Carbon Capture And Storage Investment Research Articles

Implications of the EU ETS on the level-playing field between carbon capture storage & utilisation

System modelling efforts have shown that carbon capture is a key technology to enable a cost-effective reduction of hard-to-abate emissions in energy-intensive industries. The CO2 that is captured can either be utilised (CCU), or stored with carbon capture and storage (CCS). This paper examines the implications of both European carbon pricing mechanisms (ETS I & ETS II) on the level-playing field between CCS and CCU investments. Our contribution is threefold. First, we develop an equilibrium model that enables us to mimic market outcomes under different regulatory conditions. With a numerical case study applied to a fuel production chain, the model confirms that the current ETS regulation can have an adverse effect on CCU uptake. Especially with zero or low ETS II prices a lock-in effect can occur on CCS, potentially prolonging conventional refinery activities. Second, we propose an alternative approach to better integrate CCUS into the EU ETS. Results show that this approach maintains the level-playing field between CCU and CCS, regardless of any carbon price differentials. That results in a closer to Pareto optimal outcome in terms of welfare and emission abatement. Third, we present an analytic analysis to express the CCUS trade-off from a theoretical point of view. This provides generalised and concrete insights into how EU ETS influences the profitability and likelihood of CCUS. Our results help policymakers to gain a better understanding of the impact of ETS regulations on decarbonisation efforts in the industry.

Evaluating Financial Risks of Carbon Capture in the Oil & Gas Industry Using Advanced Machine Learning Techniques

This paper thoroughly examines the financial risks and opportunities related to implementing carbon capture and storage (CCS) in the oil and gas sector. We utilize sophisticated machine learning techniques to create a robust methodology for measuring CCS projects’ economic feasibility and risk level. Our approach encompasses various crucial factors, such as investment costs, operational expenditures, carbon pricing, and the oil and gas market dynamics. By utilizing discounted cash flow modeling, sensitivity analysis, and Monte Carlo simulation, we produce probabilistic financial results that offer valuable insights for decision-makers. The findings emphasize the crucial significance of policy backing, technological progress, and strategic portfolio management in influencing the financial outcomes of CCS investments. This study enhances the comprehension of Carbon Capture and Storage (CCS) as an essential instrument for reducing carbon emissions in the oil and gas industry while effectively managing the intricate financial aspects of transitioning to cleaner energy sources.

Alternative Business Model of CCS Projects Unlocks High-CO2 Fields

_ This article, written by JPT Technology Editor Chris Carpenter, contains highlights of paper SPE 214359, “Business Model of Carbon Capture and Storage (CCS) Projects for High-CO2 Fields,” by Hasnor Lot, SPE, Andrew Yeow, SPE, and Anuar Buang Mahmood, SPE, Petronas, et al. The paper has not been peer reviewed. _ High-CO2 gas fields present a problem to host governments wanting to both ensure security of supply and achieve net-zero aspirations. While carbon capture and storage (CCS) technology holds the promise of technical feasibility to unlock these fields, its commercial success ultimately hinges on the choice of an appropriate business model. This study compares the economics of the traditional business model [i.e., CCS as part of the upstream petroleum operation dedicated to a production sharing contract (PSC)] vs. the alternative business model [i.e., a regional CCS hub separately managed by a special-purpose vehicle (SPV)]. For simplicity, this paper uses the term CCS throughout, although the discussions apply equally well to carbon capture, usage, and storage projects. Background Gas Value Chain and the Cost of Gas (COG). With its higher development, transportation, and processing costs; longer and flatter production profile; and needs for network infrastructure, the economics of gas development is often less robust than that of oil. Therefore, gas development requires not only the establishment of long-term contracts and a complex value chain but also active government support in the form of friendly fiscal and tax regimes and a fair gas-pricing policy. In addition to its role as the upstream regulator, a national oil company (NOC) may also participate in the gas market as an aggregator. Effectively, the NOC signs an upstream gas-sales agreement (UGSA) with upstream contractors committing to buy gas at a volume and price palatable to them. The aggregator then sells the gas it now owns to downstream users. The margin between the buying and selling prices makes up the aggregator’s profit. In return, the aggregator takes on the intermediary roles of matching supply to demand, coordinating fair nomination and curtailment mechanisms, and ensuring that the gas chain as a whole is flexibly robust against operational disruptions. An NOC enjoys the dual roles of operating as a national corporation and acting as the upstream regulator. In its regulatory role, the NOC is cognizant of the need to allocate the risks and rewards of a CCS investment in a fair and efficient manner between participating parties. The business model must improve the overall economic return for both the upstream contractor and the SPV while enhancing the NOC’s integrated value. The business model so designed must also achieve the NOC’s longer-term goal of unlocking resource opportunities and monetizing stranded gas fields.

