,137,620,754 $1,097,155,464 $1,069,375,436
Annual variable O&M costs $/yr $19,300,032 $19,300,032 $19,300,032 $19,300,032 $19,300,032
Annual fixed O&M costs $/yr $16,518,000 $16,518,000 $16,518,000 $16,518,000 $16,518,000
c
Annual fuel cost $/yr $74,703,312 $74,597,645 $77,020,490 $77,896,238 $79,416,178
Annual carbon taxd $/yr $0 $92,199,624 $91,086,101 $89,972,579 $88,859,057
Annual cost of CO2 transport/ storagee $/yr $0 $534,491 $979,899 $1,425,308 $1,870,717
Levelized cost of electricity $/MWh $53.3866 $76.3513 $75.4714 $74.6944 $74.3415
CO2 emissions intensity kg/kWh 0.890 0.877 0.866 0.856 0.845
Capture efficiency % 0% 0% 0% 0% 0%
Annual CO2 emissions MMT/yr 3.74 3.69 3.64 3.60 3.55
CO2 avoided MMT/yr 0.00 0.05 0.10 0.14 0.19

Source: EIA’s Assumptions to the Annual Energy Outlook 2009, Table 8.2 (EIA, 2009)
NOTE: all costs are expressed in chain-weighted 2007 U.S. dollars
a
Coal-fired power plants assumed to be “Scrubbed New Coal”
b
Capital costs shown before investment tax credits applied; represents total overnight costs
c
Based on EIA projections for fuel costs, which range from $1.83/GJ in 2008 to $2.05/GJ in 2050
d
Assumed to be $25/mtCO2 (see Section 2.2 for detailed discussion)
e
Based on a cost of $10/mtCO2

Table 11: Baseline cost and performance data for new CCS-equipped coal-fired power planta
Value Units 2008 2020 2030 2040 2050
Plant net power MW 380 380 380 380 380
Capacity factor % 80% 80% 80% 80% 80%
Annual generation MWh/yr 2,663,040 2,663,040 2,663,040 2,663,040 2,663,040
Plant life yr 30 30 30 30 30
Thermal efficiency (HHV) % 31.6% 33.9% 36.0% 38.4% 41.1%
Heat rate (HHV) Btu/kWh 10,781 10,074 9,485 8,896 8,307

57
 Annual fuel use quads/yr 0.02871 0.02683 0.02526 0.02369 0.02212
b
New capital cost $ $901,506,419 $879,858,662 $832,523,176 $802,910,239 $782,580,514
New capital cost (less subsidy) $ $901,506,419 $408,569,478 $393,800,919 $399,611,758 $416,521,968
Capital cost for modifications $ $426,461,485 $408,109,080 $326,323,578 $288,893,847 $270,598,858
Total capital cost $ $1,327,967,905 $816,678,558 $720,124,497 $688,505,605 $687,120,826
Annual variable O&M costs $/yr $11,828,811 $11,714,872 $11,183,262 $10,924,508 $10,793,767
Annual fixed O&M costs $/yr $17,529,037 $17,449,349 $17,077,547 $16,896,577 $16,805,138
c
Annual fuel cost $/yr $55,442,579 $52,483,972 $51,643,834 $49,593,645 $47,805,086
d
Annual carbon tax $/yr $0 $6,486,803 $6,107,512 $5,728,220 $5,348,929
e
Annual cost of CO2 transport/ storage $/yr $34,637,559 $34,285,128 $33,991,436 $33,697,744 $33,404,051
Levelized cost of electricity $/MWh $90.9885 $88.2851 $83.2857 $79.9965 $77.8199
CO2 emissions intensity kg/kWh 1.043 0.974 0.917 0.860 0.803
Capture efficiency % 90% 90% 90% 90% 90%
Annual CO2 emissions MMT/yr 0.28 0.26 0.24 0.23 0.21
CO2 avoided MMT/yr 3.46 3.43 3.40 3.37 3.34
Cost of CO2 avoided $/MTCO2 $28.91 $9.27 $6.12 $4.19 $2.77

Source: EIA’s Assumptions to the Annual Energy Outlook 2009, Table 8.2 (EIA, 2009)
NOTE: all costs are expressed in chain-weighted 2007 U.S. dollars
a
CCS-equipped plants assumed to be “IGCC with CCS”
b
Capital costs shown before investment tax credits applied; represents total overnight costs
c
Based on EIA projections for fuel costs, which range from $1.83/GJ in 2008 to $2.05/GJ in 2050
d
Assumed to be $25/mtCO2 (see Section 2.2 for detailed discussion)
e
Based on a cost of $10/mtCO2

