Benjamin Leibowicz, Associate Professor and Banks McLaurin Fellow in Engineering at The University of Texas at Austin, will give a talk titled “Optimal Subsidies for Carbon Capture: A Stackelberg Game.”
Abstract
Model-based scenarios for achieving deep decarbonization tend to envision significant deployment of carbon capture, utilization, and storage technologies in sectors such as electricity and heavy industries. In the United States, the federal government subsidizes carbon capture (CC) through its 45Q tax credits, which have recently been increased under both Republican and Democratic administrations. In this paper, we develop and analyze a Stackelberg game model featuring a social-welfare-maximizing government as the leader and a profit-maximizing firm as the follower. The government sets the level of a CC subsidy and the firm responds by jointly deciding whether or not to invest in CC technology and on its production level. In the case where the government has perfect information about the firm’s parameters, we analytically derive the optimal CC subsidy and establish the conditions under which inducing the firm to invest in CC will actually increase carbon emissions. We then consider an extension where the firm’s CC investment cost is uncertain from the government’s perspective. In this case, we show that uncertainty can raise or lower the optimal subsidy depending on parameters. Lastly, we apply our model to numerical case studies of coal and natural gas power plants and estimate optimal subsidy values.
Bio
Benjamin Leibowicz is an Associate Professor and the Banks McLaurin Fellow in Engineering at The University of Texas at Austin, where his primary appointment is in the Operations Research and Industrial Engineering graduate program. He develops operations research and economic models to improve decision-making on energy and environmental policy and strategy. His work focuses on applications in energy system modeling, energy and climate policy analysis, technology transitions, and infrastructure reliability and resilience. Leibowicz has published more than 50 peer-reviewed journal articles and is the current President of the INFORMS Section on Energy, Natural Resources, and the Environment. Prior to joining UT Austin, Leibowicz received both PhD and MS degrees in Management Science and Engineering from Stanford University, and earned a BA in Physics with a minor in Economics from Harvard University.