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[en] Economists traditionally view a Pigouvian fee on carbon dioxide and other greenhouse gas emissions, either via carbon taxes or emissions caps and permit trading (“cap-and-trade”), as the economically optimal or “first-best” policy to address climate change-related externalities. Yet several political economy factors can severely constrain the implementation of these carbon pricing policies, including opposition of industrial sectors with a concentration of assets that would lose considerable value under such policies; the collective action nature of climate mitigation efforts; principal agent failures; and a low willingness-to-pay for climate mitigation by citizens. Real-world implementations of carbon pricing policies can thus fall short of the economically optimal outcomes envisioned in theory. Consistent with the general theory of the second-best, the presence of binding political economy constraints opens a significant “opportunity space” for the design of creative climate policy instruments with superior political feasibility, economic efficiency, and environmental efficacy relative to the constrained implementation of carbon pricing policies. This paper presents theoretical political economy frameworks relevant to climate policy design and provides corroborating evidence from the United States context. It concludes with a series of implications for climate policy making and argues for the creative pursuit of a mix of second-best policy instruments. - Highlights: • Political economy constraints can bind carbon pricing policies. • These constraints can prevent implementation of theoretically optimal carbon prices. • U.S. household willingness-to-pay for climate policy likely falls in the range of $80–$200 per year. • U.S. carbon prices may be politically constrained to as low as $2–$8 per ton of CO2. • An opportunity space exists for improvements in climate policy design and outcomes
[en] Highlights: • Energy storage value increases with tighter carbon dioxide (CO_2) emissions limits. • The marginal value of storage declines as storage penetration increases. • Large-scale deployment of available battery technologies requires cost reductions. • Energy storage increases utilization of the cheapest low-CO_2 resources. • Longer-duration storage increases the share of wind more than solar photovoltaics. - Abstract: Electrical energy storage could play an important role in decarbonizing the electricity sector by offering a new, carbon-free source of operational flexibility, improving the utilization of generation assets, and facilitating the integration of variable renewable energy sources. Yet, the future cost of energy storage technologies is uncertain, and the value that they can bring to the system depends on multiple factors. Moreover, the marginal value of storage diminishes as more energy storage capacity is deployed. To explore the potential value of energy storage in deep decarbonization of the electricity sector, we assess the impact of increasing levels of energy storage capacity on both power system operations and investments in generation capacity using a generation capacity expansion model with detailed unit commitment constraints. In a case study of a system with load and renewable resource characteristics from the U.S. state of Texas, we find that energy storage delivers value by increasing the cost-effective penetration of renewable energy, reducing total investments in nuclear power and gas-fired peaking units, and improving the utilization of all installed capacity. However, we find that the value delivered by energy storage with a 2-hour storage capacity only exceeds current technology costs under strict emissions limits, implying that substantial cost reductions in battery storage are needed to justify large-scale deployment. In contrast, storage resources with a 10-hour storage capacity deliver value consistent with the current cost of pumped hydroelectric storage. In general, while energy storage appears essential to enable decarbonization strategies dependent on very high shares of wind and solar energy, storage is not a requisite if a diverse mix of flexible, low-carbon power sources is employed, including flexible nuclear power.
[en] Under the Paris Agreement, OECD countries agreed to aim for a reduction of their greenhouse gas emissions sufficient to hold the increase in the global average temperature to well below 2 deg. C above pre industrial levels. This commitment requires a massive effort to de-carbonise energy and electricity generation, a radical restructuring of the electric power sector and the rapid deployment of large amounts of low-carbon generation technologies, in particular nuclear energy and renewable energies such as wind and solar PV. This study assesses the costs of alternative low-carbon electricity systems capable of achieving strict carbon emission reductions consistent with the aims of the Paris Agreement. It analyses several deep decarbonization scenarios to reach the same stringent carbon emission target but characterised by different shares of variable renewable technologies, hydroelectric power and nuclear energy.