| Abstract: |
| Major pathways for carbon abatement include a large-scale deployment of renewable energy sources (RES) and investment in carbon capture and storage (CCS) technologies. While RES such as solar and wind power offer clean, sustainable energy, significantly expanding their share in the energy mix necessitates heavy infrastructure investment. This is primarily due to issues of intermittency and the need to upgrade or redesign existing electricity grids to ensure stability and reliability.
On the other hand, CCS technologies offer a potential solution to decarbonize existing fossil fuel-based infrastructure. However, CCS remains technologically immature and economically un-viable at large scale. Significant research and development efforts are required to reach a breakthrough that would make CCS a competitive option.
Given limited fiscal capacity, it may be infeasible for societies to simultaneously invest heavily in RES infrastructure and fund foundational CCS research. This paper explores this trade-off by modeling the problem as a dynamic control problem. We analyze the optimal allocation of a constrained research and investment budget over time, under uncertainty about technological breakthroughs and deployment costs. A distinctive feature of our model is the lag between investment and technological availability. Our results highlight conditions under which strategic focus - favoring one technology over another - is optimal, versus cases where technological neutrality, i.e., parallel investments in both RES and CCS, may be justified. |
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