Abstract
Carbon capture and utilization (CCU) is one of the key technologies that may help to reduce industrial emissions. However, the deployment of CCU is hampered by various barriers, including high levels of technical, policy and market uncertainty. The real options theory (ROT) provides a method to account for these uncertainties and introduce flexibility in the investment decision by allowing decisions to be changed in response to the evolution of uncertainties. ROT is already being applied frequently in the evaluation of renewable energy or carbon capture and storage (CCS) projects, e.g., addressing the uncertainty in the price of CO2. However, ROT has only found a few applications in the CCU literature to date. Therefore, this paper investigates the specific types of uncertainty that arise with the utilization of CO2, identifies the types of real options present in CCU projects and discusses the applied valuation techniques. Research gaps are identified in the CCU literature and recommendations are made to fill these gaps. The investment decision sequence for CCU projects is shown, together with the uncertainties and flexibility options in the CCU projects. This review can support the real options-based evaluations of the investment decisions in CCU projects to allow for flexibility and uncertainty.
Highlights
Mitigating climate change is one of the biggest challenges that humankind is facing in the 21st century
This review article aimed to explore the application of real options theory (ROT) to introduce and value flexibility in investment decisions regarding Carbon capture and utilization (CCU) projects
Many different types of uncertainties and flexibility options can be identified in CCU value chains
Summary
Mitigating climate change is one of the biggest challenges that humankind is facing in the 21st century. The search for low-carbon, or even carbon-negative, solutions to reduce. Carbon capture and utilization (CCU) technologies can be part of these low-carbon solutions helping to address climate change. Whereas carbon capture and storage (CCS) technologies capture the CO2 from a CO2 -emitting process and store it permanently underground, CCU technologies use the captured CO2 as a resource to create valuable products or services [1]. Utilizing the CO2 to create products generates additional revenues, lowering the net costs of reducing emissions [2]. CCS contributes directly to climate change mitigation by capturing and permanently storing CO2 emissions underground. Contrary to CCS, CCU pathways could provide sufficient economic incentives through the cost savings from the reduction in fossil resources and the revenue from sold products [3]
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