Table 12: Baseline cost and performance data for CCS plant retrofitsa
Value Units 2008 2020 2030 2040 2050
Plant net power MW 600 600 600 600 600
Capacity factor % 80% 80% 80% 80% 80%
Annual generation MWh/yr 4,204,800 4,204,800 4,204,800 4,204,800 4,204,800
Plant life yr 30 30 30 30 30
Thermal efficiency (HHV) % 27.1% 27.8% 28.5% 29.3% 30.1%
Heat rate (HHV) Btu/kWh 12,612 12,252 11,951 11,651 11,351
Annual fuel use quads/yr 0.05303 0.05152 0.05025 0.04899 0.04773
b
New capital cost $ $1,231,884,519 $1,202,303,435 $1,137,620,754 $1,097,155,464 $1,069,375,436
Capital cost for modifications $ $312,387,756 $298,944,416 $239,035,631 $211,617,939 $198,216,657
Capital cost for modif. (less subsidy) $ $312,387,756 $254,112,802 $199,409,975 $184,713,074 $182,450,178
Total capital cost $ $1,544,272,275 $1,456,416,237 $1,337,030,728 $1,281,868,538 $1,251,825,614
Annual total O&M costs $/yr $36,593,368 $35,564,574 $30,764,507 $28,428,141 $27,247,637
c
Annual fuel cost $/yr $102,408,497 $100,781,560 $102,745,350 $102,556,450 $103,139,262
Annual carbon taxd $/yr $0 $12,456,187 $12,150,888 $11,845,589 $11,540,290
e
Annual cost of CO2 transport/ storage $/yr $32,285,322 $31,897,375 $31,574,085 $31,250,796 $30,927,507
Levelized cost of electricity $/MWh $75.2559 $73.5991 $70.2401 $68.1231 $67.0442
CO2 emissions intensity kg/kWh 1.220 1.185 1.156 1.127 1.098

58
 Capture efficiency % 90% 90% 90% 90% 90%
Annual CO2 emissions MMT/yr 0.51 0.50 0.49 0.47 0.46
CO2 avoided MMT/yr 3.23 3.19 3.16 3.13 3.09

Sources: EIA’s Assumptions to the Annual Energy Outlook 2009, Table 8.2 (EIA, 2009); Simpson, et al. (2007)
NOTE: all costs are expressed in chain-weighted 2007 U.S. dollars
a
CCS-equipped plants assumed to be retrofitted with post-combustion capture systems
b
Capital costs shown before investment tax credits applied; represents total overnight costs
c
Based on EIA projections for fuel costs, which range from $1.83/GJ in 2008 to $2.05/GJ in 2050
d
Assumed to be $25/mtCO2 (see Section 2.2 for detailed discussion)
e
Based on a cost of $10/mtCO2

59
C. CSP Model Assumptions
This section discusses specific parameters from the CSP version of the model. It expands the description
of the technological and economic characteristics of the model in Section 2.2.

As described in Section 2.2, the model determines the subsidy needed to calculate the break-even point
where the levelized electricity cost for a new CCS plant is equal to or below the levelized cost of the
marginal electricity mix. The marginal mix levelized cost of electricity (LCEO) was estimated by
assuming that it was a mix of coal and natural gas, ignoring increases in renewables since these would not
be replaced by CSP for the purpose of controlling emissions. The proportion of the marginal fossil fuel
increases from coal and natural gas, respectively, are treated as the marginal proportion mix that the CSP
LCOE must match through subsidies.

The quantity of generation that CSP must replace is thus the CO2 reduction amount divided by the
emissions intensity of the marginal mix, computed by averaging the emissions intensities of coal and gas
according to their respective proportions of the marginal mix. The marginal LCOE that must be matched
is determined by the weighted average costs of coal and gas according to their relative fractions.

Total emissions come from the EIA’s Annual Energy Outlook 2008, with a polynomial curve fit to extend
numbers through 2050 (EIA, 2008). Coal for the purposes of computing the marginal mix is the same
supercritical pulverized coal (SCPC) plants described in Appendix B. Assumptions for natural gas
installations are described in Table 1. The levelized cost calculation includes capital expenditures
(including modification costs for CCS), fixed and variable operation and maintenance costs (O&M), and
other annual operating costs (including fuel costs, carbon taxes, and CO2 transport and storage costs for
CCS plants). Representative values used in the primary analysis for initial costs for baseline plants and
natural gas come from EIA data from the 2009 Annual Energy Outlook (EIA). The sensitivity analysis
explored how models results are influenced by uncertainties in parameter values like those for plant costs.

