Although there are several studies on large-scale renewable energy (RE) generation and a recent growing literature on the techno-economic analysis of carbon capture and storage (CCS) for power generators there are relatively fewer studies that examine the interplay between the two types of technologies (CCS and RE). This study is among the first to look at the abatement-cleaner production relationship based on the theory of firm behavior. The model features a power generator with RE technologies and a CCS retrofit where the firm is faced with three simultaneous decisions: (1) Production decision (e.g., how much electricity to produce), (2) Technology choice (e.g., what percent of electricity to produce using RE sources versus fossil fuels), and (3) Abatement decision (e.g., how much of the generated carbon dioxide to capture for permanent storage). We then calculate profit-maximizing rates of reliance on CCS and RE technologies and examine the impact of policies on the firm’s optimal choice. We consider the impact of three policies: carbon tax, clean production subsidy, and carbon capture subsidy.

Preliminary results suggest that, when policy incentives (CCS subsidy and carbon tax) are sufficiently higher than the CCS energy penalty cost, profit-maximizing generators increase the percent of carbon dioxide abated using CCS with the increase in the share of electricity produced using RE technologies. This suggests that with the right policy incentives firms could view CCS and RE as investment options that are strategic complements (not substitutes).

Model results are implemented on data obtained from 57 US-based power generators through a Monte Carlo simulation which showed that (1) a 1% increase in the carbon tax is associated with a 0.45% increase in carbon capture, and (2) a 1% increase in carbon capture subsidy (e.g., Section 45Q) is associated with a 0.28 % increase in carbon capture.