The impact of carbon capture technologies on energy prices

Abstract

Despite previous literature evaluating the economic feasibility of carbon capture and storage (CCS) in the energy and power sector, there are limited studies examining the impact on consumer prices - particularly energy prices and their variability. Using a Monte Carlo simulation based on a profit-maximization model in an oligopolistic market, we examine how production and abatement costs, policy incentives — including a carbon tax, renewable energy subsidies, and CCS subsidies — and energy demand parameters influence the percentage of carbon captured by a producer operating a diverse portfolio of energy-generating technologies. Additionally, we assess how these factors contribute to fluctuations in prices for renewable and non-renewable energy products. Our findings suggest that when mixed-asset generators optimize carbon abatement to maximize profits, the relationship between the percentage of carbon captured and energy prices varies by energy source. Increasing carbon capture rates can lower the price of fossil-based products, driven by net benefits from CCS subsidies and tax savings, while the price of greener products sees a modest increase due to the net costs of shifting production from renewable to non-renewable assets.