Table C.1: Baseline cost and performance data for new “Advanced Combined Cycle” power planta
Value Units 2008 2020 2030 2040 2050
Plant net power MW 400 400 400 400 400
Capacity factor % 80% 80% 80% 80% 80%
Annual generation MWh/yr 2,803,200 2,803,200 2,803,200 2,803,200 2,803,200
Plant life yr 30 30 30 30 30
Thermal efficiency (HHV) % 50.5% 51.4% 52.2% 53.0% 53.9%
Heat rate (HHV) Btu/kWh 6,752 6,632 6,533 6,433 6,333
Annual fuel use quads/yr 0.01893 0.01859 0.01831 0.01803 0.01775
b
New capital cost $ $379,200,000 $311,788,427 $303,397,444 $298,337,730 $294,823,918
New capital cost (less subsidy) $ $379,200,000 $311,788,427 $303,397,444 $298,337,730 $294,823,918
Capital cost for modifications $ $0 $0 $0 $0 $0
Total capital cost $ $379,200,000 $311,788,427 $303,397,444 $298,337,730 $294,823,918
Annual variable O&M costs $/yr $5,606,400 $5,606,400 $5,606,400 $5,606,400 $5,606,400
Annual fixed O&M costs $/yr $4,680,000 $4,680,000 $4,680,000 $4,680,000 $4,680,000
Annual fuel costc $/yr $171,083,776 $138,235,989 $169,584,434 $207,419,472 $243,982,885
Annual carbon taxd $/yr $0 $25,201,131 $24,822,059 $24,442,987 $24,063,915
Levelized cost of electricity $/MWh $80.8945 $75.9021 $87.4652 $101.6068 $115.3105
CO2 emissions intensity kg/kWh 0.366 0.360 0.354 0.349 0.845

60
 Annual CO2 emissions MMT/yr 1.03 1.01 0.99 0.98 3.55

Source: EIA’s Assumptions to the Annual Energy Outlook 2009, Table 8.2 (EIA)
NOTE: all costs are expressed in chain-weighted 2007 U.S. dollars
a
Gas-fired power plants assumed to be “Advanced combined-cycle”
b
Capital costs shown before investment tax credits applied; represents total overnight costs
c
Based on EIA projections for fuel costs, which range from $8.57/GJ in 2008 to $13.03/GJ in 2050 (polyfit beyond
2030)
d
Assumed to be $25/mtCO2 (see Section 2.2 for detailed discussion)

Table C.2: Marginal electricity generation mix replaced by CSP

Value Units 2008 2020 2030 2040 2050
a
Proportion coal % 0% 0% 14.5% 14.4% 14.4%
b
Proportion gas % 100% 100% 85.5% 85.6% 85.6%
LCOE $/MWh $80.8945 $75.9021 $85.2494 97.3054 $109.0156
Emissions intensity KgCO2/kWh 0.366 0.360 0.428 0.422 0.416

Source: An Updated Annual Energy Outlook 2009 Reference (Energy Information Administration)
NOTE: all costs are expressed in chain-weighted 2007 U.S. dollars.
a
Proportion obtained is the proportion of incremental generation from coal out of the total incremental generation
from coal and gas with negative values zeroed. Technology is assumed to be supercritical pulverized coal, as shown
in Appendix B.
b
Proportion obtained is the fraction of incremental generation from all natural gas categories out of incremental
generation from coal and all natural gas with negative changes zeroed. Technology is assumed to be “Advanced gas
combined cycle” as modeled in Table 1.

Most of the cost and technical data for CSP came from NREL’s Solar Advisor Model (SAM). The base
case was a 100MW parabolic trough design with six-hour 2T salt thermal storage.

Table C.3: Baseline cost and performance data for new CSP power planta
Value Units 2008 2020 2030 2040 2050
Plant net power MW 100 100 100 100 100
Capacity factor % 44% 44% 44% 44% 44%
Annual generation MWh/yr 300,603 300,603 300,603 300,603 300,603
Direct normal irradiance kWh/m2d 4.5 4.5 4.5 4.5 4.5
Plant life yr 30 30 30 30 30
New tech capital cost $ $414,096,327 $148,305,214 $142,051,973 $142,170,704 $145,288,399
Old tech capital cost $ $177,469,855 $145,920,482 $141,993,408 $139,625,405 $137,980,902
Net capital cost (less subsidy) $ $591,566,182 $225,080,340 $258,611,250 $281,796,109 $283,269,300
Annual variable O&M costs $/yr $210,422 $128,640 $125,565 $124,828 $125,157
Annual fixed O&M costs $/yr $5,000,000 $3,056,703 $2,983,645 $2,966,132 $2,973,947
Levelized cost of electricity $/MWh $188.2362 $75.9021 $85.2494 $91.8350 $92.2866
Break even subsidy per plant $ $0 $69,145,356 $25,434,132 $0 $0

Source: NREL SAM (National Renewable Energy Laboratory)

NOTE: all costs are expressed in chain-weighted 2007 U.S. dollars
a
Parabolic trough design with 6 hour 2T salt thermal storage
b
Capital costs shown before investment tax credits applied; represents total overnight costs

61
Direct normal irradiance (DNI) was assumed to be 4.5 kWh/m2d since this covers about 50% of the
continental United States, largely eliminating the difficulties of locating plants. A higher DNI factor
would improve plant economics but could over the long term increase the difficulty of locating plants.

