IDEAS home Printed from https://ideas.repec.org/a/eee/asieco/v82y2022ics1049007822000835.html
   My bibliography  Save this article

Carbon capture and storage investment strategy towards the dual carbon goals

Author

Listed:
  • Ouyang, Yiling
  • Guo, Jian

Abstract

This paper develops a real option model combined with the Monte Carlo simulation to analyze the impact of the “dual carbon goals” on the CCS investment timing in China. The trajectory of CO2 prices is predicted to follow a geometric Brownian motion with jump. The CO2 prices are predicted on the basis of three scenarios: high, medium, and low shocks, respectively. Furthermore, the real option method is adopted to derive the appropriate incentive schemes and corresponding target CO2 prices that sustain CCS operations to assist China’s dual carbon goals. Notably, portfolios of two government incentive policies are compared, including clean electricity tariff and carbon tax. The results show that building an efficient national carbon emissions trading scheme (ETS) is crucial to catalyzing the deployment of CCS technology, shortening the waiting time of CCS investment to 5.9 years at best. Government incentives could further bring the threshold CO2 prices down and the expected waiting time of CCS investment forward.

Suggested Citation

  • Ouyang, Yiling & Guo, Jian, 2022. "Carbon capture and storage investment strategy towards the dual carbon goals," Journal of Asian Economics, Elsevier, vol. 82(C).
    • Handle: RePEc:eee:asieco:v:82:y:2022:i:c:s1049007822000835
    DOI: 10.1016/j.asieco.2022.101527
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1049007822000835
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.asieco.2022.101527?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Zhu, Lei & Fan, Ying, 2011. "A real options–based CCS investment evaluation model: Case study of China’s power generation sector," Applied Energy, Elsevier, vol. 88(12), pages 4320-4333.
    2. Cai, W. & Singham, D.I., 2018. "A principal–agent problem with heterogeneous demand distributions for a carbon capture and storage system," European Journal of Operational Research, Elsevier, vol. 264(1), pages 239-256.
    3. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    4. Morris, Jennifer & Paltsev, Sergey & Ku, Anthony Y., 2019. "Impacts of China's emissions trading schemes on deployment of power generation with carbon capture and storage," Energy Economics, Elsevier, vol. 81(C), pages 848-858.
    5. Robert McDonald & Daniel Siegel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(4), pages 707-727.
    6. Zhao, Tian & Liu, Zhixin, 2019. "A novel analysis of carbon capture and storage (CCS) technology adoption: An evolutionary game model between stakeholders," Energy, Elsevier, vol. 189(C).
    7. Lu, Chuanyi & Tong, Qing & Liu, Xuemei, 2010. "The impacts of carbon tax and complementary policies on Chinese economy," Energy Policy, Elsevier, vol. 38(11), pages 7278-7285, November.
    8. Wu, Ning & Parsons, John E. & Polenske, Karen R., 2013. "The impact of future carbon prices on CCS investment for power generation in China," Energy Policy, Elsevier, vol. 54(C), pages 160-172.
    9. repec:bla:ecnote:v:33:y:2004:i:1:p:23-54 is not listed on IDEAS
    10. Yang, Lin & Xu, Mao & Yang, Yuantao & Fan, Jingli & Zhang, Xian, 2019. "Comparison of subsidy schemes for carbon capture utilization and storage (CCUS) investment based on real option approach: Evidence from China," Applied Energy, Elsevier, vol. 255(C).
    11. Huang, Ren & Zhang, Sufang & Wang, Peng, 2022. "Key areas and pathways for carbon emissions reduction in Beijing for the “Dual Carbon” targets," Energy Policy, Elsevier, vol. 164(C).
    12. Asian Development Bank (ADB) & Asian Development Bank (ADB) & Asian Development Bank (ADB) & Asian Development Bank (ADB), 2015. "Roadmap for Carbon Capture and Storage Demonstration and Deployment in the People’s Republic of China," ADB Reports RPT157521-2, Asian Development Bank (ADB).
    13. Abadie, Luis M. & Chamorro, José M., 2008. "European CO2 prices and carbon capture investments," Energy Economics, Elsevier, vol. 30(6), pages 2992-3015, November.
    14. Somayeh Heydari & Nick Ovenden & Afzal Siddiqui, 2012. "Real options analysis of investment in carbon capture and sequestration technology," Computational Management Science, Springer, vol. 9(1), pages 109-138, February.
    15. Yao, Xing & Fan, Ying & Zhu, Lei & Zhang, Xian, 2020. "Optimization of dynamic incentive for the deployment of carbon dioxide removal technology: A nonlinear dynamic approach combined with real options," Energy Economics, Elsevier, vol. 86(C).
    16. Brennan, Michael J & Schwartz, Eduardo S, 1984. "Optimal Financial Policy and Firm Valuation," Journal of Finance, American Finance Association, vol. 39(3), pages 593-607, July.