Stochastic modeling of decarbonizing strategy, policy, and market-induced incentives for the US electricity sector

In line with the global pursuit of achieving net-zero carbon emissions, integrating carbon capture and storage (CCS) and renewable energy (RE) technologies is important in power production. This study evaluates the profitability of CCS and RE technologies as alternative ways of achieving climate change goals. While past research focused on costs, technological advancements, and capture methods, there is a need for more studies on assessing the financial feasibility of these climate change solutions under uncertain conditions, alongside specific performance goals and strategies to entice power producers. Using a comprehensive framework featuring deterministic and stochastic modeling approaches, this research explores the impact of policy and market incentives on CCS and RE investments within the U.S. power sector. It analyzes the interactions of variables such as market uncertainties, technical factors, and policy dynamics on the financial viability of adopting CCS and RE for targeted CO2 reductions. The results reveal that, given the status quo of policies, RE and CCS exhibit annualized net present values of $4.62 and $1.76, respectively, for each metric ton (MT) of CO2. Uncertainties in policy incentives emerge as a primary hindrance to achieving cost-effective carbon reduction mandates using CCS, while changes in the green electricity price premium cause high variability in RE returns. The study proposes a hypothetical market, featuring the sale of CCS-linked net-zero electricity at a distinctive premium price of $0.03/kWh. The study's findings underscore the importance of both policy and market incentives to enable power producers to deploy carbon management technologies at a large scale.

Meeting sustainable aviation fuel policy targets through first generation corn biorefineries

This paper investigates options to produce low carbon and renewable aviation fuel through existing commercial first generation biorefineries, which could be strategic given the rapid growth of the electric vehicle market for personal mobility. We evaluate the environmental impact of retrofitting a first generation biorefinery to produce aviation fuel through chemical process simulation. The analysis investigates the potential for reducing greenhouse gas (GHG) emissions and displacing fossil fuel (petroleum-based jet kerosene) in the aviation fuel industry through using corn feedstocks in dry grind biorefineries to convert sugars to 1,4-dimethylcyclooctane (DMCO), which qualifies as renewable jet-A fuel blend and is infrastructure compatible. The average life cycle GHG emissions for a baseline case and a scenario with carbon capture and storage (CCS) of fermentative CO2 are 36 and 5 g CO2 e/MJ DMCO, respectively. Investment in CCS at the biorefinery and adoption of crop best management practices on farms are essential for mitigating the risks of induced land use change GHG emissions for existing corn biorefineries. DMCO as a low-carbon aviation fuel could be a strategic fuel product for retrofitting existing corn dry grind facilities. For aviation fuel supply, corn dry grind facilities could displace about 12 % of jet fuel demand in the near term, which would meet sustainable aviation fuel policy targets. We conclude that corn-to-DMCO shows promise for near-term low-carbon fuel markets in the aviation industry and as a bridge to developing biomass-based jet fuel in the future.