Figure C.14: Direct normal irradiance (National Renewable Energy Laboratory)

62
D. Uncertainty Analysis
[insert text here]

63
E. Macro Code
CCS Macro Code

Sub update_click()
Range("'Policy'!B12:AR12") = 0 ' Initially sets all R&D investment values to $0
Max = 600.1

'Learning-by-doing rates: new CCS and retrofits (2009 through 2050)

For counter1 = 4 To 45
Worksheets("New CCS").Cells(22, counter1).GoalSeek Goal:=Worksheets("Baseline").Cells(22,
counter1), ChangingCell:=Worksheets("New CCS").Cells(32, counter1)
Worksheets("Retrofit").Cells(22, counter1).GoalSeek Goal:=Worksheets("Baseline").Cells(22,
counter1), ChangingCell:=Worksheets("Retrofit").Cells(32, counter1)
Next

'Learning-by-searching investments
R = Range("'Policy'!$AS$33") ' Setting latest total cost to memory (R)
'R = 1E+15 ' Setting previous (P) as huge number
For counter = 3 To 44
If (counter + 1 + Range("'Policy'!B44")) < 46 Then
counter6 = 1
For counter2 = 100.1 To 5100.1 Step 500 ' Setting possible research investment numbers min and max
and increment
P=R
Worksheets("Policy").Cells(12, counter) = counter2 ' Inserts investment amount
For counter3 = (counter + 1 + Range("'Policy'!B44")) To 45
Worksheets("New CCS").Cells(22, counter3).GoalSeek Goal:=Worksheets("Baseline").Cells(22,
counter3), ChangingCell:=Worksheets("New CCS").Cells(32, counter3)
Worksheets("Retrofit").Cells(22, counter3).GoalSeek Goal:=Worksheets("Baseline").Cells(22,
counter3), ChangingCell:=Worksheets("Retrofit").Cells(32, counter3)
Next
R = Range("'Policy'!$AS$33")
If R > P Then
Exit For
End If
counter6 = 0
Next counter2
Max = 600.1
If counter6 = 1 Then
Max = 100.1
End If
S = Worksheets("Policy").Cells(12, counter).Value
For counter4 = 100.1 To Max Step 100
P=R
Worksheets("Policy").Cells(12, counter) = S - counter4 ' Inserts investment amount
For counter5 = (counter + 1 + Range("'Policy'!B44")) To 45
Worksheets("New CCS").Cells(22, counter5).GoalSeek
Goal:=Worksheets("Baseline").Cells(22, counter5), ChangingCell:=Worksheets("New CCS").Cells(32,
counter5)

64
 Worksheets("Retrofit").Cells(22, counter5).GoalSeek Goal:=Worksheets("Baseline").Cells(22,
counter5), ChangingCell:=Worksheets("Retrofit").Cells(32, counter5)
Next
R = Range("'Policy'!$AS$33")
If R > P Then
Exit For
End If
Next counter4
End If
Next counter
For counter7 = 4 To 45
If Worksheets("New CCS").Cells(32, counter7) < 0 Then
Worksheets("New CCS").Cells(32, counter7) = 0
End If
If Worksheets("Retrofit").Cells(32, counter7) < 0 Then
Worksheets("Retrofit").Cells(32, counter7) = 0
End If
Next counter7
End Sub

CSP Analysis Macro Code

Sub update_click()
Range("'Policy'!B10:AR10") = 0 ' Initially sets all R&D investment values to $0
Max = 600.1

'Learning-by-doing rates: new CCS and retrofits (2009 through 2050)

For counter1 = 4 To 45
Worksheets("New CSP").Cells(18, counter1).GoalSeek Goal:=Worksheets("Baseline").Cells(4,
counter1), ChangingCell:=Worksheets("New CSP").Cells(25, counter1)
Next

'Learning-by-searching investments
R = Range("'Policy'!$AS$27") ' Setting latest total cost to memory (R)
'P = 1E+15 ' Setting previous (P) as huge number
For counter = 3 To 44
If (counter + 1 + Range("'Policy'!B37")) < 46 Then
counter6 = 1
For counter2 = 100.1 To 3100.1 Step 500 ' Setting possible research investment numbers min and max
and increment
P=R
Worksheets("Policy").Cells(10, counter) = counter2 ' Inserts investment amount
For counter3 = (counter + 1 + Range("'Policy'!B37")) To 45
Worksheets("New CSP").Cells(18, counter3).GoalSeek Goal:=Worksheets("Baseline").Cells(4,
counter3), ChangingCell:=Worksheets("New CSP").Cells(25, counter3)
Next
R = Range("'Policy'!$AS$27")
If R > P Then
Exit For

65
 End If
counter6 = 0
Next counter2
Max = 600.1
If counter6 = 1 Then
Max = 100.1
End If
S = Worksheets("Policy").Cells(10, counter).Value
For counter4 = 100.1 To Max Step 100
P=R
Worksheets("Policy").Cells(10, counter) = S - counter4 ' Inserts investment amount
For counter5 = (counter + 1 + Range("'Policy'!B37")) To 45
Worksheets("New CSP").Cells(18, counter5).GoalSeek Goal:=Worksheets("Baseline").Cells(4,
counter5), ChangingCell:=Worksheets("New CSP").Cells(25, counter5)
Next
R = Range("'Policy'!$AS$27")
If R > P Then
Exit For
End If
Next counter4
End If
Next counter
For counter7 = 4 To 45
If Worksheets("New CSP").Cells(25, counter7) < 0 Then
Worksheets("New CSP").Cells(25, counter7) = 0
'Worksheets("Policy").Cells(10, counter7 - 1) = 0
End If
Next counter7
End Sub

