Exploring incentive mechanisms for the CCUS project in China's coal-fired power plants: An option-game approach

Abstract

Carbon capture, utilization and storage (CCUS) is a critical technology for reducing carbon emissions from coal-fired power plants (CFPPs). However, the CCUS project in China's CFPPs is not highly economically feasible, and the existing policies lack effective incentives. This study proposes an option-game approach to explore the incentive mechanisms to promote the CCUS project development in CFPPs, including initial investment subsidy, clean electricity price subsidy, incremental carbon emission allowance, and extra electricity quota. Based on the simulation results of a CCUS project in Guangdong Province, our major findings are as follows: 1) Of the two financial incentives, the clean electricity price subsidy has a better impact on CFPPs, but from a social welfare perspective, the government prefers to implement the initial investment subsidy. With a 0.045 yuan/kWh clean electricity price subsidy, the proportion of CFPPs choosing to invest in the CCUS project increases by 113.72 %. With an initial investment subsidy of 40 %, the proportion of governments choosing to incentivize the CCUS project investment decreases by only 6.08 %. 2) Non-financial incentive mechanisms have a larger impact on CCUS project development than financial incentives. And providing extra electricity quota can increase the proportion of government incentives for the CCUS project by up to 21.88 %. 3) The policy adjustment frequency and the subsidy adjustment magnitude have different levels of impact on the CCUS project.