Carbon capture and storage investment: Fiddling while the planet burns

<h2>Summary</h2> Carbon capture and storage (CCS) has been recognized as a key technology in energy systems decarbonization. However, numerous attempts to deploy CCS failed, and the technology is still viewed as pre-commercial. Consequently, public investment in CCS has been largely limited to research, development, and demonstration (RD&D) in capture technology. While it is understood that private investment will typically focus on the development of intellectual property aimed at delivering a commercial advantage, there is a lack of evidence that public investment in CCS RD&D can deliver commercial viability. Here, we show that, while improved CCS technology in the electricity systems will deliver larger market shares to the technology developers, the benefit on overall system cost is negligible. Thus, public sector efforts should focus primarily on overcoming commercialization failures, such as the absence of CO₂ transport and storage infrastructures and other deployment barriers, leaving the development of intellectual property to the private sector.

Comparative Analysis of Carbon Capture and Storage Finance Gaps and the Social Cost of Carbon

This paper evaluates how changes in economic market and policy conditions, including the establishment of a per-unit tax on unabated emissions of carbon dioxide (CO2) set equal to estimates of the social cost of carbon (SCC), influence the economics of carbon capture and storage (CCS) for two hypothetical power generation facilities located in the United States. Data are provided from modified versions of models and resources created and managed by the National Energy Technology Laboratory. Changes in economic market and policy conditions are evaluated over a series of scenarios in which differences in the levelized cost of electricity (LCOE) provide estimates of the financial gap necessary to overcome for CCS to be considered the cost-minimizing choice for each power generation facility type considered. Results suggest that for the coal and natural gas power generation facilities considered, a per-unit tax set equal to an SCC exceeding $123 per metric ton of CO2 (/tCO2) emitted (2018 dollars) and $167/tCO2 emitted, respectively, in combination with current Section 45Q tax credits, yields investment in CCS as the cost-minimizing choice; SCC values as low as $58/tCO2 and $98/tCO2 can make CCS the cost-minimizing choice with additional support policies (e.g., free transportation and storage options).

Explaining successful and failed investments in U.S. carbon capture and storage using empirical and expert assessments

Most studies of deep decarbonization find that a diverse portfolio of low-carbon energy technologies will be required, including carbon capture and storage (CCS) that mitigates emissions from fossil fuel power plants and industrial sources. While many projects essential to commercializing the technology have been proposed, most (>80%) end in failure. Here we analyze the full universe of CCS projects attempted in the U.S. that have sufficient documentation (N=39)—the largest sample ever studied systematically. We quantify 12 project attributes that the literature has identified as possible determinants of project outcome. In addition to costs and technological readiness, which prior research has emphasized, we develop metrics for attributes that are widely thought to be important yet have eluded systematic measurement, such as the credibility of project revenues and policy incentives, and the role of regulatory complexity and public opposition. We build three models—two statistical and one derived through the elicitation of expert judgment—to evaluate the relative influence of these 12 attributes in explaining project outcome. Across models, we find the credibility of revenues and incentives to be among the most important attributes, along with capital cost and technological readiness. We therefore develop and elicit experts’ judgment of 14 types of policy incentives that could alter these attributes and improve the prospects for investment in CCS. Knowing which attributes have been most responsible for past successes and failures allows developers to avoid past mistakes and identify clusters of near-term CCS projects that are more likely to succeed.

Analyzing Regulatory Framework for Carbon Capture and Storage (CCS) Technology Development: A case study approach