CCS Optimal Pathway Macro Code

Sub update_click()

optimalstep = 10
Range("'Policy'!B12:AR12") = 0 ' Initially sets all R&D investment values to $0

'Learning-by-doing rates: new CCS and retrofits (2009 through 2050)

For counter1 = 4 To 45
Worksheets("New CCS").Cells(22, counter1).GoalSeek Goal:=Worksheets("Baseline").Cells(22,
counter1), ChangingCell:=Worksheets("New CCS").Cells(32, counter1)
Worksheets("Retrofit").Cells(22, counter1).GoalSeek Goal:=Worksheets("Baseline").Cells(22,
counter1), ChangingCell:=Worksheets("Retrofit").Cells(32, counter1)
Next
R = Range("'Policy'!$AS$33")
'INITIAL VALUE
For counter = 3 To 44
If (counter + 1 + Range("'Policy'!B44")) < 46 Then
counter6 = 1

66
 For counter2 = 100.1 To 5100.1 Step 500 ' Setting possible research investment numbers min and max
and increment
P=R
Worksheets("Policy").Cells(12, counter) = counter2 ' Inserts investment amount
For counter3 = (counter + 1 + Range("'Policy'!B44")) To 45
Worksheets("New CCS").Cells(22, counter3).GoalSeek Goal:=Worksheets("Baseline").Cells(22,
counter3), ChangingCell:=Worksheets("New CCS").Cells(32, counter3)
Worksheets("Retrofit").Cells(22, counter3).GoalSeek Goal:=Worksheets("Baseline").Cells(22,
counter3), ChangingCell:=Worksheets("Retrofit").Cells(32, counter3)
Next
R = Range("'Policy'!$AS$33")
If R > P Then
Exit For
End If
counter6 = 0
Next counter2
Max = 600.1
If counter6 = 1 Then
Max = 100.1
End If
S = Worksheets("Policy").Cells(12, counter).Value
For counter4 = 100.1 To Max Step 100
P=R
Worksheets("Policy").Cells(12, counter) = S - counter4 ' Inserts investment amount
For counter5 = (counter + 1 + Range("'Policy'!B44")) To 45
Worksheets("New CCS").Cells(22, counter5).GoalSeek
Goal:=Worksheets("Baseline").Cells(22, counter5), ChangingCell:=Worksheets("New CCS").Cells(32,
counter5)
Worksheets("Retrofit").Cells(22, counter5).GoalSeek Goal:=Worksheets("Baseline").Cells(22,
counter5), ChangingCell:=Worksheets("Retrofit").Cells(32, counter5)
Next
R = Range("'Policy'!$AS$33")
If R > P Then
Exit For
End If
Next counter4
End If
Next counter
Rlast = R

For counter9 = 13 To 43 ' 7 13 15

Range("'Policy'!$A$35") = counter9
'MAJOR RUN UP
For counter15 = 1 To (Range("'Policy'!AR3") - Worksheets("Time Series").Cells(50, counter9)) /
optimalstep
Range("'Policy'!B12:AR12") = 0 ' Initially sets all R&D investment values to $0
Max = 600.1
counter17 = counter15
'Learning-by-doing rates: new CCS and retrofits (2009 through 2050)
For counter1 = 4 To 45

67
 Worksheets("New CCS").Cells(22, counter1).GoalSeek Goal:=Worksheets("Baseline").Cells(22,
counter1), ChangingCell:=Worksheets("New CCS").Cells(32, counter1)
Worksheets("Retrofit").Cells(22, counter1).GoalSeek Goal:=Worksheets("Baseline").Cells(22,
counter1), ChangingCell:=Worksheets("Retrofit").Cells(32, counter1)
Next

'Optimal Policy Searching

'Learning-by-searching investments
R = Range("'Policy'!$AS$33") ' Setting latest total cost to memory (R)
T = Rlast
'P = 1E+15 ' Setting previous (P) as huge number

If Worksheets("Time Series").Cells(50, counter9) = Worksheets("Time Series").Cells(50, 44) Then

Exit For
End If

counter11 = counter9
For counter10 = 1 To (43 - counter9)
If Worksheets("Time Series").Cells(50, counter9) + optimalstep > Worksheets("Time
Series").Cells(50, counter9 + counter10) Then
counter11 = counter9 + counter10
Else
Exit For
End If
Next counter10

For counter13 = counter11 To counter9 Step -1

Worksheets("Time Series").Cells(50, counter13) = Worksheets("Time Series").Cells(50, counter13) +
optimalstep
Next counter13

