Relating R&D and investment policies to CCS market diffusion through two-factor learning

Carbon capture and storage (CCS) has the potential to play a major role in the stabilization of anthropogenic greenhouse gases. To develop the capture technology from its current demonstration phase towards commercial maturity, significant funding is directed to CCS, such as the EU's (sic)4.5 bn NER300 fund. However, we know little about how this funding relates to market diffusion of CCS. This paper addresses that question. We initially review past learning effects from both capacity installations and R&D efforts for a similar technology using the concept of two-factor learning. We apply the obtained learning-by-doing and learning-by-searching rates to CCS in the electricity market model HECTOR, which simulates 19 European countries hourly until 2040, to understand the impact of learning and associated policies on CCS market diffusion. We evaluate the effectiveness of policies addressing learning-by-doing and learning-by-searching by relating the policy budget to the realized CCS capacity and find that, at lower policy cost, both methods are about equally effective. At higher spending levels, policies promoting learning-by-doing are more effective. Overall, policy effectiveness increases in low CO2 price scenarios, but the CO2 price still remains the key prerequisite for the economic competitiveness, even with major policy support. (C) 2012 Elsevier Ltd. All rights reserved.