Policy choices for the deployment of large scale low carbon technologies

Abstract : This paper analyses a set of policy instruments needed to support investment during the learning phase in the deployment stage of CCS technologies following the demonstration stage. We focus on the specific barriers to learning investment during pre-commercial deployment of large scale and intertwined technologies. We first analyze the market failures inherent to the barriers to innovation that exist in the market, which justify support during the learning investment phase and the subsequent roll out of CCS capacity in electricity generation. Then we analyze and compare the efficiency of the different ways to help support CCS technologies to cross this so-called “death valley”: command and control instruments (CCS mandates, low carbon ratios on production), investment support under different designs (direct subsidy, tax credit, subsidy by trust fund) and production subsidies (guaranteed carbon price, feed-in price, amongst others). These instruments are compared and contrasted according to four criteria: effectiveness, static efficiency, dynamic efficiency and timing (adequacy to the technology development stage). We conclude that policy instruments must be adapted to the technological and commercial maturity of the CCS system at some point between the demonstration stage and the purely commercial deployment stage. In particular mandate policies must be handled with some care. With regards to subsidization mechanisms, their design must be market-oriented, this is particularly the case with auctioning, in order to limit information asymmetries between CCS investors and regulators.