For counter = 3 To 44
If counter = 3 Then
R = 1E+15
End If

If (counter + 1 + Range("'Policy'!B44")) < 46 Then

counter6 = 1
For counter2 = 100.1 To 5100.1 Step 500 ' Setting possible research investment numbers min and max
and increment
P=R
Worksheets("Policy").Cells(12, counter) = counter2 ' Inserts investment amount
For counter3 = (counter + 1 + Range("'Policy'!B44")) To 45
Worksheets("New CCS").Cells(22, counter3).GoalSeek Goal:=Worksheets("Baseline").Cells(22,
counter3), ChangingCell:=Worksheets("New CCS").Cells(32, counter3)
Worksheets("Retrofit").Cells(22, counter3).GoalSeek Goal:=Worksheets("Baseline").Cells(22,
counter3), ChangingCell:=Worksheets("Retrofit").Cells(32, counter3)

68
 Next
R = Range("'Policy'!$AS$33")
If R > P Then
Exit For
End If
counter6 = 0
Next counter2
Max = 600.1
If counter6 = 1 Then
Max = 100.1
End If
S = Worksheets("Policy").Cells(12, counter).Value
For counter4 = 100.1 To Max Step 100
P=R
Worksheets("Policy").Cells(12, counter) = S - counter4 ' Inserts investment amount
For counter5 = (counter + 1 + Range("'Policy'!B44")) To 45
Worksheets("New CCS").Cells(22, counter5).GoalSeek
Goal:=Worksheets("Baseline").Cells(22, counter5), ChangingCell:=Worksheets("New CCS").Cells(32,
counter5)
Worksheets("Retrofit").Cells(22, counter5).GoalSeek Goal:=Worksheets("Baseline").Cells(22,
counter5), ChangingCell:=Worksheets("Retrofit").Cells(32, counter5)
Next
R = Range("'Policy'!$AS$33")
If R > P Then
Exit For
End If
Next counter4
End If
Next counter

If R > T Then
For counter12 = counter9 To counter11
Worksheets("Time Series").Cells(50, counter12) = Worksheets("Time Series").Cells(50, counter12)
- optimalstep
Next counter12
Range("'Policy'!$A$34") = T
Exit For
End If

Rlast = R
Next counter15

If counter17 = 1 Then
'MAJOR RUN DOWN
For counter16 = 1 To (Range("'Policy'!AR3") - Worksheets("Time Series").Cells(50, counter9)) /
optimalstep
Range("'Policy'!B12:AR12") = 0 ' Initially sets all R&D investment values to $0
Max = 600.1

69
'Learning-by-doing rates: new CCS and retrofits (2009 through 2050)
For counter1 = 4 To 45
Worksheets("New CCS").Cells(22, counter1).GoalSeek Goal:=Worksheets("Baseline").Cells(22,
counter1), ChangingCell:=Worksheets("New CCS").Cells(32, counter1)
Worksheets("Retrofit").Cells(22, counter1).GoalSeek Goal:=Worksheets("Baseline").Cells(22,
counter1), ChangingCell:=Worksheets("Retrofit").Cells(32, counter1)
Next

'Optimal Policy Searching

'Learning-by-searching investments
R = Range("'Policy'!$AS$33") ' Setting latest total cost to memory (R)
T = Rlast
'P = 1E+15 ' Setting previous (P) as huge number

If Worksheets("Time Series").Cells(50, counter9) - optimalstep < Worksheets("Time Series").Cells(50,

counter9 - 1) Then
Exit For
End If

Worksheets("Time Series").Cells(50, counter9) = Worksheets("Time Series").Cells(50, counter9) -

optimalstep

For counter = 3 To 44
If counter = 3 Then
R = 1E+15
End If

If (counter + 1 + Range("'Policy'!B44")) < 46 Then

counter6 = 1
For counter2 = 100.1 To 5100.1 Step 500 ' Setting possible research investment numbers min and max
and increment
P=R
Worksheets("Policy").Cells(12, counter) = counter2 ' Inserts investment amount
For counter3 = (counter + 1 + Range("'Policy'!B44")) To 45
Worksheets("New CCS").Cells(22, counter3).GoalSeek Goal:=Worksheets("Baseline").Cells(22,
counter3), ChangingCell:=Worksheets("New CCS").Cells(32, counter3)
Worksheets("Retrofit").Cells(22, counter3).GoalSeek Goal:=Worksheets("Baseline").Cells(22,
counter3), ChangingCell:=Worksheets("Retrofit").Cells(32, counter3)
Next
R = Range("'Policy'!$AS$33")
If R > P Then
Exit For
End If
counter6 = 0
Next counter2
Max = 600.1
If counter6 = 1 Then
Max = 100.1