&#x0D; &#x0D; &#x0D; &#x0D; Aim: This article provides insight into the portfolio of regulations advancing Carbon Capture and Storage (CCS) deployment. Using a taxonomy of policy portfolio tools adapted for regulations specific to CCS, this research identifies regulatory gaps as well as supports for CCS projects.&#x0D; Design / Research methods: Through a case study approach, this article analyzes the regulatory provisions in six jurisdictions (Texas, North Dakota, the U.S, Saskatchewan, Alberta and Canada) which have a successful CCS facility. Analyzing the provisions and content of regulations in these jurisdictions, this article highlights regulatory supports or areas of gaps for CCS projects in each jurisdiction.&#x0D; Conclusions / findings: There is no uniform definition or categorization of CO2 as a hazard, waste, pollutant or commodity across jurisdictions. This has serious impact on CO2 transport, especially across jurisdictions. It also impacts the administration of storage systems for CCS facilities. Regulations focusing primarily on technical aspects of CCS including capture, transport, and liability predominate while there are less regulatory provisions for the financial aspects of CCS technology as well as public engagement and support. While capital grants and emission and tax credits are the predominant financial issues covered in regulations, contract for differences, streamlining emission trading across borders and enhancing cooperation and multilevel engagement in CCS warrant more attention.&#x0D; Originality / value of the article: Many scenarios to maintain global warming below 2 degrees Celsius require combinations of new technology including CCS. The focus on CCS cost as a barrier to deployment overshadows the needs for regulatory support as a means of reducing uncertainties and de-risking CCS investments.&#x0D; &#x0D; &#x0D; &#x0D; &#x0D; &#x0D;

Valuation and investment strategies of carbon capture and storage technology under uncertainties in technology, policy and market

Although developing renewable energy sources is the best way to reduce carbon dioxide emissions and deal with climate change, fossil fuels are currently the most important energy sources. To counter climate change and reduce carbon dioxide emissions from fossil fuels, scientists are developing new carbon capture and storage (CCS) technologies. In this paper, we discuss existing and future CCS technologies, compare the values of three CCS investment strategies in the real options framework under uncertainties in technology, policy and market, and consider the effect of learning curves on investment values. Generally, uncertainty can increase investment valuation, but we find that uncertainty in CCS technology reduces its investment valuation. Finally, we calculate the probability that the optimal investment strategy will be implemented.

Investigating the competitiveness of Carbon Capture and Storage in Italian power plants under different investment scenarios

This paper explores the viability of Carbon Capture and Storage (CCS) in Italy by examining two different scenarios. The first scenario evaluates the investments on traditional power generation technologies, i.e. USC (Ultra Super Critical), NGCC (Natural Gas Combined Cycle) and IGCC (Integrated Gas Combined Cycle), with and without CCS, and on wind farms; the second scenario studies the convenience of retrofitting existing Italian power plants with respect to the construction of new capture-ready plants. To the scope, a techno-economic analysis based on the calculation of the LCOE (Levelised Cost Of Electricity), the CCAV (cost of CO2 avoided) and the CCAP (cost of CO2 captured) is assessed. Beyond these measures, the analysis in both scenarios accounts for the calculation of the so-called LACE (Levelised Avoided Cost of Electricity) in order to evaluate the profitability of CCS systems and, therefore, to properly orient CCS investment decision in Italy.

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

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.

Optimal design of carbon tax to stimulate CCS investment in China's coal‐fired power plants: A real options analysis

AbstractCarbon tax is an important policy instrument to control greenhouse gases. How to design a suitable carbon tax rate is of significance for policy makers. This study aims to address this issue from a microeconomic perspective by exploring the decision behavior of a potential investor. A trinomial tree model based on real options theory is presented to evaluate carbon capture and storage (CCS) investment in coal‐fired power plants considering uncertain factors. The model is then applied to a case study and the main findings are as follows: (1) carbon tax policy will have a positive effect on the CCS investment. If the carbon price is not high enough to trigger CCS investment, a hybrid mechanism integrating carbon trading and carbon tax to stimulate CCS investment is required; (2) in applying the trinomial tree real options model, the optimal carbon tax rate should be 145.3 RMB/ton for supercritical pulverized coal (SCPC) (or 79.54 RMB/ton for integrated gasification combined cycle (IGCC)) plants under current market condition and at current technological levels; (3) the optimal carbon tax rate is sensitive to uncertainties. Specifically, the optimal tax rate depends largely on not only the cost of the CCS investment but also the portfolio of carbon price volatility and the initial carbon price level. These conclusions provide the theoretical foundations for decision making regarding CCS investment and related policy making. © 2018 Society of Chemical Industry and John Wiley &amp; Sons, Ltd.