    17. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Herui Cui & Tian Zhao & Ruirui Wu, 2018. "An Investment Feasibility Analysis of CCS Retrofit Based on a Two-Stage Compound Real Options Model," Energies, MDPI, vol. 11(7), pages 1-19, July.
    2. Mo, Jianlei & Schleich, Joachim & Fan, Ying, 2018. "Getting ready for future carbon abatement under uncertainty – Key factors driving investment with policy implications," Energy Economics, Elsevier, vol. 70(C), pages 453-464.
    3. Xiping Wang & Hongdou Zhang, 2018. "Optimal design of carbon tax to stimulate CCS investment in China's coal‐fired power plants: A real options analysis," Greenhouse Gases: Science and Technology, Blackwell Publishing, vol. 8(5), pages 863-875, October.
    4. Walsh, D.M. & O'Sullivan, K. & Lee, W.T. & Devine, M.T., 2014. "When to invest in carbon capture and storage technology: A mathematical model," Energy Economics, Elsevier, vol. 42(C), pages 219-225.
    5. Zhang, M.M. & Zhou, D.Q. & Zhou, P. & Chen, H.T., 2017. "Optimal design of subsidy to stimulate renewable energy investments: The case of China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 71(C), pages 873-883.
    6. Xiping Wang & Hongdou Zhang, 2018. "Valuation of CCS investment in China's coal‐fired power plants based on a compound real options model," Greenhouse Gases: Science and Technology, Blackwell Publishing, vol. 8(5), pages 978-988, October.
    7. Shih-Chuan Tsai, 2005. "Dynamic Models of Investment Distortions," Review of Quantitative Finance and Accounting, Springer, vol. 25(4), pages 357-381, December.
    8. Zhang, Mingming & Zhou, Dequn & Zhou, Peng, 2014. "A real option model for renewable energy policy evaluation with application to solar PV power generation in China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 40(C), pages 944-955.
    9. Hanne Lamberts-Van Assche & Tine Compernolle, 2022. "Using Real Options Thinking to Value Investment Flexibility in Carbon Capture and Utilization Projects: A Review," Sustainability, MDPI, vol. 14(4), pages 1-24, February.
    10. Zhang, Mingming & Liu, Liyun & Wang, Qunwei & Zhou, Dequn, 2020. "Valuing investment decisions of renewable energy projects considering changing volatility," Energy Economics, Elsevier, vol. 92(C).
    11. Yang, Lin & Lv, Haodong & Wei, Ning & Li, Yiming & Zhang, Xian, 2023. "Dynamic optimization of carbon capture technology deployment targeting carbon neutrality, cost efficiency and water stress: Evidence from China's electric power sector," Energy Economics, Elsevier, vol. 125(C).
    12. Yao, Xing & Fan, Ying & Zhu, Lei & Zhang, Xian, 2020. "Optimization of dynamic incentive for the deployment of carbon dioxide removal technology: A nonlinear dynamic approach combined with real options," Energy Economics, Elsevier, vol. 86(C).
    13. Zhang, M.M. & Zhou, P. & Zhou, D.Q., 2016. "A real options model for renewable energy investment with application to solar photovoltaic power generation in China," Energy Economics, Elsevier, vol. 59(C), pages 213-226.
    14. Shibata, Takashi & Nishihara, Michi, 2015. "Investment timing, debt structure, and financing constraints," European Journal of Operational Research, Elsevier, vol. 241(2), pages 513-526.
    15. Fan, Ying & Mo, Jian-Lei & Zhu, Lei, 2013. "Evaluating coal bed methane investment in China based on a real options model," Resources Policy, Elsevier, vol. 38(1), pages 50-59.
    16. Liu, Feng & Lv, Tao & Meng, Yuan & Li, Cong & Hou, Xiaoran & Xu, Jie & Deng, Xu, 2023. "Potential analysis of BESS and CCUS in the context of China's carbon trading scheme toward the low-carbon electricity system," Renewable Energy, Elsevier, vol. 210(C), pages 462-471.
    17. Knoope, M.M.J. & Ramírez, A. & Faaij, A.P.C., 2015. "The influence of uncertainty in the development of a CO2 infrastructure network," Applied Energy, Elsevier, vol. 158(C), pages 332-347.
    18. Song, Dandan & Wang, Huamao & Yang, Zhaojun, 2014. "Learning, pricing, timing and hedging of the option to invest for perpetual cash flows with idiosyncratic risk," Journal of Mathematical Economics, Elsevier, vol. 51(C), pages 1-11.
    19. Mo, Jian-Lei & Schleich, Joachim & Zhu, Lei & Fan, Ying, 2015. "Delaying the introduction of emissions trading systems—Implications for power plant investment and operation from a multi-stage decision model," Energy Economics, Elsevier, vol. 52(PB), pages 255-264.
    20. Audrey Laude & Christian Jonen, 2011. "Biomass and CCS: The influence of the learning effect," Working Papers halshs-00829779, HAL.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:asieco:v:82:y:2022:i:c:s1049007822000835. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/asieco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.