The Impact of Carbon Capture Technologies on Consumer Prices

Despite the expanding literature evaluating the economic feasibility of carbon capture and storage (CCS) technologies in the energy and power sector, there are no studies explicitly examining the resulting impacts on consumer prices particularly electricity prices and their variability. Using a Monte Carlo simulation built on recent profit-maximization models 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 consumer 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 consumer prices varies by energy source. Carbon capture can lower consumer prices of fossil-based products up to a certain threshold, driven by net benefits from 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. Despite this, renewable generation remains the more cost-effective option for consumers. Thus, policymakers could incentivize a hybrid energy strategy that accelerates the transition to renewable generation while employing carbon capture as a transitional measure to mitigate emissions from fossil fuel-based technologies during the shift.