Valuation of CCS investment in China's coal‐fired power plants based on a compound real options model

AbstractA two‐stage compound real options model is proposed to evaluate carbon capture and storage (CCS) investment decision making from the perspective of coal‐fired power plants, considering the phased nature of CCS technology. A newly built coal‐fired power plant is used as a case study for the application of the compound real options model. The results indicate that the compound real options approach has an advantage over both the traditional net present value (NPV) and single‐option method when handling multistage investments. Although the present carbon price level is not high enough to encourage CCS investment, the critical carbon price will decrease when considering the upside potential inherent in the CCS investment. Further analyses indicate that the timing of the second phase of a CCS project and other factors will also affect the critical carbon price and the value of a CCS investment. These findings will be useful for decision making associated with CCS investment, and related policy making in an uncertain environment. © 2018 Society of Chemical Industry and John Wiley &amp; Sons, Ltd.

An Investment Feasibility Analysis of CCS Retrofit Based on a Two-Stage Compound Real Options Model

Carbon capture and storage (CCS) technology is an attractive technique to help power enterprises with carbon emission reduction. In this paper, a two-stage CCS retrofit investment in an existing coal-fired power plant in China including the first stage (demonstration project) and second stage (commercial operation) is taken as a case to decide when and whether to invest. Distinguished from previous models, a binomial lattice compound real options model including the options to defer and expand is established. Further, the accounting approaches to certified emission reductions (CERs) based on the thermodynamics principle are first proposed concerning this model. We find the total invest value under compound options model is less than zero, although greater than that by NPV method. The results indicate carbon prices and subsidy policy, respectively, play a dominating role in initiating the CCS investment at the first and second stage. The growth in government subsidy at the first stage has obviously greater effects on decreasing critical carbon trading prices. Besides, the minimum critical carbon price is 87.09 RMB/ton with full subsidy, greater than the current price (56 RMB/ton). This also illustrates it is not the optimal occasion to invest in a CCS retrofit project for power enterprises.

When to invest in carbon capture and storage: A perspective of supply chain

Abstract The purpose of this study is to investigate the investment threshold of carbon capture and storage (CCS) project from the perspective of supply chain, overcoming the limitations of previous works regarding this topic mainly from a single investor’s perspective. An analytical real options model was firstly presented for the scenario of centralized decision making, then the model was extended by integrating the real options theory with the game theory to examine the CCS investment threshold for the scenario of dual-echelon supply chain. An interesting finding is that CCS investment requires a much higher threshold under the dual-echelon supply chain than that under the centralized scenario, and this finding is consolidated by a numerical example simulation. Furthermore, the results of the numerical simulation indicated that the CCS investment threshold is positively affected by carbon price volatility, CO2 capture rate and the transfer payments coefficients, while negatively affected by capital subsidy. These conclusions can provide theoretical foundation for decision-making of CCS investment and related policy-making.

Study on the investment timing of carbon capture and storage under different business modes

AbstractIn this paper, the optimal investment timing decision in carbon capture and storage (CCS) is studied under different business modes. Two analytical models of the optimal CCS investment threshold are presented: one is the ‘single mode,’ meaning that CCS investment is performed only by the power producer; the other is the ‘cooperation mode,’ referring to CCS investment can be conducted by cooperation between the power producer and the CCS operator. In the single mode, this study pictures the investment decision for a CCS project based on real options theory considering uncertainties in carbon prices, government incentives, and CCS investment costs. On this basis, a model for the cooperation mode is proposed by integrating real options theory and game theory to analyze the CCS investment threshold. The results of a numerical example show that CCS investment in cooperation mode requires a much larger threshold than in single mode. Moreover, the CCS investment threshold is positively affected by carbon price volatility and the transfer payments coefficients, but negatively affected by government incentives and learning effects. These conclusions provide a theoretical foundation for decision making regarding CCS investment and related policy making. © 2018 Society of Chemical Industry and John Wiley &amp; Sons, Ltd.

