2 research outputs found
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Joining the CCS club! the economics of CO2 pipeline projects
This paper examines the conditions for a widespread adoption of Carbon Capture transport and Storage (CCS) by a group of emitters that can be connected to a common CO2 pipeline. It details a modeling framework aimed at assessing the critical value in the charge for the CO2 emissions required for each of the emitters to decide to implement capture capabilities. This model can be used to analyze how the tariff structure imposed on the CO2 pipeline operator modifies the overall cost of CO2 abatement via CCS. This framework is applied to the case of a real European CO2 pipeline project. We find that the obligation to use cross-subsidy-free pipeline tariffs has a minor impact on the minimum CO2 price required to adopt the CCS. In contrast, the obligation to charge non-discriminatory prices can either impede the adoption of CCS or significantly raise that price. Besides which, we compared two alternative regulatory frameworks for CO2 pipelines: a common European organization as opposed to a collection of national regulations. The results indicate that the institutional scope of that regulation has a limited impact on the adoption of CCS compared to the detailed design of the tariff structure imposed on pipeline operators
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The technology and cost structure of a natural gas pipeline: Insights for costs and rate-of-return regulation
This note details a complete microeconomic characterization of the physical relationships between input use and the level of output of a simple point-to-point gas pipeline system and uses it to contribute to the public policy discussions pertaining to the economic regulation of natural gas pipelines. We show that the engineering equations governing the design and operations of that infrastructure can be approximated by a single production equation of the Cobb-Douglas type. We use that result to inform three public policy debates. First, we prove that the long-run cost function of the infrastructure formally verifies the condition for a natural monopoly, thereby justifying the need of regulatory intervention in that industry. Second, we examine the conditions for cost-recovery in the short-run and contribute to the emerging European discussions on the implementation of short-run marginal cost pricing on interconnector pipelines. Lastly, we analyze the performance of rate-of-return regulation in that industry and inform the regulatory policy debates on the selection of an appropriate authorized rate of return. We highlight that, contrary to popular belief, the socially desirable rate of return can be larger than the market price of capital for that industry