Evaluating the effect of a subsidy policy on carbon capture and storage (CCS) investment decision-making in China — A perspective based on the 45Q tax credit

Abstract

A trinomial tree model based on the delay real option is developed to evaluate the carbon capture and storage (CCS) retrofitting investment for existing coal-fired power plants in the context of the 45Q tax credit. The uncertainties regarding the carbon price, the CCS retrofitting investment cost, the operation and maintenance (O&M) cost, the CCS investment subsidy scenarios, and the allocation ratio of the carbon dioxide (CO2) storage subsidy between the coal-fired power plants and CO2 storage enterprises are taken into consideration. The results show that if the allocation ratio of the CO2 storage subsidy for coal-fired power plants is zero, the full government subsidy for the initial CCS investment cost and clean electricity tariff (0.015 CNY/kWh) are not sufficiently attractive for the coal-fired power plants to invest in CCS and the critical allocation ratio is 17.8% in this case. The critical allocation ratio increases to 26.4% if the government subsidy for the initial CCS investment cost is zero. Moreover, if the government subsidy for the initial CCS investment cost and clean electricity tariff are both canceled, the coal-fired power plants need to receive at least 33.3% of the CO2 storage subsidy to invest in CCS. The results provide theoretical support for the decision-making regarding CCS retrofitting investment and CCS subsidy policy-making.