The Neglected Importance of Corporate Perceptions and Positions for the Long-term Development of CCS

Many companies that produce fossil fuels or fossil fuel-derived products show a strong belief in a large and continuing role for fossil fuels in the global economy up to 2050 and beyond. These companies are generally expected to be amongst the primary consumers of carbon capture and storage (CCS) technology. So far, however, fossil fuel companies have shown only moderate interest in CCS. Whilst a lot of potential operational barriers to CCS adoption have been identified in the literature, the value of CCS from a corporate strategy perspective has sometimes been assumed, but rarely explored. This paper asks the following question: What are the perceptions and positions of fossil fuel companies on CCS and how does this inform their decision-making on CCS investment and advocacy? This paper addresses this issue by presenting the results of in-depth interviews with high-level CCS experts from major multinational oil and gas companies and major coal mining firms. The results indicate that CCS would require a significant change within the business strategy of fossil fuel companies. This is contrary to the common argument that CCS is attractive because the technology is regarded as not being very disruptive to the incumbent energy system as it leaves most of the existing infrastructure, actor constellations and institutions intact. While fossil fuel companies engage in CCS development, it is often to familiarise themselves with technologies that might have future value if markets for these technologies take off. In several cases, CCS engagement has served the strategic need to weaken the link between fossil fuel extraction and climate change, build up shareholder trust, and improve public perception. However, there is little evidence that these companies engage in CCS to develop a strategic insurance against climate policy risks to their core businesses.

Abandonment of natural gas production and investment in carbon storage

Long-term mitigation scenarios rely heavily on Carbon Capture and Storage (CCS) for achieving ambitious climate change targets. The amount of CO2 storage in these scenarios depends on the CO2 price and exogenously determined availability and costs of storage capacity. We analyze investment in CCS in more detail by taking the opportunity costs of CO2 storage into account, assuming that CO2 injection and resource extraction are mutually exclusive. Using real option valuation, we study the impact of i) correlation between gas and CO2 prices, ii) volatility of CO2 prices, and iii) regulatory deadlines on the value of the option to invest in CCS. We find that the value of the option to exchange gas production for CO2 injection is decreasing in the correlation of gas and CO2 prices, but increasing in the volatility of CO2 prices, and in shorter regulatory deadlines for removal of gas production facilities. This implies that next to consistent and high pricing of CO2, extending the deadline for removal of gas production facilities could increase the incentive to invest in CO2 storage in mature gas fields. We argue that considering these dynamics in mitigation scenarios could lead to more realistic projections of CCS application.

An uncertainty analysis of subsidy for carbon capture and storage (CCS) retrofitting investment in China's coal power plants using a real-options approach

Carbon capture and storage (CCS) is an attractive option to help reduce China's carbon emission. This paper analyzes the impacts of subsidy for electricity generation on CCS retrofitting investment and carbon abatement in China's coal power plants, considering the coaction of carbon market and subsidy policy. To this end, this paper builds up a real option model, considering carbon prices, electricity prices and coal prices' uncertainties. For decision of CCS investment, we consider two important aspects: whether to invest and when to invest, i.e. CCS investment's potential and timing. Some major findings include: 1) The impacts of subsidy on CCS investment and carbon abatement are affected by carbon market conditions: initial carbon price can determine the magnitude of subsidy's impacts, while carbon prices' uncertainty level can determine subsidy's marginal impacts. 2) Subsidy from $0.01 to $0.05/kWh can raise CCS investment potential by 9.66%–39.18%, shorten CCS investment period by 0.39–1.95 years and bring carbon abatement potential of 0.10–1.89 GtCO2, considering different carbon market conditions. 3) With the benchmark carbon market and affordable subsidies, triggered CCS investments in coal power plants have an economical-efficient carbon abatement potential up to 20% of China's carbon emission in 2030.