70
 End If
S = Worksheets("Policy").Cells(12, counter).Value
For counter4 = 100.1 To Max Step 100
P=R
Worksheets("Policy").Cells(12, counter) = S - counter4 ' Inserts investment amount
For counter5 = (counter + 1 + Range("'Policy'!B44")) To 45
Worksheets("New CCS").Cells(22, counter5).GoalSeek
Goal:=Worksheets("Baseline").Cells(22, counter5), ChangingCell:=Worksheets("New CCS").Cells(32,
counter5)
Worksheets("Retrofit").Cells(22, counter5).GoalSeek Goal:=Worksheets("Baseline").Cells(22,
counter5), ChangingCell:=Worksheets("Retrofit").Cells(32, counter5)
Next
R = Range("'Policy'!$AS$33")
If R > P Then
Exit For
End If
Next counter4
End If
Next counter

If R > T Then

Worksheets("Time Series").Cells(50, counter9) = Worksheets("Time Series").Cells(50, counter9) +

optimalstep
Range("'Policy'!$A$34") = T
Exit For
End If

Rlast = R
Next counter16
End If
Next counter9

For counter7 = 4 To 45
If Worksheets("New CCS").Cells(32, counter7) < 0 Then
Worksheets("New CCS").Cells(32, counter7) = 0
End If
If Worksheets("Retrofit").Cells(32, counter7) < 0 Then
Worksheets("Retrofit").Cells(32, counter7) = 0
End If
Next counter7
End Sub

CSP Optimal Pathway Macro Code

Sub update_click()

optimalstep = 5

71
Range("'Policy'!B10:AR10") = 0 ' Initially sets all R&D investment values to $0

'Learning-by-doing rates: New CSP and retrofits (2009 through 2050)

For counter1 = 4 To 45
Worksheets("New CSP").Cells(18, counter1).GoalSeek Goal:=Worksheets("Baseline").Cells(4,
counter1), ChangingCell:=Worksheets("New CSP").Cells(25, counter1)
Next
R = Range("'Policy'!$AS$27")
'INITIAL VALUE
For counter = 3 To 44
If (counter + 1 + Range("'Policy'!B38")) < 46 Then
counter6 = 1
For counter2 = 100.1 To 3100.1 Step 500 ' Setting possible research investment numbers min and max
and increment
P=R
Worksheets("Policy").Cells(10, counter) = counter2 ' Inserts investment amount
For counter3 = (counter + 1 + Range("'Policy'!B38")) To 45
Worksheets("New CSP").Cells(18, counter3).GoalSeek Goal:=Worksheets("Baseline").Cells(4,
counter3), ChangingCell:=Worksheets("New CSP").Cells(25, counter3)
Next
R = Range("'Policy'!$AS$27")
If R > P Then
Exit For
End If
counter6 = 0
Next counter2
Max = 600.1
If counter6 = 1 Then
Max = 100.1
End If
S = Worksheets("Policy").Cells(10, counter).Value
For counter4 = 100.1 To Max Step 100
P=R
Worksheets("Policy").Cells(10, counter) = S - counter4 ' Inserts investment amount
For counter5 = (counter + 1 + Range("'Policy'!B38")) To 45
Worksheets("New CSP").Cells(18, counter5).GoalSeek Goal:=Worksheets("Baseline").Cells(4,
counter5), ChangingCell:=Worksheets("New CSP").Cells(25, counter5)
Next
R = Range("'Policy'!$AS$27")
If R > P Then
Exit For
End If
Next counter4
End If
Next counter
Rlast = R

For counter9 = 13 To 43 ' 7 13 15

Range("'Policy'!$A$35") = counter9
'MAJOR RUN UP

72
For counter15 = 1 To (Range("'Policy'!AR2") - Worksheets("Time Series").Cells(50, counter9)) /
optimalstep
Range("'Policy'!B10:AR10") = 0 ' Initially sets all R&D investment values to $0
Max = 600.1
counter17 = counter15
'Learning-by-doing rates: New CSP and retrofits (2009 through 2050)
For counter1 = 4 To 45
Worksheets("New CSP").Cells(18, counter1).GoalSeek Goal:=Worksheets("Baseline").Cells(4,
counter1), ChangingCell:=Worksheets("New CSP").Cells(25, counter1)
Next

'Optimal Policy Searching

'Learning-by-searching investments
R = Range("'Policy'!$AS$27") ' Setting latest total cost to memory (R)
T = Rlast
'P = 1E+15 ' Setting previous (P) as huge number

If Worksheets("Time Series").Cells(50, counter9) = Worksheets("Time Series").Cells(50, 44) Then

Exit For
End If

counter11 = counter9
For counter10 = 1 To (43 - counter9)
If Worksheets("Time Series").Cells(50, counter9) + optimalstep > Worksheets("Time
Series").Cells(50, counter9 + counter10) Then
counter11 = counter9 + counter10
Else
Exit For
End If
Next counter10

For counter13 = counter11 To counter9 Step -1

Worksheets("Time Series").Cells(50, counter13) = Worksheets("Time Series").Cells(50, counter13) +
optimalstep
Next counter13

For counter = 3 To 44
If counter = 3 Then
R = 1E+15
End If

If (counter + 1 + Range("'Policy'!B38")) < 46 Then

counter6 = 1
For counter2 = 100.1 To 3100.1 Step 500 ' Setting possible research investment numbers min and max
and increment
P=R
Worksheets("Policy").Cells(10, counter) = counter2 ' Inserts investment amount

73
 For counter3 = (counter + 1 + Range("'Policy'!B38")) To 45
Worksheets("New CSP").Cells(18, counter3).GoalSeek Goal:=Worksheets("Baseline").Cells(4,
counter3), ChangingCell:=Worksheets("New CSP").Cells(25, counter3)
Next
R = Range("'Policy'!$AS$27")
If R > P Then
Exit For
End If
counter6 = 0
Next counter2
Max = 600.1
If counter6 = 1 Then
Max = 100.1
End If
S = Worksheets("Policy").Cells(10, counter).Value
For counter4 = 100.1 To Max Step 100
P=R
Worksheets("Policy").Cells(10, counter) = S - counter4 ' Inserts investment amount
For counter5 = (counter + 1 + Range("'Policy'!B38")) To 45
Worksheets("New CSP").Cells(18, counter5).GoalSeek Goal:=Worksheets("Baseline").Cells(4,
counter5), ChangingCell:=Worksheets("New CSP").Cells(25, counter5)
Next
R = Range("'Policy'!$AS$27")
If R > P Then
Exit For
End If
Next counter4
End If
Next counter

If R > T Then
For counter12 = counter9 To counter11
Worksheets("Time Series").Cells(50, counter12) = Worksheets("Time Series").Cells(50, counter12)
- optimalstep
Next counter12
Range("'Policy'!$A$32") = T
Exit For
End If

Rlast = R
Next counter15

If counter17 = 1 Then
'MAJOR RUN DOWN
For counter16 = 1 To (Range("'Policy'!AR2") - Worksheets("Time Series").Cells(50, counter9)) /
optimalstep
Range("'Policy'!B10:AR10") = 0 ' Initially sets all R&D investment values to $0
Max = 600.1

74
'Learning-by-doing rates: New CSP and retrofits (2009 through 2050)
For counter1 = 4 To 45
Worksheets("New CSP").Cells(18, counter1).GoalSeek Goal:=Worksheets("Baseline").Cells(4,
counter1), ChangingCell:=Worksheets("New CSP").Cells(25, counter1)
Next

'Optimal Policy Searching

'Learning-by-searching investments
R = Range("'Policy'!$AS$27") ' Setting latest total cost to memory (R)
T = Rlast
'P = 1E+15 ' Setting previous (P) as huge number

If Worksheets("Time Series").Cells(50, counter9) - optimalstep < Worksheets("Time Series").Cells(50,

counter9 - 1) Then
Exit For
End If

Worksheets("Time Series").Cells(50, counter9) = Worksheets("Time Series").Cells(50, counter9) -

optimalstep

For counter = 3 To 44
If counter = 3 Then
R = 1E+15
End If

If (counter + 1 + Range("'Policy'!B38")) < 46 Then

counter6 = 1
For counter2 = 100.1 To 3100.1 Step 500 ' Setting possible research investment numbers min and max
and increment
P=R
Worksheets("Policy").Cells(10, counter) = counter2 ' Inserts investment amount
For counter3 = (counter + 1 + Range("'Policy'!B38")) To 45
Worksheets("New CSP").Cells(18, counter3).GoalSeek Goal:=Worksheets("Baseline").Cells(4,
counter3), ChangingCell:=Worksheets("New CSP").Cells(25, counter3)
Next
R = Range("'Policy'!$AS$27")
If R > P Then
Exit For
End If
counter6 = 0
Next counter2
Max = 600.1
If counter6 = 1 Then
Max = 100.1
End If
S = Worksheets("Policy").Cells(10, counter).Value
For counter4 = 100.1 To Max Step 100
P=R

75
 Worksheets("Policy").Cells(10, counter) = S - counter4 ' Inserts investment amount
For counter5 = (counter + 1 + Range("'Policy'!B38")) To 45
Worksheets("New CSP").Cells(18, counter5).GoalSeek Goal:=Worksheets("Baseline").Cells(4,
counter5), ChangingCell:=Worksheets("New CSP").Cells(25, counter5)
Next
R = Range("'Policy'!$AS$27")
If R > P Then
Exit For
End If
Next counter4
End If
Next counter

If R > T Then

Worksheets("Time Series").Cells(50, counter9) = Worksheets("Time Series").Cells(50, counter9) +

optimalstep
Range("'Policy'!$A$32") = T
Exit For
End If

Rlast = R
Next counter16
End If
Next counter9

For counter7 = 4 To 45
If Worksheets("New CSP").Cells(25, counter7) < 0 Then
Worksheets("New CSP").Cells(25, counter7) = 0
End If
Next counter7
End Sub

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